TaxTMI 
TaxTMI 
2021 (2) TMI 361
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....er Of Income Tax (Appeals)-19, is wrong, illegal and opposed to facts of the instant case. 2. The Ld. CIT(A)-19 ought to have seen that the AO while exercising the powers conferred within him has failed to appreciate the legal position that the addition in the case of search assessments and especially proceedings under section 153C has to be made only on the basis of incriminating material. The learned CIT(A)-19 ought to have seen proceedings u/s 153C to reopen the assessment is restricted only to the extent of incriminating documents if any only. Therefore in the absence of incriminating material the same assessment is vitiated in law. 3. The learned CIT(A) ought not to have relied on the assessment orders passed in the case of Dinesh M Mehta to assess the closing stock and receivable in the hands of the appellant in so far as the said order is against well established canons of judicial discipline. 4. The Learned CIT(A)-19 erred in assessing the closing stock of Rs. 464602/- and receivable of Rs. 28,96,647/- of M/s. Vikas Bearings and Wires, ostensible owned by Shri Dinesh R,Mehta, in the hands of the appellant by drawing adverse inference from....
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.... Further, incriminating material found in the form of computer data relating to financial year 2000-01 to 2004-05 was retrieved from software called 'Busy Software', which revealed huge transactions in a file named M/s. A&N Engineering company. During the course of search, statements were recorded from computer operator Mrs.Chitra and Manager of DRM group Mr.Babu, which established the fact that entity M/s. A&N Engineering Company is only a paper concern and that all transactions of sales, purchases, stocks and receivables contained in the computer data belonged to proprietary and partnership concerns controlled by Mr. Dinesh R Mehta. The seized documents also revealed modus operandi of Mr. Dinesh R Mehta in transacting outside books such as purchase of goods, payments against purchase and sales outside books of account. During the course of search, Mr. Dinesh R Mehta admitted an amount of Rs. 7.00 crores as his undisclosed income for all assessment years covered under search and accepted ownership of M/s. A&N Engineering Company. Mr. Dinesh R Mehta has also filed application before Settlement Commission, Chennai and such application was rejected due to non-payment of taxes. During....
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.... carried out in the name of firm is in fact carried out by his employees. The Assessing Officer has also taken support from statement recorded from Mr.Babu, an employee of DRM group on 23.02.2005, where he has categorically admitted that documents found in the name of M/s. Vikas Bearing and Wires, Coimbatore is carried out under instructions of Mr. Dinesh R Mehta. The Assessing Officer had also taken support from statement of assessee recorded on 25.02.2005, where he has admitted that he has lent his name to Mr. Dinesh R Mehta to carryout business in the name& style of M/s. Vikas Bearing and Wires, and all transactions carried out in the name of said firm was done as per instructions of Mr. Dinesh R Mehta. Accordingly, Assessing Officer was of opinion that unaccounted income determined in the form of closing stock and receivables is assessable in the hands of Mr. Dinesh R Mehta and accordingly, made additions on substantive basis in the hands of Mr. Dinesh R Mehta. However, since assessee is owner of M/s.Vikas Bearing and Wires, the same unaccounted income being stock in trade and receivables has been added in the hands of assessee on protective basis. The relevant findings of Asse....
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....e values related to various Ft's the total value of unaccounted dosing stock already determined at Rs. 184,02,331,- is apportioned and worked out as under: Closing stock of MIs Vikas Bearing & Wires, Coimbatore upto the date of search Closing stock based on quotation (sale price) - 2,24.76.420 Less: GP at the rate of 5% as staled - - 11,23,821 Closing stock including accounted stock 2,13,52,599 Opening stock as per accounts 37,22,888 Add: Purchase accounted 16,39,659 53,62,541 Less: cost of goods sold : Sales as per book: 24,08,964 Less: GP 15.899% 3,83,001 20 25,963 Accounted closing stock as on date of search 33,36,578 Ass: Closing stock as on date of search 464,856,168 Unaccounted dosing stock 2,46,89,177 Unaccounted closing stock is apportioned to various financial years: Source of datea Unaccounted purchase Unaccounted closing F.Y.2000-01 9,1 08,672 464.602 F.Y.2001-02 81.353.875 4149541 F.Y.2002-03 108 637 501 5541172 F.Y.2003-04 113,451,851 5,786733 F.Y.2004-05 87,551,711 4,465,669 Bearings 2004-05 accts Sales....
