TMI Blog1995 (7) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... submit that no decision is required to be given by us in these appeals in respect of grievance No. (i) above as no grievance was made out for each of the two years in the first appeal before the Appellate Commissioner (A/c). We are, therefore, not giving any decision in that regard. 3. The sum and substance of facts relating to other two grievances can be stated as follows: Various firms of Khatiwala viz., Associated Engineering Corporation (AEC), M/s. Seema Enterprises (SE)(Proprietress Mrs. Nirmala Khatiwala) and other firms secured contracts from the Irrigation Department of the Government of Gujarat for supply of ERW pipes. The rate for supply which the Khatiwala firms secured was nearly or more than double than the prevailing market rate of similar material. As a result there were news item in local newspapers viz. Gujarat Samachar and Sandesh highlighting this deal (contract). Pursuant to such news search operations under section 132 of the IT Act were conducted on the assessee as well as on the Khatiwala group of firms. Shri Pravinchandra Khatiwala (PK) who was associated as the main man with the various firms of Khatiwala group stated inter alia in his oath statement reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was questioned under section 132(4)on 11-12-1986 (search day) and again on 25-1-1990 during the course of assessment proceedings he denied having any business connection with Khatiwala firms except admitting that he knew Shri PK through the house owner Shri R. F. Patel. The assessee on the same day in his own statement admitted that he also had his account with Dena Bank, Fatehgunj Branch, Baroda and that he introduced Shri PK for opening bank account in the name of AEC with Dena Bank, Fatehgunj Branch, Baroda. The assessee did not deny that on some days either he or some of his employees/associates got cash from the bank account of AEC in Dena Bank on "self-cheques" drawn by PK and delivered the withdrawn cash to him (PK). The assessee on both the occasions when his oath statements were recorded emphatically denied having received or paid any brokerage or commission at 50 per cent from or by Khatiwala firms in relation to the said Government contracts with the Irrigation Department. The income-tax authorities found substantial deposits in the bank accounts of his driver Ishubhai and other employees for which neither the employees nor the assessee could give satisfactory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears written submissions were filed a copy of which is placed from pages 1 to 9 in the assessee's paper book in the present appeals. It was also contended before the Appellate Commissioner that if the payment of brokerage/commission by the two Khatiwala firms was true and genuine then same was required to be allowed as an expenditure in arriving at the assessable/taxable income of those two firms for the assessment years 1982-83 to 1984-85 but the officers assessing those two firms did not give any deduction or allowance in respect of the alleged payment of brokerage to the assessee in those two years. This contention did not find favour with the Appellate Commissioner solely on the ground that the assessee did not file before him copies of the assessment orders passed in the cases of M/s AEC and M/s. SE, Surat. Similar pleadings and submissions were made before the Appellate Commissioner as were made before the Assessing Officer but the same did not find favour with the Appellate Commissioner who held in the impugned order that the assessee did receive brokerage from Khatiwala firms viz. M/s. AEC and M/s. SE and confirmed the additions made by the Assessing Officer for both the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and material on record of the case coupled with the reasoning of both the lower authorities make one thing very obvious and clear that the brokerage income is assessed not on the basis of satisfactory and convincing evidence but on the basis of words and statements of the alleged payer Shri P.K. The case regarding brokerage income has been built up by the Assessing Officer on the theory of "your word against my word" or "your statement" vs. "my statement". On the one side there was oath statement of PK that the assessee was paid brokerage/commission for the Government contracts and on the other hand, there was oath statement of the assessee that he did not receive any brokerage commission or profit from Khatiwala firms. Thus, there were contradictory statements by the alleged payer and the alleged receiver and each belying the other. In such a situation the case has to be decided and adjudicated on the basis of weight and credibility of evidence either documentary or oral, which may again be direct or indirect, that is to say, circumstantial. As stated by us earlier there is not a shred of firm and direct documentary evidence like agreements, vouchers, receipts and correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consequences will be devastating and disastrous. We cannot do so. 10. We agree with the assessee's counsel that the Appellate Commissioner has not at all considered the affidavits of Shri B.A. Patel, one of the employees of the municipal corporation of Baroda and the other two employees viz. Shri Bhailalbhai A. Pandya and Shri Ashwinkumar R. Kothari which are placed and found in the assessee's paper book from pages 36 to 44 with English translations. 