TaxTMI 
TaxTMI 
2006 (1) TMI 450
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....nt of loans taken by cheques along with interest thereof without appreciating the fact that the Assessing Officer has rightly made the addition as the assessee could not explain the sources of the creditors. 3.On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 1,04,379 on account of cash loans along with interest holding that the onus cast upon the assessee has been discharged by filing confirmation letters when in fact the assessee could not produce the loan creditors to prove that they have advanced the loans." 2. In this case, search operation was conducted in January 1992. The assessee-firm is engaged in the business of financing and investment in shares. During the course of search statement of Shri Laxmichand Jivraj Gosar was recorded. He is a partner in the firm with 30 per cent share. The premises located at G-6 Balakrishna Apartment, Chipunkar Road, Ram Nagar, Dombivli(E) which is the head office of another group concern M/s. Shah Enterprises in which also Shri Laxmichand was partner, 1131 files containing the records of clients of M/s. Gosar & Co. were found. Substantial amount was advanced by these client....
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....editors. The assessee had also filed confirmatory letters in respect of all creditors except one. Summons were served in all cases except two cases. Out of those upon whom summons were served, only three persons responded. 6. The Assessing Officer vide his office note in the assessment order has mentioned that summons have been issued to those from whom cash has been borrowed and to those from whom money above Rs. 20,000 has been taken by cheques. 7. There are two categories of loans. One is the loans taken in the name of nine persons amounting to Rs. 1,33,000 in cash; interest thereon amounts to Rs. 4,901 as under : Sr. No. Name of the person Amt. of loan Rs. Amt. of Int. Rs. 1. Shri Hemchand Jessang Gada, Bapat Marg, Dombivli (E) 15,000 1,000 2. Shri Vasant Laxman Patel, Thane 15,000 1,000 3. Dr. Kaushik R. Gada, Tilak Road, Dombivli(E) 15,000 - 4. Shri Pandurang Raghunath Kane (HUF), Ayre Road, Dombivli(E) 15,000 795 5. Navin Shviji Veera (HUF) Station Road, Dombivli(E) ....
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....0,000 2,246 Dombivli 20,000 70,000 14. Rupen Zaverchand Gada, Dombivli 30,000 1,100 15. Hemali Laxmichand Chheda, Dombivli 20,000 660 16. Atul M. Gala, Dombivli 30,000 760 17. Virendra Dedhia, Dombivli 25,000 633 Sr. No. Name of the person Amt. of loan Amt. of Int. (1) (2) (3) (4) 18. Shankar Baban Tambe, Dombivli 50,000 1,875 19. Amrutlal Gosar Nagda, Dombivli 55,000 843 20. T. Badrinarayan, Dombivli (E) 67,000 200 21. Surji H. Sayla, Dombivli(E) 5,000 2,075 40,000 45,000 22. Tarachand Asso Shah, 60,000 3,540 Dombivli(E) &....
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....ssessee. He then treated the sum of Rs. 9,32,000 and interest thereon of Rs. 50,763 totalling to Rs. 9,82,763 as deemed income under section 68. He gave credit of disclosure of Rs. 6 lakhs and added the sum of Rs. 3,82,763. 8. The CIT(A) deleted the addition of Rs. 6 lakhs by observing as under: "I have gone through the submissions of the learned counsel and after going through the assessment order and the case-laws, relied upon by him. I find that apart from the statement of appellant recorded under section 132(4), at the time of search, the Assessing Officer has not brought on record any other material to show that the said addition is warranted. Further find that the Assessing Officer has held in the subsequent paragraphs that the loan of Rs. 9,32,000 raised by the appellant are non-genuine but while making the addition on that count, he has given credit to an amount of Rs. 6,00,000 added by him on the basis of statement made under section 132(4). I propose to consider the additions under section 68 in respect of all the loans while dealing with that ground, but, for the purposes of the present addition of Rs. 6,00,000 I find that the same is based only on the statement of....
