AI Drafter 
TaxTMI 
TaxTMI 
2025 (6) TMI 618
X X X X Extracts X X X X
X X X X Extracts X X X X
....remises of Shri Prakash N. Sanghvi, the key person of Ratnamani Group was also covered during search and seizure action. In the course of search incriminating documents in the form of handwritten diaries with notings of cash transaction were found and seized from the premises of the assessee as Annexure A-1 to Annexure A-14. Further, certain loose documents and papers were also found and seized vide other Annexures. During the course of search, statement of the assessee was recorded u/s.132(4) of the Act vis-à-vis the seized diaries & documents and the assessee had admitted that these diaries were books of accounts maintained by him regarding cash transactions made by him with other persons/entities. It was also admitted that these cash transactions were not recorded in the regular books of accounts. The seized materials revealed that the assessee was engaged in the business of land trading, ancestral sarafi business and other trading activities. Based on the analysis of the seized materials/documents and the statement of the assessee recorded during search, the AO noticed that the income escaping assessment had exceeded the threshold limit of Rs.50 Lakhs. The AO, therefore,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mating profit @ 10% on Trading in Shares (out of the addition of Rs. 1, 26, 70, 000/- made by the AO) on the basis of notings in the seized ledger. 8. The learned CIT(A) has erred in confirming the addition of Rs. 4, 16,47,548/- by estimating profit @ 20% (out of the addition of Rs. 20,82,37,741/- made by the AO) on the basis of notings in the seized ledger "Shree Maal Khaate". 9. The learned CIT(A) has erred in confirming the addition of Rs. 76, 35,340/- made by the AO u/s 69A of the Act towards peak credit in various seized ledgers under the head 'Other Trading'. The learned CIT(A) has erred in confirming the action of the AO in invoking section 115BBE in respect of the said addition. 10. The learned CIT(A) has erred in not allowing Commission Expense of Rs. 1,59,76,100/- as noted in the seized ledger "Shree Commission Khaate". 11. The learned CIT(A) has erred in not allowing Other Expenses of Rs. 1,88,865.25/- as noted in the seized ledger "Shree Kharch Khaate". 12. The learned CIT(A) has erred in not allowing Bad Debts of Rs. 2,49,71,000/- written off as irrecoverable by the Appellant in the Tally Books." 13. The App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear in ITA No. 1149/Ahd/2024 and the Ground No.-1 does not appear in it ITA No. 1150/Ahd/2024. Further, that the quantum of amounts in respect of additions as mentioned in Grounds 1 to Ground 4 of the appeal vary in the different years. 7. The Grounds in Revenue's appeal in ITA No.1184/Ahd/2024 for A.Y. 2021-22 are as under: 1. In the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating the facts that AO has not proposed any substitution of additions related to Jamin Trading A/c in remand report. 2. In the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in considering the submission of the assessee in respect of figures of Rs. 49,90,49,59T/- as against addition of Rs. 72,11,40,520/- on account of payments noted in various Jamin accounts and addition of Rs. 8,11,89,833/- on account of receipts noted in various Jamin accounts and accordingly, deleted the addition of Rs. 72,74,72,913/-. 3. In the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating the facts that diaries seized from the assessee is having entries of accrued interes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rrectly taken from Director General of Income Tax (DGIT) instead of taking it from Principal Chief Commissioner of Income Tax (PCCIT). He submitted that in the admitted factual position that there was a PCCIT posted and functional in Ahmedabad, the approval taken from DGIT was invalid and bad in law. Therefore, the consequential reopening and re-assessment orders for A.Y. 2013-14 to 2017-18 were bad in law. In this regard, he placed reliance on the following decisions: (i) FIVES India Engineering & Projects (P)Ltd. v. ITO, (2024) 161 taxmann.com 79 (Madras) (ii) Ashok Kumar Makhija v. Union of India, 920240 162 taxmann.com 514 (Delhi) (iii) Twylight Infrastructure (P.) Ltd. vs. ITO, (2024) 158 taxmann.com 378 (Delhi) (iv) Cipla Pharma and Life Sciences Ltd. V. DCIT (2024) 164 taxmann.com 663 (Bombay) (v) Ravindra Reddy Katamreddy vs. DCIT,(2024) 159 taxmann.com 5 (Bombay) (vi) Gigantic Mercantile P. Ltd. vs. ACIT, (2024) 165 taxmann.com 646 (Bombay) (ii) The second challenge to the reopening was on the ground that the reopening for A.Ys. 2013-14 to 2015-16 was time barred in as much as u/s. 149 of the Act, the assessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore, the approval in this case was rightly granted by the DGIT (Inv), Ahmedabad. According to the Ld. CIT.DR, the PCCIT could not have given his approval as he was not having jurisdiction over DGIT (Inv.) and the Central charge cases. The Ld. CIT.DR submitted that the jurisdiction goes to the root of the matter and the authority giving the approval must have the jurisdiction over the concerned case. In the present case, since the PCCIT did not have jurisdiction over Central charge cases of Ahmedabad, he could not have given the approval u/s. 151 of the Act. 11. As regarding the second contention that for A. Ys. 2013-14 to 2015-16, no reopening could have been done