TaxTMI 
TaxTMI 
1998 (2) TMI 172
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....atement of the assessee as well as the staff members and the explanation offered by the assessee, the Assessing Officer made various additions and determined the undisclosed income for the block period aggregating to Rs. 63,77,258. Aggrieved by the same, present appeal has been preferred by the assessee. 3. Firstly, we shall deal with the addition of Rs. 4.5 lakhs on account of 'on money' alleged to have been paid by Shri S.J. Bhat on purchase of flat and plot for his daughter Anjali Shanbhag in 1991. At the time of search, Shri S.J. Bhat was present at the residence of her daughter Smt. Anjali Shanbhag. The statement of Smt. Anjali Shanbhag was recorded under section 132(4). As per question No. 8, she was asked to explain how and when did she purchase the flat No. 4 in Chinar Apartment, Karve Road, Pune. In reply, it was stated by her as under: "I have purchased this flat from M/s Sathe and Godse in 1991 for Rs. 7,70,000. I do not know from which bank the loans of Rs. 4,50,000 and Rs. 2,00,000 have been taken. I do not know about the money given other than that. My father can tell about it. Also, my father has booked a Plot of 10,000 sq. ft. area in 1991-92 near Sortur Hospital,....
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....nal income of Rs. 4,50,000 of Kiran Hotel and Kiran Lodge. There is one Maruti car MGH 1201 in the name of my daughter. I have given this car to my daughter. It has been given to the daughter for household work and dropping the grand children in the school. This car is shown in the balance sheet of Kiran Lodge. Q. No. 8: As stated above, how the 'on money' of Rs. 4,50,000 spent for the flat at Pune (Flat No. 4, 'Chinar', Tarte Colony, Karve Road, Pune - 4) standing in the name of your daughter and the plot at Miraj standing in the name of daughter, Smt. Anjali Jayaram Shanbhag -- got accumulated in the money of your firm? Ans.: This amount of Rs.4,50,000 got accumulated due to having indicated less(er) amount of profits of the firm in the income-tax return filed every year. On 14-9-1995 the statement of Shri P.J. Shanbhag -- husband of Smt. Anjali Shanbhag was also recorded. Question No. 4 and answer to it are as under: Q.No. 4: What are your movable and immovable assets? Please give the details. (i) Immovable asset -- As a co-owner (second name holder) in flat No. 4, I have got invested this flat and belongs entirely to my wife. My name is recorded as co-owner for facilitatin....
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....e referred to the decision of the Supreme Court in the case of Pullangode Rubber & Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 for the proposition that retraction from admission is permissible in law. He referred to the decision of the Supreme Court in the case of PK. Singh v. State of Manipur AIR 1956 SC 9 for the proposition that confession should be corroborated if it is retracted and such corroboration must be on the basis of independent evidence. He referred to the Delhi High Court decision in the case of S. Arjan Singh v. CWT[1989] 175 ITR 91 to contend that admission is an important piece of evidence but not conclusive. He then referred to the Orissa High Court in the case of CIT v. Biju Patnaik [1991] 190 ITR 396 to submit that the statement under section 131 cannot be used by the assessee without giving an opportunity of rebuttal. The decision of the Bombay High Court in the case of Gordhandas Hargovandas v. CIT[1980] 126 ITR 560 was referred to in support of the contention that the Tribunal must follow certain criteria mentioned in the judgment while weighing the evidence. In addition to the above, he also referred to various Tribunal decisions as Pushpa Vihar v.....
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....there is any allegation to this effect. He further submitted that specific details given by Mr. Bhat in his statement were so specific that it could not be said that he was of unsound mind. Proceeding further, he submitted that authorised officers could not have known all the details of the transactions in advance and therefore, the contents of the affidavit to the effect that the statement was prepared according to the Will of the authorised officers cannot be said to be correct. According to him, the assessee on his own had stated that the sum of Rs.4.00 lakhs was paid before the agreement and the balance of Rs.7.7 lakhs were paid later on from time to time. In view of these facts he concluded by pleading that the statement of Mr. Bhat was made voluntarily and thus was binding on him. 6.1 The second submission of Mr. Prasad is that once it is shown that the statement was voluntary then, the assessee cannot be allowed to retract. He relied on the recent judgment of the Supreme Court in the case of Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560. Further there is no material on record to suggest the mistaken belief either of facts or law for making the retraction. He also....