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....by the learned counsel and after going through the assessment order, I am inclined to agree that the appellant has discharged the primary onus cast upon it under section 68 of the Income-tax Act. I also agree with the learned counsel that even though the loans are in cash, they are admittedly within the permissible limit of law, namely, that they are below Rs. 20,000 each, hence, the same cannot be held as non-genuine. I am supported by the observations of the I.T.A.T., Pune Bench, Pune, in the case of Income-tax Officer v. Suresh Kalmade, cited supra, wherein it has been held that "Once the identity of the third party is established before the Income-tax Officer and other such evidences which are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged." I further find that according to the Assessing Officer's own admissions, the service of summons upon the 7 creditors has proved their identity and their loan confirmation letters have proved the genuineness of the transaction. Copies of their balance-sheet and Income-tax particulars have proved their capacity to advance th....
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....arties or to lead any other evidence in support of this claim. This addition of Rs. 60,000 representing the loans from two persons and the interest disallowance of Rs. 2,870 relating to the same is restored to the file of the Assessing Officer. So far as the loans from 19 persons aggregating to Rs. 7,92,000 are concerned, for the detailed reasons given by me, in appeal No. PN/CIT(A)-I.KLN/AC-1(1)/Tr-464/93-94 dated 26th October, 1993 in the case of M/s. Rushabh Finance & Investment Co., Dombivli, and as per the decisions of Honourable Supreme Court and High Court referred to above. I hold that the said additions are not correct in the facts and circumstances of the case. This addition of Rs. 7,92,000 alongwith the disallowance of interest amounting to Rs. 41,212 is hereby deleted." 12. The brief findings of the learned CIT(A) while deleting the addition are that :- 1.Identity of creditors is established as summons were served on them. 2.Additions relating to Anil Nanji Gada (Rs. 80,000 at Sr. No. 7 in second list) upon whom summon were not served was restored in the file of Assessing Officer. 3.Additions relating to Rupen Zaverchand (item No. 14 in the second list) a....
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....e statement no particular specific name of the creditor was given. (vi)The Assessing Officer could not establish that parties are not genuine. (vii)The Assessing Officer had accepted the retraction, as he had made independent enquiries. No addition can be made merely on the basis of statement without any further evidence or material in that regard. (viii)No unaccounted cash/asset were found in the hands of the firm in the search. (ix)The statement should be read as a whole. He relied on Glass Lime Equipments Co. Ltd. v. CIT [2002] 253 ITR 454 (Guj.) and 71 ITD 295, Pune ITAT. (x )No addition can be made merely on the basis of statement. He relied on CIT v. Shri Ramdas Motor Transport [1999] 238 ITR 177 (AP), Pushpa Vihar v. Asstt. CIT [1994] 48 TTJ (Bom.) 389. (xi)The assessee had discharged the initial burden. Copy of acknowledgement of return of income along with computation of total income of the creditors were filed. (xii)All the parties are assessed to tax and TDS was made wherever applicable. (xiii)Onus is discharged by the assessee. He relied on CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78 (SC); (xiv)The assessee is not required to prove t....
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....shab Finance & Investment Co. (supra), Dhirajlal D. Goshar's ( supra) and Expresso Investments for the assessment year 1992-93. But it cannot be said that facts are identical and, therefore, onus is deemed to have been discharged in the present case. 16. It is important for the decision on the issue, to highlight the facts, which are peculiar and specific to this case and to this assessment year. For this, we take a note of the statement of Shri Laxmichand Jivraj Gosar recorded on 17-1-1992. It is as under :- "Statement under section 132(4) of the Income-tax Act, 1961. Statement of Shri Laxmichand Jivraj Gosar, Son of Shri Jivraj Leeladhar Gosar aged 30 years occupation business, resident of 10 Shree Madhanath Apartment, Dr. Rajendra Prasad Road, Dombivli (E) recorded under section 132(4) of the Income-tax Act, 1961 an oath/solemn affirmation on 17-1-1992 during the search proceedings under section 132 of the Income-tax Act, 1961 at G-6, Balkrishna Apartment, Chiplunkar Road, Dombivli (E). Q. No. 1... Ans: Q. No. 2... Ans. Q. No. 3.... Ans: Q. No. 4 : During the course of search under section 132 of the Income-tax Act, 1961 at premises located at G-6, ....