under the old provision of Section 153A of the Act in the absence of any asset, the Ld. CIT-DR submitted that this issue was considered by the Ld. CIT(A) and dealt properly in his order. He, therefore, placed reliance on the order of the Ld. CIT(A) in this regard. On the third issue of proceeding initiated by the JAO and not by the FAO, the Ld. CIT.DR submitted that this issue was covered in favour of the Revenue by the decision of the Jurisdictional High Court. Our Findings on Reopening: 12. We have carefully ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pening of the cases, unless he was having jurisdiction over the case. Thus, the PCCIT could have accorded the sanction in this case, only if he was having jurisdiction over the DGIT or Central charge AO, who had initiated the proceedings in this case. If the PCCIT did not have the jurisdiction over the Central charge AO, he could not have given the sanction as contemplated u/s 151(ii) of the Act. We have to, therefore, examine whether the PCCIT was having jurisdiction over the Central charge cases. 15. In this case the proceeding for reopening u/s 147 of the Act was initiated by AO of Central charge. The Revenue has brought on record a copy of the Notification No. 70/2014 [F. No. 187/37/2014 (ITA-I)]/SO 2915(E) dated 13th November, 2014 issued by CBDT, as per which Director General of Income-tax (Investigation), Ahmedabad was having jurisdiction over Principal Commissioner/Commissioner of Income-tax (Central), Ahmedabad. The jurisdiction of PCCIT, Ahmedabad was specified in the Notification S.O. 2753(E) dated 22nd October, 2014 issued by CBDT, as per which the jurisdiction of PCCIT, Ahmedabad was as under: NOTIFICATION New Delhi, the 22nd October, 2014 (Income-Tax) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... PCCIT, Chennai. In that case the PCCIT was having jurisdiction over the concerned CCIT and, therefore, the sanction was not accorded by the correct specified authority. On consideration of these facts, the Hon'ble Madras High Court had held that the approval granted by the CCIT was vitiated. In the case of Ashok K. Makhija (supra), the approval was granted by Principal Commissioner of Income Tax, Delhi-10, who did not fall within the specified authority outlined in section 151(ii) of the Act. Similarl y, in the case of Twylight Infrastructure (P.) Ltd. (supra), the approval was sought from authority specified in clause (i), as against in clause (ii) of section 151 of the Act, although 3 years had elapsed from the end of the relevant assessment year. Therefore, the Hon'ble Delhi High Court had held that there was no approval of the specified authority as indicated u/s.151(ii) of the Act. In the other cases of Cipla Pharma and Life Sciences Ltd. (supra), Ravindra Reddy Katamreddy (supra) and Gigantic Mercantile P. Ltd. (supra) also the sanction was accorded by the Principal Commissioner of Income Tax, who was not the competent authority to accord sanction u/s 151(ii) of the Act. Thu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021: Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded: Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly. Explanation - For the purposes of clause (b) of this subsection, "asset" shall include immovable property, being land or building or b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2.-For the purposes of the fourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account. [Emphasis supplied] 21. This proviso stipulated that for issue of notice u/s. 153A of the Act "for the relevant assessment year" (i.e., 07th to 10th assessment year prior to the year of search) one of the conditions was that the AO was in possession of books of accounts or other documents or evidence which revealed that the income represented in form of asset, which had escaped assessment, amounted to Rs. 50 Lakhs or more in the relevant assessment year or in aggregate in the relevant assessment years. According to the assessee, this condition was not fulfilled and, therefore, no notice u/s. 153A of the Act could have been issued for the relevant assessment year....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Annexure A-8 2016-17 2,75,73,717/- Total 9,93,31,948/- From the above, it is clear that huge amount of cash is exchanged between the parties where amount, date and medium of such payments/receipts are clearly mentioned. As per section 149(1A) of Income Tax Act, Income which has escaped assessment should be more than Rs. 50,00,000/- in more than one previous years relevant to the assessment years and should be represented in the form of assets or expenditure in respect of a transaction or in relation to an event or occasion or an entry or entries in the books of account. In the case of the assessee, as per section 149(1A) of the Act, income chargeable to tax amounting to Rs. 9,93,31,948/- represented in form of an assets is more than Rs. 50,00,000/- from F.Ys. 2011-12 to 2016-17. Even during the F.Y. 2012-13, relevant to A.Y. 2013-14 as per section 149(1A) of the Act, income chargeable to lax amounting to Rs. 1,08,39,155/- represented in form of an assets is more than Rs. 50,00,000/-. 23. It is, thus, found that the AO had recorded the satisfaction for escapement of income to the extent of Rs. 50 Lakhs or more in the relevant assessment ye....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case of Talati & Talati LLP (supra). Therefore, the objection of the assessee in respect of the proceeding being initiated by JAO, is rejected. 