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....been discussed that Sri DRM has been operating undisclosed bank account with City Union Bank, Coimbatore from December 2000 for the purpose of his trading activities under the entity MIs Vikas Bearing & Wires. The data under Bearing 2004-05' does not have the purchase detail. Therefore to apportion the receivables among the F.Ys 2000-01 to 2004-05, the purchase data gathered from ledger account of MIs Vikas Bearing 8 Wires found in the books of MIS A&NEO. and purctiase in proportion to the sale ,on a estimated basis, found in the account of Blearing 2004-05' are considered to apportion the receivable among various FYs. The working of receivables are as under: Un accounted receivable as per 'Bearing 2004-05" as on 16.2.2005 (includes Vikas Chennai of Rs.13,87,23,904/-) Rs. 15,39,29,167 F.Y Source of purchase Unaccounted Purchase Unaccounted receivables 2000-01 VBW in A&N Eng accts 9,108,762 2,896,647 2001-02 do- 81353,875 25.871,070 2002-03 -do I08.637501 34.547445 2003-04 -do 113.451.851 36.078440 2004-05 -do 87,551.711 27,642024 2004-05 Bearings 2004-05 accts Sales- P@ 5% 83,940,204 26,693....
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....m Mr. Dinesh R Mehta regarding ownership of M/s.Vikas Bearing and Wires. The learned CIT(A) after considering relevant submissions of the assessee and has also taken note of various evidences collected during the course of search coupled with statement recorded from Mr. Dinesh R Mehta and his employees and also by taking note of statement of assessee made during the course of search upheld the additions made by Assessing Officer on protective basis towards unaccounted stock in trade and receivables found during the course of search in the name of M/s.Vikas Bearing and Wires, Coimbatore, in the hands of assessee . The learned CIT(A) has also taken support from order of ITAT in the case of Mr. Dinesh R Mehta and consequent assessment order passed by Assessing Officer u/s.143(3) r.w.s. 254 dated 30.12.2011, where the Assessing Officer has excluded unaccounted stock and receivables in the name of M/s.Vikas Bearing and Wires, Coimbatore, while considering additions in the hands of Mr. Dinesh R Mehta to come to the conclusion that protective addition made in the hands of assessee towards unaccounted stock in trade and receivables. The relevant findings of the learned CIT(A) are as under:....
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....order dated 15.03.2018 of Shri Dinesh Mehta) had stated that VBW does not belong to him. 6.2 Meanwhile, the assessment framed in the case of Shri Dinesh Mehta went upto ITAT. Chennai and the Honble TAT Chennai set aside the matter to the Assessing Officer for readjudication as follows: (Quote] "............The Issues n this appeal are restored to the file of the A0 for readjudication after granting the assessee adequate opportunity to substantiate his case". The Assessing Officer subsequent to the above restoration of the case, passed an order u/s 254 dated 15.03.2018 stating as order passed to give effect to the order of the Honble TAT for the set aside assessment u/s 143(3) r.w.s 254 passed on 30.12.2011, A perusal of the above order shows that on the submissions made by Shri Dinesh Mehta, the Assessing Officer concluded as follows: (Quotel Thus as in the previous years, in respect of arriving unaccounted profit of the assessee. Only the sales of the assessee is considered and the unaccounted sales of tIle assessee Which Is the unaccounted purchase of Raju Mehta and that of M/s. Vikas Submersible Pumps and Spares. is to be exc....
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....s Submersible Pumps & Spares can be attributed to the appellant. Further, the income of the business entity should not have been assessed in the hands of the appellant as It a separate entity. distinct from the appellant. The appellant contested against the clubbing of income in letter dated 25th September 2006 1st November 2006, 22nd December 2011, 28th December 2011, but the same was subsequently rejected by the ACIT citing the previous acceptance of the appellant. Both Vikas Bearing & Wires and Vikas Submersible Pumps & Spares am not concerns of the assossee as per the records submitted and information pursued. [unquote] 6.4 The above decision of the AO was made known to the authorized representative of the appellant at the time of hearing on 29.112019. These facts are not controverted by the appellant. Therefore, the protective additions made in the case of appellant is upheld." 6. The first issue that came up for our consideration from ground Nos.4 to 7 of assessee appeals for all assessment years is protective addition made by Assessing Officer towards unaccounted closing stock and unaccounted receivables of M/s. Vikas Bearing and Wir....