11. It appears from the facts of the case that Shri B.A. Patel, municipal employee is one of the key witnesses in the whole episode. He has stated in his affidavit that in his spare time he worked for Shri PK in relation to the Government contracts obtained by the two firms viz. M/s. AEC and M/s. SE. It is further stated by the said Shri B.A. Patel that lie was withdrawing cash from the batik accounts of the two Khatiwala firms one in Dena Batik, Fatehgunj branch and the other in SBI, Mandvi branch, Baroda. Whenever he could get time for withdrawing cash from the said bank accounts he used to either deliver the "self cheques" signed by Shri P.K. to the assessee or to the employees of the assessee Shri Pandya or Shri Kothari. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no evidence there, then there is no evidence here also, and as such the assessee cannot be subjected to tax for lack of evidence. 13. It is also brought to our notice by the assessee's A.R. during the course of hearing that in the case of another firm of Khatiwala i.e., M/s. SE similar disallowance of brokerage payment to the assessee has been made and the assessee was unable to obtain copies of the assessment orders from the concerned ITO at Surat assessing the said firm of M/s. SE. However, a copy of the assessment order dated 28-9-1987 for assessment year 1984-85 passed by the ITO, Circle 2, G-Ward, Surat for assessment year 1984-85 in the case of M/s. SE has been filed by assessee's A.R. Shri Rajendra K. Shah on 19-7-1994 as directed by us during the course of hearing on 22-6-1994. On perusal of the said order, we find that the said ITO has also negatived the claim of M/s. SE about the alleged payment of brokerage/commission to the assessee on the strength of the oath statement of Shri PK. The ITO in the said order has also mentioned that he is intimating to the ITO assessing the assessee to tax the said amount as his income on protective basis to safeguard the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said letter of 1-7-1994 that sufficient circumstantial evidence has been collected by the Assessing Officer justifying the addition towards brokerage income earned by the assessee from the two Khatiwala firms. According to us, there is absence of direct and convincing documentary evidence either direct or indirect which could go to establish convincingly that the Khatiwala firms paid and the assessee received brokerage/commission in respect of the Government contracts. Even the oral evidence of Shri PK on the raid day or through several letters and submissions in various petitions to different I.T. authorities cannot go to establish satisfactorily and convincingly that the assessee received brokerage/commission from the Khatiwala firms. 16. We, therefore, unhesitatingly hold that the assessee did not receive any brokerage or commission either from Shri PK or from any of the Khatiwala firms as and by way of brokerage/commission in relation to the Government contracts with the Irrigation Department for the supply of ERW pipes. We, therefore, reverse the finding and conclusion of the Appellate Commissioner and direct the Assessing Officer to delete the two additions made in both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an even double of the market price. The pipes were supplied at the rate of Rs. 448 per metre as against the market price of Rs. 195.50 per metre. The excessive payment received in this transaction amounted to Rs. 48,71,917. In another transaction the pipes valued at Rs. 359.30 per metre were supplied but the payment was made at the rate of Rs. 575 per metre. The above two concerns namely M/s. Seema Enterprises and M/s. Associated Engineering Corporation had received Rs. 1.20 crores approximately as extra payment. It was published in news item in Gujarat Samachar dated 8-5-1986. As a result of this, 24 officers of the Irrigation Department were suspended for these irregularities in the purchase of E.R.W. Pipes. Search and seizure operations were carried out at the business and residential premises of' the Khatiwala group and the assessee in order to unearth the extra income generated by these persons. The excessive payments received by these concerns were routed through several bank accounts as per details on page 3-5 of the assessment order. It was spontaneously