TaxTMI 
TaxTMI 
2024 (12) TMI 1812
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....ntly rectified u/s. 154 vide order dated 25.08.2021. 2. The facts necessary to adjudicate the issues raised in appeal are as under: A person namely Mr. K. Murugesan invited few people at Karur to form a group of finance firms to carry on the business of financing/money lending. The Group consisted of 77 firms, formed in Oct 2008, with an initial capital of Rs. 90.09 lakhs. The assessee and all other 76 firms filed their returns regularly. A search operation u/s. 132 was carried out on 11.11.2010 in the premises of the assessee group. The loan liability on the date of search was Rs. 29,32,89,250/-. Out of the above, the assessee and its group voluntarily offered a sum of Rs. 3,61,35,890/- as their income for the F.Y.2008-09, 2009-10 and 2010-11 and filed revised returns for all 77 firms. In the course of assessment, post search additional sum of Rs. 2,76,44,321/- was considered as income of the assessee group and assessment orders were passed in the hands of all 77 firms on 30.03.2013. 3. Another search operation u/s. 132 was carried out in the assessee's premises from 10.08.2017 to 13.08.2017 and in the course of search, a bunch of loose sheets depicting financia....
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.... therefore the same could not be taxed as income of the year under appeal. The Ld. CIT (A), first converted the protective addition as substantive addition in the hands of the assessee and thereafter, by accepting the contention of the assessee, held that the amount in question was only opening balance and consequently, directed the AO to delete the addition. With reference to the addition of Rs. 2,91,92,500/- made u/s. 69C, being loan extinguished, the main contention of the assessee before the Ld. CIT (A) was that the addition was made on presumptive basis without any evidence found in the course of search that the said amount was actually incurred/paid. On perusal of the submission and by accepting the contention of the assessee, the Ld. CIT (A) allowed this claim in favour of the assessee. 7. As regards to the cash seized of Rs. 84,18,700/-, the assessee contended that the managing partner Mr. K. Murugesan, in the statement recorded post search, stated that the aggregated cash balance available in all the 77 firms was Rs. 30,44,307/- and owned up the balance of Rs. 53,74,393/- as his unaccounted income. Relying on the sworn statement of Mr. K. Murugesan, recorded at the time....
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....sons that when the AO has made protective addition in the hands of the assessee, there were no substantive additions in the hands of the partner Rs. The Ld. CIT (A), as observed in his order against the order of the AO u/s. 143(3), held that the amount of Rs. 11,10,00,000/- was not real income to the assessee and therefore directed the AO to delete the same. However, the Ld. CIT (A) held that the order passed u/s. 154 of the Act was valid as the issue was not debatable. 10. Aggrieved by both the orders of the Ld. CIT (A), both the Revenue and the Assessee are in cross appeal before us. 11. The Revenue challenged the relief granted by the Ld. CIT (A) in favour of the assessee in the appeal filed by the assessee against the order passed u/s 143(3) of the Act bearing ITA No. 1192/CHNY/2024. However, the Revenue did not challenge that portion of the order of the Ld. CIT (A) directing to delete the addition of Rs. 84,18,700/- being cash seized and thus, it attained finality. 12. The Grounds raised by the Revenue in ITA No. 1192/Chny/2024 are as under: "1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. ....
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.... the source for corresponding credit in the balance sheet found in the loose sheet to such extent remains unexplained which falls within the ambit of Sec.68 of the Act. 5. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored'. 13. The assessee challenged the addition sustained by the Ld. CIT (A) in the appeal filed by the assessee against the order passed u/s. 143(3) of the Act in the appeal bearing ITA No. 1155/CHNY/2024. The Grounds raised by the assessee in its appeal are as under: 1. The order of the Hon'ble Commissioner of Income-tax (Appeals) is opposed to law and contrary to the facts of the case and against equity and principles of natural justice. 2. Re: Taxing other persons' income in the hands of the appellant 2.1 The Hon. CIT (Appeals) erred in bringing to tax the profit amount of Rs. 7.04 crores pertaining to 77 firms in the hands of the appellant 2.2 The Hon. CIT (Appeals) ought to have held that as the appellant is part of a group of....
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.... the interest amount of Rs. 10,14,12,246/- and Rs. 11,10,00,000/- appeared on the credit side of the balance sheet found in the loose sheet titled "CAF Balance sheet- 30.06.2017 and the assessee's claim that interest receivable to the extent of Rs. 14,19,89,427/- was not the real income earned is not based on any evidence. 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored. 15. The assessee also filed an appeal against the order of the Ld. CIT (A) in upholding the action of the AO in passing the order u/s. 154 of the Act in its appeal bearing ITA No. 1156/CHNY/2024. The Grounds raised by the assessee in its appeal are as under: 1. The order of the Hon'ble Commissioner of Income-tax (Appeals) is opposed to law and contrary to the facts of the case and against equity and principles of natural justice. 2. Re: Non-adjudication of grounds raised 2.1 The Hon. CIT(Appeals) ought to have adjudicated on all grounds raised by the appellant. 2.2 The Hon. CIT....