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....IT, Thane as stated above on 16-1-1992. I hereby confirm the said declaration scheme. Q. No. 5: Can you specify the non-genuine loan transactions in respect of which you have made a declaration of Rs. 12,00,000 as mentioned above? Ans: It is not possible to specify non-genuine loan transactions at this stage as the books of account from which such information can be taken are already seized on 10-1-1992 by your officials and so are not available here right now. Q. No. 6 : Please state in what form the amount of declaration is lying in the firm M/s. Expresso Investments? Ans: The amount of declaration is lying in the form of loans taken by the firm M/s. Expresso Investments from various parties which are not either genuine or may not be able to confirm the loans. Q. No. 7 I am explaining to you the provisions of section 132(4) of the Income-tax Act, 1961 under which you have the option to offer the concealed income earned during the year for taxation to qualify for non-imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 provided due taxes are paid before the end of the current financial year. What is your say in the matter? Ans: I on behalf of....
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....partner in the assessee-firm as well as M/s. Shah Enterprises, at whose address the search was carried out and where the statement was recorded under section 132(4). 2.1031 files containing record of income-tax proceedings pertaining to assessee's clients (including creditors) were bound. 3.spot enquiries into some of these clients revealed to the authorised officer that either these parties are not in existence or the addresses were fictitious. 4.Some of the clients also denied to have advanced any money to Gosar/Doda Group. 5.These files were found to contain bank pass books, cheque books and pay-in-slips of respective clients. In some case some signed blank cheques were also found. 6.Shri Laxmichand Jivraj had admitted that some of the loans may not be genuine. Hence, he disclosed a sum of Rs. 12.00 lakh as additional undisclosed income (Rs. 6.00 lakh for each of the two assessment years 1991-92 and 1992-93). 7.There was a discussion among Shri Laxmichand Jivraj, Shri Bhagwanji Gosar, Amarchand Goda, Chandrakant Gosar, Dhiraj Gosar and Ramesh Goda about extent of non-genuine loans with which they all are associated and they arrived at the figure of disclosure. ....
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....fter filing of return of income does not lead to the inference that retraction has been accepted by the Assessing Officer. In fact, the Assessing Officer had exercised his power to summon the parties and many of them have not turned back and not honoured the summons. It is the duty of the assessee to file correct particulars and also assist the Assessing Officer in service of the summons. It was also duty of the assessee to explain how and why bank pass books, cheque books and signed blank cheques were found with the assessee in respect of those cases whose loans are appearing in the books of assessee, particularly, those mentioned at Sl. Nos. 7, 8, 10, 16, 17 & 20 in the second category of loans referred above. We are not inclined to believe the loans in respect of these cases would be genuine. For establishing genuineness of the loans, it is necessary in addition to explain why bank pass books, cheque books etc. are found with the assessee as to how the loans have been repaid and what arrangement was made to repay the loans or how the creditors/their legal heirs would recover the loans from the assessee in the event of death of the creditor or the partner/s of the assessee or on ....
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....en attempted in this case. Thus, the conduct of the assessee clearly shows that pressure or duress is only an afterthought just to support retraction. In fact, there is no real retraction, it is only non-declaration of income in the return. Whether loans are genuine or not, it is in personal knowledge of the assessee and no third party can be privy to these accommodation entries. Once after consultation with his brothers and partners, Shri Laxmichand Jivraj came to the conclusion that certain loans are not genuine, he is to be believed. This belief is not coming out of thin air. It is based on documentary evidence found in the search. Pay-in-slips, blank signed cheques, cheque books cannot lie with assessee. At least no reason has been advanced so far. Spot enquiries had revealed that certain creditors were non-existent and they were not found at the given address or addresses are fictious. When Shri Laxmichand Jivraj was confronted with all these evidences only then he had come out with a disclosure. 21. We are of the view that by its declaration and acts the assessee intentionally caused/made the departmental authorities to believe the declaration made by the assessee to be tr....