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....opinion, great evidentiary value has been attached to such statement. 8. However, there are exceptions to such admission where the assessee can retract from such admission. The first exception exists where such statement is made involuntarily i.e., obtained under coercion, threat, duress, undue influence etc. But the burden lies on the person making such allegations to prove that statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or law. It is well settled that there cannot be estopple against the law. If a person is not liable to tax in respect of any receipt, he cannot be made liable to pay tax merely because he has agreed to pay the tax in the statement under section 132. He can always retract in such situation. For example the assessee might have sold his agricultural land and not declared its sale proceeds in his income-tax return. If such agricultural land does not fall within the ambit of the words "capital asset" then no tax is payable. If the assessee had offered to pay tax on the profits on such sale under section 132(4), in our opinion, he can always retract from such statem....
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....s, the presumption is that act was performed bona fide. The search operations were conducted in the presence of witnesses. The allegations of Mr. Bhat that witnesses were hired one is also not supported by any material or evidence. The witnesses were in fact, the neighbours of Smt. Anjali Shanbhag, daughter of Mr. Bhat. This fact is apparent from the panchanama. There is no allegation that those witnesses were hostile either to Mrs. Anjali Shanbhag or Mr. Bhat. The other allegation that statement was written by the authorised officers, according to their own Will, also cannot be accepted for the reason that the details regarding purchase of property arc so specific, which could not have been known by the authorised officers. Even the authorised Officers did not ask any specific question regarding payment of 'on money'. The question asked for was 'In what name does this flat No. 4, Chinar Apartment, 41/5 Erandawana, Pune?" "Who purchased this Flat?" In response to these questions, he had replied that he purchased this flat for his daughter for Rs.11.7 lakhs out of which Rs.4.00 lakhs were paid in cash before the agreement. The balance sum of Rs. 7.7 lakhs was paid from time to time,....
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....Kiran. 14. The view which we have taken is supported by the decision of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra. In that case, it was contended that the petitioner had retracted from his confession within six days and therefore, he was entitled to cross examine the panch witnesses before the authorities takes a decision on the proof of the offence. The Hon'ble Supreme Court held "we find no force in this contention. The Custom Officers are not police officers. The confession though retracted, is an admission and binds the petitioner. So, there is no need to call Panch witnesses for examination and cross examination by the petitioner". On the other hand, the decisions relied upon by Mr. Pathak are distinguishable on the facts. In the decision of the Supreme Court in the case of P.K. Singh, it was held that confessions even if inculpatory it should be corroborated if it is retracted. In that case, the retraction of the statement was not the subject matter of litigation but in the present case, the retraction itself has been disputed by the revenue. The Tribunal decisions relied upon by him are also distinguishable of facts. In the case of Pushpa Vihar, there w....
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....ot be taxed twice over the same income, One cannot be taxed merely because of his ignorance in the pleadings. This ground is therefore, partly allowed. 16. The next issue relates to the addition on account profits out of suppressed sale. The addition made by the Assessing Officer is in two parts. The first part of the addition relates to assessment years 1994-95 to 1996-97 amounting to Rs.11,28,131 while the second part relates to the addition of Rs.32,19,082 pertaining to assessment years 1986-87 to 1993-94. The total addition thus comes to Rs.43,47,213. 16.1 In the course of search, duplicate set of account books were found relating to the period from 1-4-1993 to the date of search i.e., 12-9-1995. Rough cash book was maintained by the Manager of the hotel Mr. Sitaram Bhat. This book contains entries of actual sales of the day. It also contains the entries of the expenditure incurred by him out of sale proceeds. The fair cash book was written by the Accountant Mr. Raj aram Kulkarni. This book contains entries of suppressed sales. It also contains entries of suppressed expenditure incurred by the Manager. The entries of suppressed expenditure were made to cover the suppressed sa....