admitted by the Surat parties in their statement recorded under section 132 that the brokerage at the rate of 50% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0301002 dated 14-6-1982 80,000 (v) Cheque No. 031003 dated 15-6-1982 1,00,000 (vi) Cheque No. 0301004 dated 16-6-1982 1,00,000 (vii) Cheque No. 0301006 dated 1-7-1982 3,40,000 Ans. Out of above cheques Sr. Nos. 4 and 7 bear the signature of Shri B.A. Patel. I cannot say about the signature on the remaining cheques." The statement given by Shri Pravinchandra Kathiwala and reproduced by the Assessing Officer at pages 19 and 20 of his order relating to assessment year 1982-83 is not only spontaneous but very clear and categorical. This was also supported by substantial evidence in the form of deposit slips and cheques in the said accounts. Thus the evidence gathered by the Assessing Officer and reproduced in the assessment order established beyond any shadow of doubt that there was a business connection between Sri Khatiwala and the assessee. Accordingly I do not subscribe to my learned Brother's view in para 9 of his order that the case of the ITO is built on the theory of "your word against my word" OR "your statement' vs. "my statement" and further his finding that 'there is not a shred of firm and direct documentary evidence lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfidence. The filing of affidavits subsequently was not only an afterthought but also self-serving statements and hence no value therefor could be attached to such an afterthought version. As regards my learned Brother's finding that "even the unexplained deposits in the bank account of driver Ishubhai and other employees though cast great doubt and suspicion yet cannot prove the case of the Assessing officer that the assessee did receive brokerage/commission from the Khatiwala firms", I find myself unable to agree to. It is against normal human behaviour that a person will open account in the name of his driver (who obviously was a man of meagre means) and his employees if he had no business connection with Khatiwala. Accordingly I hold that it is not a case of doubt and suspicion but a case where there are definite findings supported by positive evidence by the authorities below that the whole scheme was part of the modus operandi to give to the assessee his share from the excessive payments received. 4. My learned Brother has accepted the contention of the learned counsel for the assessee that the amounts in question were claimed as deductions by Associated Engineering Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pathan 20,000 11-4-1981 Jalajar Banakshah Contractor 4. Mumtazbibi 40,000 " " A. Pathan (wife) 5. " 60,000 20-4-1981 Barjor Jal Contractor 6. Arefa A. Pathan 30,000 2-5-1981 Smt. Veluben (daughter) Jal Contractor 7. Paresha A. Pathan 30,000 2-5-1981 (daughter) -------- Total : 2,40,000 ------------------------------------------------------------------------- Similarly in the assessment year 1983-84 such gifts received by different members of the family amounted to Rs. 1.25 lakhs. The assessee was required to produce complete addresses of the donors and their creditworthiness. The assessee failed to produce evidence. The Assessing Officer noted that there were several contradictions like the dates of credits of gifts in the respective account did not tally with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has held that gift from a stranger who is not a man of means and even gift from a relative who had other more important liabilities cannot be treated as genuine gift. As stated above there is no occasion for the gift, the identity of the donors is not known, their creditworthiness is not established by the assessee and accordingly the presumption of the CIT (Appeals) that the amounts gifted were the income of the assessee is well founded. Note for reference to the Hon'ble President, ITAT As we are differing in our views in the appeals filed by the assessee, Shri A.A. Pathak, being ITA Nos. 1640 4140/Ahd./93 for the A.Ys. 1982-83 and 1983-84, we request the Hon'ble President, ITAT, to refer under section 255(4) of the Income-tax Act, 1961 the below given points/ questions to other Member(s) of the Tribunal for his/their opinion: (i) Whether, on the facts and in the circumstances of the case and on the basis of available evidence and material on record, the assessee can be assessed in respect of a sum of Rs. 8,31,055 for Assessment year 1983-84 and for a sum of Rs. 8,67,082 for Assessment year 1983-84 being brokerage/commission alleged to have been paid by the firms of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Commissioner for his decision on the merits of the case ?" 