25. In view of the above facts and discussions, Grounds Nos.1 & 2 taken by the assessee are dismissed. Ground No. 3 - Ownership of seized documents: 26. In the Ground No.3, the grievance of the assessee is that the AO had erred in making addition in the hands of the assessee on the basis of seized documents by rejecting the submission of the assessee that the notings in the seized diary do not pertain to or belong to the assessee. Shri S N Soparkar, the Ld. Sr. Counsel submitted that the transactions recorded in the seized diary belonged to all the family members collectively and not to the assessee in his individual capacity. He submitted that though the diary was found at the residence of the assessee and the entries in the diaries were also in the handwriting of the assessee, nevertheless, the transactions recorded in the diaries belonged to all the family members. To buttress this contention, the Ld. Sr. Counsel placed reliance on the following specific facts: (i) Ledger account of the assessee was appearing in the sei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee on the basis of the seized document was not correct and that all the entries in the seized books should have been considered either in the hands of HUF or in the hands of six brothers in their capacity as 'AOP'. 28. Per contra, Shri A. P. Singh, Ld. CIT. DR submitted that the contention of the assessee that the entries in the seized diaries belonged to the HUF or to all the brothers jointly, was an afterthought. He has drawn our attention to the fact that no such averment was made by the assessee in the course of his statement recorded u/s.132(4) of the Act during the search. The Ld. CIT.DR submitted that neither the assessee nor any of his brothers in their statements recorded during search had stated that any HUF business was being run by the assessee on behalf of all the family members. Neither the reference of HUF was anywhere appearing is the seized diaries. There was no separate bank account or demat account of the HUF even though shares transactions were recorded in the seized diaries. The Ld. CIT.DR further submitted that the seized diaries/documents also contained certain cheque entries, which were recorded in the books / bank account of the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t diaries A-1 to A-14 contained details of transactions made by him with different persons. It was further clarified that certain ledgers/transactions were in respect of property dealings as well. 31. In reply to Question No.10, the assessee had explained that the Diary A-1 pertained to period 01.04.2009 to 31.03.2010 and that the entries made on the right-hand side of the diary belonged to him, which was in respect of Sarafi business and that the entries on the left side were the amounts returned from respective parties. It was further clarified that the entries made in this part y-wise ledgers were in codes. In response to subsequent question, the assessee had explained that diaries A-2 to A-12 pertained to the period F.Ys. 01.04.2010 to 31.03.2021. It was also explained that the diary for the current year was not complete. 32. In response to Question No.12, the assessee had stated that Diary No. A-12 contained the details of transactions made by the assessee only for the F.Y. 2020-21. Then in reply to Question No.14 also the assessee had stated that the diary A-14 had the details of transactions made by the assessee with different persons. In the course of search, certain ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... documents. Merely because some of the ledgers were titled with prefix 'MNS', this doesn't establish that the entries in the diaries belonged to the HUF or to joint family business. Though the assessee had contended that the entries in the seized diaries belonged to himself, his family members and to the group concerns; no segregation of the entries pertaining to the three entities was done. Neither the assessee had prepared separate Tally Books in respect of transactions belonging to himself, his family members and to the group concerns. Further, the seized documents had details of share transactions, but no evidence was brought on record to establish that the share transactions were made in respect of other family members or by the group concerns. No flow of funds from any other family member or from the HUF's bank account towards share transactions have been brought on record. In fact, there was no bank account or any demat account of HUF and, therefore, no trading in shares could have been done by the HUF. The entries appearing in the seized diaries had to be read in its entirety. When the cheque entries appearing in the seized diaries and documents were recorded in the books o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts. Rather the assessee had suo-motto prepared two accounts in Tally software which were not found reliable by the AO. Therefore, the profit worked out by the assessee on the basis of Tally software account was rejected and the income was rightly assessed as per the entries appearing in the seized ledgers. The ld. CIT-DR supported the order of the AO and the ld. CIT(A) in this respect. 