TaxTMI 
TaxTMI 
2013 (6) TMI 739
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.... (for short Sri Jagadamba Pearl Dealers), 2-2-46, M.G. Road, Secunderabad, which is a partnership firm. A search was also conducted in the case of its partners viz. Sri Ravinder Kumar and Mahender Kumar, at their residential premises situated at Plot No.162, Road No.12, Banjara Hills, Hyderabad and Plot No.26, Gunrock Enclave, Secunderabad respectively. On the date of search a detailed panchanama was drawn. Inventory was taken on bank accounts which totalling to about 42 relating to firms and various family members of group. 3. Sri Ravinder Kumar on 27.04.2009 filed a detailed statement showing the deposits in 8 bank accounts. S.No. Particulars A/c No. 1 HDFC Bank, Paradise Circle, Secunderabad 13866 2 The A.P.Janata Co-op. Urban Bank Ltd., Sec'bad 403 3 The A.P.Janata Co-op. Urban Bank Ltd., Sec'bad 250 4 The A.P.Janata Co-op. Urban Bank Ltd., Sec'bad 298 5 The A.P.Janata Co-op. Urban Bank Ltd., Sec'bad 419 6 The Neela Krishna Bank, R.P.Road, Sec'bad 445 7 The Neela Krishna Bank, R.P.Road, Sec'bad 382 8 The Vardhman Co-op. Urban Bank Ltd 1975 4. These accounts were being operated by Sri Ravinder Kumar as Proprietor and....
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.... operated accounts. 9. Aggrieved by the order of AO the assessee preferred an appeal before CIT(A). 10. Thus the main issues as simplified by First Appellate Authority at para 8.1 in his order in the case of Sri Jagadamba Pearl Dealers for Asst. Year 2009-10 are: a) Treatment of unaccounted turnover through credit cards, deposited into bank accounts along with the cash sales, that were not disclosed to the department, and taxability of such income, in firm's hands or in the hands of Mr. Ravinder Kumar. b) Relevance of the treating the entire amounts of such turnovers as unaccounted incomes, without allowing any expenses related to the said turnover, and basis for quantifying the profits on such turnovers. Assessment of the turnovers as income in the hands of Mr Ravinder Kumar on protective basis, when the incomes on such turnover was estimated at 5% and offered for tax, by Mr Ravinder Kumar. 11. The CIT(A) upheld the treatment of undisclosed turnover as that of Sri Jagadamba Pearl Dealers and further the entire account of search turnover was taken as income of Sri Jagadamba Pearl Dealers without allowing any expenses. CIT(A) therefore deleted the addition made in the case of ....
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....e information. In reply, the assessee submitted as follows: It is not correct to say that the declaration of existence of the 8 bank accounts was not voluntary. Sri Ravinder Kumar disclosed these accounts before DDI on 27.04.2009 that is much before 30-04-2009 as observed by the Commissioner of Income Tax(A). The Commissioner of Income Tax himself admits that the detection physically is on 30.04.2009. Kind attention is invited to page 1 of the paper book. Which shows the workings for deposits in various undisclosed bank accounts and the net undisclosed deposits filed before Deputy Director of Income Tax on 27.04.2009. Further Ravinder Kumar in his sworn statement on 28.04.2009 disclosed the bank accounts and offered to declare income @ 5% on the total of such deposits each year as his income and he accordingly filed the returns. In any case it does not matter whether the information is detected or disclosed. The so called seized material / information indicate Ravinder Kumar as Proprietor for all the business disclosed in those Bank accounts. 17. To the observation of the CIT(A) that the pocket dairies were seized from Ravinder Kumar in the business premises of Sri Jagadamba Peal....
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....r Kumar was not furnished, in reply, the assessee submitted as follows: "As mentioned by Commissioner of Income Tax himself Ravinder Kumar requested HSBC Bank officials to provide the information and if the Bank officials do not provide the same assessee cannot be penalized." 20. To the observation of the CIT(A) that the decision of the Hon'ble ITAT in the case of Ravinder Kumar and Mahendra Kumar order dt. 02/09/2000 is distinguishable on facts. 1) In earlier year entire transaction (turnover) in bank accounts were unaccounted in the books of firm earlier. Where as a part of the turnover being Rs. 35,48,628 was shown to have reflected in regular books of firm. 2) the clandestine business was earlier carried by two partners where as it is done by one partner only this issue. 3) In the present case the evidence was seized in the case of Sri Jagadamba Pearl Dealers where as earlier it was found in the case of the partners. 4) ITAT seems to have taken a liberal view in respect of clandesite business. In reply, the assessee submitted as follows: 1) Kind attention is invited to page 1 of the paper book. This clearly shows the figures of turnover already declared in the books of firm.....