2. These appeals filed by the assessee are against the common order of the CIT(A) dated 30-3-1993 for the assessment years 1982-83 and 1983-84 for which the previous years ended on 31-3-1982 and 31-3-1983, respectively. The assessee is an individual. According to the Assessing Officer (A.O. for short) for the assessment year 1982-83 the assessee filed return of income declaring total income at Rs. 45,180 plus agricultural income at Rs. 4,000. The original assessment was completed under section 143(1) on 14-10-1983. For the assessment year 1983-84 the return of income was filed declaring a total income at Rs. 30,100 and agriculture income at Rs. 3,500. The original assessment was completed under section 143(1). Search under section 132 was carried out on 11-12-1986 at the residence of the assessee during the course of which fixed deposit receipts, National Saving Certificates etc., worth Rs. 6,13,400 were seized. Various books of account, files, loose papers etc., were also seized. Valuables, household articles and gold ornaments were found. Statement of the assessee was recorded under section 132(4) on 11-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the A.O. who passed the assessment order for the assessment year 1982-83, "excessive payments were routed through the bank accounts'. In the said assessment order he observed as under : "5. Modus Operandi: M/s Seema Enterprises, M/s Associated Engineering Corporation: Shri Pravinchandra Khatiwala and Smt. Nirmalaben P. Khatiwala had received all the payments through cheques. The excessive payments were routed through the following bank accounts: (i) Current account with Dena Bank, Fatehganj, Baroda. (ii) Current account with State Bank of India, S.I.B. Division, Mandvi, Baroda. M/s Seema Enterprises: S.Y. 2037 - A.Y. 1982-83 (8-11-1980 to 27-10-1981) 1. Punjab National Bank, Rauder/ Rs. Adajaj Road, Surat 17,37,841.00 2. State Bank of India, SIB Division, Baroda 33,65,843.20 3. Bank of Baroda, Navyug College, Rauder Road, Surat 0,41,012.32 ------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79 ------------ Total 53,12,342.17 ------------ 2. M/s Associated Engg. Corporation : Rs. 1. ERW/Pipe/119/C/236 6,13,755.00 2. ERW/Pipe/119/C/238 4,29,250.00 3. ERW/Pipe/ 119/C/239 12,56,460.00 4. ERW/Pipe/ 119/C/237 10,33,766.00 5. IPD/3/SK/ERW/RC/4471 11,06,748.92 6. IPD-3/SK/ERW/RC/4491 11,15,873.87 7. BSK/VEN/2/ERW/Pipe/Rec./207 5,35,300.00 8. 5/No. 4/373/426/SK/728 5,39,627.60 ------------ Total 66,30,781.39" ------------ The Surat parties had claimed secret commission paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addressed by SE to ITO, Surat. (xi) Computation of disclosure by AEC showing brokerage paid of Rs. 6,09,975 in the assessment year 1982-83 and Rs. 7,36,941 in the year 1983-84. (xii) Application dated 29-9-1986 addressed by AEC to CIT Surat in connection with the voluntary disclosure. (xiii) Letter dated 25-9-1987 from AEC to ITO Surat. (xiv) Letter dated 8-5-1985 addressed by the assessee to Shri Pravinbhai Sheth. (xv) Zerox copies of cheques forwarded by Dena Bank vide letter dated 5-1-1990. (xvi) Zerox copies of cheques from State Bank of India and Dena Bank. (xvii) Press cuttings in respect of the above irregularities appearing in "Gujarat Mitra". 7. According to the A.O. who passed the assessment order for the assessment year 1982-83, "copies of all the relevant papers were duly supplied to the assessee on 3-1-1990 and thereafter his statement was recorded on 25-1-1990'. Certain questions and answers from the said statement recorded on 25-1-1990 were reproduced in the assessment order. From the said questions and answers the A.O. observed that it was evident that major chunk has been received by the assessee in collusion with Shri Khatiwala, that all the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the colour of gift was given as is a common practice. The assessee could not prove the capacity of the donors and whether the donors had made any other gifts to any one else. The only logical inference that can be drawn on the strength of the evidence available that the assessee had managed to obtain the gifts as mentioned above and the donors were duly reimbursed by him. In this view of the matter the A.O. held that the amounts of gifts alleged to have been obtained by the assessee and his family members constituted his own income out of undisclosed sources. The amount of Rs. 2,40,000 was accordingly taxed as income from undisclosed sources. 12. Thus in the assessment order passed under sections 143(3) and 148 on 12-3-1990 for the assessment year 1982-83 the A.O. computed the total income of the assessee at Rs. 11,25,110. In the said computation the following were included: 'Gifts in benami names treated as Rs. income from undisclosed sources 2,40,000 Brokerage from Rs. (i) AEC 6,09,975 (ii) SE, Prop. Smt. Nirmalaben P. Khatiwala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction no person would operate bank account having transactions more than a crore of rupees. After referring to question Nos. 28 to 30 in the assessee's statement and answers given by him, the CIT(A) observed that the replies given by the assessee to the said questions proved beyond any reasonable doubt the assessee involving in bank accounts with Khatiwala Group. The statement given by Shri Khatiwala and reproduced by the A.O. was also very clear and categorical. This was also supported by the substantial evidence in the form of deposit slips and cheques in the said bank account. 