TaxTMI 
TaxTMI 
TaxTMI 
2014 (8) TMI 1228
X X X X Extracts X X X X
X X X X Extracts X X X X
....rk on behalf of others. For the A.Ys. 2004-05 to 2009-10, the assessee filed returns of income u/s. 139(1) of the Income Tax Act, 1961 (Act) declaring the following income:- A.Y Original return of Income (u/s. 139) (Rs.) 2004-05 1,46,686 2005-06 3,94,510 2006-07 18,09,501 2007-08 14,37,560 2008-09 2,77,670 2009-10 4,77,760 3. A search u/s. 132 of the Act was conducted in the residential premises of Shri Ashok Kumar Chowta at Flat No.1003, Concord Apartment, Falnir, Mangalore on 13.2.2009. In the course of search, certain documents were found and seized. Some of the documents seized viz., A/AKC/C/8, A/AKC/9, A/AKC/12 and A/AKC/14 contained details of payment by Mr.Ashok Kumar Chowta to the Assessee. The Assessee had signed against each entry of payment as found in the seized document. Some payments were by cheque and some payments were by way of cash. These documents, according to the revenue, indicated payments made by way of cash by Ashok Kumar Chowta to the assessee for contract work done by the assessee for Ashok Kumar Chowta. 4. A Survey u/s. 133A of the Act was conducted in the business premises of the assessee on 21.4.2009. In the course of survey, statement o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts. Q.No.15: What was the total volume of the work done by you for the F.Y.s 2003-04, 2004-2005, 2006-2007m 2007-2008 and 2008-2009 and how much payments have you received totally from Sri.Ashok Kumar Chowta? I have not maintained books of account for my transactions with Sri.Ashok Kumar Chowta. As explained earlier, Sri.Chowta's engineers used to take measurement on completion of certain specified stages of work and used to draw bills in my name which I use to sign and submit to Sri.Chowta. However, Sri.Chowta has not passed even a single bill raised in my name. He use to make payments to me on weekly basis for the labour charges and for the materials purchased, so as to enable me to make payments to the labourers and the material suppliers. Certain payments for material suppliers were directly made by Sri.Ashok Kumar Chowta, but such payments were booked against my name and my signature was taken. Since, I have not maintained books for the works carried out for Sri.Ashok Kumar Chowta and also that I am not able to trace out all the bills submitted by me, I do not know the total volume of the work done by me for Sri.Ashok Kumar Chowta. I also do not know the exact amount rece....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sign for the receipt of the payment if such payments are not made to you and when you do not know to whom such payments are made? Ans. He does not make payment to me for the work. I have done if I refuse to sign for the above-mentioned cash payments. So, I am forced to sign for these cash payments. Q.No.28: Have you ever refused to sign for the above cash payments and had he ever refused payments to you? Ans: Yes. Q.No.29: In that case why did you not refused to carry on with the work and stop the work? Ans: If I stop the work he will not make the payments due to me and I will not be able to make payments to the labourers. Q.No.36: Please tell me whether all the receipts from Sri.Ashok Kumar Chowta in cheque as well as cash are accounted in your books and are included in the turnover disclosed in your income tax returns? Ans: I have disclosed the turnover in my income tax return as per the bills raised on Sri.Ashok Kumar Chowta. I do not know whether the bills raised by me tally with the total cheque and cash receipt from Sri.Ashok Kumar Chowta, as per the materials seized in the search in his case. I request you to provide me the details of the payments made to me an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cks, jelly, Hollow blocks etc. I have made cash payments out of the above receipts for the purchase of these materials required for construction. My income from the above receipts will be very negligible. These payments are received in cash only because the suppliers of the above materials insisted on cash payment. In fact, these payments are made for and on behalf of Sri Ashok Kumar Chowta for the construction of his projects. However, to purchase peace with the department, I am prepared to offer 8% of the above receipts as my additional income for the relevant Asst. years. 6. We may mention here that the incriminating document referred to by the AO is a diary seized from Ashok Kumar Chowta showing certain cash payments having been paid to the assessee. Apart from the contract receipts referred to above, there were also entries regarding cash payments received from the Assessee for purchase of properties by the Assessee from Sri.Ashok Kumar Chowta. On the above cash payments for purchase of property and cash receipts for execution of contract work, question No.9 & 11 and answers thereto in the statement recorded on 11.5.2009 are important and the same was as follows: "Q. No. 9.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or payment of the tax. I assure that, I will pay the taxes in installments. I have fully co-operated with the department during the course of the Survey conducted in my office premises and also in the post survey enquiries as well as in furnishing the details required by you. Considering the co-operation extended by me, and also the fact that I have voluntarily come forward and offered the additional income I request that I may be absolved of all the penal consequences. I once again assure that I will start paying the taxes at the earliest." 