TaxTMI 
TaxTMI 
2018 (8) TMI 60
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..... 3. The brief facts leading to the controversy in these cross appeals are that the assessee is individual and engaged in the business of financing. He is also a director in two finance companies namely Shubhdeep Finance Co. Pvt. Ltd. and Prakash Deep Finance Co. Ltd. A search and seizure operation was carried out U/s 132 of the Act in the case of assessee and group concerns/associates on 31st July, 2012. During the course of search and seizure action, cash, jewellery, books of account and other incriminating documents were found and seized. The documents found and seized includes the documents relating to finance activities known as "100 days scheme" containing the transactions from 01/6/2009 though the assessee was engaged in this activity since long time. In the statement recorded U/s 132(4) of the Act dated 31st July, 2012, the assessee disclosed and surrendered an income of Rs. 10.00 crores on account of cash, investment and other documents found and seized in the search and seizure action. Subsequently, the A.O. issued noticed U/s 153A of the Act for the A.Y. 2007-08 to 2012-13 on 10/03/2013. In response to which the assessee filed return of income for these five years dec....
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.... such capital the assessee earned interest income by scheme floated in all the years. 2. Whether on the facts and the circumstances of the case Id CIT(A) was right in allowing the appeal of the assessee without appreciating the facts that amount lying in the PD account has to be adjusted against the existing liability of the assessee but as per explanation-2 of the section 132B of the I.T. Act 1961, it has been clarified that the "existing liability" does not include advance tax payable in accordance with the provisions of part-C of chapter XVII. 3. The appellant craves the right to amend alter or add to any of the grounds of appeal given above." 5. Ground No. 1 of the assessee's appeal as well as the grounds of revenue's appeal are common regarding the addition made by the Assessing Officer in respect of undisclosed interest income on estimate basis of Rs. 46,63,770/- was restricted by the ld. CIT(A) to Rs. 26,63,770/-. From the seized material found during the course of search and seizure action, the Assessing Officer observed that the assessee floated a finance scheme which consists of 100 days duration and members of the scheme are required to pay off a fix....
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....submitted that during the search and seizure action, no evidence was found or seized relating to the quantum of funds advanced or interest income earned by the assessee prior to 01/04/2006. The ld AR has pointed out that the Assessing Officer had admitted this fact that there was no record available for the period covered by the three assessment years i.e. 2007-08, 2008-09 and 2009- 10 and part period of A.Y. 2010-11. The Assessing Officer has not given any reasonable basis for estimation of interest income but an ad hoc estimation has been made by the Assessing Officer, which was sustained by the ld. CIT(A) on ad hoc basis without having any material to support the addition made by the Assessing Officer and sustained by the ld. CIT(A). He has further contended that there is no scientific basis or sound reasoning for estimation of income as the Assessing Officer made estimation of interest income for three years at Rs. 60.00 lacs, 1.20 crores and 1.70 crores, which is very inconsistent and arbitrary. The ld AR has pointed out that the assessee has estimated income on actual earnings which is supported by the application of income during the period w.e.f. assessment year 2007-08 to ....
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....idered the rival submissions as well as relevant material on record. There is no dispute that prior to 19/6/2009, no evidence was found during the search and seizure action regarding any income on account of interest from 100 days finance scheme. Though, the assessee has not disputed the fact that the assessee has been carrying out this activity since long time and also shown the income in the books of account, however, the income shown in the books of account is not matching with the entries found in the seized material. The Assessing Officer has estimated the income by taking the opening balance of capital at Rs. 8.00 crores as on 01/4/2006, which was not disputed by the assessee. However, the assessee contended that due to ill health of the assessee during the said period, as the assessee was suffering from Tuberculosis and therefore, was not able to do any business activity. Hence, the assessee's claim that the income declared by the assessee of Rs. 13,36,237/- for the year under consideration is justified and even the total income declared by the assessee for the three assessment years i.e. A.Y. 2007-08 to 2009-10 and part of the A.Y. 2010-11 up to 17/6/2009 is matching with t....
