TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 465
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....dentical in nature, hence the same are taken together for disposal by this common order. For the sake convenience, facts have been taken from ITA 1495/M/2010 for A.Y. 2004-05. ITA 1495/M/2010 for A.Y. 2004-05 (appeal of the assessee firm) 2. The assessee, a partnership firm is into the business of trading in gold jewellery. A search action u/s 132 of the I.T. Act was carried out on 07.12.2006 by the Income tax authorities in premises of the partners of the firm namely Shri Amritlal Hirachand Sanklesha (Mutha) and Shri Ramesh Hirachand Sanklesha (Mutha). The business premises of the assessee firm was also taken up for survey u/s 133A on 07/12/06. The original return, in this case for the year under consideration i.e. A.Y. 2004- 05 had been filed by the assessee u/s 139(1) on 22/10/02, admitting a total income of Rs. 38,030/-. The Assessing Officer (hereinafter referred to as the AO), however, assessed the total income of the assessee u/s 143(3) read with section 153C of the I.T. Act at Rs. 22,09,530/-. The assessed income, interalia, included Rs. 1,05,570/- of income disclosed during search , Rs. 4,07,918/- of income estimated on account of interest in financing and Rs. 16,96,044....
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..... On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in enhancing the addition of Rs. 10,05,568/- in hands of firm on account of certain torn papers found from the dustbin of one of the partner's residence, without appreciating the fact that the said document was a non-speaking and dumb document. 7. The appellant craves the leave to add, amend, alter and/or delete any of the above grounds of appeal at or before the time of hearing." 5. Our findings in respect of the issues raised by the assessee are as under: Ground No.1 6. This ground has been taken by the assessee for the first time before us only. The assessee has challenged the jurisdiction of the AO to assess the income of the assessee under section 153C read with section 143(3) of the Act on the ground that the satisfaction recorded by the AO for proceeding against the assessee under section 153C was invalid and bad in law. The Ld. A.R. for the assessee has submitted that a perusal of the assessment order passed under section 153C of the Act reveals that the case of the assessee was assigned to the concerned AO i.e. DCIT, Central Circle-1, Thane, on 28.03.07. Wher....
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....ssessment under section 153C in the case of the assessee was bad in law as no notice as per the provisions of section 153C was issued to the assessee. In fact, the alleged notice was issued under section 153A of the Act. He has contended that in fact the search action was conducted in the case of partners of the firm namely Shri Amritlal Hirachand Sanklesha (Mutha) and Shri Ramesh Hirachand Sanklesha (Mutha) and the firm being distinct entity from its partners under the Income Tax Act, is a third party, hence, as per the provisions, notice under section 153C was required to be issued before framing assessments for the block period in the case of the assessee firm. Since the assessee was not a searched party, the notice issued under section 153A was bad in law and hence the assessments framed in pursuance to issuance of invalid notice have also got invalidated. He has contended that since no notice under section 153C was issued to the assessee, hence the assessment proceedings done under section 153C were bad in law and are liable to be set aside. He has relied in this respect on the decisions of the Delhi Bench of the Tribunal in the case of "Jindal Stainless Steel vs. ACIT" (2009)....
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....ling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the a....
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....r person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A." 10. A perusal of the above sections reveals that in case of search action initiated under section 132 of the Act, the AO has to issue notice under section 153A requiring the searched person to furnish the returns of income in respect of six assessment years preceding the year in which the search has been made and assess the income for the said years as per the prescribed procedure. If the AO is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person searched, the AO has to record a satisfaction in this regard and thereafter to hand over the books of account or documents or assets seized or requisitioned to the AO having jurisdiction over such other person and that AO shall proceed against each such other person and issue such other person notice and assessor reassess income of such other person in accordance with the provisions of section 153A. The aforesaid provision is cont....
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....that whether the AO had followed the prescribed procedure and further that whether such an omission or mistake in service of notice, as has been alleged by the assessee, has resulted into any infringement, curtailment or extinguishment of any right of the assessee which was available to it under the provisions of the law and thereby has in any manner caused prejudice to the interests of the assessee. 13. We find that in the case in hand, the search was conducted in the name/premises of the partners of the firm. Though under the Income Tax Act, the firm has been recognized as a distinct person and is assessable to Income Tax separately, however the fact remains that the very existence of the firm is dependent upon the existence of the partners. There cannot be a firm without partners. The partners are the persons who control and run the business of the firm. Even the partners individually, jointly and severally can be held liable for the acts of the firm as the liability of the partners, subject to some exceptions, is unlimited. A firm cannot be equated with a company, nor the partners of the firm with that of Directors of a Company. In the background of this legal position, when w....
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....pose of issuance of notice u/s 153A, in our view, is to call upon and requiring the assessee to furnish the returns of immediately preceding six years and thereafter the AO has to assess or reassess the income for the said six years as per the provisions of the Act. Law has been almost settled on the point that assessment/reassessment cannot be made of the already concluded assessments, if no incriminating material is found against the searched person during search action. So far the provisions of section 153C are concerned, even if we take a broad view stretching wide the provisions of section 153C taking into consideration the principles of natural justice; though are considered stranger to the fiscal statutes; the resultant interpretation that can be drawn will be that since satisfaction is required to be recorded by the AO of the searched person that such material/documents found/seized during the operation, in fact, belong to the 'other person' as referred to u/s 153C, hence under the circumstances, the said 'other person' has to be afforded opportunity to file objections not only against the reopening of the concluded assessments disputing the incriminating nature of the mate....