7. The cash receipts not so accounted, as admitted in the statement recorded at the time of survey, for the various assessment years are as follows:- A.Y Gross receipts not included (Rs.) 2004-05 17,80,000 2005-06 1,27,35,005 2006-07 28,05,000 2007-08 60,26,250 2008-09 27,00,000 Total 2,66,21,255 8. On the aforesaid gross receipts not included in the books of account, the assessee agreed to offer 8% additional contract receipts as income for the various assessment years. As stated in the statement recorded the assessee did not in file return of income offering additional income. 9. The AO therefore issued notice u/s. 148 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me as agreed. The AO has finally concluded that based on the above facts he has reason to believe that income chargeable to tax has escaped assessment. 12. This objection with regard to validity of initiation of reassessment proceedings was however rejected by the AO after referring to the assessee's statements at the time of Survey and before the ADIT which according to the AO was a voluntary and categorical declaration of additional income on the amount received in cash from Sri. Ashok Kumar Chowta. According to the AO the reasons formed by the department on the basis of the voluntary deposition (declaration of additional income) made by the assessee in the statement recorded is in order. The AO thereafter referred to decision of The Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd Vs. Income tax Officer 236 ITR 34 wherein it was held that at the time of judging the validity of initiation of reassessment what is required to be seen is as to whether there was prima fade some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. The AO also relied on the decis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her pointed out to the further statement recorded on 11.5.2009 by the AD.I.T (Investigation) Mangalore in which the answer given by the Assessee to Q.No.2 & 3 which we have set out in the earlier paras, clearly bring out the fact that the receipts recorded in the diary do not represent Assessee's income and the fact that the above amounts were received in cash towards purchase of materials like sand, laterite stone, bricks, jelly, Hollow blocks etc. which Chowta gave to the Assessee for purchase of material for the construction of his projects. The Assessee also pointed out that the statement regarding offering income from the aforesaid receipts was only to purchase peace with the department and this fact is clearly recorded in the answer to question no.3 of the statement recorded on 11.5.2009. In other words, the Assessee pointed out that the above answers given by the Assessee clearly show that the cash payments as recorded by the Sri Ashok Kumar Chowta is not the turnover of Sri Dinakar Suvarna but utilized by Sri Ashok Kumar Chowta for purchase of materials directly which is the expenditure of Sri Ashok Kumar Chowta and not of Sri Dinakar Suvarna. 15. Attention of the AO was a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the seized document which was to the effect that the cash payments were for purchase of material for Ashok Kumar Chowta by the Assessee and were not in connection with any civil contract to be executed by the Assessee for Mr.Ashok Kumar Chowta. The affidavit is silent with regard to the statement given on 29.4.2009 by Ashok Kumar Chowta referred to above. 17. The AO, however, was of the view that the seized document clearly evidenced receipt of cash which has been duly acknowledged by the Assessee by affixing his signature. The AO also referred to the admission of the assessee in the statement recorded at the time of survey especially in Q.No.9 & 11, which we have already set out in the earlier paragraphs of this order. With regard to the affidavit of Mr.Ashok Kumar Chowta affirming the stand taken by the assessee that the sums reflected in the seized diary were in fact sums which Ashok Kumar Chowta had given to the assessee for purchase of materials and did not represent any payments made for carrying out contract work resulting in any income to the assessee, the AO did not believe this affidavit for the reasons that Ashok Kumar Chowta could not produce any bills and vouchers i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the addition made by the AO, the CIT(A) referred to the statement of the Assessee recorded at the time of Survey and by the ADIT (Inv.), Mangalore, thereafter and was of the view that the Assessee has throughout maintained a stance that he has received cash from Ashok Kumar Chowta for the various work that he has done through him and for the purchases of materials etc. and the cash payments received by the Assessee are not his turnover but were for the purchase of materials. Directly, it is the expenditure of Ashok Kumar Chowta and not the Assessee. The non-availability of the bills evidencing purchases according to CIT(A) was not fatal because the purchases were from unorganized sector for materials like sand, bricks, Blue metal, laterite stones etc., and such a practice prevails in the in the nature of this business. The CIT(A) however was of the view that in the course of the statements recorded, the Assessee had stated that there are certain other income that were also received by him which are 'small and negligible' but they are there. He also found that the diary seized from the premises of Sri Ashok Kumar Chowta on the basis of which additions were made in the hands of As....