37. We have considered the rival submissions. The contention of the assessee is that the seized diaries contained profit and loss account for all the years and, therefore, the income should be determined based on such P&L account. This submission is not found correct on the basis of the facts as available on record. The assessee had submitted before the AO that the transactions noted in the seized diaries do not necessarily reflect the income liable to tax. It was explained that the assessee had made an attempt to decipher the nature of entries in the seized diaries. For this purpose, the assessee had copied all the transactions noted in the seized diaries and prepared books of accounts for F.Y. 2009-10 to 2020-21 in Tally Software (referred as "Seized Diary Books") which was submitted before the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....umstances, the AO had no option but to work out the profit on the basis of various ledgers as appearing in the seized diaries. Considering the peculiar facts of the case that the profit or loss appearing in the seized diaries were based on entries which were not systematic and not based on any accounting principle and the profit was derived by the assessee in Tally Books by considering extraneous entries and also tinkering with the data as appearing in the seized diaries and documents; the reliance as placed by the assessee on the various decisions, has become otiose. Since the AO had worked out the profit on the basis of the entries in the seized ledgers, these decisions will be relevant and considered in the context of entries appearing in those ledgers, while examining the specific additions. 39. The ground taken by the assessee regarding determination of profit on the basis of reconstructed seized document (Tally Books) is dismissed. Ground No. 5 - Addition on account of Interest (Shree Vyaaj Khaate) 40. In the seized diaries there were recordings of interest earned by the assessee in cash for the A. Ys. 2012-13 to 2021-22 which were appearing in 'Vyaaj Khaate/Shre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding account was duly considered in the 'Shree Nafa Khate' ledger in the seized diary. The AO had rejected this contention of the assessee for the reason that no direct link between the trading account and the ledger was established. The AO had proceeded to estimate the income from Jamin trading @ 35% of the credit transactions made during the year. Accordingly, the AO had applied 35% rate on total credits of Rs. 17,50,75,904/- received during the year and estimated the income from Jamin trading at Rs. 6,12,76,566/- and accordingly made the addition. In appeal the ld. CIT(A) had reduced the profit from Jamin trading to 15% of the credits received during the year. 44. The assessee as well as the Revenue (vide Ground No. - 2) both are in appeal on this issue. Shri S. N. Soparkar, the ld. Sr. Counsel submitted that the addition sustained @ 15% by the ld. CIT(A) was high and needs to be suitably reduced for the following reasons: (i) Since this is a trading activity the profit cannot be as high as 15%. (ii) Reliance was placed upon section 44AD of the Act which provides a presumptive taxation @ 8% in the case of real estate activity. (iii) There wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in sarafi business, obviously he would deploy funds in land dealings with an intention to earn better return than the interest earned in sarafi business. The profit earned in land dealings depends substantially on the period of holding. Longer the period of holding better the earning. The ld. CIT(A) had inquired about this aspect but the period of holding of the land transactions was not made available by the assessee. Considering this aspect, the ld. CIT(A) had rejected the application of presumptive rate of 8% u/s 44AD as contended by the assessee. Since the average profit rate in the land dealings as per the seized documents was 13.14%, the presumptive rate of 8% could not have been applied in this case. The assessee himself had worked out the average percentage of profit at 13.14% on the basis of the Jamin trading ledgers in the seized diaries, in the rejoinder to the remand report of the AO. At the same time, the ld. CIT(A) also has not given any reason for estimating the profit @ 15% when the average profit rate as per seized document was 13.14% only. All the factors of passive investment, no overhead expense etc. were already taken into account in the average profit rate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hare market and that no evidence for delivery of share was found and further that the shares were traded in very short span of time, earning profit @10%, as sustained by the Ld. CIT(A), was not feasible. At the outset, the AO had not given any basis for estimating the profits from share trading @ 20%. Therefore, the addition as made by the AO could not have been sustained. The Ld. CIT(A) has restricted the addition by applying profit rate of 10% on the share trading. It is true that no evidence for delivery of shares was found in the course of search. It is also found from the share trading accounts as reproduced in the assessment order that the total debit during the year was Rs. 6,65,56,082/- as against total credit of Rs. 6,33,50,000/- during the year. Thus, the submissions of the assessee that the frequency of the transactions was high is found to be apparently correct. Considering the totality of facts of the case, we deem it appropriate to restrict the addition in respect of profit from share trading by applying presumptive rate of 8% as specified u/s.44AB of the Act. The said section also provides that the income can be computed @ 6% where the amount of total turnover or