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....ooks of account of the assessee. Therefore, when the Assessing Officer has not found any significant discrepancy in the income offered by the assessee and corresponding application of income then there is no reason for not accepting the income offered by the assessee. Accordingly, in facts and circumstances of the case when the addition was made by the Assessing Officer purely on ad hoc estimation and without any tangible material, the same is not sustainable and consequently is liable to be deleted. Hence we delete the addition made by the Assessing Officer and sustained by the ld. CIT(A) on this account. Accordingly, ground No. 1 of the assessee's appeal is allowed and ground No. 1 of the revenue's appeal is dismissed. 10. Ground No. 2 of the revenue's appeal is regarding relief granted to the assessee by the ld. CIT(A) in respect of interest U/s 234B of the Act. During the search and seizure action, the cash of Rs. 6.11 crores belonging to the assessee was seized. The assessee filed applications on 21/3/2013, 27/5/2013, 3/7/2013 and 17/9/2013 for adjustment of the above seized cash against the tax liability. The Assessing Officer though adjusted the said amount but against th....
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....is regard, AR contends that as per the law as applicable at that time, Section 132 B (l) of the Act provides for adjustment of assets seized against any existing liability. Further, AR has also relied upon the decision of Hon'ble ITAT Jaipur Bench in case of Sh. Johri Lal Sodhani in AY 2010-11 in ITA No 145/JP/2013 & CO No 09/JP/2013 and Rajan Jhiriwal Vs DCIT ITA No. 73/JP/2013. Now, in view of following judicial pronouncements, the liability to pay advance tax is an existing liability and cash seized during the search operation is adjustable against the existing liability: * Kesar Kimam Karyalaya ( High Court Delhi) * Kanishka Prints Pvt Ltd (ITATAhmadabad) * Sudhar MShetty (ITATMumbai) * Nikka Mai Babu Ram (SOT Chandigarh) In case of Nikka Mai Babu, Hon'ble ITAT Chandigarh has observed inter alia as under: "8. Quite clearly, it prescribes that the assets seized under s. 132 can be adjusted (a) against the amount of any existing liability under this Act; (b) against the amount of liability determined on completion of assessment under s. 153A; (c) against the amount of liability determined on completion of assessme....
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....sive construction has to prevail in this situation. In the present situation, it is evident that cash was seized from the assessee during search operation and, assessee requested the Department to adjust a part of such cash receipts against the liability of advance tax which arose on account of te income surrendered during the search operation. The Department does not deny possession of the cash since the time of search. Thus, we find no justification for the Revenue to interpret the expression 'existing liability' in s. 132B(1)(i) as not referring to liability of advance tax. Under the IT Act, liability towards advance tax is a part of the scheme of recovery of taxes and such liability definitely falls in the expression 'existing liability' used in s. 132B(l)(i) in the facts and circumstances of the case. The reliance pleaded by the CIT(A) on the judgment of the Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath & Ors. vs. Asstt. CIT (1999) 156 CTR (MP) 49: (2000) 241 ITR 758 (MP) is quite misplaced. As per the Revenue, in terms of the said judgment, the seized cash cannot be adjusted towards advance tax liability. We have carefully perused the....
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....d in 37 ITR 418, Hon'ble ITAT Chandigarh has held that assessee was entitled to adjustment of seized cash against advance tax liability and therefore no interest could be charged u/s 234A & 234B in the event of department not responding to assessee's request for adjustment of cash seized against advance tax liability. Here I would like to refer decision of Hon ITAT Agra Bench in case of ACIT Vs. Sunil C Gupta [ITA No 290/Agra/2013 Dt of pronouncement 28/02/2014] wherein Hon'ble ITAT Agra has held that cash seized to be adjusted against advance tax liability as Explanation-2 to Section 132B of the Act is enacted with effect from 1st June 2013. In this case, Hon'ble ITAT has upheld the observations of Id CIT(A) which are as under - "- "......I have carefully considered the assessment order as well as the written submission of the appellant, Remand report and the rejoinder on this issue remand report and the rejoinder, in this case Search and Seizure Operation was carried out in the premises of Shri Sunil Chand Gupta on 10.03.2010 wherein cash amounting to Rs. 4,31,36,000/- was seized from the residence and locker and was deposited by the department in the PD....
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....that amount arises even before completion of the assessment. The Hon'ble High Court further held that section 132B(1) of the Act, thus not prohibit the utilization of amount seized during the course of search towards the advance tax liability. The Hon'bie High Court of Punjab & Haryana in the case of CIT Vs. Ashok Kumar reported in 334 ITR 355 has also held on similar facts that the assessee was entitled to adjustment of seized cash against advance tax liability and therefore, no interest could be charged u/s 234A & 234B in the event of the department no responding to assessee's request for adjustment of cash seized against advance tax liability, in view of the following judgments, the action of the AO in charging interest under 234A, 234B & 234C is not justified and hence, directed to be deleted... " In view of facts and circumstances of the case as discussed above and respectfully following the decisions of aforementioned judicial pronouncements, AO is directed to re-compute the interest chargeable u/s 234 B accordingly after giving credit of amount of Rs. 7,77,400/= being claim made by the assessee in the computation appended with the return (out of seized cash lyin....
