TaxTMI 
TaxTMI 
2013 (10) TMI 1576
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....nch dated 06.09.2012 wherein the assessee's appeal bearing ITA No.236, 237, 238/Ahd/2011 were admitted after condoning the delay. Accordingly, these appeals are hereby adjudicated upon hereunder: A. Assessee's Appeal (For A.Y. 2004-05, 2005-06 and 200607)(IT(SS) 236,237&238/Ahd/2011) 2. Ground raised by the assessee for these three years, emanating from three separate orders of CIT(A) all dated 31.3.2009, now under appeal, are identically worded, hence, reproduced below: "1. The Ld. Commissioner of Income Tax (Appeals)-IV, Ahmedabad has erred in law and in facts in not appreciating the contentions and submissions of the appellant that the unaccounted business of money lending and finance carried out by it along with various persons was to be assessed to tax in the case of Association of Persons (AOP) and not in the case of the appellant firm. Ld. CIT(A) ought to have held that the income of the unaccounted business could not have been taxed in the case of the appellant and the assessment made in taxing the income from unaccounted business deserves deletion. 2. The Ld. CIT(A)-IV, Ahmedabad further erred in law and in facts in confirming the action of the Ld. ....
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....to run the business. What was the business conducted by the AOP? How the profit and loss of the alleged AOP was distributed among it's members? What was the instrument or document or any deed establishing the creation of the AOP?. Those were the questions raised by the A.O. There was no explanation by the assessee about the arrangement of the finance. According to AO, it was merely a statement by the assessee without supporting evidence, hence the claim was rejected. In the assessment order, there was a mention of 'reference' to Special Audit u/s.142(2A) of IT Act. However, the Special Auditor has informed that the assessee had not produced the books of account, hence, the Special Audit could not be conducted. They had expressed, therefore, regret in not furnishing the report u/s. 142(2A) being unable to conduct the audit. For the said default on the part of the assessee, the AO had initiated penal provisions. 5. During the course of survey at the office premises of the assessee certain promissory notes totaling Rs.74,60,550/- were found and impounded. There was a list in the assessment order as follows :- "..Annexure - a/17 - Page No.1 to 268, found from the office ....
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.... to those borrowers. Those promissory notes have specified the repayment of loan, period of loan and the interest of loan charged by the assessee. The conclusion of the AO was that the story of existence of AOP was nothing but a fabricated story. For the financial year 2003-04, the lead year, the AO has noted that an amount of Rs.3,70,000/- was given on 13.06.2003 to Sri Nirav Kumar Somayo; hence, taxed in the A.Y. 2004-05. The matter was carried before the First Appellate Authority. 6. The main contention of the assessee was that the AO was not justified in making the assessment in the status of partnership firm. According to the assessee, the assessment was to be made on AOP. It was contended that few persons related to each other have joined together and conducted the business of money lending jointly. Hence, the assessment ought to have been made on AOP. It was also mentioned that the said business was started as per an oral understanding amongst the members. Learned CIT(A) was not convinced and held as under: "I have carefully considered the contentions of learned counsel as well as gone through the records. ON perusal of assessment order, it has been noticed that ....
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....on 31.03.2008. Further, it may be mentioned here that the Assessing Officer, in the present case, has a specific and assigned jurisdiction u/s 127(2) of Income-tax Act, 1961 vide Order No.BRD/CIT-ll/Juris/2006-07, dated 30.06.2006 issued by the CIT-II, Baroda, after conduct of search u/s 132 on the basis of which case was transferred to him of Partnership Firm M/s. Jayesh Finance only w.e.f. 01.07.2006 (and not of Association of Persons as now claimed by the Appellant since the residuary jurisdiction lies with territorial Assessing Officer). Hence, the Appellant has failed to prove that it has filed any Return in the status of AOP with the territorial Assessing Officer having normal residual jurisdiction. Further, it was pleaded by Learned Counsel that there was oral understanding among the members of AOP for which no evidence whatsoever was produced by the Appellant either at the assessment stage or at the Appellate stage to substantiate the existence of the AOP since the same status was not claimed in the return of income. It was held by Hon'ble Bombay High Court in case of CIT v/s. Associated Cement and Steel Agencies (147 ITR 776) that where a return was submitted in the st....
