TaxTMI 
TaxTMI 
TaxTMI 
2004 (2) TMI 271
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.... from other sources. A search was conducted at the residential premises of the assessee on 16-2-1993 and a cash amount of Rs. 10,000, ornaments of Rs. 53,487 and share certificates of about Rs. 10 lakhs, were seized. The addition for cash and ornaments has been made in assessment year 1993-94 only and the other additions regarding the investments in shares, dividend income have been made in all the years. In the search proceedings, 10 bank accounts were found in the names of different persons but all these were operated by the assessee for purchase of shares etc. During the course of search, the assessee made a disclosure of investment in shares for Rs. 10 lakhs which was ultimately enhanced at Rs. 14,93,491. It was further considered that the market value shown above, is not to be considered for assessment purpose. The cost of acquisition of shares of Rs. 5,41,740 was considered for assessment purpose in all the four years. The assessee also mentioned that he was operating 10 benami bank accounts and the deposits in these banks and also the investments in shares through these banks, was admitted. The assessee, however, claimed that he is having a HUF by the name of M/s. Ramanlaa R....
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....icultural income. The returns of income for the years were filed much prior to the date of search wherein the agricultural income has also been shown and the withdrawal which is much higher than regular household expenses is also disclosed. The ld. CIT(A) was therefore correct in stating that the investment in shares is to be treated as explained. 2.4 We have carefully considered the rival submissions and the relevant facts of the case. The CIT(A) while dealing with the issue held as under:- "I have considered the facts and I find that there is no dispute regarding the existence of the HUF and also for the agricultural income of the HUF. It is in existence since number of years and the returns for the assessment years 1990-91, 1991-92 & 1992-93, were already filed before the search operation. The income was accepted and the household withdrawals and the investment, were also disclosed. The specific details of investment in shares with the names of the companies, however were not filed. I also find that there is no bank account of the HUF and, therefore, it was not possible to produce such details before the Assessing Officer. The HUF transactions in shares are in cash only. The ....
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....'s appeal for assessment year 1993-94. The first ground of appeal is against deletion of addition of Rs. 10,000 in respect of cash found during the search. While explaining the source of cash found and answer to question No. 14 it was stated to be out of unaccounted income from cloth business. The Assessing Officer therefore treated it as unexplained and taxed the same, though the assessee explained during the course of assessment proceedings that the amount was withdrawn from the firm M/s. Krishna Exclusive in which he is a partner. The amount was withdrawn on 15-2-1993, a day before the date of search. The copy of account was also filed showing the withdrawal by the firm and a certificate was issued by the firm confirming the same. The learned Assessing Officer will choose to tax the same as the assessee agreed for the same during search proceedings and similar explanation was not filed in 132(4) statement. The ld. CIT(A) deleted the addition on the ground that the entry in regular books of account has not been denied by the Assessing Officer and hence the cash is to be treated as explained. 4.1 Whereas the learned D.R. Shri RC. Gupta relied upon the assessment order, the le....
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....authorities below. The CBDT Instruction No. 1916 dated 11-5-1994 which suggest that a family is supposed to hold certain jewelleries received at the time of marriage from parents and in laws within the said limits it is to be treated as explained. Though the Instruction speaks of not seizing the same, the extended meaning of the same shows the intention that the jewellery is to be treated as explained one and is not to be treated as unexplained for the purpose of Income-tax Act. Even on merits of the case, the assessee has explained the source of jewellery by filing necessary affidavit of the father-in-law giving the jewellery in gift. We, therefore, do not find any merit in this ground of appeal. Accordingly the same is dismissed. 6. The next ground of appeal is against deletion of addition of Rs. 11,16,150 as unexplained investment in shares claimed by the assessee to have been made out of the HUF sources. 6.1 The search took place on 16-2-1993. At that time the financial year has not ended. The time limit to file the return of income has not expired. Shri Rameshchandra Ramanlal Patel HUF filed its return of income on 23-2-1994 showing the investment in shares found during the ....
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....ugh the brokers appointed by the Government of India. Both the brokers have confirmed the transactions and a copy of transfer memo, payment, delivery etc. have been filed. The assessee has also filed a copy of the Bank account to prove the payment for purchase of shares and the receipt in the bank account. The shares of both the companies are quoted in the stock exchange and the rate of transactions is verified from the quotations. There is no evidence with the Assessing Officer found in the search, to show that these were not genuine transactions. I, therefore, hold that the claim of the loss is genuine and the assessee is entitled for short term loss of Rs. 3,48,300 in this year." 7.3 The ld. DR strongly objected the action of ld. CIT(A). It was submitted that all the entries are subsequent to the search proceedings and are made belief transaction to avoid taxes payable on the income disclosed during search. Referring to the transaction dates and payment dates it was submitted that the assessee received the share in delivery of IPCL shares on 1-3-1993. Even though he has agreed for sale of all the shares on 4-3-1993 and even the shares are delivered back to the broker on 22-3-19....