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....cation. 16. Now we take the cross appeals for the A.Y. 2008-09. In these appeals the assessee as well as the revenue have raised following grounds of appeal: Grounds of assessee's appeal: "1. The ld. CIT(A) has erred on facts and in law in estimating the undisclosed interest income at Rs. 50,00,000/- as against Rs. 12,21,300/- declared by the assessee thereby confirming an addition of Rs. 37,78,700/-. 2. The ld. CIT(A) has erred on facts and in law in confirming the findings of A.O. that cash deposit in the bank account of Sh. Rajendra Jain Rs. 1,10,000/-, Sh. Ashok Sharma Rs. 5,65,400/- and Shri Mahaveer Prasad Sharma Rs. 6,51,200/- is out of undisclosed income of assessee. 3. The assessee craves to amend, alter and modify any of the grounds of appeal. 4. The appropriate cost be awarded to the assessee." Grounds of revenue's appeal: "1. Whether on the facts and the circumstances of the case Id CIT(A), was right in restricting the addition from Rs. 1,07,78,700/- to Rs. 37,78,700/- made on account of undisclosed interest income without appreciating the fact that based on seized material and statements given by the ass....
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....eed. 20. Before us, the ld AR of the assessee has submitted that all these three persons are working with the assessee and since they are dealing the financial matters and cash, therefore, in order to protect and secure the interest of the assessee, the assessee has taken the cheques from these persons as a security for any misappropriation of fund by these persons. Merely because cheque books of these persons were found with the assessee, cannot be a reason to consider the cash deposit in these accounts as undisclosed income of the assessee. The ld AR has further contended that the statement of Shri Mahaveer Prasad Sharma was recorded U/s 132(4) of the Act at the time of search, however, no such question was asked or any statement was made in this respect. There is no dispute that these bank accounts belonging to the respective persons. The Assessing Officer has accepted all other entries in these bank accounts as belonging to the respective persons except for those deposits made in cash. These persons are assessed to tax and deposits in the bank account is a subject matter of assessment in their hands. The ld AR has referred to the return of income filed by these persons and s....
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....taken signed cheques of these persons. We further note that the assessee produced return of income of all these three persons wherein the incomes were declared for the A.Y. 2007-08 and 2008-09. The ld. CIT(A) while rejecting the contention of the assessee has observed that the income declared by these persons is only equal to the amount deposit in the bank and therefore, it cannot be accepted that those deposits were made from the declared income of these persons as there must be some household expenses by these persons. Thus, the explanation and supporting evidence produced by the assessee was not accepted by the authorities below on the ground that the income declared by these persons in their return of income is only matching with the deposits and therefore, the entire source of deposit is not explained. It is pertinent to note that the assessment under consideration is reassessment U/s 153A of the Act and therefore, the addition of income can be made only on the basis of seized material. The cheque books found during the search and seizure action is not an evidence to disclose any undisclosed income of the assessee in the form of deposits of cash in the bank accounts of these p....
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.... any of the grounds of appeal. 4. The appropriate cost be awarded to the assessee." Grounds of revenue's appeal: "1. Whether on the facts and the circumstances of the case Id CIT(A), was right in restricting the addition from Rs. 1,32,75,966/- to Rs. 22,75,966/- made on account of undisclosed interest income without appreciating the fact that based on seized material and statements given by the assessee during the course of search/post search, the opening balance of Rs. 8 Crore is taken as on 01.04.2006 and on such capital the assessee earned interest income by scheme floated in all the years. 2. Whether on the facts and the circumstances of the case Id CIT(A) was right in allowing the appeal of the assessee without appreciating the facts that amount lying in the PD account has to be adjusted against the existing liability of the assessee but as per explanation-2 of the section 132B of the I.T. Act 1961, it has been clarified that the "existing liability" does not include advance tax payable in accordance with the provisions of part-C of chapter XVII. 3. The appellant craves the right to amend alter or add to any of the grounds of appeal....
