9911796707
TMI Blog1998 (12) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ell 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 28-2-1989 3. 31 3-1989 1989-90 NIL NIL Intimation under s. 143(1)(a), dt. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; under s. 143(1)(a), dt. 28-3-1994 8. 31-3-1994 1994-95 2,95,000 NIL As per return 9. 31-3-1995 1995-96 3,00,000 NIL As per return 10. 1-4-1995 1996-97 1,25,000 NIL to 5-9-1995 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company, cash of Rs. 42,072 was found out of which Rs. 30,000 was seized. Besides that, large number of incriminating documents found from the residence of the managing director as well as the premises of the assessee-company were seized. The statement of Shri Ummed Singh P. Champawat was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri S.C. Sonkar, Senior Departmental Representative addressed to the Dy. CIT, Central Range-1, Ahmedabad, copy of which was endorsed to the Tribunal as well as the CIT(Central), Ahmedabad as well as Shri S.K. Mishra, Dy. CIT, Range-10, Ahmedabad, who passed the assessment order prior to centralisation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the various issues as well as investments which were required to be explained by the AO on the basis of seized documents found from the premises of the assessee It was submitted that at the time of search the assessee was under great mental tension and the statement was given without reference 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt., 1995, which was filed before the AO for the first time during the course of assessment proceedings on 9th July, 1996. The learned counsel further submitted that for the purpose of making addition it has to be based on evidence and not on mere admission of the assessee. In this connection 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 Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements recorded at the time of search and this was also subsequently increased to Rs. 3.13 crores in the subsequent statement recorded by the same ADI on 27th Oct., 1995. However, the assessments in the case of the assessee as well as other connected cases have not been made 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; --------- As against the above disclosure, issue-wise, how the amount of Rs. 2 crores has been arrived at is not clear. In the statement of the assessee recorded under s. 131 on 27th Oct., 1995, in answer to question No. 12, an amount of Rs. 2 crores disclosed earlier was revised to Rs. 2,95,47,253 wherein additional amount of Rs. 95,47,253 disclosed was pertaining to the following: Rs. '(A)(a) Amount received from Manojbhai and interest thereon 11,55,221 (b) Amount received from Badri Singh & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; --------- In the concluding part of the statement under s. 131 of the assessee recorded on 27th Oct., 1995, an amount of Rs. 3.13 crores was disclosed as per the copy of the statement 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and all four of them have been assessed to tax and those assessments were already completed prior to the date of search. In the statement before the ADI it is no doubt true that the assessee has admitted that he has invested about Rs. 6 lacs including the cost of land, on the construction of the residential house, and admitted undisclosed income of Rs. 6 lacs. However, subsequently on verification from the assessment records of all the four co-owners it was found that the total investment was Rs. 13,41,068 and it was shown at Rs. 3,35,267 in the hands of all the four co-owners as per the balance sheets filed along with the returns of income much prior to the date of search and the same were available in the income-tax record of the Department and all the four of these persons were regular assessees and yet the AO has preferred to rely on the statements of the assessee recorded by the ADI ignoring documentary evidence and the material available in the file of the IT Department to hold that the entire house property belonged only to the assessee and his wife and both the brother-in-laws are the benamidars of the assessee. For this proposition the learned AO in the body of the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of investments made by these 67 persons in the form of share application money in various group companies belonging to the assessee as well as in the form of loans also, the same is required to be examined with reference to the material available on record of the Department as well as the material/evidence produced by the assessee during the course of assessment proceedings and the addition cannot be made/sustained merely on the admission of the assessee before the ADI which according to the assessee was subsequently retracted by filing the affidavit during the course of assessment proceedings and also filing the statutory return verified in the prescribed manner. In this connection it will be useful to refer to the observations of the Supreme Court in the case of Shri Krishna vs. Kurukshetra University AIR 1976 SC 376 wherein it is held that an admission based on ignorance of fact is not binding. Similarly the Punjab & Haryana High Court in the case of Krishanlal Shivchand Rai vs. CIT (1973) 88 ITR 293 (P&H) has held that it is an established principle of law that a party is entitled to show and prove that an admission made by him previously was in fact not correct and true." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was recorded in the seized books of account. Thus the AO has erred in law while considering such advances as unaccounted within the definition of s. 158B(b) and thus the addition requires to be deleted. (6) Addition of account of premium on vehicles of Rs. 2,22,000 The learned AO has erred on facts while making the addition of Rs. 2,22,000 as unaccounted receipt of premium. During the course of assessment proceedings it was submitted that there was no such premium received by the company and thus the addition being baseless requires to be deleted. (7) Expenditure of Rs. 41,000 on amalgamation considered as capital The learned AO has erred in law while considering the expenditure of Rs. 41,000 on the amalgamation as capital in nature as against revenue expenses as claimed by the appellant company. Thus, the addition requires to be deleted. (8) Addition of Rs. 5,81,805 for shortage of cash The learned AO has erred on facts while making the addition of Rs. 5,81,805, considering the same as shortage of cash. During the course of assessment proceedings complete explanation with evidences were furnished about the utilisation of the said cash, which being for the purpose of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt and explained so during the course of assessment proceedings, the addition is bad in law, based on irrelevant and immaterial observation and thus requires to be deleted. (14) Addition of Rs. 35,000- Unaccounted income The learned AO has erred in law while considering the amount of Rs. 35,000 as unaccounted receipts, though no such receipt was there actually. Thus, the addition based on baseless observation requires to be deleted. (15) Addition of Rs. 5 lacs on protective basis as unaccounted income The learned AO has erred in law while making the addition of Rs. 5 lacs, even on protective basis, considering the same as unaccounted income of the company, being investment/source of investment for land. The investment having been considered by the appellant company in the undisclosed income shown in the return of income for the block assessment, a further and separate addition is bad in law and thus requires to be deleted. 8. As far as ground of appeal No. 1 is concerned, the objection of the assessee is with regard to the addition of Rs. 73,54,000 made by the AO under s. 68 on account of alleged unexplained investment in share capital of the company. The basis for making the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of the Tribunal in the case of Prakash Foods Ltd. vs. Dy. CIT (1998) 64 ITD 396 (Pune) and the Ahmedabad Bench of the Tribunal in the case of Ummedsingh P. Champawat in ITA No. 4421/Ahd/1996 referred to supra while interpreting cl. (b) of s. 158B has held that if prior to the date of search the assessee has disclosed particulars of income/assets either in the return or books of account during the course of assessment proceedings by production of books of account to the AO, then such income cannot be treated as undisclosed income within the meaning of cl. (b) of s. 158B. The above interpretation has since been approved by the Hon'ble Gujarat. High Court in the case of N.R. Paper Boards Ltd. & Ors. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj). In this view of the matter we are of the opinion that the addition of Rs. 73,54,000 as share capital cannot be sustained as undisclosed income in the block period in an order passed under s. 158BC. Accordingly this ground is allowed. 9. Ground of appeal Nos. 2 and 5 relate to the addition of Rs. 5,50,000 on account of loans/advances made to certain parties. The AO while examining the seized documents particularly ledger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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 --------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pages indicated in the statement referred to by us in para 9. Therefore, since these amounts are reflected in the regular books of account which were seized during the course of search, these cannot be considered as undisclosed income of the block period in view of the definition of undisclosed income in s. 158B(b) as per the decisions of the Tribunal in the cases of Prakash Foods Ltd. and Ummedsingh P. Champawat 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment and the person to whom such payment has been made, as found from the cashier and the said details included the payment through three cash payment vouchers to Shri C.P. Vaishnav. The said list, which is annexed to the Panchnama, is placed at p. 192 of the paper book. On these facts it was submitted that since the payment of cash to the manager was out of cash balance of the assessee-company, which was subsequently recorded in the subsidiary records of the company, the same will not fall within the definition of undisclosed income and the addition as such is required to be deleted. Regarding ground Nos. 8 and 12 it was submitted that the advances to staff were made out of cash in hand which were found short at the time of search. It was submitted that the alleged shortage of cash amounting to Rs. 5,81,805 which was the difference between the cash found on search and cash as per cash book was explained to be on account of advances given to staff against expenses and the AO was incorrect to state that the vouchers of such expenses were neither found at the time of search nor produced subsequently. The position of the cash was explained by the assessee during the course of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 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 course of search and were subsequently recorded in the subsidiary books of account. As such the same cannot be treated as undisclosed income of the assessee for the block period in view of our interpretation of cl. (b) of s. 158B based on the decisions of the Tribunal in the cases of Prakash Foods Ltd. Ummedsingh P. Champawat as well as the decision of the Gujarat High Court in the case of N.R. Paper Boards Ltd. 10.2. As regards the additions objected in ground Nos. 8 and 12 on account of shortage of cash and advances to staff, the same has been reconciled by the assessee as referred by the assessee's representative in his written submissions which have been noted by us in para 10 above. Thus the alleged shortage is fully explainable