16. He held that there was no justification or reason to interfere with the additions made by the A.O. for both the years by observing as under : "2.10 Once the connection between the appellant and the Khatiwala Group is established, the appellant cannot take a plea that this amount should have been allowed as a deduction in the hands of Khatiwala. In any case if this amount has not been allowed as a deduction, the burden of proving the same by production of the assessment order as well as the appellate order of the Khatiwala Group lies on the appellant. It is not the appellant's case that he has paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income was assessed on the basis of words and statements of the alleged payer Shri P.C. Khatiwala (PK). On one side, there was the oath statement of PK that the assessee was paid brokerage/commission for the Government contracts and on the other hand, there was the oath statement of the assessee that he did not receive any brokerage/commission or profit from Khatiwala firms. There is not a shred of firm and direct documentary evidence like agreements, vouchers, receipts and correspondence which could go to establish that the Khatiwala firms paid and the assessee received brokerage/commission for arranging, managing or procuring Government contracts for the Khatiwala firms. The reliance placed by the A.O. on few notings and entries on few papers and chits found and recovered from the assessee's premises during the course of the search do not throw much light nor could go to prove convincingly that the assessee did have business relations or connections with the Khatiwala firms and that he managed any of the Government contracts which the Khatiwala firms obtained nor that the assessee received brokerage/commission from the Khatiwala firms in relation to such contracts. Even the unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one hand, the assessee is being subjected to tax towards the brokerage/commission on the basis and strength of oath statement of Shri PK, on the other hand, the firm AE is denied the claim towards the expenditure incurred by way of brokerage/commission paid to the assessee. The revenue authorities are thus blowing hot and cold in respect of the same transaction. The disallowance in the hands of AEC was upheld by the CIT( A) in his order dated 11-2-1994. If a claim has not been allowed for lack of documentary evidence in the case of AEC, it is difficult to understand how can the assessee be subjected to tax on the same reasoning of lack of evidence? If there is no evidence there, then there is no evidence here also; the assessee cannot be subjected to tax for lack of evidence. It is also brought to the notice of the Tribunal by the assessee's counsel that in the case of another firm SE similar disallowance of brokerage payment to the assessee has been made. The CIT(A) in his impugned order stated that since the assessee failed to produce copies of assessment orders of the relevant assessment years in the cases of AEC and SE about disallowance of brokerage/commission payment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuine. While not believing the gifts, the CIT(A) directed the deletion of the impugned gifts in both the assessment years under consideration, on the ground that since he was confirming the addition made by the A.O. towards brokerage/commission he was of the opinion that the assessee could have managed to purchase the bank drafts from out of such commission/ brokerage. Since the learned JM held that the assessee did not receive any amounts towards brokerage and commission and directed their deletion, he deemed it fit and proper to restore the matter in respect of gifts to the file of the CIT(A) with a direction to reconsider the issue in the light of evidence brought on record by the assessee, which according to him established the genuineness of the gifts. The learned JM directed the CIT(A) to decide the issue of gifts as per law after affording the assessee a fair and reasonable opportunity of being heard. 