TMI Blog1998 (12) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... as other allied companies engaged in hotel business and exports. In response to the notice issued under s. 158BC, the assessee-company filed a return of undisclosed income at Rs. 11,92,214 on 2nd Aug., 1996 disclosing the following income along with note attached to the return: ------------------------------------------------------------ Sr. Previous Asst yr. Total income Total Remarks No. year ended including income on date undisclosed as per income returned/ assessed income ------------------------------------------------------------ Rs. Rs. 1. 31-3-1987 1987-88 NIL NIL Assessment order (AO) under s. 143(3), dt. 18-3-1988 2. 31-3-1988 1988-39 NIL NIL AO under s. 143(3), dt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recorded on 5th Sept., 1995, as well as on 6th Sept., 1995, wherein he admitted to have earned an undisclosed income of Rs. 2 crores which was stated to have been invested in the various companies controlled by him in benami names, the list of such benami names numbering 67 was found during the course of search. A further statement of Shri Ummedsingh, P. Champawat was recorded by the ADI on 27th Oct., 1995 who originally recorded the statements on 5th/6th Sept., 1995, under s. 131 of the Act wherein Shri Ummedsingh P. Champawat further admitted an additional income of Rs. 1.13 crores relating to the transactions as mentioned in the seized documents and books of accounts. The return of undisclosed income of the assessee-company was filed on 2nd Aug., 1996, and thereafter the assessment was completed by the AO on 30th Sept., 1996, at a total undisclosed income of Rs. 1,47,95,612, against the returned income of Rs. 11,92,214. Being aggrieved with the order of the AO, the assessee has filed this appeal. 4. We may point out that the order in the case of Shri Ummedsingh P. Champawat, chairman and managing director of the assessee-company was also passed by the AO on 30th Sept., 1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ralisation of these cases with the Central Range, was filed wherein a request was made by the Senior Departmental Representative to the AO holding jurisdiction over the case of the assessee to give written submissions in reply to the written submissions filed by Shri G.C. Pipara, the learned representative of the assessee. However, no written submissions were received from the side of the Revenue till 24th Sept., 1998, when the case was directed to be re-fixed and the final hearing took place on 6th Nov., 1998 when Shri G.C. Pipara, the learned representative of the assessee fully argued the appeal relying on his written submissions and Shri S.C. Sonkar, the learned Senior Departmental Representative supported the order of the AO after reading extensively from the assessment order passed by the AO and supported the order of the AO. However, we may point out that despite specific opportunities allowed, the Department has chosen not to file any written submissions in rebuttal of the written submissions filed by Shri G.C. Pipara, the learned representative of the assessee in support of the various grounds of appeal taken by the assessee. 5. Shri G.C. Pipara, the learned representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to the books of account, documents which were not readily available at the time to the assessee. It was further submitted that that inauguration ceremony of the hotel project of the assessee was to take place shortly and the assessee somehow wanted to get the search proceedings finished before the inauguration of Five Star hotel. Accordingly it was submitted that much reliance cannot be placed on the mere admission of the assessee before the ADI which was made under great mental tension. It was submitted that immediately after the search the assessee has sworn an affidavit; on 11th Sept., 1995, denying so-called admission made before the ADI. However, it is a fact that copy of such affidavit was neither filed before the ADI nor before the AO till 9th Aug., 1996, when it was furnished along with his written submissions in response to a query raised by the AO relating to the various issues involved in the assessment proceedings. According to the AO the affidavit was filed before the AO after a gap of approximately 11 months from the alleged date of affidavit and no good explanation for not filing the affidavit explaining a period of 10 months from the alleged date of affidavit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on reliance was placed on the Supreme Court decision in the case of Pyarelal Bhargava vs. State of Rajasthan AIR (1963) SC 1094 wherein it is held that "as a general rule of practice, it is unsafe to rely upon a confession, much less on a retracted confession". Reliance was also placed on the decision of the Supreme Court in the case reported in AIR 1976 SC 376 and other related decisions. 