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....f the assessee has been infringed or affected by mere not mentioning the 'section 153C' in the body of the notice which has been duly issued as per the provisions of section 153A as prescribed therein under the provision of section 153C itself. So in view of the peculiar facts and circumstances of this case, in our view, no prejudice has been caused to the assessee, so far so, the non mentioning of section 153C in the body of the notice in question is concerned. In view of our above observations, these grounds, taken by the assessee are accordingly decided against the assessee. Ground No.3 17. Ground no.3 relates to the addition of Rs. 4,07,918/- on account of unaccounted income from money lending. During search in the residential premises of Shri Ramesh H. Shanklesha, partner, certain documents were found and seized including certain documents indicating receipt of interest income on advances. The seized documents revealed details of interest received during the period from 23/10/06 to 06/12/06. AO cross-checked six entries for the interest received recorded in the books of account with that seized papers and found that the amount of interest mentioned in the seized papers was e....
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....modus operandi was not adopted in the past. However the fact which cannot be ignored in this case is that the AO had correlated the entries relating to six persons only. Whereas as per the assessee, there were about 500 to 600 persons to whom the advances were made. In our view, it will not be justified to assume that advances were made at the double rate of interest than shown in the books of accounts in relation to all the borrowers. The chargeability of rate of interest also depends upon time to time market conditions as well on the prevalent bank interest rates. There is also no direct evidence on the file that the assessee in the past had charged the interest at the double rate than shown in the books of account from all the persons with whom he had made such transactions. Hence, in view of the overall facts and circumstances of the case, in our view, the interest of justice will be best served if the additions are reduced considering the submission of the assessee that it is not possible that the assessee had been charging same rate of interest from all the borrowers in the past. We accordingly reduce the addition made by the lower authorities on this issue to the extent of 5....
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....ng the addition of Rs. 16,96,044/- on account of difference in stock. As stated by the assesseefirm to the assessing officer vide their letter dated 3rd December' 2008 & 26th December 2008 we reproduce the explanation submitted by the assessee as under: 'The quantity as per GS 12 register for the F. Y. 2003-04 shows 16852.33 gms. of gold, whereas as per Annexure-E of the Tax Audit Report for the A.Y. 04-05, shows 13159.80 gms. of gold. Thus there is difference of 3692.53 gms. The difference is mainly due to the following though entered in GSI2 but not effected in financial accounts: Gold recd. under Loan Scheme 1400 gms Security Deposits from Karigars 2300 gms. The firm has a scheme of receiving Gold Loan in physical gold to be returned with interest in gold. The gold loan received is entered in GS12 but not entered in the financial accounts as it does not have monetary impact. The firm takes security deposit from the Karigars to whom it gives job. The gold received from the Karigars as security deposit is returned only in gold and therefore this also is entered in Gs12 but not effected in financial records. Since such gold received either as security deposit or loan ....
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....sue observing as under: "10.6. In the case of Nemichand Kothari, the Hon High Court Guwahati has taken a view that section 68 of the IT Act does not alloy revenue to inquire into the sources of creditors or sub creditors and once the assessee has disclosed the sources from which he has received the loan, his burden stands discharged. The Hon High Court, further, held that it is not the burden of the appellant to show the source of creditor or prove that creditworthiness of the creditors. 10.7 The reliance of the appellant on the above case is totally inappropriate. In the case of Nemichand Kothari, the assessee had introduced loans that had been received by way of cheque and the same had been taxed u/s 68 of the Act on being found that the loan parties were not having creditworthiness. 10.8 Whereas in the case of the appellant, it has been taxed as unaccounted stock of gold jewellery. Moreover, the alleged gold loans are not reflected in the books nor in the audited statement. Further, there is no payment of interest to the gold loan parties though the assessee has claimed to have paid @ 6%. The balance sheet does no reflect this. For the same reasons, the decision of Hon High C....
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....ssessee against the one and the same entry in the register of the stamp vendor. Though the agreements have been shown to have been entered on different dates of the month of October and November 2003 but the stamp papers for all the agreements have been purchased in the name of the partner of the assessee firm namely Shri Ramesh H. Snaklesha on the same date i.e. 03.10.03. The assessee has not produced any evidence about the gold loan scheme launched by it. After considering the peculiar fact of purchasing of all the stamp papers against the single entry and thereafter execution of agreements shows that the said agreements are an afterthought action of the assessee. The assessee even had not debited the payment of interest to the books of accounts at the rate of 6% as has been alleged by it. No loan had been reflected in the balance sheet. Hence, we do not find any infirmity in the orders of the lower authorities in disbelieving the explanation of the assessee regarding the gold loan agreement. 28. With regard to the explanation given by assessee regarding the remaining 2300 gms of gold alleged to be received from Karigars as security deposit, we found that assessee has filed lett....