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....- 06 in the case of Mr. Dinesh R Mehta submitted that learned CIT(A) has affirmed findings recorded by the Assessing Officer in respect of ownership of business and unaccounted income found during the course of search in form of stock in trade and receivables and held that said business was in fact carried out by Mr. Dinesh R Mehta and assessee has only lent his name. In fact, the matter reached Tribunal and before Tribunal pleading of assessee was in respect of violation of principles of natural justice by Assessing Officer in not providing adequate opportunity of hearing to assessee , but there is no grounds of appeal or pleading challenging findings recorded by Assessing Officer as well as affirmed by learned CIT(A) in respect of ownership of business and unaccounted income found during the course of search in the name of M/s. Vikas Bearing and Wires. The Tribunal under those facts and after considering plea of assessee regarding inadequate opportunity of hearing has set aside appeals to the file of Assessing Officer. Although, Tribunal has set aside appeals, but there is no directions of whatsoever in respect of ownership of business and unaccounted income in the name of M/s....
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....in the hands of assessee on substantive basis. 8. We have heard both parties, perused material available on record and gone through the orders of authorities below. The facts borne out from records indicate that there was search in the case of Mr. Dinesh R Mehta on 23.02.2005. During the course of search and survey operations, various business premises including godowns owned in the name of M/s. Vikas Bearing Corporation, Chennai, M/s. Vikas Submersible Pumps and Spares, Chennai and M/s. Vikas Bearing and Wires, Coimbatore was covered. During the course of search various incriminating documents including a computer system was found, where unaccounted transactions of purchase and sales were recorded in the name of M/s. A&N Engineering Company. The said computer system was found in the premises of Mr. Dinesh R Mehta and same has been marked as Annexure SKM/LS/S-1-20. Mr. Dinesh R Mehta in the statement recorded u/s.132(4) of the Act has admitted that transactions recorded in the name of M/s. A&N Engineering Company belongs to him and also has owned up unaccounted stock found during the course of search. Mr. Dinesh R Mehta has also confirmed the fact vide his letter dated 30.3.2....
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.... on transactions which happened outside books of account, since as per seized documents and corroborative statements, transactions were not undertaken by assessee. Further, all documentary evidences show that transactions happened outside books are maintained separately by Mr. Dinesh R Mehta in the name of fictitious entity M/s. A&N Engineering Company. Mr. Dinesh R Mehta also maintained separate ledger for unaccounted transactions. The entries found in M/s. A&N Engineering & Bearing ledger account maintained by Mr. Dinesh R Mehta were tallied. From the above, it is very clear that unaccounted transactions maintained in the computer system under the name of M/s. A&N Engineering Company is not at all belonged to the assessee. Further, data found in computer was kept in the premises of Mr. Dinesh R Mehta and was seized during course of search from his premises. Once any document or evidence found in possession of a person, then presumption as per section 292C is on the person from whose possession said documents were found or seized unless the person in whose possession books of account or documents were found explains with proper evidence that said documents were not belonged to ....
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....l. In fact, Tribunal has set aside appeals to the file of Assessing Officer without making any comments on merits of the additions made by Assessing Officer. The Tribunal has set aside appeal only on the ground of pleading of assessee that Assessing Officer has not given sufficient opportunity of hearing to explain its case . However, the Assessing Officer during third round of litigation without recording any change in facts and circumstances of the case and also bringing on record any new evidence suggests unaccounted stock in trade was originally added in the hands of Mr. Dinesh R Mehta would belong to the assessee and taxable in the hands of Mr.Raju P Mehta . In our considered view, the Assessing Officer has exceeded his power in going beyond the directions of Tribunal without any findings regarding issue of ownership of business and consequent unaccounted stock in trade and receivables, more particularly, when Mr. Dinesh R Mehta, himself has owned up and admitted business right from date of search while recording statement u/s. 132(4) and also subsequent confirmation by way of letter to the Assessing Officer. Although, he has filed retraction statement after a gap of more t....