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....essee for Rs. 2,06,32,278/- is the undisclosed income of the assessee as the assessee is unable to prove the source of such jewellery. 4. The assessee craves to amend, alter and modify any of the grounds of appeal. 5. The appropriate cost be awarded to the assessee." Grounds of revenue's appeal: "1. Whether on the facts and the circumstances of the case Id CIT(A), was right in restricting the addition from Rs. 40,00,000/- to Rs. 25,00,000/- made on account of undisclosed interest income without appreciating the fact that based on seized material and statements given by the assessee during the course of search/post search, the opening balance of Rs. 8 Crore is taken as on 01.04.2006 and on such capital the assessee earned interest income by scheme floated in all the years. 2. Whether on the facts and the circumstances of the case Id CIT(A) was right in allowing the appeal of the assessee without appreciating the facts that amount lying in the PD account has to be adjusted against the existing liability of the assessee but as per explanation-2 of the section 132B of the I.T. Act 1961, it has been clarified that the "existing liability" doe....
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.... As per Section 292C where any document is found in search then it is to be presumed that the contents of such documents are true. Thus, when expenses are found recorded in the seized material, the same has to be allowed for computing the undisclosed income. It is submitted that neither the AO nor the Ld. CIT(A) required the assessee to furnish any correlation chart of the expenses recorded in the regular books of accounts of the two companies vis-a-vis that recorded in the seized material. However, both the records were available before the AO from which he could have ascertained whether the expenses recorded in the regular books of accounts also find place in the seized documents. Therefore, such correlation chart of the expenses as recorded in the seized documents vis-a-vis that recorded in the regular books of accounts of these two companies is enclosed for FYs 2009-10 to 2011-12. From this chart, it can be noted that none of the expenses noted in the seized record tally with that recorded in the books of accounts. In fact, various expenses mentioned in the seized records are not at all recorded in the regular books of accounts and the expenses which are recorded in the seized ....
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....ell as the expenditure which is recorded in the seized material. The year wise comparative statement shows that the some of the expenditure found recorded under common head in both i.e. the books of account as well as seized material. However, many items which were recorded in the seized material are not claimed in regular books of account. Therefore, it is evident from the comparative details of the expenditure that the entire expenditure which is recorded in the seized material has not been claimed in the books of account. We find that about 50% of the items which are recorded in the seized materials are not recorded in the books of account. However, the remaining items which are recorded in both seized material as well as books of account are under common heads, therefore it requires the verification and examination of further details of each and every sub-head of expenditure under a particular head. Hence, we find that the disallowance of the entire claim of the expenditure by the authorities below is contrary to the record and therefore uncalled for, though the possibility of some of the expenditure found in the seized material may also be claimed in the regular books of accou....
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....come through sale of jefwellery and gift to his family members. The summons issued to the purchaser of the jewellery could not be served and returned back by the postal authorities. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) but could not succeed. 37. Before us, the ld AR of the assessee has submitted that that both the lower authorities have not appreciated the following facts which establish the availability of the jewellery in the hands of Smt. Saraswati Devi Sharma and sale of the same by her:- (i) Smt. Saraswati Devi Sharma is mother-in-law of assessee. She hailed from a reputed agricultural-cum-business family of Fatehpur, District Churu, Rajasthan. On the occasion of her marriage and subsequently from time to time on various social occasions, she received gold jewellery from her parental side and also from in-laws side. Further, she also received gold ornaments towards her share on sale of certain parental properties. (ii) Smt. Saraswati Devi was married to Shri Hanuman Prasad Sharma in the year 1958. Shri H.P. Sharma did his diploma in Mechanical engineering and qualified as an instructor from Central Training Inst....
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....mbers of the assessee from Smt. Saraswati Devi. (v) It may be noted that the bills of sale of jewellery and valuables by Smt. Saraswati Devi were also found and seized at Annexure-39 pages 9-62 from the residence. As per these bills, the jewellery and valuables has been sold to 5 parties, namely M/s Karni Enterprises (Prop. Shri. Abhay Bum), M/s Pankaj Jewels (Prop. Pankaj Yadav), M/s Sai Kripa Gem Stones (Prop. Uma Shankar Sharma), M/s M. R. Enterprises (Prop. Jitendra Kumar Daga) and M/s Shri Jee Jewels & Arts (Prop. Akhil Bum). It is possible that these parties may have shifted to other place and therefore summons could not be served. (vi) Though Smt. Saraswati Devi had four daughters and a son, she gifted the amount received from sale of jewellery to Smt. Kalawati Sharma and her three children as they were looking after her in the last two years during her illness and thus, she developed a close affection with the family of assessee. It is for this reason that even in the bank account only Smt. Kalawati Sharma is made nominee. Therefore, only because she has not given any part of the sale proceeds of the jewellery to her other three daughters and son cannot be....