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....es handled by those persons. A query has been raised from the Bench that whether the AOP had filed any return of income. The learned AR has informed that no return was filed by the AOP. His argument was that a tax can only be recovered from those persons who have earned the income. The business was not carried out by the Firm but by the group of persons and they have joined hands with the intention to earn profit, therefore, the activity of the financing was required to be assessed in the status of the AOP. Few case laws relied upon were : "1. ITO Vs. Ch. Atchiah 218 ITR 239 (SC) 2. M.V. Valliappan & Ors. Vs. CIT 170 ITR 238 (Mad) 3. ACIT Vs. Minor Janak Patel 80 TTJ (Ahd) 756 4. ITO Vs. K. Venkatesh Dutt 87 TTJ (Bang) 494 5. CIT Vs. Sriram Jagannath 250 ITr 689 (Raj) (HC)" Learned AR has informed that certain documents were seized from the residence of Sri Nikul C. Patel such as balance sheet as on 30th of May, 2004, 30th of September, 2004, etc. Those Balance- Sheets have disclosed assets and liabilities in respect of the money lending business. Those papers did not belong to the Firm and Mr. Nikul C. Patel being the main pers....
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....istinguished the case laws cited from the side of the assessee. Learned DR has mainly contested that there was no evidence on record to establish the profit sharing ratio by the members of the AOP. Even the return of the Firm was filed by the assessee in the normal course, in any case, not under protest. He has placed strong reliance on the paper book filed by the Revenue Department containing the statement of Sri Nikul C. Patel, and the seized material recovered from the residence of Mr. Mukesh Patel and Mr Nikul C. Patel. 9) We have heard the submissions of both the sides at some length. We have examined the facts of the case. The undisputed fact is that the Revenue Department had carried out the search operation in the name of the assessee, a Registered Firm, on 19.01.2006. Revenue has informed that the entire search related proceedings/ authorizations etc. were in the name of the said Registered Firm. Thereafter all the proceedings, in consequence thereupon, were started in the name of the Firm. As far as the initiation of the search proceedings in the name of the Firm by the Revenue Department was concerned, the same was started on the basis of the information related to th....
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....n account of the Firm can be opened in the name of the persons either individually or jointly, but that does not establish the 'status' for Income Tax purpose. That apart, for opening an account in the bank a declaration, whether Individual/HUF/AOP/Firm, is required to be made on the application form, however, that too in support of the claim is not produced. Further, the partners have the option to involve the family members. In such a situation those family members do not run the business in their individual capacity but they definitely run the business in the name of the Firm; as if representing the affairs of the Firm. In all respect such persons who have dealt with business, were not in the capacity of a member of an association of persons, but represent the business of the Firm. If the AOP was in existence then the same could have been informed to the Revenue Department at the time of the search. In support of this finding we place reliance on Associated Cement and Steel Agencies 147 ITR 776 (Bom.). 9.1) Under the section of "definitions" the Act prescribes that "person" includes an 'Association of Person' or body of individuals, whether incorporated or not as per Section ....
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....d that a group of persons can be held to be liable to assessment as an Association of Persons, but there should be a definite creation. In order to constitute an association, persons must join in a common purpose or common action and the object of the association must be to produce income, but it is not enough that the persons receive the income jointly. 10. In this manner as also under the totality of the facts and circumstances of the case, grounds being identical for all the three years, are hereby rejected. B. Revenues's Appeal (For A.Ys. 2005-06 and 2006-07) (ITA No. 2691 & 2692/Ahd/2009) 11. Revenue's appeals are arising from the orders of learned CIT(A)-IV both dated 31st March, 2009. For these two years Revenue has raised almost identically worded grounds of appeal, reproduced from the lead year, i.e., A.Y. 2005-06 as under: The Ld. CIT(A) has erred in law and on facts and circumstances of the case in directing AO to allow the telescoping of addition of Rs.3,60,38,841/- (1,15,49,288/- for A.Y. 2006-07) on account of unexplained loans received by the assessee against income of AOP after verifying from the seized material available, when assessee has not fil....