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....my 2,20,00,000 01/08/2016 30/06/2017 2,75,000 11 30,25,000 2 A.Rathinam 10,00,000 01/08/2016 30/06/2017 12,500 11 1,37,500 3 R.Rajamani 15,00,000 01/08/2016 30/06/2017 18,750 11 2,06,250 2,45,00,000 3,06,250 11 33,68,750 Partner: R.M. RAJESH KUMAR (RR) 30/06/2017 Sl. No Customer Name Deposit Amount Interest From 1 month interest No of months Interest payable 1 R. Ramasamy 2,35,00,000 01.7.2016 30.6.2017 2,93,750 12 35,25,000 2 R. Vasanthi 4,00,000 01.12.2016 30.6.2017 5,000 7 35,000 3 Ramachandran (Covai) 5,00,000 01.7.2016 30.6.2017 6,250 12 75,000 4 Jayashree 1,20,000 01.12.2016 30.6.2017 1,500 6 9,000 2,45,20,000 3,06,250 11 36,44,000 (4) Partner: K. THANGARAJ) 30/06/2017 Sl. No Customer Name Deposit Amount Interest From 1 month interest No of months Interest payable 1 K. Thangaraj 2,22,20,000 01.8.2....
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....0/06/2017 5,000 7 35,000 10 Joseph 4,00,000 01/08/2016 30/06/2017 5,000 11 55,000 11 Alibaba 3,00,000 01/08/2016 30/06/2017 3,750 11 41,250 12 Mahesh 1,00,000 01/08/2016 30/06/2017 1,250 11 13,750 13 Mumbai Rekha 5,00,001 01/08/2016 30/06/2017 6,250 11 68,750 14 D.Matheswari 1,00,000 01/08/2016 30/06/2017 1,250 11 13,750 15 Poongodi 1,00,000 01/08/2016 30/06/2017 1,250 11 13,750 16 Abibulla H.R.Vasthrad 1,50,000 01/08/2016 30/06/2017 1,875 11 20,625 17 (M/s.Vijaya coconut) A/C 10,00,000 01/01/2017 30/06/2017 12,500 6 75,000 1,13,65,001 1,42,063 11 14,80,188 (8) Partner:P. Sekar 30/06/2017 Sl. No Customer Name Deposit Amount Interest From 1 month interest No of months Interest payable 1 P. Sekar 1,40,00,000 01.7.2016 30.6.2017 1,75,000 12 21,00,000 2 P. Subramani 60,00,000 01.7.2016 30.6.2017 75,000 12 9,00,000 3 Kumar Tri....
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.... 1,00,000 01/04/2017 30/06/2017 1,250 3 3,750 18 N.P. Palanisamy (Puliyampatti 50,000 01/02/2017 30/06/2017 625 5 3,125 19 Palaniyappa Goundar 1,00,000 01/08/2016 30/06/2017 1,250 11 13,750 1,19,00,000 1,48,750 11 14,97,500 (10) Partner : P.SARAVANAN 30/06/2017 S. No Customer Name Deposit Amount Interest From 1 month interest No of months Interest Payable 1 P. Saravanan 82,00,000 01/08/2016 1,02,500 11 11,27,500 82,00,000 30/06/2017 1,02,500 11 11,27,500 (11) Partner: S. Paramasivam 30/06/2017 Sl. No Customer Name Deposit Amount Interest Form 1 Month interest No. of months Interest payable 1 S. Paramasivam 49,75,000 1.8.2016 30.6.2017 62,188 11 6,84,063 2 S. Manickavasagam 20,00,000 1.8.2016 30.6.2017 25,000 11 2,75,000 3 R. Dhanasekaran 2,00,000 1.12.2016 30.6.2017 2,500 7 17,500 4 Bank Ramasamy 5,00,000 1.12.2016 30.6.2017 6,250 7 43,750 ....
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....13 of the order is extracted below: 13. Thus, from the evidence (in the form of loose sheets seized during search) it becomes clear that an amount of Rs. 22,22,50,000/- was introduced by the partners and exact amount introduced by each partner is also available. Further, the relevant portion of the statement recorded from Shri. A. Vijayanan on 24.04.2018 is as under ;- ii. It is clear that the learned assessing officer has relied on the loose sheets themselves as evidences, without any other corroborative evidence for making addition. iii. The appellant submits that the deposits pertain to the period prior to 01.04.2017. This fact can be ascertained from the contents of the loose sheet itself. iv. In the loose sheets, the amounts contributed/canvassed by the partners are shown, along with the period for which interest payments were in arrears, as on 30.06.2017. v. Following is the extract of the relevant content from the loose sheet. CAF Groups 30/06/2017 (1) Partner: K. Ravindran Sl. No Customer Name Deposit Amount Interest Form 1 Month interest No. of months Interest payable 1 ....