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.... whether the assessee has mischievously taken the entire amount of his mother in law from the bank account by using the signed cheque book with the assessee. Thus, this itself will not change the character of income and source of that amount which was found credited in the bank account of mother in law as a sale proceeds of jewellery. The mother in law of the assessee already expired on 18/8/2009 and even if she had never filed return of income or wealth tax, the same would not impute the tax liability in the hands of the assessee when this is not the income of the assessee but only the amount which was transferred from the bank account of the mother in law to the account of the assessee. The nonsharing of this amount with other daughters and son can be a family dispute and can be settled mutually between themselves and has no bearing on the taxability of the income in the hands of the recipients. Therefore, once the amount was found duly credited in the bank account of Smt. Saraswati Devi Sharma and subsequently it was transferred in the account of the assessee then the transaction cannot be doubted. Even the source of credit in the account of mother in law is found during the sea....
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....nds disposed of and set aside to the record of the Assessing Officer for the same terms. 43. The solitary ground raised by the revenue is regarding the adjustment of seized cash against the tax liability. This ground of revenue's appeal is also common to ground No. 2 of the revenue's appeal for the A.Y. 2007-08, therefore, in view of our finding on this issue for the A.Y. 2007-08, ground No. 1 of the revenue's appeal stands dismissed. 44. Grounds No. 2 and 3 of the assessee's appeal and ground No. 2 of the revenue's appeal are general in nature and does not require any adjudication. 45. Now we take the cross appeals for the A.Y. 2012-13. In these appeals the assessee as well as the revenue have raised following grounds of appeal: Grounds of assessee's appeal: "1. The ld. CIT(A) has erred on facts and in law in confirming the action of A.O. is not allowing the expenses of Rs. 69,54,913/- claimed by the assessee in earning the interest income of Rs. 3,54,04,242/- by holding that the same is recorded in the regular books of account. 2. The assessee craves to amend, alter and modify any of the grounds of appeal. 3. The appropriate cost be aw....
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....During the course of assessment proceedings, the Assessing Officer made addition of Rs. 2,16,92,726/- on account of undisclosed investment being excess amount of investment over the undisclosed income for the year under consideration as estimated by the Assessing Officer. The Assessing Officer as per the revised fund flow statement prepared after considering various additions for all the years work out the opening balance as on 01/4/2012 at Rs. 22,25,416/- as against the application of income for the year is Rs. 2,39,18,142/- resulting a short fall of Rs. 2,16,92,726/-. 51. The assessee challenged the action of the Assessing Officer before the ld. CIT(A). The ld. CIT(A) after considering the certain additions which were recasted the undisclosed income and application statement and accordingly deleted the addition made by the Assessing Officer. 52. Before us, the ld CIT DR has relied upon the order of the Assessing Officer and submitted that the addition made by the Assessing Officer is an outcome of the assessment framed for the earlier five assessment years and therefore, this addition is direct consequence of the additions made by the Assessing Officer in the earlier year. ....
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.... 9,78„50,000 11,05,83,400 9,89,67,321 8,08,51,082 10,91,66,309 15,53,049 Less: Drawings 1,50,000 2,40,000 3,00,000 4,80,240 14,41,583 6,72,367 0 Less: Application of income as above 0 40,26,600 2,86,15,173 5,62,78,942 56,47,432 10,69,40,893 2,39,18,142 Closing balance 8,58,50,000 9,35,83,400 8,16,68,227 4,22,08,139 7,37,62,067 15,53,049 -22365093 Revised Cash Flow Chart Estimated op cash capital as on 01.04.06 80000000 83850000 84583400 81618013 64887600 96441528 24232510 add : income as above 6000000 12000000 17000000 17299094 38642943 35404242 0 Less: Relief allowed in estimated income -2000000 -7000000 -11000000 -1500000 0 0 0 Total 84000000 88850000 90583400 97417107 103530543 131845770 24232510 Less: Drawings -150000 -240000 -300000 -480240 -1441583 -672367 0 Less: Application of income as above 0 -4026600 -28615173 -56278942 -5647432 -106940893 -23918142 Add: ....