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....ed. The account books before the year 1993-94 got destroyed in that. Q.No. 7: Who writes the rough and fair cash books? Ans.: Our hotel manager Shri Sitaram Shrinivas Bhat writes the rough cash book and our accountant Shri Rajaram S. Kulkarni writes the fair cash books. As per my instructions, Shri Kulkarni indicates the sale amount less by 5-10-96 than the actual. I gave the above instructions about 2 years ago due to profit pressure. Statement of Shri R.S. Kulkarni was recorded under section 131 on 27-9-1995. The relevant questions and answers are being reproduced: Q. No. 2: How long and since when you are doing the job of writing the books of account for Shrinivas Bhat? Ans.: I have been writing the books of account since 1974, starting of the hotel. Q.No. 3: What books of account do you maintain/write? Ans.: I write fair books of account, cash book, ledger, etc. Q.No. 4: On what basis do you write/make entries in fair cash book? Ans.: Shri Sitaram Bhat maintain the rough cash book, He gives me the rough cash book and bills of purchase which I use as the basis for writing the fair cash book. Q.No. 5: I will now show you the rough cash books 1993-94, 1994-95 and 1995-96....
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....details in the fair cash book. Q.No.11: Since when Shrinivas Bhat has given you instructions to show only half the expenditure on milk and vegetables. Ans.: These instructions were given since 1974, i.e., starting the hotel. Statement of Shri Sitaram Bhat was also recorded under section 131 on 27-9-1995. The relevant question is Question No. 11 which is reproduced hereunder: Q.No.11: In which book were you entering the daily sale amount before 1993-94? Ans.: I used to note the daily sale on a piece of paper and hand it over to Mr. Kulkarni. Also, I used to note down the expenditure on that piece of paper. I used to hand over the bills to Mr. Kulkarni. On the basis of seized papers and the statement recorded under sections 132(4) and 131, the Assessing Officer was of the view that the true profits have not been declared by the assessee in the regular returns. He therefore, recasted the trading account by crediting all sales as per rough cash book. On the expenditure side, he took all the figures shown in the regular cash book plus expenditure which according to him, incurred by the assessee, entered into the rough cash book but not accounted for in the fair cash book. As a spe....
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....,316 --------------- ---------------- Since the gross profit as per fair cash book was Rs.6,57,994, he determined the undisclosed profit at Rs.3,22,010 for assessment year 1994-95. In the same manner, he determined the undisclosed profit at Rs.5,64,485 and Rs.2,40,637 for assessment years 1995-96 and 1996-97 respectively. 16.2 On the basis of various statements mentioned above, the Assessing Officer was also of the view that assessee had suppressed sales in the earlier years also. Accordingly, he estimated the suppressed sales pertaining to assessment years 1986-87 to 1993-94 equal to 30 per cent of the disclosed sums. Relevant year wise details are given at page 9 of the assessment order. The total addition on account of suppressed sales was made at Rs.32,19,082. 17. The learned counsel for the assessee Mr. Pathak has vehemently assailed these additions. The first....
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....ee suppressed the sales in the earlier years. In support of his contention, he relied on the decision of the Supreme Court in the case of State of kerala v. C. Velukutty [1966] 60 ITR 239, decisions of Orissa High Court in the case of State of Orissa v. J.P. Sikiria & Co. [1987] 67 STC 101, Rain Autar Ashok Kumar v. CST[1980] 45 STC 366 (All.) and the decision of the Tribunal, Bombay Bench in the case of Harish R. Kapadia [IT Appeal Nos. 1835 and 1836 (Bom.) of 1995], to which one of us (Shri K.C. Singhal) was a party. He also took us through the statement of Sitaram Bhat and Mr. Kulkarni to show that rough cash book was maintained only for assessment years 1994-95 to 1996-97 and there was no suppression of sales in earlier years. According to him, the entire addition is based on suspicion. Regarding the statement of Mr. Kulkarni, it was stated by him that Mr. Shrinivas Bhat was not well and he asked to sit outside the office when the statement of Mr. Kulkarni was being recorded. He drew our attention to the medical certificate appearing at page 416 of the paper book. In such circumstances, how he could cross examine when he did not know the contents. He had merely endorsed a state....