gro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the transactions. He, therefore, requested to sustain the addition as made by the AO. 58. We have considered rival submissions. The finding of the AO that the Maalkhaate ledger account represented net profit of the trading transactions is patently incorrect and unsustainable. A copy of the ledger account has been reproduced in the assessment order. It is found therefrom that there were credit as well as the debit entries in the ledger account. When both the credit and debit entries are appearing in the ledger account, it cannot be held that all credit entries represented net profit of transactions. The Ld. CIT(A) had rightly held that the said ledger represented only sales entries. Further, he correctly concluded that there would not have been any debit entries in the Maalkhaate ledger, had the credit entries represented only profit element. The finding as given by the Ld. CIT(A) in respect of nature of entries in the Maalkhaate ledger account is found to be correct and, therefore, the contention of the Revenue in this regard is rejected. 59. As regarding estimation of income in respect of entries appearing in Maalkhaate ledger account, the Ld. CIT(A) had restricted the addi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....idered for making the additions. The AO, however, did not accept this submission of the assessee as well. Rather the AO considered the peak balance of each ledger to arrive at the assessee's net unexplained credits and granted benefit of intra account peak in unexplained ledgers. Accordingly, addition of Rs. 76,35,340/- was made in respect of total of peak amount as appearing in the other ledger accounts. The addition as made by the AO was confirmed by the Ld. CIT(A). 62. Shri S. N. Soparkar, Ld. Sr. Counsel submitted that the AO and the Ld. CIT(A) were not justified in working out the peak credit in respect of all residual ledger accounts individually instead of finding out the peak credit after merging all such ledger accounts. According to the Ld. Sr. Counsel, debit in any of the ledger account should be set off against credit in any other ledger account. The Ld. Sr. Counsel further submitted that after finding out the combined peak, the set-off of the income finally determined till the preceding year should be given. In other words, the assessee sought benefit of telescoping of income already taxed in earlier years against the peak credit in any year. The Ld. Counsel sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eak, the Revenue was estimating the unexplained investment in the particular business as recorded in individual residual ledgers. Thus, the addition in respect of peak was mainly in respect of unexplained investment. The request of the assessee is that the benefit of telescoping of income already taxed in the earlier year should be allowed towards unexplained investment as worked out on the basis of peak value. This request of the assessee is found to be reasonable. Since, the income taxed till the preceding year was available with the AO, the set off for the same has to be allowed with the peak amount for the subsequent year. Accordingly, the Revenue is directed to allow the benefit of telescoping of income already taxed in the earlier year(s) with the peak addition of the subsequent year(s). As is natural, no benefit of telescoping can be allowed in the first year i.e. in A. Y. 2012-13 but has to be considered in the subsequent years. Accordingly, the ground taken by the assessee for allowing benefit of telescoping of income already taxed in the earlier year with the peak addition of the following year(s) is allowed. 66. In the result, the ground of the assessee is partly allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ized diaries were not brought to tax. When the income is estimated by applying net profit rate, all the expenses are deemed to have been allowed and this principle is categorically enunciated in Section 44AD of the Act. Even in the case of other ledger accounts, the gross receipt has not been considered as income but only peak of the transactions have been worked out to estimate the profit and unexplained investment in the business. Considering these facts, the assessee could not have been allowed the deduction for expenses of commission and other expenses as appearing in the seized diary, as the income was not worked out on gross basis considering all the entries as appearing in the seized diary. 71. The ground taken by the assessee is, therefore, dismissed. Ground No. 12- Bad debts 72. The assessee had claimed deduction for bad debt of Rs. 2,49,71,000/- written off as irrecoverable by the assessee in the Tally Books, which was not allowed by the AO. The Ld. CIT(A) too did not agree with the claim of deduction made by the assessee in respect of bad debts. The Ld. Sr. Counsel submitted that the claim of bad debts was in respect of Sarafi business and there was no requireme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is that the bad debt should be written off as irrevocable in the accounts of the assessee for the previous year. The previous year involved in this case was Financial Year 2012-13 (for A.Y.2013-14). In the seized diary pertaining to F.Y. 2012-13, no bad debt was written off as irrevocable. The assessee had carried forward the balances of all debts in the seized diaries from year to year. It was only in the Tally Books prepared after the search that the assessee had written off the bad debt as irrevocable. The Tally Books were prepared by the assessee after the search in the F.Y. 2022-23. Thus, the assessee had actually written off the bad debts as irrevocable in the accounts in the F.Y. 2022-23. When the decision to write off the debts as irrevocable was taken in the F.Y. 2022-23 while preparing the Tally Books, the bad debts could not have been written off as irrevocable in the accounts of the earlier years. In essence, the assessee had written of the bad debts as irrevocable in the previous year 2022-23 and, therefore, he was eligible for deduction of bad debts in the subsequent assessment year. The deduction for the same could not have been allowed in the earlier years. 