4. The learned Departmental Representative, on the other hand, strongly relied on the order of the AO as well as the preliminary statement recorded on 5th Sept., 1995, subsequent statement under s. 132(4) on 5th Sept., 1995, which was concluded on 6th Sept., 1995, and the statement was recorded after giving due time to the assessee to sleep and complete his morning routine. Further statements were also recorded on 8th Sept., 1995 at the office premises of assessee. It was further submitted by the learned Departmental Representative that the statement of the assessee was again recorded on 27th Oct., 1995, in the income-tax building under s. 131 and the statement of Shri Chhaganlal P. Vaishnav, the main Accountant of the assessee was recorded on 19th and 20th Oct., 1995, which was also shown to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exactly at the income disclosed by the assessee in these statements. In fact the AO has made assessment on total undisclosed income of Rs. 11,35,70,444 in the case of the assessee and other connected cases as against the income disclosed of Rs. 313 lacs and income shown in the returns for the block period of Rs. 15,04,214 which was the subject-matter of stay before us in S.P. No. 37/Ahd/1997 (arising out of ITA Nos. 4421 to 4432/Ahd/1996). Out of the additions made by the AO, the addition to the extent of Rs. 2.82 crore were on protective basis in the total assessed income of Rs. 11,35,70,444. On the other hand, the assessee also has not adhered to his so-called admission/confession and has filed only a return declaring undisclosed income of Rs. 4,01,050 in his case and Rs. 15,04,214 in relation to the entire group. Thus both the parties have not completely adhered to the so-called admission made in the statements recorded by the ADI. It is also pertinent to note that in the statement recorded on 6th Sept., 1995, an amount of Rs. 2 crores was disclosed by the assessee for the different companies in the group as it is apparent from the answer to question No. 20 placed at p. 24 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to us at p. 61 of the paper book-I. This consists of the following: Rs. (in lacs) (i) Earlier disclosure 296.00 (ii) Unsecured loans from 67+2 persons 13.00 (iii) Withdrawals not included earlier 0.60 (iv) Capital of Laxmansingh Bharatsingh (approximate) 3.00 (v) Miscellaneous 0.40 ----------- 313.00 ----------- However, the AO in para 4 of the assessment order has given details of the undisclosed income as accepted by the assessee amounting to Rs. 387.42 lacs which apparently is contrary to the so-called admission made in both the statements given before the ADI. The whole tenor of the assessment order framed by the AO is that the investments made by 67 persons whose names were found in a list from the premises of Elcon Finlease Industries Ltd. are in fact the benamidars of the assessee and the entire investments made by those persons in shares of group companies of the assessee, leans advanced by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as called the real benami transaction. A typical instance of it is when "A" sells a property to "B", but the sale deed mentions "C" as the purchaser, here the real purchaser is "B" and "C" is only the benamidar. Such a transaction is described as the real benami transaction. The second class or category of benami transaction is the sham transaction m which one person purports to transfer his property to another without intending to pass title to the transferee. This second type of transaction was loosely called a benami transaction. The fundamental difference between the two categories of transactions is this: (i) In the former, there is as operative transfer resulting in vesting of title in the transferee, whereas in the latter, there is no operative transfer and the transferor continues to retain title to the property notwithstanding execution of the document. The latter transaction is known as a sham transaction. Sec. 4(1) of the Benami Transactions (Prohibition) Act, 1988 clear1" provides that no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie, by or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, considering the same as unexplained. During the course of assessment proceedings, the identity of the payee as well as source of investment and genuineness of transactions having been proved and established, addition of Rs. 73,54,000 requires to be deleted. (2) Addition of Rs. 5,50,000- Loan to certain parties The learned AO has erred in law while making the addition of Rs. 5,00,000 being the loans advanced by the company to certain parties, which are duly recorded in the books of account. The transactions having been recorded in the seized books of account, the same will not fall within the definition of undisclosed income as defined in s. 158B(b) and thus the addition requires to be deleted. (3) Addition of Rs. 4,80,000- Cash to manager The learned AO has erred in law while making the addition of Rs. 4,80,000 being the amount advanced by the company to the manager for the purpose of business out of cash balance of the company. The AO has separately made an addition for the impugned cash shortage on account of such advancing of the amount and thus while framing the assessment there is total non-application of mind. Thus, the addition of Rs. 4,80,000 being out of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The loan having been considered in the income disclosed in the return for the block assessment, the separate addition is bad in law and requires to be deleted. (b) The learned AO further erred in law while making the addition of Rs. 11,57,786 being the interest expenditure incurred by the appellant company on such loan. At the outset, the addition is expenditure in nature and not income and moreover the expenditure having been considered while working out the undisclosed income for the block assessment the addition of Rs. 1,57,786 requires to be deleted. (10) Disallowance of salary of Rs. 1,13,613 to Shri M.K. Bhati: The learned AO has erred in law as also on facts while disallowing the salary paid to Shri M.K. Bhati of Rs. 1,113,613 by the Company. The expenditure being for the purpose of business it is an allowable deduction. Thus, the disallowance of salary requires to be deleted. (11) Addition of Rs. 69,908- As dalali payment The learned AO has further erred on facts while making an addition of Rs. 69,908 (correct amount is Rs. 39,500) considering the same as not incurred for the purpose of business. The expenditure having been incurred for the purpose