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....me be considered as covered and telescoped in such undisclosed income shown in the Cash flow statement. Learned Counsel pleaded further that the peak or highest of all the transactions taken together during the financial year relevant to the Assessment Year under consideration is the method adopted by the Assessing Officer for calculation of undisclosed income on the basis of peak credit worked out in the cash flow statement prepared after search in the form of cash book prepared on the basis of seized material copy of which were supplied by the Department to the Appellant. All the transactions should have been considered jointly. So, the addition of Rs.1,04,490/- in respect of interest income relatable to advance given to Shri S.K. Setia on the basis of Annexure - A/19 (Page No. 114 & 115) seized from the residence of Shri Nikul C.Patel, Partner of the Firm, is covered by undisclosed income which is contended to be reflected in the consolidated cash flow statement of the Firm. 17.1 Learned Counsel pleaded that the peak or highest of all the transactions taken together during the financial year relevant to the Assessment Year under consideration is the method adopted by th....
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.... of income earned on the basis of unaccounted business and the amount of profit earned from unaccounted money lending business as well as working out of addition on the basis of incremental peak credit. Hence, the twenty-third ground of appeal is Partly allowed." 15. On this issue, we have heard both the sides. It is an established way of computation of income where ever there is recycling of cash in a financial business to work out the peak credit. Particularly in a situation, when no regular or proper books of account are maintained by the assessee then a cash flow statement is generally prepared. The department then makes an addition on the basis of the peak credit, as appearing in the cashflow-statement, if there is recycling of cash. That peak credit is thus treated as an unexplained income of the assessee. But that working ought not to be final. Certain other factors are also required to be taken into account, as suggested in the Grounds of Appeal by the Revenue. As far as the assessee is concerned, the undisputed fact is that on the basis of the seized material a cash follow statement was prepared which was supplied to the AO. After the search, the working of the said cas....
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....lied so as to ascertain the maximum amount which the petitioner had in the books of account at particular date during the year which is to be treated as nongenuine. So the logic behind the applicability of the peak credit theory is that if the borrowing from various persons is to be treated as non-genuine then systematic repayment to such person should also be treated as non-genuine. Such recycling thus constituted unexplained credits and unexplained debits, thus, accordingly a netting of the two is required to be worked out from the cash flow statement. In the back-ground of the above observations it can finally be summarized that the procedure to be followed by the A.O. ought to be to first work-out the interest income generated from the finance business, on one hand, and the interest paid to the parties as per seized material, so as to arrive at the net figure of interest earned from the finance business. Thereupon, the net investment is to be worked out, which shall be the difference between the borrowings from the parties and the loans advanced to the parties. The third figure is the incremental peak as computed on the basis of the cash flow. Then the A.O. is required to de....
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....T Act. For A.Y. 2004-05, a penalty of Rs.54,39,500/-, for A.Y. 2005-06 penalty of Rs.65,33,600/- and for A.Y. 2006-07 penalty of Rs.10,88,527/- was imposed u/s.271(1)(c) which was affirmed by learned CIT(A), hence the assessee is in appeal before us. Facts being identical, therefore, these appeals are consolidated and hereby decided by this common order. 19. Facts in brief as emerged from the corresponding penalty order passed u/s.271(1)(c), dated 18.03.2011 for the years involved are that a search u/s.132 was carried out on the assessee on 19th of January, 2006. The assessee was found to be in the business of money lending. For A.Y. 2004-05, the assessment was made u/s.143(3) r.w.s. 153A of the IT Act and the total income was determined at Rs.4,96,645/-. For A.Y. 2005-06, the total income was determined at Rs.4,11,01,180/- and for A.Y. 2006-07, the total income was determined at Rs.1,29,06,408/-. For these years, the assessee preferred an appeal and learned CIT(A) has recorded the contention of the assessee in respect of assessment in the status of AOP, however, a direction was given that all the transactions were required to be considered jointly on the basis of the peak credi....