75.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....no evidence was brought on record that all the bad debts pertained to sarafi business only. The assessee was carrying on multiple activities and, therefore, it cannot be presumed that all the bad debts pertained only to sarafi business. Thus, it can't be held that the entire claim of bad debt was in respect of money-lending business only. Be that as it may, the fact remains that no bad debt was found written off in the seized diaries. Therefore, the claim for deduction of bad debt was rightly disallowed by the AO in the current year. We do not find anything wrong with the decision of Ld. CIT(A) on this issue and, therefore, his order on this issue is upheld. 77. The ground taken by the assessee is dismissed. Other grounds 78. The grounds taken by the assessee regarding illegality of search operation and violation of principle of natural justice were not pressed by the Ld. Sr. Counsel in the course of hearing. Therefore, these grounds are dismissed. 79. In the result, appeal of the assessee in ITA No. 1138/Ahd/2024 is partly allowed. ITA No. 1148/Ahd/2024 (A.Y. 2013-14) Ground No. 1 - Notional Interest 80. The first ground taken by the Revenue is against del....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is found from the assessment order that the AO had not given any reason for making the addition for accrued interest, which were only notional in nature. In the course of statement recorded during search, the assessee had explained that other than cheque entries which were recorded in the books of accounts, the cash transactions appearing in the seized diaries were not accounted for. Following the cash system of accounting, the AO had already made addition for the interest received during the year as noted in the seized diaries. When the addition for interest received were already made following the cash system accounting, the AO had not explained as to why addition was made also for accrued/notional interest. Indisputably, the addition on the basis of cash system as well as on the basis of mercantile system, will result in double taxation. It is found that the Ld. CIT(A) has correctly appreciated the facts of the case and given relief to the assessee in this respect. The finding recorded by the Ld. CIT(A) is found to be as under: "10.5 I have carefully considered the submissions made by the appellant and the assessment order passed by the AO. The appellant has made entr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the interest charged on such land transaction accounts, the entry passed is notional and such notional income cannot be considered as 'income' under the Act. 10.7 So far as entries of interest passed by the appellant in category (b) above is concerned, it is the case of the appellant that he maintained the diary for members of his family and carried on ancestral sarafi business. In order to face the contingency of future dispute, the Appellant made entries of interest on notional basis with aim that the share due to each member of the family could be easily ascertained taking into account the inflation that will cover the cost of holding over the period. In the facts and circumstances of the case, that the explanation offered by the Appellant that the interest provided in the seized dianes was notional appears to correct. Taking into account overall practice followed for many years, it appears that the Appellant has tendency to provide for cost of inflation in respect of amounts payable to the family members over a period of time so that each member can get his due unpaid share with adequate compensation. The members who withdraw the amounts will have lesser amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10.9 So far as entries of interest passed by the appellant in category c) above is concerned, the AO has stated that as per the mercantile system of accounting, the interest is considered as income of the assessee from his sarafi business. The AO has not referred to any seized documents evidencing the fact that any party has actually paid any interest to the Appellant as per the interest reflected in the seized material. The appellant has consistently stated that the appellant has followed cash system of accounting. Under law, the appellant has a choice to adopt mercantile system of accounting or cash system of accounting. The AO cannot impose mercantile system of accounting. " 84. In the seized diaries, notional interest entries were passed on the debit side as well as on credit side in the ledger accounts without there being a corresponding entry in the interest account. Further, the actual interest received was separately credited in the seized diaries under the head "Shree Vyaj Khate". Thus, there