of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 27-10-1995 14 60 27-10-1995 18 19 62 --------------------------------------------- In the assessment order, the AO has stated at p. 15 that Shri U.P. Champawat has admitted that unaccounted income has been invested in the names of 67 persons as per the details of such persons found and seized from the premises of the assessee. However, it is important to note that in para (c) on pp. 9 10 of the assessment order it is clearly indicated that the disclosure was of the fact that the investment by 67 persons referred to supra was the undisclosed income of Shri U.P. Champawat and not of the assessee-company. The Tribunal in its order in the case of Shri U.P Champawat in ITA No. 4421/Ahd/1996, order dt. 7th April, 1998, in last para at pp. 36 and 37, has set aside the issue with regard to the investment made by these 67 persons to the file of the AO with a direction to examine these persons who have been treated as benamidars of Shri U.P. Champawat and the addition, if any, should be required to be made in the hands of Shri U.P. Champawat. It is undisputed that the share application money received by the assessee-company from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Name Amount Ledger No. advance (Rs.) Folio of Anx. A2/13 ------------------------------------------------------------ 1. 7-4-1994 Ashokkumar Dinanath 2,43,000 508 2. 4-4-1994 Bheraray Bhomraj 3,15,000 514 3. 1-4-1994 Chhatra Ray Bheraraj 2,20,000 519 4. 20-4-1995 Lunkaram Pannalal 40,000 544 5. 27-4-1994 Mekaram Pokaram 1,45,000 551 6. 16-4-1995 Ramchandrasingh Premsingh 60,000 564 7. 30-4-1994 Rameshchand Devilal 1,60,000 564 8. 13-4-1994 Subhash Ruparam Bighoi 65,000 575 9. 25-4-1994 Sukharam Prabharam 40,000 578 ------------------------------------------------------------ The AO has made both these additions on the ground that these transactions are not reflected in the books of account. On the other hand, Shri G.C. Pipara, the learned counsel for assessee submitted that these loans and advances have duly been reflected in the books of account of the assessee-company for the financial year 1994-95 and in fact these are included in the ledger fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hampawat as well as the decision of the Gujarat High Court in the case of N.R. Paper Boards Ltd. Accordingly, the addition of Rs. 5,50,000 and Rs. 12,88,000 on account of loans/advances given to the various parties are directed to be deleted. Ground of appeal Nos. 2 and 5 are allowed. 10. Ground of appeal No. 3 relates to the addition made on account of payment of cash to manager which has been held by the AO as undisclosed investment of the assessee under s. 69. Ground of appeal No. 8 relates to the addition of Rs. 5,81,805 on account of alleged shortage of cash and ground of appeal No. 12 relates to the addition of Rs. 5,96,711 on account of advances to staff. Shri G.C. Pipara, the learned counsel for the assessee submitted that the additions which have been objected by the assessee by specific ground Nos. 3, 8 and 12 are not at all justified as the alleged shortage of cash payments to manager, and advances to staff are fully explainable. It was submitted that the cash loan of Rs. 4,80,000 by the assessee to Shri C.P. Vaishnav was explained vide letter dt. 26th Sept., 1996, copy of which has been furnished to us to pp. 173 to 180 of the paper book. It was submitted that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as per Annexure A-2/12 7,22,941 Cash balance of Rathore Leasing Finance Co. (P) Ltd., which has been merged with the appellant company on 31st Dec, 1994 15,000 -------- Total cash balance as per cash book 7,37,941 Less: Cash found 1,41,136 -------- Amount advanced to staff as per list prepared during the course of search which is placed on p. 192 of paper book, having a total of Rs. 5,96,711 5,96,805 -------- Thus, it was submitted that both the additions of Rs. 5,81,805 for alleged shortage of cash and Rs. 5,96,711 on account of unaccounted advances to staff are required to be deleted. The learned Departmental Representative on the other hand, supported the order of the AO. 10.1. We have considered the rival submissions. As far as the addition of Rs. 4,80,000 on account of cash advance to the manager is concerned, the same was on the basis of voucher found during the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e while explaining the advance to staff as per p. 192 of the paper book. In this view of the matter we restore the issue of addition of Rs. 15,000 to the file of the AO for fresh adjudication in the light of the details of advances of Rs. 5,96,711 which includes the advance of Rs. 8,500 given to Shri H.D. Brahmbhatt on 7th June, 1995, with a direction to find out as to when the amount of Rs. 6,500 claimed to have been returned by Shri H.D. Brahmbhatt to the assessee was in fact returned and how it was shown in the books of account of the assessee-company. The addition, if any, should be made after giving due opportunity to the assessee. This ground of appeal No. 4 is allowed for statistical purposes. 