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the diary and entries therein have not been used in the assessment of Sri Ashok Chowta therefore, it would be travesty of justice that the books which originally belong to Ashok Chowta which has not been used in his assessment proceedings could be used in the proceedings of a third party i.e. the Assessee. The addition made by the AO for AY 07-08 were therefore deleted by the CIT(A). 21. Aggrieved by the relief allowed by the CIT(A) the Revenue has filed appeals before the Tribunal. Aggrieved by the order of CIT(A) upholding the validity of initiation of reassessment proceedings and also sustaining addition made by the AO on account of unaccounted contract receipts at 1.5% of the cash transactions recorded in the seized dirary, the Assessee has preferred corss- objection as well as appeals for AY 2005 -06 and 2006-07 in ITA No.829 & 830/Bang/2012. 22. We have heard the submissions of the learned counsel for the Assessee and the learned DR. The ld. DR submitted as follows: 1. As regards re-opening of assessments U/s. 147 The Learned DR submitted that a search was conducted in the residential premises of one Sri Ashok Kumar Chowta on 13.2.2009. During the course of search in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade by the assessee during the statement recorded u/s. 131 on 11.5.2009. In this regard our attention was drawn to the statement of the Assessee wherein in reply to q.no 2 and 9 the Assessee has clearly stated that the cash received from Sri Ashok Kumar Chowta as per seized material no. A/AKC/8, A/AKC/9, A/AKC/12 and A/AKC/14 are not recorded in the books of accounts. Accordingly he has offered to file revised return of income. This admission of additional income has once again confirmed in reply to q.no.11 in a statement recorded on 11.5.2009 wherein he stated that he has fully cooperated with the department in survey proceedings and voluntarily come forward to offer additional income. The learned DR relied on the decision of the Hon'ble Allahabad High court, in the case of Dr. S.C. Guptha Vs. CIT, 248 ITR 782, wherein it was held that a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted from the statement could not make the statement unacceptable. Our attention was also brought to the fact that while deciding the issue the Hon'ble High Court considered the Hon'ble Supreme Court decision in Pullangode Rubber Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and impounded materials is not valid. In this regard, he placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd., (2010) (320 ITR 561) (SC) wherein the Hon'ble Supreme Court has emphasized the requirement of existence of "reason to believe" income chargeable to tax escaped assessment as the condition precedent for reopening of assessment u/s.147 of the Act. Further reference was made to the decision of the ITAT, Chennai in Smt. R. Rajeshwari v. ITO (172 Taxmann 40) (Chennai-ITAT (Mag). In the aforesaid decision the Chennai bench of the ITAT took the view that material gathered during search action u/s.132 can be used only for the purpose of assessment u/s.158BC of the Act. Further reference was also made to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Smt. Paramjit Kaur (311 ITR 68) (P & H), wherein the Hon'ble Punjab & Haryana High Court held that initiation of reassessment proceedings on the basis of information received from the Survey Circle regarding unaccounted income of the assessee without the Assessing Officer examining and corroborating the information received from the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n answer to question no.9 in the statement recorded on 11.05.2009 the offer of income arising out of the seized diary was only with the sole intention of purchasing peace with the department and to avoid protracted legal proceedings. In the light of the fact that all contract receipts have been duly accounted by the assessee and in view of the fact that the cash payments recorded in the seized diary were in relation to the purchases made by the assessee on behalf chowta, the offer made at the time of survey and in the later statement turned out to be erroneous and therefore no income was offered to tax by the assessee. Reliance was also placed on the fact that in the absence of the entries in the seized diary was not used for making assessment in the hands of Ashok Kumar Chowta. Besides the above, reference has been made to several decisions in the written note filed by the assessee, though those decisions were not cited before us at the time of arguments. With regard to the action of the CIT (A) in restricting the addition made by the Assessing Officer to 1.5% of the cash payments recorded in the seized diary, the learned counsel for the assessee submitted that the CIT (A)'s a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r A. Y. 2007-08 made by the AO was proper? 28. We have given a very careful consideration to the rival submissions. To appreciate the rival contentions, we need to look at the sequence of events that took place in the case of the assessee. The first event that took place was the search in the case of Ashok Kumar Chowta at Mangalore on 13.02.2009. In the course of search incriminating documents marked as A-AKC/8, A-AKC/9, A-AKC/12 and A-AKC/14 were seized. The Assessing Officer by way of illustration has given a copy of the seized diary and the same is as under : 29. It can be seen from the aforesaid diary which was found in the course of search cheque as well as cash payments have been recorded date-wise and those payments have been signed by the assessee. In fact this factual position is not denied by the assessee. 