was duplication of interest in the seized diaries. The notional interest recorded in the seized diaries pertained to transactions related to land trading, related to famil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive of whether any amount was received from such party or not. In fact national interest entries were found appearing even in accounts where there was no recovery of principle and the balance was being carried forward from year to year. The contention of the assessee was that where no principle was recovered from parties over a long period of time, the entry for notional interest cannot be held as accrued and considered as 'real income'. When the AO had already made addition for the actual interest received following the cash system of accounting, no addition could have been made in respect of notional entries on the basis of mercantile system of accounting. We, therefore, do not find any reason to interfere with the findings and the decision of the ld. CIT(A) on this issue. 87. It was held by the Hon'ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC), that income tax cannot be levied on hypothetical income. To reproduce from the said order: "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccrued to the assessee has to be found out from the point of view of 'real income' taking the probability or improbability of realization in a realistic manner and dovetailing of these factors together. It was held by Hon'ble Supreme Court in the case of UCO Bank v. CIT (104 taxman 547) (SC) that transferring the doubtful debt to an interest suspension account and not treating it as profit until actually received, was in accordance with accounting practice. The interest pertaining to doubtful loans was not considered as real income in the year in which it accrued, but only when it was realized. From the facts as discussed by the ld. CIT(A) in detail in his order, we don't find any real income accruing to the assessee. Further, when the interest actually realized by the assessee was already taxed following the cash system of accounting, no addition could have been made in respect of notional interest on accrual basis. We, therefore, do not find anything wrong with the findings and the decision of the Ld. CIT(A) on this issue. The deletion of addition made by the AO in respect accrued interest is, therefore, upheld. The ground taken by the Revenue is dismissed. Oth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s NIL, although the seized diaries were found from 01.04.2009 onwards. According to the Ld. Sr. Counsel, the AO should have accepted the opening cash balance which was worked out by the assessee after considering all the transactions from 01.04.2009 to 31.03.2011. He further submitted that the Ld. CIT(A) had erred in observing that the transactions pertaining to assessment years prior to A. Y. 2012-13 cannot be taken into account, as those years couldn't be reopened by the department. On the contrary, the Ld. CIT.DR supported the orders of the AO and Ld. CIT(A). 95. We have considered the rival submissions. There is no dispute to the principle of addition in respect of negative cash balance. The objection of the assessee is confined only to the quantification of the negative peak balance. The AO had worked out the negative peak balance by taking into account the entries from A. Y. 2012-13 to A.Y. 2021-22 only. Thus, the opening cash balance as on 01.04.2011 was taken as Nil by the AO. When the seized diaries pertaining to the earlier years were also found during search, the action of the AO to take the cash balance as on 01.04.2011 as Nil cannot be held as correct. The se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2020-21) 97. The Grounds of appeal taken by the Revenue in ITA Nos. 1149 to 1155/Ahd/2024 are same as in ITA No. 1148/Ahd/2024. Therefore, the finding and the decision of ITA No.1148/Ahd/2024 on merits, is applicable mutatis mutandis to the appeals in ITA Nos. 1149 to 1155/Ahd/2024 pertaining to A.Ys. 2014-15 to 2020-21. In the result, the Revenue's appeal in ITA No.1149 to 1155/Ahd/2024 are all dismissed. ITA No. 1184/Ahd/2024 (A.Y. 2021-22) 98. The grounds taken by the Revenue in this appeal, in essence, are identical to the grounds of earlier years except the Ground Nos.1, 2 & 6. The assessment for A. Y. 2021-22 was completed by the AO u/s.143(3) of the Act on 31.12.2022, which was much before the completion of the assessment for other years u/s. 147/143(3) of the Act on 02.06.2023. The AO had completed the assessment for the A.Y. 2021-22 in an ex-parte manner without having any input about the nature of seized diaries from the assessee. The accounts prepared by the assessee in the form of Seized Diary Books and Tally Books were not available with the AO while completing this assessment. The assessee had submitted a copy of Seized Diary Books and Tally Books before the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dition of Rs. 8,11,89,833/- on account of receipts noted in the Jamin accounts u/s.69A of the Act. In the other years from A. Ys. 2013-14 to 2020-21, however, the AO had made the addition in respect of credits in the Jamin trading account by applying profit rate of 35%, which was reduced to 15% by the Ld. CIT(A). Accordingly, the Ld. CIT(A) had directed that in the A.Y. 2021- 22 as well, profit rate of 15% should be applied on the credits of Rs. 49,90,49,597/- under Jamin trading account for this year, to work out the income from these transactions. The Revenue is in appeal against this direction of Ld. CIT(A). 