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....f the learned counsel for the assessee is that income generated from the suppressed sales deposited in the undisclosed bank account could be treated as income of one of the partner Shri Ravinder Kumar. Further, he stated that on an earlier occasion, Tribunal considered similar issue and treated the income generated from the undisclosed sales as income of Shri Ravinder Kumar. He referred the order of the Tribunal in IT(SS)A No. 144/Hyd/02 and others dt. 21/09/2000 covering the block period from AY 1988-89 to 1997-98 & 01/04/97 to 16/07/97 placed at pages 19 to 63 of the paper book. He also stated that the partners of the firm have confirmed that they have no knowledge of these unaccounted bank accounts and filed an affidavit to this effect. The learned counsel submitted that the affidavit cannot be rejected without cross-examining the deponent and for this purpose he placed reliance on the judgment of the Hon'ble Supreme Court in the case of Mehta Parikh & Co. Vs. CIT [1956] 30 ITR 181 (SC). To adjudicate the issue of taxable income of unaccounted sales, we have gone through the latest Deed of Retirement-cum-Admission dated 1st April, 2005, affidavit filed by the assessee and also e....
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....proportion as mentioned above. Clause 9: Each partner shall upon every reasonable request inform the other partner or partners of all letters, accounts, writings, and other things which shall come to her/his hands or knowledge concerning the business of the partnership. Clause 10: Each partner shall be just and faithful to the other partner or partners in all transactions relating to the business of the partnership and shall give a true and correct account of the same to them when and so often as the same shall be reasonable required. Clause 11: All the partners hereto and hereby authorized jointly or severally to operate upon the bank account or accounts whatever in credit or overdrawn for and on behalf of the firm. They are further authorized either jointly or severally to arrange for credit facilities, overdrafts, loans and other borrowings either with or without scrutiny from individuals, firms, companies or any financial institutions. Clause 16: In all other matters, the partnership shall be governed by Indian Partnership Act, 1932 or any statutory modification thereof for the time being in force. 25. As per the partnership deed itself, whatever not stated in the Deed gov....
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....t support the plea of the assessee's counsel. In this connection, we refer to the decision of the coordinate bench in the case of Shri Gopal Lal Badruka and others in ITA Nos. 354 to 357/Hyd/2010 and others vide order dated 26th November, 2010 wherein similar issue was considered and the coordinate bench held that "the on-money receipts, though received by the partners, the partners have received on behalf of the firm in their representative capacity and as its agents, and they have nothing to do with the business of the assessee firm, other than as a partner. The on-money is having direct nexus with the land business transactions of the assessee firm. It leads to absurd results, if the regular income from the sale of plots is assessed in the hands of the firm and the onmoney in relation to the very same transactions of the firm was assessed in the hands of the partners firm directly. These findings of the Tribunal has been confirmed Hon'ble AP High Court in the case of Gopal Lal Bhadruka and others, reported at [2012] 346 ITR 106. In view of this, we are inclined to hold that the income generated from the suppressed sales has to be considered as income in the hands of the assessee....
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....t for the Asst. Year 2004-05 - 2.56% 2005-06 - 3.98% 2006-07 - 5.74% 2007-08 - 2.57% 2008-09 - 4.01% 2009-10 - 3.28% 32. The Ld. Counsel submitted that the rate of profit declared by Sri Jagdamba Pearls Dealer and accepted even at post search is as given above and the profit offered by Ravinder Kumar @ 5% is much more than the profit rate declared in any other case and the same can be accepted. 33. The Ld. Counsel also submitted that table showing the comparative income offered to tax to various dealers in this line of business at Monalisa Pearls average @3.61%, Mansarovar Pearls (India) Pvt Ltd , average @ 1.25% Spectrum Pearls, average @ 0.16%. 34. We have heard both the parties. Following the conclusions drawn at para 23 to 26, this ground is dismissed as infructuous. 35. Ground No.4 for Asst. Year 2006-07 reads as follows: "The learned CIT(A) is not correct in disallowing the interest on housing loan amounting to Rs. 50,907/-" 36. Since the issue was not pressed by the assessee it is dismissed as not pressed. 37. Ground No.2 for Asst. Year 2007-08, reads as follows: "The CIT(A) is not correct in sustaining the addition made by the Assessing O....
