TaxTMI 
TaxTMI 
2013 (6) TMI 739
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....come Tax Act were conducted on 30.03.2009 in the case of Sri Jagadamba Pearl Dealers (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 ....
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....alers as Proprietor and are operated by Sri Ravinder Kumar only. Even the account opening form obtained by AO indicated that it was Sri Ravinder Kumar who 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 a....
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....losure of existence of bank accounts is not voluntary and the bank accounts were physically detected by the department on 30/04/2009 and there is no explanation for the delay in withholding the 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 f....
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....ponent. Reliance is placed on the decision in the case of Mehta Parekh and Co., Vs. CIT reported at 30 ITR 181." 19. To the observation of the CIT(A) that the information on credit card machines of Ravinder 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 respe....
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....Ld. Department representative on the other hand relied on the order of lower authorities. 23. We have heard both the parties, perused the record and have gone through the orders of the authorities below. The main contention of 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....
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.... of the SECOND PART 18% the partner of the THIRD PART 18% the partner of the FOURTH PART 18% the partner of the FIFTH PART 10% the partner of the SIXTH PART 18% Provided also that gain derived or loss sustained on the sale of capital assets shall be divided or borne between the parties in the same 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 borrowin....
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....legal sanctity. Sri Ravinder Kumar is working partner of the firm and he has to act for the best advantage of the assessee firm. He cannot carryon anything against the interest of the assessee firm and he shall use the property of the assessee firm for the mutual benefit of partners and act done contrary to the provisions of the partnership Act cannot 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 ass....
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....m suppressed sales has to be considered in the hands of Shri Jagadamba Pearl Dealers. Following the conclusions drawn in at para 23 to 26, this ground is dismissed as infructuous. 30. The next issue is with respect to the estimation of income. The Ld Counsel submitted that the income offered at 5% by Ravinder Kumar is reasonable. 31. The Ld. Counsel pointed out at page 96 of paper book where the turnover on net profit 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 conc....
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....see, viz. the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature." This ground is allowed. 41. Ground No.6 for Asst. Year 2008-09 to 2009-10 - Disallowance of interest paid to firm: 42. The AO and CIT(A) were of the opinion that since the issue of profit is exempt from tax paid on debit balance in the capital account balance cannot be allowed u/s.14A. 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 incom....
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....t for business purpose, cannot be allowed as business expenditure, though, interest income received from firm treated as business income. Further, we make it clear that in view of the judgment of jurisdictional High Court in the case of CIT Vs. T.V. Ramanaiah & Sons, 157 ITR 300 (AP) wherein it was held that interest paid by the partner should be adjusted against the interest credited to the partners in the firm, if any. Accordingly, we direct the AO if there is any interest receipt 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 Asse....
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....the firm on account of unaccounted assets found during the course of search. Being so, we allow this ground of appeal. Departmental Appeal in the case of Ravinder Kumar 51. In the departmental appeal the department has requested that 5% declared by the assessee may be sustained. It was submitted by the Ld. Counsel for the assessee that the CIT(A) directed the Assessing Officer to delete the addition of 95% which the Assessing Officer had made in the hands of Ravinder Kumar (being the balance of undisclosed 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/Hy....
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....4/1997 to 16/07/1997 vide order dated 21st September, 2000. The AR of the assessee submitted that in the said case there is corresponding unaccounted assets, therefore, the Tribunal has taken as income at 17% and in the assessment years under consideration there is no corresponding assets and income to be estimated at an average net profit rate. In our opinion, in every search action unearthing of unaccounted assets may not be found. Being so, it cannot be a reason to estimate the income at lower rate of income as pleaded by the AR. The argument of the learned counsel 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 ....
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....re recorded In annexure-A/JAG/CTC/04, at Rs. 14,31,10,726 as unaccounted purchases pertaining to the year under reference and added to the total income as unexplained expenses as per the provisions of sec.69C of the I T Act, 1961. The total transactions of such seized material is quantified at Rs. 17,91,57,863 With the balance of the amounts related to assessment year 2008-09 (Rs 3,42,43,000) and assessment year 2007-08 (Rs.18,04,137). 62. In the course of the search proceedings conducted at 714 & 715, Chenoy Trade Centre, Parklane, Secunderabad, the business premises of M/s Spectrum Pearls & Exports Pvt Ltd. certain loose sheets were 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.....
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....by the appellant are the papers in the form of agreement of sale relating to Khatiza Begum and other parties that were examined by the Investigating authorities as well as assessing officer and such documents were not considered in completing the assessment, which amounted to acceptance of the department that some of the papers are planted documents and in view of that, these documents also do not relate to them. It was also submitted that based on their complaint, the signatures of the employees including the partners were taken and sent to forensic lab by the Department and based on the report of the said laboratory, it was informed to them that 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 ....
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.... proceedings at the premises of the appellant but based on the facts as explained above, there were some serious doubts expressed about the nature and genuineness of such findings along with the contents of the seized material. It was also put to scrutiny in the form of investigations carried out in the form of signature/hand writing verifications and based on such findings, some of the documents found along with the said seized material utilized by the Assessing Officer for arriving at the above conclusions, were kept aside and not taken cognizance of. Under the circumstances, the case laws quoted by the Assessing Officer are distinguishable from the 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 according....
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.... free to complete investigations and tax the income based on the findings of such investigations/report, as deemed fit, as regards to the genuineness of the seized material and their contents. 69. Against the order of the CIT(A), the revenue is in appeal before us as well as the assessee is in appeal before on the directions given by the CIT(A). 70. We have heard both the parties and perused the material on record. Similar issue came up for consideration in the Gyankumar Agarwal (individual) Vs. CIT 60 DTR 241/146 TTJ 334 wherein it was held as under : "17. At this stage we are not able to consider the argument of the assessee's counsel regarding the planting 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 occasion....
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....f evidence to make an addition. The assessing officer has to establish the link between the seized material A/GAR/05 and with other books of accounts of the assessee. It cannot be considered alone as conclusive evidence. The word 'may be presumed' appear in section 132(4A) gives an option to the authorities concerned to presume the things. But it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee has every right to rebut the same by producing the same in support of his claim. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. There is no conclusive presumption. In the 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 ....
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....ce of corroborative material. If there is circumstantial evidence in the form of promissory notes, loan agreement and address of the parties or bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips carrying on money lending business of the assessee. The assessing officer has failed to prove the money lending business carried on by the assessee on the basis of seized material A/GAR/05. In our opinion, no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material 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, u....