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....ng assessment proceedings in the case of Mr. Dinesh R Mehta has excluded unaccounted transactions of stock in trade and receivables pertains to M/s. Vikas Bearing and Wires, Coimbatore without there being any change in facts and circumstances of case prevailing at the time of making substantive additions in the hands of Mr. Dinesh R Mehta and protective addition in the hands of assessee. This view is fortified by decisions of various High Courts, in particularly in the following case laws relied upon by the assessee:- 12. Retraction which is made by DRM is general in nature and there is no specific mention of a particular admission which was claimed to be retracted. The said retraction is unsubstantiated. There was no reference or mention of any evidence. There has been no pressure or torture, if there was such an allegation than DRM would have complained the same to the Commissioner or to any other Authority. Law in respect of admissibility of a retraction is very well settled. There must be some convincing and effective evidence in the hands DRM through which he could demonstrate that the said statement was factually incorrect. ORM is under strict obligation to demonstra....
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.... universal rule. CIT Vs. Lekh Raj Dhunna: 344 ITR 352 (P & H] In case the statement which was made by the assessee at the time of search and seizure was under pressure or due to coercion, the assessee could have retracted from the same at the earliest, No plausible explanation has been furnished as to why the said statement could not be withdrawn earlier. In such a situation, the authenticity of the statement by Virtue of which surrender had been made at the time of search cannot be held to be bad. Assistant commissioner of Income tax vs. Hukum Chand Jam & Ors. 337 ITR 0238-Chhattigarh Deputy Commissioner of Income Tax vs. Bhogilal Mulchand Kando-96 ltd 0344 13. Vikas bearings and wires is a proprietary concern registered in the name of the assessee Raju P Mehta engaged in the business of trading in bearings and wires. The assessee has been receiving monthly ienumeration for this and the same has been admitted by the appellant originally as drawings and in the revised return under the head salary. For all transaction undertaken by the appellant which happened through proper books, the appellant has been regularly filing its returns. The appellant had no c....
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....plication of mind has simply upheld protective addition only for the reason that Assessing Officer in his order dated 15.03.2018 in the case of Mr. Dinesh R Mehta has held that income of M/s. Vikas Bearing and Wires should not have been assessed in the hands of Mr. Dinesh R Mehta, as they are separate entities distinct from Mr. Dinesh R Mehta. Only on the basis of retraction filed by Mr. Dinesh R Mehta vide his letter dated 25.09.2006, although the said retraction was twice rejected by the Assessing Officer.. We further noted that all evidences gathered during course of search and post-search enquiries were clearly shown that unaccounted transactions of stock in trade and receivables recorded in computer system were carried out by Mr. Dinesh R Mehta, which was affirmed by his trusted employees. Mr. Dinesh R Mehta himself has admitted the fact that he had carried out said business in the name of Raju P Mehta. Therefore, we are of the considered view that learned CIT(A) has completely erred in confirming additions made by Assessing Officer on protective basis towards stock in trade and receivables in the hands of assessee . Hence, we direct the Assessing Officer to delete addition....
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....eering Company indicates that a sum of Rs.20,06,686/- was shown as debit balance in the name of RPM. The Assessing Officer has inferred that RPM refers to Raju P.Mehta and amount shown in the name of RPM is assessable in the hands of assessee as unaccounted income. We have gone through facts brought out by Assessing Officer along with arguments advanced by learned AR for the assessee. On verification of various details filed by assessee, we find M/s. A&N Engineering Company is a fictitious entity existed in papers, but all transactions of purchase and sales recorded in the name of said entity was belonged to Mr. Dinesh R Mehta. Further, Mr. Dinesh R Mehta has owned up unaccounted business carried out in the name of M/s. Vikas Bearing and Wires and on that basis, substantive addition has been made in the name of Mr. Dinesh R Mehta and which was upheld by first appellate authority in second round of litigation . However, in third round of litigation, all of a sudden the Assessing Officer has suddenly changed his stand and excluded unaccounted transactions recorded in the name of M/s. A&N Engineering Company relatable to the assessee on the ground that Mr. Raju P.Mehta was legal....