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..... Prior to that there was no suppression. 17.4 Alternatively, it was argued by him that the entire sale receipts could not have been assessed as undisclosed income. Income-tax is levy on income and therefore, the Assessing Officer should have determined the income arising out of the sales and assessed the same as undisclosed income. 18. The learned DR. Mr. Sanjay Prasad submitted before us that whatever expenditure which were not accounted for in the fair books of account has been allowed by the Assessing Officer. He has furnished the working made by the Assessing Officer in respect of the amount allowed by him. The working is available at the departmental paper book. According to him, the Assessing Officer has ascertained the day-to-day expenditure in respect of vegetables, bread and milk which were not debited to fair cash book. Therefore, the question of giving further claim does not arise. It was also submitted by him that recasted trading account was given to the assessee for tendering any explanation in this regard. Since no explanation was given by the assessee, it cannot be said that there was any violation of principles of natural justice. He therefore, supported the ord....
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.... Kulkarni. Since he refused to cross examine, the question of violation of principles of natural justice does not arise. Moreover, the same does not make the order void. In support of his contention, he relied on the following decisions: (1) Guduthar Bros. v. ITO [1960] 40 ITR 298 (SC); (2) Kapurchand Shrimal v. CIT[1981] 131 ITR 451 (SC); (3) Addl. CITv. Boina Suranna [1980] 124 ITR 328 (AP); (4) CITv. Prem Syndicate [1983] 141 ITR 290 (MP); (5) Thakur V. Hari Prasad v. CIT[1987] 167 ITR 603 (AP); (6) CITv. National Taj Traders [1980] 121 ITR 535 (SC); and (7) Superintendent (Tech. I) Central Excise v. Pratap Rai [1978] 114 ITR 231 (SC). Thus, he distinguished the case law relied upon by the assessee's counsel. Finally, he justified the order of the Assessing Officer. 19. Rival submissions of the parties, material produced before us and the case law referred to have been considered by us carefully. Firstly, we shall deal with the addition of Rs.11,28,131. In our opinion, the contentions raised by Mr. Pathak are not without force. There is no dispute about the suppressed sales. There cannot also be any dispute to the legal proposition of Mr. Pathak that expenditures incurr....
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.... cannot be allowed. We therefore, confirm the disallowance of Rs.4,03,564 out of Rs.17,60,984. 21. As far as balance amount of Rs.13,57,220 is concerned, we agree in principle with Mr. Pathak that if such expenditure is of revenue nature, it has to be allowed. The assessee has furnished before us the day-to-day details of the expenditure which appears to be of revenue nature. But this requires verification by the Assessing Officer. We therefore, restore the matter to the file of the Assessing Officer for verification of the nature of expenditure mentioned above. The details filed before us shall be furnished by the assessee before the Assessing Officer who shall verify the same from the original record seized by the department and then allow the claim which is verified to be of revenue nature and found to be not accounted for in the fair cash book. 22. Regarding the addition of Rs.32,19,082 on account of suppressed sales pertaining to assessment years 1986-87 to 1993-94, we are unable to accept the proposition of Mr. Pathak that no addition whatsoever can be made for earlier years. There cannot be any dispute to the proposition canvassed by him that no addition can be made for ea....
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....hat these instructions were being since 1974. Mr. Shrinivas Bhat in his statement dated 13-9-1995 had stated that rough cash book was being maintained by the firm. Such rough cash books for the financial year 1993-94 onwards were kept in a room while for earlier years these were destroyed. In his earlier statement dated 12-9-1995 he had stated that he paid 'on money' of Rs.4,00,000 on the purchase of flat for his daughter in 1991 and the same was paid out of accumulated suppressed business profits of the firm. 24. A combined reading of these statements shows that the assessee was not recording sales and expenditure correctly even in earlier years. A fair cash book was being written by the Accountant Mr. Kulkarni on the basis of material supplied by the Manager Mr. Sitaram Bhat. It is immaterial whether such material was in the form of rough cash book or slips. Since these were destroyed, the same could not be found in the search. But the fact remains that the assessee was maintaining the rough cash book and was not recording the correct sales and expenditure in the earlier years. Mr. Shrinivas Bhat, a partner of the firm, has stated clearly that rough cash books for the earlier ye....