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....Ld. CIT(A) has dismissed the appeal of the appellant. However, the Ld. CIT(A) in view of request of the appellant and also after considering the facts and circumstances of the case and in view of decisions of various Hon'ble Courts has only directed the AO to verify those seized materials available in his possession and to find out whether all additions are recovered in the telescoping of income earned on the basis of unaccounted business and the amount of profit earned from unaccounted money lending business as well as working out of addition on the basis of incremental peak credit. At this place the point to be noted is that in the case of appellant order u/s. 143(3) r.w.s, 153A of the IT Act have been passed for the year under consideration as well as for A.Y. 2005-06 and 2006-07. The very fact is that in all these three assessment years, the. additions have been made in the case of appellant on the basis of incriminating documents impounded /seized during the course of survey and search action and such additions have duly been confirmed by the CIT(A) by dismissing the appeals of the appellant. Thus, the very basis of addition is not altered at all. The only thing is that th....
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....f the assessee, few case law cited are as under: 1. ITO Vs/ Goldpar Hosiery Mills & Knitwears, 77 ITD 340 (chd.) 2. Standard Salt Works Ltd. V/s. ITO, (2001) 73 TTJ (Ahd) 71. 3. ACIT V/s. Pardeep Publication, (2010) 130 TTJ (Asr)(UO) 92. 20. The current position is that the main appeals of the Revenue as well as the appeals filed by the assessee challenging the addition made as per the assessment order for the respective years are now restored back to the file of the AO to re-determine the quantum of the addition as per the direction hereinabove. Since, the quantum of appeals are restored back for re-adjudication to the file of the AO, therefore, the very basis of levy of concealment penalties are simultaneously to be decided afresh along with the assessment order. 21. In the result, these appeals are allowed for statistical purposes only. C. Revenue's Appeal (ITA No.2689 & 2690/Ahd/2009) (A.Y.2005-06 & 2006-07) 22. These two appeals have been filed by the Revenue arising from the order of learned CIT(A)-IV, Ahmedabad, both dated 31st of March, 2009. From the side of the respondent a legal heir, namely, Smt. Meenaben Mukesh Patel (wife) is bro....
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....context, during the course of survey at the office premises of the assessee, annexure A/19 & A/21 were impounded. Page No.5 to 17 of annexure A/19 are sale deed for a plot dated 08/07/2004 between Shri Mukesh J. Patel, seller, and Shri Navinchandra Ambalal Patel, buyer for a consideration of Rs.1,59,700/- In this context, it is pertinent to mention here that Shri Nikul C. Patel, PAO holder has transferred plot Nos.15, 19, 31, 35, 38, 92, 42, 43 & 44 of land bearing R.S. No.188/1/2b/3/4 in the name of Shri Mukesh J PateJ benami of the assessee, The assessee was asked to explain these transactions. In response thereto, the assessee repeats the story of AOP. Therefore, it is held that the assessee failed to submit valid reply. For want of valid reply, I have no any other alternative but to add Rs.14,37,300/- (Rs.1,59,700x 9 plots). Similarly, out of these nine plot a plot No.19 was sold at the consideration of Rs.3,70,000/- on 10/11/2004 by the assessee. Since an amount of Rs.1,59,700/- has already been covered in Rs.14,37,300 the difference i.e., Rs.2,09,300/- (Rs.3,70,000 minus Rs.1,59,700) has been added to the total income of the assessee as short term capital gain on account of s....
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....nce the income has been included in the cash book, the same b considered as covered and telescoped in such income vide submission dated 29.07.2008 submitted before Assessing Officer during assessment proceedings. The business of money lending was not recorded in the books of accounts and, therefore, the entire business from such activity was income from unaccounted business. Keeping in view of above facts and circumstances of the case, where the income itself has to be taxed in the case of the Partnership Firm, then it could not be taxed in the case of the Appellant. Therefore, Assessing Officer is directed to verify from seized material available in this possession whether this income is covered in the cash flow statement the amount of profit earned from unaccounted sale transactions of plots to various persons on the basis of incremental peak credit in case of the Partnership Firm where it was added on substantive basis. Further, the addition on protective basis in case of the Appellant is hereby deleted with the directions to the Assessing Officer to consider this amount of addition in case of the partnership Firm on substantive basis of cash flow statement and incremental peak ....