on account of advances made to staff for expenses which have also been noted by the AO at pp. 34 and 35 of the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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 addition on the basis of loose paper No. 125 of Annexure A-9/16 whereas in fact these loose papers do not contain any such details. However, it was admitted that pp. 3 to 5 of Annexure A-9/17 contained certain details about the premium on the vehicles and especially on p. 4 of Annexure A-9/17, there is a working of an amount of Rs. 2,22,000. It was submitted that the AO while making the addition has referred to the statement of Shri Chhaganlal which was recorded on 22nd Oct., 1995, to the effect that the above cash payment of Rs. 2,22,000 was not recorded in the books of account. It was submitted that the above finding of the AO is incorrect because the statement of Shri Chhaganlal, copy of which was furnished to us at p. 50 of the paper book in the case of Shri UP. Champawat in ITA No. 4421/Ahd/1996 wherein the answer to question No. 16 Shri U.P. Champawat has stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 addition of Rs. 41,000 on account of expenditure on amalgamation. The AO has made this addition in view of the judgments in Godfrey Phillips India Ltd. vs. CIT (1994) 116 CTR (Bom) 1 : (1993) 71 Taxman 370 (Bom) and Singlo (India) Tea Co Ltd. vs. CIT (1993) 68 Taxman 302 (Cal) on account of amalgamation expenses of Rs. 30,000 paid to M/s Sanghvi & Co. and Rs. 11,000 paid to S.N. Mandora as expenditure of capital nature and disallowed the same by adding to the income for the block period 1st April, 1995 to 5th Sept., 1995, as per the reasoning given at pp. 31 & 32 of the assessment order. 13.1. The learned counsel for the assessee submitted that since these amounts have been duly recorded in the books of account, no addition could be made in the block period. Further it was submitted that the Supreme Court in the case of CIT vs. Bombay Dyeing and Manufacturing Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed 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 filing the return in response to notice under s. 158BC. Accordingly this ground is partly allowed. 15. Ground of appeal No. 10 relates to the disallowance of salary to Shri M.K. Bhati amounting to Rs. 1,13,613. Shri M.K. Bhati is a brother in law of Shri U.P. Champawat who was looking after the collection work of the assessee-company and was attending to the office of the assessee-company regularly. The AO has made this addition on the basis of the statement of Shri M.K. Bhati recorded at the time of search that he has no business except agricultural activity in village Jodhpur and he denied receipt of any remuneration. Accordingly the AO disallowed the claim of remuneration/salary amounting to Rs. 1,13,613 paid to Shri M.K. Bhati which according to the AO was paid for extra commercial consideration by the assessee-company as per the reasoning given at pp. 40-41 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to 19 of Annexure A-9/18 are the payment vouchers pertaining to payment of dalali to Magilal Somani of Rs. 10,000 and Rs. 29,950 to Shri Kishansingh. It was submitted that these vouchers are payment vouchers duly signed by the recipients but are undated. It was submitted that in the books of account the payment of the aforesaid dalali has been adjusted against the loan outstanding in the names of Shri Magilal Somani and Shri Kishansingh through journal vouchers copies of which were placed at p. 102 of the paper book. It was submitted that the amount has been adjusted to their accounts from outstanding receivable balances and the copies of accounts of both these persons are placed at pp. 100 and 101 of the paper book Accordingly it was submitted that the AO was not justified in making the addition. The learned Departmental Representative supported the order of the AO. 16.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 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 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has ultimately been recorded in the books of account of the company under the head of respective expenditure. Annexure A- 16,480 This is the amount advanced by the 2/16, p.21 company to Shri M.K. Bhati on 24th June, 1995, and accordingly considered while explaining the cash which has been found short, total amounting to Rs. 5,96,711. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. No. 36 of the paper book, it was stated that the said dalali was not paid as the loan on which such dalali 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, the amount of Rs. 5 lacs has been disclosed by the assessee (Elcon Finlease & Industries Ltd.) as part of its undisclosed income in its return of income for the block period, the addition was deleted and accordingly it was submitted that the protective addition made is also required to be deleted as this amount has already been declared by the assessee-company as part of its undisclosed income. The learned Departmental Representative supported the order of the AO. 20.1. We have considered the rival submissions. Since the amount of Rs. 5 lacs forms a part of undisclosed income as per the working given at pp. 4 to 12 of the paper book wherein summary of transactions not recorded in the books of account have been given and it forms part of the amount given by the assessee-company to Shri U.P. Champawat who in turn made the payment to Shri B.M. Patel and others for the purchase of land at survey No. 360, the same cannot be added in the hands of the assessee-company even on protective basis because the same stood included in the total income of Rs. 11,92,214 which has been declared as undisclosed income by the assessee-company in its return filed in response to notice under s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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