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....4A. The Ld. Counsel for the assessee submitted as follows: "The assessee did not incur any expenditure to earn exempt income. Section 14(A)(2) clearly states that where the Assessing Officer having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income, there must be a finding by the Assessing Officer that he is not satisfied that the assessee has incurred such expenditure. There is no such finding recorded by the Assessing Officer in this case. The onus is on the Assessing Officer to prove that the assessee incurred the expenditure for earning exempt income. He had withdrawn from one Partnership Firm in excess of his capital balance and invested the same as his capital in another Partnership Firm whereby paying interest on the negative balance to one partnership firm and earning positive interest from the other Partnership Firm. Since the interest on capital is assessable as business income U/s.28(V) the net income was rightly offered to tax by the assessee and the lower authorities are totally unjustified in disallowing the int....
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....ipt and interest payment by the assessee to the same firm, to the extent it should be set off and not to be disallowed. Accordingly, this ground is partly allowed and also to that extent, the orders of the lower authorities have been modified. 44. Ground No. 7 for AY 2008-09 only is as follows: "The CIT(A) is not correct in sustaining the disallowance made by the Assessing Officer on account of interest claim of Rs. 30,599/- out of income from other sources" 45. This ground has not pressed at the time of hearing before us, therefore, the same is dismissed as not pressed. 46. Ground no.8 for Asst Year 2009-10 is as follows: "The CIT(A) is not correct in sustaining the addition made by the Assessing Officer as unaccounted cash of Rs. 14,68,750/-" 47. The assessee counsel pointed out that on 15.6.2009 a detailed letter was filed before the Deputy Director of Income Tax explaining that as on the date of search the books of Sri Jagadamba Pearl Dealers are incomplete and on completion of the same the cash available on the date of search relates to the book balance in the case of Sri Jagadamba Pearl Dealers. The Ld. Counsel also submitted that: "It is humbly submitted that there is....
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....closed turnover). The Ld. Counsel pointed out that the CIT(A) sustained 5% as income in the hands of Ravinder Kumar on the deposits in the bank account indirectly upholding the income return by Ravinder Kumar. Therefore, the Counsel submitted that the departmental appeals in the case of Ravinder Kumar are factually not correct. The 5% income declared by Ravinder Kumar was not separately deleted by CIT(A). We find merit in the argument of Ld. Counsel since the CIT(A) sustained the 5%. 52. In the result the departmental appeals in the case of Ravinder Kumar are dismissed as infructuous. 53. The appeals of the assessee in the case of Ravinder Kumar being ITA Nos. 387, 388 & 389/Hyd/12 are dismissed and ITA Nos. 93, 94 & 95/hyd/12 are partly allowed. The departmental appeals being ITA Nos. 424 to 429/Hyd/12 in the case of Ravinder Kumar appeal are dismissed. SRI JAGADAMBA PEARL DEALERS Assessment Year Assessee's Appeal 2004-05 87/H/12 2005-06 88/H/12 2006-07 89/H/12 2007-08 90/H/12 2008-09 91/H/12 2009-10 92/H/12 Departmental appeal only for 2007-08 to 2009-10 Assessment Year Departmental Appeal 2007-08 368/H/12 2008-09 369/H/12 2009-10....
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.... for the assessee is totally misconceived. In earlier block period cited supra, the assessee has taken a plea that undisclosed income from suppressed turnover to be at 17%. However, this was rejected by the lower authorities as well as the Tribunal by observing as under: "9. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that the plea of the assessee can be accepted only in part. The firm in which the assessee are partners has declared gross profit rate of 27.37%. The AO allowed a margin of 2.36% as expenses on this gross profit margin. The CIT(A) had allowed an expenditure of 4% in the place of 2.36% allowed by the AO. This has been accepted by the Revenue in that case. Thus, the gross profit estimated by the Department worked out to 27.37% minus 4%, i.e. 23.37%. We are of the considered view that this is a reasonable estimate and direct the AO to adopt the same. The grounds of the assessee on this aspect are allowed in part." 58. The above finding of the Tribunal for the block period in IT(SS)A No. 144/Hyd/02 and others in assessee's group cases vide order dated 21/09/2000 has reached finality. No contrary decision in ass....