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....irming additions towards cash deposit of Rs.1,54,400/- without bringing on record fact that assessee has satisfactorily explained source of cash deposits and such source of income is out of liquidation of outstanding debtors in respect of his business activity. The learned DR, on the other hand, strongly supported order of learned CIT(A). 18. Having heard both sides and considered material on record, we find that assessee has failed to explain source of income for remaining cash deposit of Rs.1,54,400/- , although assessee claims that source of cash deposits is out of liquidation of debtors, but failed to file any evidence to prove that cash deposit is out of realization of debtors. Hence, we are of the considered view that there is no error in the findings recorded by learned CIT(A) to sustain additions made by Assessing Officer towards cash deposit of Rs.1,54,400/-. Therefore, we are inclined to uphold findings of learned CIT(A) and reject grounds taken by assessee. 19. The next issue that came up for our consideration for assessment year 2001-02 is additions made by Assessing Officer towards cash credit in bank account. During the course of assessment proceedings, Asses....
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....ious dates cash deposits amounting to Rs.6,50,000/- were made, after immediately cheques were issued in favour of various parties. The assessee explained that an amount of Rs.5,00,000/- brought by way of transfer has been returned. The Assessing Officer was not convinced with explanation furnished by assessee and according to him, source of income of cash deposits were unexplained, and accordingly made addition of Rs. 6,50,000/-. 22. The assessee preferred an appeal before learned CIT(A) and filed various additional evidences. During the course of appellate proceedings, learned CIT(A) has forwarded additional evidences filed by assessee to the Assessing Officer for his comments. During the remand proceedings, the Assessing Officer has accepted source of income for cash deposit of Rs.1,50,000/- and in respect of remaining cash deposit of Rs.5.00 lakhs, Assessing Officer has reiterated his observations made during the course of assessment proceedings. Therefore, learned CIT(A) has allowed relief to the extent of Rs.1,50,000/- and balance amount of Rs. 5,00,000/- has been confirmed. 23. We have heard both parties, perused material available on record and gone through the orders ....
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....erials found during the course of search has failed to file any evidences to prove source of income for cash credits found in SB account, and also failed to explain credit in personal trial balance, credit in capital account and difference in remuneration received from M/s. Vikas Bearing and Wires. The assessee has also failed to explain how deduction can be allowed towards compounding fee of Rs.1,000/-. We are, therefore, of the considered view that there is no error in the findings recorded by learned CIT(A) to confirm additions on various accounts. We are inclined to uphold findings of learned CIT(A) and reject grounds taken by assessee. 26. The next common issue that came up for our consideration for assessment years 2003-04 & 2004-05 is protective additions made towards depreciation on car and finance charges on car loan. The Assessing Officer has disallowed expenses claimed under the head depreciation on car and interest paid on car loan on the ground that assessee is only a name lender in respect of ownership of M/s.Vikas Bearing and Wires was in fact, carried out by Mr. Dinesh R Mehta and accordingly, substantive addition has been made in the hands of Mr. Dinesh R Mehta ....
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....as Bearing and Wires. Likewise, Assessing Officer has made additions towards sundry creditors appearing in books of M/s.Vikas Bearing and Wires on the ground that assessee was only name lender and Mr.Dinesh R Mehta is real owner of proprietary business, therefore, he is not in a position to explain identity of sundry creditors. 30. The assessee has filed an appeal before learned CIT(A) and filed various additional evidences. During the course of appellate proceedings, the learned CIT(A) has forwarded additional evidences filed by assessee to the Assessing Officer for his comments. The Assessing Officer vide his remand report has accepted source of credits in personal book for Rs. 15,887/- on the ground that same represents interest paid on car loan. As regards credits in SB account, Assessing Officer has accepted source for income of Rs.1,03,360/- because, the same is out of commission not offered to tax. Insofar as other additions, the Assessing Officer has reiterated his observations made during assessment proceedings. The learned CIT(A) on the basis of remand report allowed partial relief in respect of cash credit found in SB account and additions made towards credit fr....