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....ived by the AO that the Appellant Firm has introduced a sum of Rs. 22,22,50,000/- is improper and lacks merits. ........... 6.4.27 In view of the above discussion and findings, the undersigned is of the considered view that the addition of Rs. 22,22,50,000/- made protectively can no longer hold good. Accordingly, the AO is hereby directed to delete the protective addition of Rs. 22,22,50,000/- made in the hands of the Appellant Firm. Even though the undersigned has made a finding that the addition should have been made in the Appellant Firm substantively. In view of the specific findings the undersigned is of the view that the even any substantive addition of Rs. 22,22,50,000/- the same cannot be made in the hands of the Appellant Firm. 18. Per contra, the Ld. DR relied on the orders of the AO and did not bring any other corroborative evidence other than seized material to justify the additions made. 19. We have heard the rival contentions, perused the material on record and gone through the orders of the authorities below. It is admitted fact that the additions made by the AO is purely based on the incriminating material seized during the search operations.....
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....l the 77 firms filed before the Ld. CIT (A) were only extracted from the books of account which were seized and available with the AO. There is no recasting or reclassification of balances were carried out but only an extract prepared from the seized books of account. According to the ld.AR, there was no evidence which is in the nature of fresh evidence submitted by the Assessee during the course of proceedings before Ld. CIT (A) and thus, Rule 46A of the Income Tax Rules, 1962 ["Rules"] has no application in the present case. 21. In this issue, we find force in the arguments of the Ld.AR that the seized material contains the books of account maintained in "FoxPro" and the financial position of the group was extracted only from the books seized. Further, we have observed that the revenue has not disputed either the data or the figures mentioned in the extracts furnished by the assessee before the Ld. CIT (A). Therefore, the extract prepared from books seized could not be regarded as fresh evidence, within the meaning of Rule 46A of the Income Tax Rules 1962. 22. Thus, all the grounds raised by the Revenue, relating to addition of Rs. 22,22,50,000/- made by the AO towards unac....
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....eet no. 62 @ 2,91,92,500/- claimed to be other loan expenditure payable is nothing but payments earmarked out of the profits earned and hence constituent only income are assessee substantively here." 6.7.5 The above findings made by the AO in the assessment order lacks merit on account of the following viz .. (i) the AO has not made out a case as to how the expenditure stated in the loose sheet partake the character of income earned by the Appellant Firm. (ii) the AO has invoked the provisions of section 69C of the Act in making the addition as unexplained expenditure without proving the Appellant that the Appellant has actually incurred such expenditure. Unless and until it is proved that the Appellant Firm has actually incurred such expenditure, such addition can only be a presumption. (iii) the AO during the course of assessment proceedings has not brought on record any finding based upon any corroborative evidence to prove that the Appellant Firm has actually incurred such expenditure. 6.7.6 In view of the above discussions, the undersigned is not inclined to sustain the addition of Rs. 2,91,92,500/- which was made on presumptive bas....
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.... Balance Amount 8,40,00,000 Loans allotted for this amount 8,40,00,000 2 Partners Profit Amount K.Murugesan(2) 1,80,00,000 D.S.Senthivel 90,00,000 Total Amount 2,70,00,000 2,70,00,000 Part-4 Balance Profit amount 10,14,12,246 Balance no Partition amount 11,80,15,746 46,38,54,746 46,38,54,746 From the above, it can be seen that there were two amounts of profits-namely Rs. 10,14,12,246/- shown in part 4 and Rs. 11,10,00,000/- in part 3 of the loose sheet. As already observed, the amount of Rs. 10,14,12,246/- was added by the AO, substantively, as business income of the assessee, while passing order u/s. 143(3) of the Act. However, the amount of Rs. 11,10,00,000/- was omitted to be taxed and hence the same was added to the income of the assessee, protectively, by way of rectification proceedings u/s. 154 of the Act. 29. The Assessee challenging the above addition, before the Ld. CIT (A), the assessee made three-fold submissions, viz, - merits of the addition, - altern....