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....n returned to the karigars or continued to be used by assessee firm on the plea of same Karigar continued to work with the assessee firm. In a jewellery business, the jeweler gives gold to the karigar for making jewellery, in the contrast, the assessee has claimed that karigars had given gold to the assessee which was used by it for making jewellery and selling the same in his Showroom. Thus, the story of assessee was not genuine. Accordingly we uphold the decision of lower authorities that assessee had brought unaccounted gold jewellery into business during the previous year relevant to A.Y.2004-05 and the same was added to the income as undisclosed income of the assessee firm. Nothing was brought on record by ld. AR to persuade us to deviate from the findings recorded by the lower authorities to the effect that no gold was given by Karigar to the assessee in the year 2003. Since the finding of fact recorded by lower authorities which are as per material on record, could not be controverted by ld. AR by bringing any positive material, we do not find any reason to interfere in the findings recorded by lower authorities to justify the alleged deposit of 2300 gms of gold by karigars.....
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....s unable to give any explanation for the entries in the slip. However, in a letter dated 08/12/08 addressed to the AO, the said Shri Ramesh H. Shanklesha agreed to be assessed @ 20 % on net sales after treating the entries in the slip as unrecorded sales in the hands of the partnership firm. However, the AO observed that the amount involved in the seized material was part of the unaccounted income generated from the firm in which the above mentioned persons were partners, which they had used as advance to various parties. He therefore, in the case of Shri Ramesh H. Shanklesha, treated the differential amount of Rs. 42,39,692/- as unexplained advance and added the same into his returned income i.e. in the hands of the partner of the assessee firm. Similarly in the case of Amritlal H. Shanklesha, another partner, an addition of Rs. 81,17,017/- was made in his hand by the AO on account of the entries found in the said seized documents. 31. The Ld. CIT(A), however deleted the additions in the hands of the partners observing that the only income of the partners was profit, interest and remuneration from the partnership firm. The entries recorded in the above mentioned seized loose slip....
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..... CIT(A). 33. We find that in the case of the partners of Shri Ramesh H. Sanklesha and Shri Amritlal H. Sanklesha, the said partners have taken a plea before the AO that the undisclosed income on the basis of the said loose papers was liable to be assessed at the hands of the firm. In contrast to their stand taken in their own case, while representing the firm, the said partners have taken the plea that the income, if liable to be assessed, then the same is liable to be assessed in the hands of the partners. As observed above by us, the firm is represented and controlled by the partners. Without partners the firm cannot exist. The acts of the firm are done by the partners of the firm. The partners of the firm are not different persons or third parties. The partners in this case are trying to blow hot and cold in the same breath. They are taking one plea in their own case and contradictory plea in the case of the firm which is being represented through them only. So far so, the contention that the document was a dumb document, we do not find any merit in the said plea. The entries have been found mentioned against the name of partners, some of the entries are on the left side and s....
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....ome of the assessee firm on the basis of loose torn slip. We have already discussed the issue relating to enhancement of income on the basis of said loose torn slip while adjudicating ground No.5 & 6 of the assessee's appeal as above. As discussed hereinabove, we found that the CIT(A) has correctly given benefit of telescoping in respect of income already assessed in A.Y.2003-04 amounting to Rs. 7,46,544/-. As we have already upheld the findings of the CIT(A), we do not find any infirmity in the order of CIT(A) for allowing telescoping benefit of Rs. 7,46,544/-. Accordingly, appeal of the Revenue is dismissed. ITA No.4564/M/2010 for assessment year 2005-06 (Assessee's Appeal) 35. The grounds of appeal taken by the assessee for the year under consideration are identical to that of assessment year 2004-05 except the difference in the figures of the amounts/additions. In view of our findings given above, while adjudicating assessee's appeal for assessment year 2004- 05, the identical issues taken in this appeal are accordingly treated to be decided on the same lines. This appeal of the assessee is accordingly partly allowed. ITA No.4565/M/2010 for assessment year 2006-07 (Assessee'....
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....d. CIT(A) erred in allowing credit for the sum of Rs. 16,00,000/- as the same has already been considered in the A.Y. 2002-2003. However, neither such sum is considered in the assessment order for that year, no CIT(A) has given any finding as to why the said sum of Rs. 16,00,000/- pertain to that year. 03. On the facts and in law, the Ld.CIT(A) though enhanced income of the assessee firm by Rs. 15.01 677/- for the A.Y. 2007-2008, however, erred in quant i f icat ion of enhanced income by holding that s ince a sum of Rs. 6286,077/- has been considered in the A.Y. 2005-2006, no separate addition is warranted on account of enhancement for the A Y 2007-2008. 04. On the facts and in law, the Ld.CIT(A) though enhanced income of the as ses see by Rs .15,01,677/- however but er red in quantif ication of enhanced income by holding that an amount of Rs. 15,01,677/- is included in income earned by the assessee firm in the A.Y. 2005-2006, without brining any documentary evidence on record in support of his observation. 05. The Appellant craves , leave to add, to alter, amend and/or vary the grounds of appeal at any time before the decis ion of appeal." 40. A perusal of the above grounds of....