20. The learned AM differed from the learned JM and upheld the findings of the lower authorities and confirmed the additions of Rs. 8,31,055 and Rs. 8,67,082 for the assessment years 1982-83 and 1983-84 respectively. According to him, it was spontaneously admitted by the Sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person will open account in the name of his driver and his employees if he had no business connection with Khatiwala. It is not a case of doubt or suspicion but a case where there are distinct findings supported by positive evidence by the authorities below that the whole scheme was part of the modus operandi to give to the assessee his share from the excessive payments received. The disallowance of brokerage/commission in the assessments of AEC and SE cannot be made a factor in favour of the assessee's case. The assessment order of the assessee for the assessment year 1982-83 shows that the Khatiwala concerns, AEC and SE had received excessive payment from the Irrigation Department of Government of Gujarat and that the contracts were managed by the assessee. The payment of brokerage to the assessee may or may not be allowable under section 37 depending upon factors like public policy and other circumstances in the hands of the above mentioned two concerns. A perusal of the assessment orders of the above noted two concerns shows that those assessees failed to prove before their respective A.Os that the payments were made wholly, exclusively and necessarily for the purposes of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India. The assessee had his transactions with Dena Bank. Shri B.A. Patel is misunderstood by the Department as an employee of the assessee. In fact, he is an employee of Municipality of Baroda. He is a friend of Shri R.F. Patel, Executive Engineer in the Irrigation Department and Shri P.K. As far as the Khatiwala's bank account in the State Bank of India, Baroda is concerned, all the withdrawals were made by B.A. Patel. The affidavit dated 17-9-1990 of Shri B.A. Patel in Gujarati and its translation in English can be seen at pages 36 to 40 of the paper book. In his affidavit he admitted that the bank transactions of Shri Khatiwala in Dena Bank and State Bank of India had been done by him, that the amount withdrawn of the cheques given to him had been handed over to Khatiwala and that no amount has been paid to Shri A.A. Pathan. The said affidavit of Shri B.A. Patel was filed before the CIT(A) who had given the same to the A.O. The A.O. dubbed the same as self-serving. This comment of the A.O. on the affidavit of Shri B.A. Patel is not correct. It can be dubbed as self-serving, if the affidavit is by the assessee. The comments of the A.O. can be seen at page 5 of the A.O's lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neys paid by the Surat parties to the assessee there is no question of obtaining receipts. When AEC and SE filed their statements of income on estimate basis and not on the basis of books where is the question of unaccounted moneys paid by the Surat parties to the assessee? The A.O. made a strange point [page 4 of his written submissions dated 26-4-1991 given to the CIT(A)] when he stated "Had the assessee no business connection there was no necessity of introducing Shri PC Khatiwala with Dena Bank for opening the account. No prudent person will involve in any such affairs without self interest". This assertion that anybody who introduces for opening an account in the bank is necessarily a person having a business connection, is wrong and contrary to human experience [Please see page 86 of the paper book out of assessee's letter dated 27-3-1992 addressed to the CIT(A)]. The A.O. at page 25 of the assessment order in para 7 stated that copies of all the relevant papers were duly supplied to the assessee on 3-1-1990. This expression "relevant papers" is very cryptic. He does not elaborate as to what papers were supplied to assessee on 3-1-1990. In the order sheet dated 3-1-1990, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence in connection with the brokerage/commission paid by them to Shri Pathan. Naturally there was no question of granting any deduction on this account by the ITO, Cir. H Ward G, Surat, in the case of M/s Seema Enterprises, M/s Associated Engineering Corporation, etc. However, on the basis of the material collected from Surat, copies of which were duly supplied to the assessee, brokerage/commission paid by the Surat parties is required to be taxed in the hands of the assessee." This is the most illustrative case of approbate and reprobate which is not permissible under law. In the paper book filed by the revenue, the letter dated 29-9-1986 addressed by SE to the CIT while filing voluntary disclosure under the Amnesty Scheme was given at pages 40 to 44 of the paper book. In the said letter SE admitted that they did not possess any documentary evidence in support of the secret commission and brokerage paid by them (Please see page 43). In the letter dated 25-9-1987 addressed by SE to the CIT (Please see page 45 of revenue's paper book) SE claimed as under : "(a) It is to be noted that the business of our firm seems to be accelerated definitely on account of the business creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had business relations with the Khatiwala group. In the English translation