30. The Revenue carried out a survey u/s.133A of the Act in the business premises of the assessee on 21.04.2009. In the course of survey, statement of the assessee was recorded. As we have seen in the earlier part of this order, question nos.13 to 18 and answers thereto as well as question nos.25, 27 to 29 and 36 are important. In answer to question no.13, the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....Ashok Kumar Chowta as per the seized materials, I will offer the difference in income for taxation for the relevant Asst. years, pay the taxes and file my returns of income. 32. On 11.05.2009, the ADIT (Inv), Mangalore again recorded the statement of the assessee u/s.131 of the Act. Even prior to this statement being recorded, on 29.04.2009, the ADIT(Inv.)Mangalore, recorded a statement of Ashok Kumar Chowta. Question no.5 in the statement recorded was with regard to whether cash payments made to the assessee were for the purpose of civil contract work or for purchase of materials required for construction work. Chowta in his statement has said that the cash payments to the assessee were made for the contract work done by the assessee for construction of the building. In the statement recorded on 11.05.2009 of the assessee, this answer given by Ashok Kumar Chowta in his statement recorded on 29.04.2009 has not been confronted to the assessee. In our opinion, this is a major lapse on the part of the Revenue. A statement adverse to the assessee ought to have been confronted to the assessee and his opinion sought on such statement. We are unable to understand the reason as to why th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at those payments have nothing to do with any contract work executed by the assessee for Chowta. This being the position, it was incumbent on the part of the Assessing Officer to confront the statement of Chowta recorded on 29.04.2009 and afford an opportunity of cross examination of Chowta by the assessee. This was not done by the Assessing Officer. In these circumstances, we are of the view that the Revenue cannot seek to place reliance on the statement of Chowta recorded on 29.04.2009 and in particular, the answer given to question no.5 which we have already extracted in the earlier part of this order. 36. The other aspect which needs to be considered is the question as to whether in the hands of Chowta the seized diary was used to make assessment of income. On this aspect the learned DR filed before us a letter dt 06.03.2009 by Ashok Kumar Chowta to the ADIT (Investigation Wing), Bangalore, in which Chowta has made a reference to the search u/s.132 of the Act, on 13.02.2009 and a declaration given by him u/s.132(4) of the Act regarding undisclosed income based on the seized documents found at the time of search which also includes the seized diary in which entries relating to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thing to do with the contracts executed by the assessee for Ashok Kumar Chowta. In fact as we have already seen the assessee had affixed his signature in the seized diary only for the reason that the payments for contract work executed by the assessee would be realized by Ashok Kumar Chowta only if such signature is made by the assessee. This will be clear from answer by the assessee to question 27 in the statement recorded at the time of survey. Taking into consideration all the facts and circumstances, we are of the view that the Revenue has failed to bring in material on record to corroborate its conclusion that the entries found in the seized diary are unaccounted contract receipts of the assessee and therefore the profit element in executing such receipts has to be brought to tax. 39. In our view, there was no basis for the CIT (A) to have come to a conclusion that 1.5% of the receipts as evidenced in the seized diary should be brought to tax in the hands of the assessee. We, therefore, uphold the order of the CIT (A) deleting the addition of 8% of the receipts as found in the seized diary, however hold that the action of the CIT (A) in bringing to tax 1.5% of the cash receip....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entries, in our view, will not be material. The fact that the assessee made cash payments for acquiring these properties having been admitted it was incumbent upon the assessee to explain the source of funds for making the aforesaid cash payments. In our view, the assessee has not given any valid explanation in this regard. This admission by the assessee remains uncontroverted through out. We are, therefore, of the view that the addition to this extent deserves to be sustained. Accordingly, the grounds of appeal raised by the Revenue in this regard for A. Y. 2007- 08 in ITA.852/Bang/2013 is allowed. We may also add that these cash receipts found recorded in the seized diary have nothing to do with the other cash payments made by Chowta to the assessee which are recorded in the seized diary. 42. As far as the validity of the reassessment proceedings are concerned, we are of the view that the same is in order and the objections raised by the assessee in this regard are without any merits. (i) With regard to the decision of the Hon'ble Supreme Court in the case of Kelvinator (supra), we are of the view that the same is rendered in the context of an assessment being reopened bas....