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....found and seized as annexures A/JAG/CTC/O1 to 05. Among those, annexure A/JAG/CTC/04 was containing 120 loose sheets and few of such pages shown to be indicating certain details related to purchase of pearls and other Jewellery wherein the details such aas quantity, rate and total amounts. On the Initial query put to the appellant on 1.5.2009, it was replied by Mr. Ravinder Kumar, the Managing Partner of the firm, that he cannot readily explain the contents and requested for copies which were provided to him and subsequently he filed a letter dt.5.6.2009 wherein it was contended that papers do not pertain to the firm and are planted In the premises by their business rivals. On this plea, no explanation was offered by the appellant on the transactions recorded in the seized material. The Assessing Officer has quoted the provisions of sec.132(4A) as per which any books of accounts, documents or valuables found at the premises of the assessee are presumed to be belonging to the said party and the contents of such books/documents are presumed to be true. In the process, the Assessing Officer also relied upon the case law of Smt Kesaribai Vs ITO (32 ITD 1) (Hyd ) while claiming the supp....
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....the writings on the planted documents and the signatures collected from the employees are not one and the same. According to the assessee, the papers utilized by the Assessing Officer for making the additions are the papers received from Jaipur, Mumbai and other places and were written by the same person, who has written the other documents. It was also submitted that a complaint was lodged with Mahankali Police Station, Secunderabad. 65. In view of the lack of clarity, contradictory claims and to know the findings of the forensic lab reports on the genuineness of the documents, the CIT(A) referred the matter to the Assessing Officer requesting for full details on the subject matter along with the report on the complete facts. In response to the same, it was submitted by the Assessing Officer that the photocopies of the seized material were originally sent by the DDIT (Inv.), Unit-II(1), Hyderabad to the forensic laboratory and the forensic laboratory stated to have requested for original documents in the place of photocopies and the same are yet to be forwarded. 66. After considering the observations/findings of the Assessing Officer and the submissions of the appellant, the CIT....
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....facts of this case and as such the ratios of the said decision cannot be the basis for making the additions ignoring the facts of the case. The facts emerged at the end of the investigation and assessment proceedings, are that the documents relied upon by the Investigation Authorities as well as assessing authorities were indeed doubted as regards to the genuineness of the claim of the appellant that they are the planted material in their premises by the business rivals as well as the contents of the said seized material and accordingly, these documents were referred for verification With the forensic lab and the report is very much underway at the time of completion of the assessment proceedings. 67. The CIT(A) observed that where certain documents/loose sheets are found In the course of search proceedings, the usual inference would be that such documents represent concealed transactions. But, it cannot be so readily inferred, unless such inference can be made positively on due verification. In matters of inference on facts, ordinarily there should not be any difference of opinion. Where further enquiries are possible, the same should be made in arriving at a definite conclusions....
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....anting of seized documents by his business rivals since there is no concrete evidence to suggest the placing of the seized material by third party. It is also fact that assessee has not at all taken any step as per law against the issue relating to planting of documents. Further, the contention of the assessee's counsel is that the department has not given an opportunity to cross examine the witnesses. The assessee is also having grievance regarding not considering the representation filed by the assessee on various occasions. 18. But the issue before us now remains is that whether the seized material A/GAR/05 can be the basis for addition of Rs. 2,55,50,000/- As seen from the above seized materials, these are just hand written loose documents. The Department got verified the handwriting of the seized material A/GAR/05 from the Govt. Examiner of Questioned Documents, Directorate of Forensic Science, Govt. of India who had given report that on comparison of the questioned documents and specimen writings of the assessee and his family members the authorship of the questioned document does not tally with the seized material A/GAR/05. But this report of the handwriting experts is not ....
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....he present case, the assessee as well as the assessee's son and also assessee's brother Shri S.K. Agarwal categorically stated in every stage of examination and statement recorded u/s 132(1) or132 that the seized material A/GAR/05 is not at all belonged to them. In spite of this the assessing officer proceeded to conclude that these seized materials are conclusively belonged to the assessee. Leave alone the issue relating to authorship of the document seized and the findings of the GEQD, the Department should find out and establish the nexus of these seized materials to the assessee's business while concluding block assessment The assessing officer shall be specific about the nature of nexus of the seized material to the business of the assessee. The allegation of the Department is the seized material that reflected money lending business of the assessee. But they are notable to unearth any background with regard to the money lending business like loan agreement, promissory notes, security details, bank account receipts vouchers or any other corroborative evidence. Without any of these, the department has taken a view that the assessee is carrying on the money lending business. Mor....
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....ial to show that the assessee has carried on money lending business. Noting on the note book/diary/loose sheets are required to be supported/ corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross examine the parties. In the present case, undoubtedly no statement from the parties whose names found in the note book/loose slips has been recorded and assessee such there is no question of cross examination of them and entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible. The evidence on record is not sufficient to support the revenue's case that huge money lending business has been carried on by the assessee outside the business of the assessee. This is the block assessment and we are concerned only with the undisclosed income and we have to consider only material and evidence detected as a result of se....