of said letter it was mentioned "we will sit on one day and finalise the account". Except the transactions of the contracts with the Irrigation Department of Government of Gujarat, there were no other business transactions between the assessee and Shri P.K. The cheques given at pages 80,95,109,113,129 and 132 are the cheques encashed by the assessee. The signatures of the assessee are found on the reverse side of the said cheques. Other cheques had been encashed by his other employees, Pandya, Kothari and Shaikh. The employees worked under the control of the assessee. Shri Pathan had admitted them as his employees and that banking transactions were done at the instance of Pathan. The letters filed by Khatiwala group either before the CIT or the A.O. clearly contained the facts admitted by them that they paid brokerage to the assessee for the work done by him regarding the transaction relating to supply of E.R.W. pipes to the Irrigation Department of Government of Gujarat. The A.O. established the fact that the assessee was involved in these transactions. So the arguments of the assessee's counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y supplied to the assessee along with their admissions in writing in connection with the business arrangement by them with the assessee, according to which brokerage was payable and paid to Shri Pathan. Once they preplanned scheme, there was complete belief between them. So there could not exist any written agreement. This plea gets support in the issue of signed blank self-cheques of Khatiwala. Otherwise no person would dare to hand over the blank cheques signed when huge and large amounts were withdrawn. If there is no reciprocal confidence, there is likelihood of embezzlement of funds withdrawn. Had there been no business consideration, which was to be received by Pathan, he would not have spared his valuable time and time of his employees to render the services to Khatiwala group for banking transactions at Baroda. The statement of B.B. Pandya is given at pages 224 to 226 of the paper book of the revenue. In answer to question No. 1, Pandya stated that he served the assessee besides doing religious job, cooking, white-wash contract work and brokerage job, etc. At a time how is he able to do so many jobs ? In answer to question No. 5, he answered that he had no savings as on 16- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to other material on record leading to the inference that the statement made in the affidavit, cannot be held to be true. SLP against this judgment has been dismissed by the Supreme Court as reported. As held by the Assam High Court in the case of Mangalchand Gobardhan Das v. CIT [1954] 26 ITR 706 material or evidence on which the taxing authorities may rely under the Income-tax Act is not confined to direct testimony in the shape of statements made by witnesses. All relevant circumstances which have a bearing on the issue which are revealed during the course of the assessment would be covered by the expression "material or evidence on which the ITO could rely". As held by the Patna High Court in the case of M.L. Tewary v. CIT [1955] 27 ITR 630, in case the explanation given by the assessee is not accepted, or in a case where the assessee cannot give explanation, the revenue authorities are entitled to draw an adverse inference from such materials. See page 3382 of Chaturvedi and Pithisaria's "Income-tax Law", Vol. 3. As held by the Supreme Court in the case of CIT v. Best Co. (P.) Ltd. [1966] 60 ITR 11 and CIT v. Chari Chari Ltd. [1965] 57 ITR 400, the burden to est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1983-84 that A.O. followed the order of the CIT(A) in the case of SE for the assessment year 1983-84 in determining the net profit at I 0% on the sales. The order of the CIT(A) for the assessment year 1984-85 in the case of SE was not furnished before the Tribunal by the D.R. Hence it is difficult to follow what has been done there. What happened in the assessment year 1984-85 in the case of SE is not relevant to the assessment years 1982-83 and 1983-84 in the case of the assessee now before the Tribunal. 27. I have considered the rival submissions and perused the papers filed before me. The A.O. in para 5 of his assessment order for the assessment year 1982-83 under the head "modus operandi" mentioned that "the excessive payments" were routed through the bank accounts. It is not known as to what he means by the expression "excessive payments". Does he mean excessive payments of Rs. 53,12,342 an Rs. 66,30,781 said to have been received by SE and AEC respectively as mentioned by him in pages 6 and 7 of the assessment order for the assessment year 1982-83? In page 4 of the said order, he says that total of the credit side of these bank accounts comes to Rs. 1,23,31,207. This shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 982-83, the A.O. observed