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....nces is worked out in Annexure D. Income that can be brought to tax in the hands of the appellant and the amount pertaining to the other 76 firms in the group are summarized in the below table: Income pertaining to Assessed-S 143(3) Assessed-S 154 Amount-Rs. Profits of the group 10,14,12,246 11,10,00,000 21,24,12,246 Less: Arrears of interest on loan 3,09,89,427 11,10,00,000 14,19,89,427 Net income of the group 7,04,22,819 0 7,04,22,819 Share of Appellant 10,22,875 0 10,22,875 Share of Other 76 firms 6,93,99,944 0 6,93,99,944 Total 7,04,22,819 0 7,04,22,819 The appellant once again submits that the additions, pursuant to the first search conducted on 11.11.2010, were made in the hands of each of the 77 firms in the group and not in the hands of the appellant alone. When that being the case, in the second search the entire profits earned by the Group of firms cannot be taxed in the hands of the appellant alone. In view of the above, it is submitted that the action of the learned assessing officer in making addition of entire business profits in the hands of the app....
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.... quantum of addition and taxing of income of other persons in the hands of the Appellant. Regarding the merits of the addition 6.6.7 The AO has relied upon the loose sheet seized during the course of search as the primary evidence to support the addition. While going through the loose sheet relied upon by the AO, it can be seen that it includes the expenses payable, partners deposit amount, loans allotted for the deposit by the partners, partners Profit amount, balance profit amount, balance no partition amount etc. From this narration it can be stated that it is the road map chalked out to wind up the business. It includes the probable income, loan amounts and interest amount recoverable and to be allotted to the partners in the event of recovery. This loose sheet contained detailed narration about the profits of Rs. 21,24,12,246/-. Obviously, the said amount is not the real income earned by the Appellant Firm during the financial year under consideration. The AO in the assessment order while making the addition of Rs. 10,14,12,246/- has made a finding as under: "balance profit amount, in Part IV of the loose sheet No. 62 @ of Rs. 10,14,12,246/- represen....
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....ellant Firm for the AY 2018-19 (substantively) as its business income. The Appellant in the alternative submission has agreed to assess the amount of Rs. 7,04,22,819/- as the income of the Appellant group of the Firms. Submission on quantum of addition and taxing of income of other persons in the hands of the Appellant 6.6.11 The undersigned in the earlier paras of this order has held categorically as to how the income was assessed by the AO on account of the peculiar functioning of the business activities of the Appellant Firm. Accordingly, this amount cannot be assessed in the hands of the constituent Firms but to be assessed only in the hands of the Appellant Firm (substantively). Therefore, the claim made by the AR in the submission that it has to be assessed in the hands of the constituent Firms is hereby rejected. 6.6.12 In the back drop of the above discussions made, out of the addition of Rs. 10,14,12,246/- a sum of Rs. 7,04,22,819/- is hereby sustained as the business income for the AY 2018-19 and the AO is hereby directed to delete the balance addition of Rs. 3,09,89,427/-. Thus, all the grounds raised by the Appellant in this regard are treated....
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.... submitted that when the first search was conducted, all the 77 firms filed revised returns offering additional income and while completing the assessment, further additions were made in the hands of all 77 firms. The Ld.AR drew our attention to the assessment orders for the AY 2009-10, AY 2010-11 and AY 2011-12 were placed in Page Nos. 128 to 139 of the paper book filed. The assessee and its group concerns accepted the additions made and no appeals were filed against the said orders passed for three assessment years in the hands of all 77 firms. However, in the second search, the AO has taken an altogether different stand that the entire income was to be assessed in the hands of the assessee. The ld.AR argued that this is not permissible under the law as it is contradicting to the stand taken by the revenue during the assessment of earlier search. He further relied on the ruling of the Hon'ble Supreme Court in the case of ITO vs. Ch. Atchaiah[1996]218 ITR 239, to support his contention that the income of some other person cannot be added in the hands of one person. He also submitted that Ld. CIT (A) also grossly erred in upholding the action of the AO in making addition of ent....
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...." (page no: 95 of paper book filed by the assessee) and thus the addition is correctly made by the AO in the hands of the assessee and sustained by the Ld. CIT (A). The second one is, during the course of assessment post first search, the assessee and its group requested for making additions in the hands of assessee instead of 77 firms and now, in the proceedings, consequent to the second search the assessee objects for the additions made in the hands of the assessee. 37. We have carefully considered the rival submissions made and perused the materials relied on. It is undisputed fact that the assessee and other 76 firms were independently assessed to tax under their respective PAN since their formation. This fact is further supported by the orders passed in the hands of all 77 firms, for three years, while completing the assessment post first search. The seized material also indicate that the position extracted as on 30.06.2017 was not that of the assessee alone but that of the entire group. We are unable to accept the contention of the Ld.DR that the seized material states "CAF-BALANCE SHEET-30.06.2017" and therefore the addition was rightly made by AO in the hands of the asse....