101. Shri A. P. Singh, Ld. CIT.DR submitted that the AO had made addition in respect of unaccounted investments in the properties, which was substituted by the Ld. CIT(A) with the profit earned by the assessee in the land trading account. According to the Ld. CIT.DR, the nature of transactions on which the addition was made by the AO was totally different. Further that the AO had not proposed any substitution of addition related to Jamin trading account in the remand report. According to Ld. CIT-DR, the addition for investment in the property stands deleted by the order o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as made by the AO in respect of investment in properties was based on wrong footings. 104. In the remand report, the copy of which is reproduced in the order of the Ld. CIT(A), no comment was made by the AO in respect of this addition. The AO had reported various additions made in the earlier years and on that basis had worked out the proposed addition for A.Y. 2021-22 in the remand report. The recommendation of the AO in the remand report is reproduced below: "7. Accordingly the figures related to Assessment Year 2021-22 based on the stand taken in assessee's own case for AY 2012-13 to 2020-21 in respect of seized diary transactions and tally books are summarized here under: Sr. Particulars/head under which addition was made/proposed in all A.Ys. which is related to AY 2021-22 Gross Amount related to AY 2021- 22 Figures related to AY 2021-22 on which addition was made/proposed. 1 Interest received 12,36,99,898 12,36,99,898 2 Interest accrued 21,79,98,373 21,79,98,373 3 Trading in shares 39,57,87,420 7,91,57,484 (being 20%) 4 Maal Khaate/Shree Maal Khaate 34,62,87,454 34,62,87,454 5 Other ledgers ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....applying the average rate of 13.14% only on the credits in the land trading account. The grounds taken by the Revenue are devoid of merit and are dismissed. 107. Ground Nos. 3, 4 & 5 taken by the Revenue in this year are identical to the grounds taken by the Revenue in ITA No.1148/Ahd/2024 for A.Y. 2013-14 and the decision taken on these issues in that appeal will apply mutatis mutandis in this year as well. 108. Ground No.6 pertains to addition of Rs. 196,46,51,643/- in respect of entries in "miscellaneous category". The AO found that a large number of entries to the tune of Rs. 196,80,35,013/- couldn't be placed under any of the identified categories and no clarification was given by the assessee in this regard. Therefore, the AO placed those entries under the head 'miscellaneous transactions', the details of which is given in Table-5 in the assessment order. The AO had treated the entire credit of Rs. 196,80,35,013/- as unexplained and unaccounted money u/s.69A of the Act and accordingly made the addition. 109. The Ld. CIT.DR submitted that the Ld. CIT(A) had failed to understand the correct nature of the entries in miscellaneous categories as mentioned in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....received from family members remained to be adjudicated. Therefore, the same are adjudicated in the following paras. 165.2 The issue of other ledgers/peak credit in other ledger amounting to Rs. 33,83,370/- is similar to the ground no. 10 for A.Y.2013-14 and as per the detailed discussion in para 14 of this order, after considering the submission filed by the appellant, the undersigned has confirmed the addition made by the AO. In view of the above detailed discussion made in para 14 of this order, the addition made by the AO for the year under consideration i.e. A.Y.2021-22 is also confirmed. 165.3 Further, the issue of amount of Rs. 13,14, 035/- received from family members/ protective addition towards cash credit in the ledger account of family member is similar to the ground no. 11 for A.Y.2013-14 and as per the detailed discussion in para 15 of this order, after considering the submission filed by the appellant, the undersigned has deleted the addition made by the AO. In view of the above detailed discussion made in para 15 of this order, the addition made by the AO for the year under consideration le. A Y 2021-22 is also deleted. 165.4 In view of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....addition of Rs. 33,83,370/- only in respect of "Other ledgers". The Ld. CIT(A) had rightly considered the peak credit in respect of the transactions of miscellaneous category (other than the entries taken to identified respective heads) and accordingly confirmed the addition to that extent. Accordingly, addition of Rs. 33,83,370/- as proposed by the AO in the remand report was confirmed by the ld. CIT(A). The proposed addition of Rs. 13,14,035/- in respect of the receipt from family members was not upheld by the ld. CIT(A) for the reason that the same was found to be protective in nature. The Revenue has been unable to controvert the findings as given by the ld. CIT(A). The approach of the ld. CIT(A) was logical and rationale and was in consonance with the stand of the Department in the earlier years. Therefore, the ground taken by the Revenue is dismissed. 114. In the result, the appeal of the Revenue in ITA No. 1184/Ahd/2024 (A.Y. 2021-22) is dismissed. 115. The final outcome of these appeals is summarized in the table below: SI. No. ITA No. A.Y. Appeal filed by Outcome 1-9 ITA Nos. 1138 /Ahd/2024 to 1146/Ahd/ 2024 2013-14 to 2021-22 Assessee P....