that his conclusion finds support from copies of "relevant papers" shown in items (i) to (xvii). Let me examine them. 34. Copies of cheques drawn by AEC do show the withdrawal of money from Dena Bank. They are given at pages 1 to 27 of the Department's paper book. For example, cheque No. 311607 dated 27-2-1982 shows Rs. 8,00,000, cheque No. 311613 dated 1-4-1982 shows Rs. 11,00,000. Certainly these amounts withdrawn cannot be called as evidence for the brokerage alleged to have been paid to the assessee. These are amounts withdrawn by the assessee/his employees for and on behalf of the AEC and paid to it. 35. The excess amount paid, i.e., to be recovered from the suppliers (SE and AEC) as given in page 28 of revenue's paper book shows an amount of Rs. 48,71,917. This statement issued by the Executive Engineer, I.P. Division No. 2, Bodali, does not prove the alleged payment of brokerage to the assessee by SE and AEC. The letter dated 17-9-1986 by ADI Surat to P.C. Khatiwala and Smt. Nirmala P. Khatiwala (pages 29 to 31 of the Department's paper book) mentions the excess payment of Rs. 48,71,917 to the SE and AEC. This letter does not evidence the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are favourable to him. So the letter dated 29-9-1986 cannot prove the alleged payment of brokerage to the assessee by SE. 40. The A.O. further reproduced certain paragraphs from the letter dated 25-9-1987 from SE to the ITO, Surat. In that letter at para (f), SE submitted some papers duly written by Mr. Pathan which established the abovementioned facts, even the suppliers of goods did contact Mr. Pathan for his instructions for supply of goods; for price fixation and payment". The A.O. failed to detail these "some papers" and their contents in his assessment order. Even the D.R. did not file copies of those "some papers" before me. This is not to be believed. This letter dated 25-9-1987 does not in any way help the revenue. 41. The A.O. referred to the same letter dated 25-9-1987 again in item No. (ix) in his assessment order and gave the same page No. 69 of confidential papers. This has already been referred to in item No. (viii) in his assessment order. This shows the over-zealousness of the A.O. 42. The A.O. referred to letter dated 29-9-1988 from SE to the ITO, Surat. The A.O. himself stated that the contents of this letter were more or less similar to letter 25-9- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee in them. 50. The assessment orders for the assessment years 1982-83 and 1983-84 in the case of the assessee were made on 19-3-1990. While making the impugned additions towards brokerage, the A.O. heavily relied on the statements of PK and the voluntary disclosure made by AEC and SE and their letters dated 29-9-1986 and 25-9-1987. But strangely the same materials were not accepted by A.O. who assessed AEC when he passed the assessment orders for the assessment years 1982-83 and 1983-84 on 18-2-1993. 51. The D.R. argued that the net profit was taken at 10% of the sales in the assessment of SE in the assessment order for the assessment year 1983-84 and hence it has to be taken that brokerage to the assessee and secret commission to the engineers of the Irrigation Department is deemed to have been allowed. This argument is fallacious. In the assessment order of the assessee for the assessment year 1983-84, the A.O. has clearly stated that the assessee's claim for allowance of secret commission, brokerage and overhead expenses was elaborately discussed in the assessment order for assessment year 1984-85. In the assessment order for the assessment year 1984-85 dated 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PK and his wife. Only withdrawals were signed by Mr. Pathan and his employees on the back side of the cheques. This is clear from the copies of the cheques filed in the revenue's paper book. 53. The learned A.M. observed in para 3 of his order as under : "It was spontaneously admitted by the Surat parties in their statement recorded under section 132 that the brokerage at the rate of 50% of the net profit was paid to different persons including the assessee. Some cheques withdrawn from Dena Bank, Fatehganj, Baroda and State Bank of India, Mandvi, Baroda showed the signatures of the assessee and his employees S/Shri Ashwin R. Kothari, Bharat Bhikhalal Pandya, Ishubhai Daulatbhai Shaikh and B.A. Patel. Viewed in this background it cannot be said that the assessee helped the Khatiwala group in the matter of procuring contract from the Irrigation Department and routing the payments through several bank accounts in his name, in the name of his son and in the names of his employees for the fun of it and not for consideration." 54. Facts are contrary to these observations. Surat parties nowhere admitted payment of brokerage to "different persons". Cheques drawn on State Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