12. Ground of appeal No. 6 relates to the action of the AO of making an addition of Rs. 2,22,000 on account of premium on vehicles. The AO has discussed this issue at pp. 30-31 of the assessment order and has made the addition on the basis of alleged admission of Shri Chhaganlal, confirmed by Shri U.P. Champawat that the disputed notings on the paper are collection as premium and the same are not accounted for in the books of account. It was submitted that the AO has made the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee-company because on p. 30 of the assessment order the AO has observed that the aforesaid premium was collected in cash and was not recorded in the books of account whereas at p. 31 top it is stated that Shri Chhaganlal, the Accountant of the company admitted that the said cash payment of Rs. 2,22,000 was not recorded in the books of account. Thus it is not clear whether this amount of Rs. 2,22,000 is unexplained receipt or unexplained expenditure. On the other hand, Shri Pipara, the learned counsel for the assessee has referred to the statement of Shri Chhaganlal in this connection copy of which was furnished to us at p. 50 of the paper book No. 1 in ITA No. 4421/Ahd/1996 wherein in answer to question No. 16, Shri Chhaganlal has stated that pp. 3 to 5 contained the details of premium of Rs. totality of the facts and circumstances of the case it is considered fair and reasonable to restore the matter with regard to the addition of Rs. 2,22,000 to the file of the AO for fresh adjudication in accordance with law after giving due opportunity to the assessee. The ground of appeal No. 6 is allowed for statistical purposes. 13. Ground of appeal No. 7 relates to the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted income of the assessee. The amount of Rs. 1,57,786 relates to the interest on this alleged cash loan of Rs. 10 lacs and accordingly the AO has made the total addition of Rs. 11,57,786. 14.1. The learned counsel for the assessee submitted that the amount of Rs. 10 lacs has been declared by the assessee-company in the return of undisclosed income filed by the assessee and as such no further addition of this amount should be made. However, he was fair enough to concede that since the cash loan of Rs. 10 lacs from Shri Manojbhai has been offered by the assessee-company as its undisclosed income, the interest of Rs. 1,57,786 requires to be disallowed. The learned Departmental Representative supported the order of the AO. 14.2. We have considered the rival submissions. Out of the addition of Rs. 11,57,786, the addition to the extent of Rs. 1,57,786 is hereby confirmed because the assessee has already surrendered/disclosed the sum of Rs. 10 lacs in the return of undisclosed income filed by it which is apparent from pp. 4 to 12 of the paper book on the basis of which an amount of Rs. 11,92,214 has been disclosed in the hands of the assessee-company as undisclosed income while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions. Since the payment has been whether the same has to be allowed or not for the purpose of business can be considered by the AO while framing the regular assessment and it can not be considered for the purpose of computation of undisclosed income under s. 158B(b) in view of our order/decision in the case of Shri U.P. Champawat and the decision of the Tribunal in the case of Prakash Foods Ltd. vs. Dy. CIT as well as the decision of the Gujarat High Court in the case of N.R. Paper Boards Ltd. vs. Dy. CIT. Accordingly this addition of Rs. 1.13.613 is directed to be deleted. 16. Ground of appeal No. 11 relates to the addition of Rs. 69,908 on account of dalali payment. This addition has been made by the AO on the basis of seized paper Nos. 13 to 19 of Annexure A-9/18 which according to the AO represent bogus expenditure of dalali which is claimed to have been paid to Shri Magilal Somani of Rs. 36,000 and Shri Kishansingh of Rs. 33,903. According to the AO Shri Magilal Somani denied to have received any such payment and as such disallowed the same as per the reasoning given at p. 41 of the assessment order. 16.1. The learned counsel for the assessee submitted that pp. 13 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made by the AO as per the discussion at pp. 44 to 46 of the assessment order. The basis for making the addition are that: (i) the expenditure are not recorded in the books of accounts; and (ii) source of the funds for these cash payments is not explained. The learned counsel for the assessee submitted that the disputed amounts are clearly explainable as under: Reference of Amount Explanation seized (Rs.) documents Annexure A- 5,10,991 (1) Page Nos. 24 and 25 were found 9/14,p.23-25 from the cabin of Shri M.K. Bhati, who was looking after the collection of the company. The details indicate the amount which has been collected by the respective persons on behalf of the company, which is ultimately deposited with the company and credited to the respective account of the party from whom amount has been collected in the business of leasing and financing. Certain amount which has been utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was payable was not sanctioned/disbursed by the company. Thus no question arises for recording of this payment. Accordingly it was pleaded that the addition made by the AO is required to be deleted. The learned Departmental Representative on the other hand, supported the order of the AO. 17.1. We have considered the rival submissions. It is clear that the above explanation which is furnished before us now was not furnished by the assessee during the course of assessment proceedings. The claim of the assessee that these transactions are recorded in the regular books of account requires verification. Accordingly it will be fair and reasonable that the addition relating to the disputed amount is restored to the file of the AO for fresh adjudication in accordance with law after considering the explanation of the assessee which is furnished before us with reference to the books of account which lies seized with the Department. Accordingly this ground is allowed for statistical purposes. 18. Ground of appeal No. 14 relates to the addition of Rs. 35,000 as unaccounted income relating to the sale of a jeep as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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