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....loans, the assessee effectively prevented the department from carrying out its further investigation by making them to believe that Rs. 12.00 lakh is the unaccounted money. By seeking to retract, the assessee wants itself to be placed at an advantageous position at a point of time when he was before giving statement under section 132(4). However, with passage of time, the evidence which the department could have collected may no longer available; they might be manipulated, fabricated or destroyed. Further, the power of ADI to investigate is far wide and intense as compared to the power of Assessing Officer. By making the declaration before the ADI and admitting concealment and thereafter retracting it before the Assessing Officer, means practically closing the investigation by the investigation wing of the department. This cannot be acceptable. Thus, in our view retraction sought to be made by the assessee after several months of declaration and admission under section 132(4) is only a well thought out device to shut the department from collecting the evidence to unearth unaccounted income. Further no explanation is given by the assessee as to the delay in retraction. Nothing preve....
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....r section 132(4) given on oath, then no amount of bald retraction, quickly or delayed, can make a turn around. In the present case the delay in retraction was inordinate. There was no explanation for delay. What he stated 11 months after filing the return, he could have stated next day of the search. There was no need for consultation if whole thing was false. As a matter of fact it was not. Therefore, entire set of submissions relating to retraction deserves to be rejected. 23. We derive support from various judicial pronouncements. In Surjit Singh Chhabra v. UOI [1997] 1 SCC 508/509, it was held that custom officers are not police officer and the confession made before them, though retracted, binds the petitioner. Similarly in TS Kumaraswamy v. Asstt. CIT [1998] 65 ITD 188 (Mad.), it was held that ITOs are not police officers, they do not use unfair means or third degree methods in recording statement on oath. Therefore, such statements and oaths cannot be retracted unless it is proved by legally acceptable evidence that such admission/confession or oath was not voluntarily tendered or was under coercion or duress. In the present case no such evidence has been produced or even....
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....recorded by a public official and this is more particularly so when it is recorded in pursuance of the statutory provisions of law. The provisions of sub-section (4) of section 132 also create rebuttable presumption in favour of the statements recorded thereunder and authorize their use in evidence in any proceeding under the Income-tax Act. The burden is, therefore, squarely on the person who alleges that the statement was not made voluntarily to prove that it was involuntarily made or made under coercion or undue influence or that it was made under mistaken belief or was obtained by fraud or misrepresentation. Mere allegation will not suffice. Second situation is where the person seeking to retract proves, by leading cogent and reliable evidence, the erroneous or incorrect nature of the facts stated or confessed at the earliest possible opportunity. In the case before us, it has been held above that the assessee has squarely failed to satisfactorily discharge the burden that the confessional statement made by Shri Prataprai Sanghvi under section 132(4) was involuntarily made or made under coercion or undue influence or was made under mistaken belief or obtained by fraud or misrep....
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....is sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act." 25. The Explanation to sub-section (4) was introduced by Finance Act, 1987 with effect from 1-4-1989 and is clarificatory in nature because it starts with "for removal of doubts". It provides that examination of any persons may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also on any related matters. Sub-section (4) is not confined to examination of any person in respect of money, bullion, jewellery or assets. Sub-section itself quotes that if a person is found to be in possession of any document, books of account, money, bullion or other valuable article or thing. Therefore, it is incorrect to suggest that examination of a person and recording of his statement under section 132(4) will be confined to merely to assets found in the search and not in respect of books of account or documents found therein. Th....
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....ce sheets and income-tax particulars of creditors. We are unable to uphold her order for the reasons given hereafter. It is settled legal position that onus is on assessee to prove (i) identity of cash creditors (ii) capacity of the creditor and (iii) genuineness of the transaction ( 49 ITR 112 SC). Therefore, merely the fact that identity is proved, the cash credit cannot be held to be genuine. The assessee must also prove the other conditions. Mere filing of confirmation letter is not sufficient even after confirmation letter, he is within his right to ask the assessee to produce the creditor with evidence to prove their capacity or genuineness of the transaction. No doubt, the balance sheets and income-tax particulars were filed before Assessing Officer, but the CIT(A) failed to consider the adverse materials-(i) that pass books of cash creditors were found in the possessions of assessee in the course of search for which there is no explanations from assessee and (ii) the perusal of pass book revealed that cash were deposited in the bank account of creditors before issue of cheques to assessee. In these premises, unless there is material to show the availability of cash with cre....