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....ct for sale, the transaction is a colourable device is purely on surmises and contrary to the facts. The assessee has discharged the onus of proving the genuineness of transaction. The assessee cannot be said to be controlling the records of the brokers. Only because the brokers could not produce certain materials called by the Assessing Officer or could not appear in person is not a valid ground for holding the transaction as bogus or colourable device. The assessee has actually incurred the loss. Thus it is not a fictitious loss. Both the brokers have confirmed the transaction as per bills and contract note raised by them. Thus valid transaction in sale and purchase of shares have taken place. The loss incurred on such transaction is therefore allowable. We, therefore, do not find any infirmity in the order of ld. CIT(A). This ground of appeal is accordingly dismissed. 8. In the result, revenue's appeal is dismissed. 9. We shall now take up the assessee's appeal for assessment year 1993-94. The first ground of appeal is against the addition of Rs. 13,977. 9.1 At the time of hearing, this ground was not pressed before us. For want of prosecution, the ground is dismissed....
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....but for the cogent reason for the same. For this purpose, he relied upon the decision reported in V. Kunhambu & Sons v. CIT [1996] 219 ITR 235 (Ker.). 9.6 In reply Shri Pipara submitted that the admission was on purely towards household articles and not renovation. This fact is proved as per the list of articles found during search. 9.7 We have carefully considered the rival submissions, the relevant facts and the orders of authorities below. The assessee has proved by furnishing valuation report in respect of house property that there IS no major renovation of the house during the relevant financial year. The value of household articles found as narrated in Annexure-V of panchnama prepared during the course of search, values around Rs. 47,500 only. Out of the same the wooden cupboards and fixtures valuing Rs. 35,000 is shown in the balance sheet of Shri Ramanbhai R. Patel, HUF. This amount was also disclosed in the balance sheet filed prior to the search. The only question to be decided is whether an assessee can retract from the statement given during the course of search. The assessee has stated during the course of search towards investment in furniture and household goods on....
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....ply of the assessee is reproduced hereunder:- "45. I am explaining you the Explanation S of section 271(1)(c) of the Income-tax Act. After understanding the provisions accordingly, whether you want to disclose voluntarily and your undisclosed income? Ans: 45: Yes. Sir, I understood the Explanations of section 271(1)(c) of the Income-tax Act as explained by you and I want to take the benefit by disclosing my undisclosed income and I want to declare the following income. I declare unaccounted income of Rs 25,00,000 earned from the business of sale and purchase of shares which is not shown in current years books and I am agree to request the whole tax on this income. And I pray that I should get relief from penalty and prosecution proceedings. This income is my current year's income and I earned it from business of sale and purchase of shares. Q. 46: Give the details of assets in which you have invested undisclosed income of Rs. 25,00,000 explained by you in Ans. 45. Ans. 46: The undisclosed income of Rs. 25,00,000 declared by be in Ans. 45 is invested in the following assets: Amount of loan shown in Ans. 4 Rs. 11,97,000 Amount invested in house & Furniture Rs. 2,00,00....
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....nbsp; 4,24,000 7. Short term loss claimed 2,17,100 1,31,200 Summons under section 131 have been issued to M/s. Adinath investment on 24-1-1995 for service through the Inspector. The Inspector has reported that at the business place at 381, Khetarpal's Pole, Manekchowk, Ahmedabad, the party is not available. On inquiry, it is reported by him that the said party has closed the business, and his whereabouts are not known. Therefore, vide letter dated.30.1-1995, the assessee was asked to produce the broker on 7-2-1995 for interrogation alongwith his books of account, bank accounts, contract form book delivery notebook, sale book relating to the sale of shares etc. Shri Bagchand G. Jain, proprietor of Adinath Investment has been produced by the assessee on 9-2-1995. The statement of Shri Bagcl1and was recorded in the presence of the assessee. He has not produced any books of account or contract from book, delivery book, sale contract from book, more importantly the sauda Vahi. Mere admission by the broker that he has purchased the shares and sold the shares on behalf of the assessee is meaningless. The broker cannot tell from whom the shares were purchas....
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....that the alleged transaction of ICICI shares are fishy and the loss claimed is a fictitious one to siphon off the income declared as bogus transactions. In view of these facts, the loss claimed by the assessee is disallowed." 15. On appeal, in the impugned order ld. CIT(A) directed the Assessing Officer to allow the short term loss though the assessee has not furnished the evidence of delivery of shares as well as distinctive number of 1300 share certificates of IPCL and 400 shares of ICICI. 16. At the time of hearing before us, the learned departmental representative contended that the Assessing Officer examined the dates of purchases, date of delivery of shares, date of actual payments and date of contract. For this purpose, Assessing Officer issued a notice under section 131 to M/s. Adinath Investment Co., the broker for sale of IPCL shares. The said party was not available at the given address and it was found that it has closed his business and the present whereabouts were not known in the area. The Assessing Officer accordingly asked the assessee to produce the party and he produced Shri E.G. Jain, the proprietor of Adinath Investment Company on 9-2-1995 and his statement w....
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....Act and same can be set off only against any other speculative business and not against the income declared by the assessee under Exp. 5 of section 271(1)(c) of the Income-tax Act, 1961. 17. Before us learned counsel of the assessee relied on the order of ld. CIT(A). To a query from the Bench, ld. Authorised Representative conceded that distinctive number of share/share certificate numbers are not available. He contended that transactions are not sham or bogus. 18. It is pertinent to note that even at the time of hearing, the counsel of the assessee could not furnish the share certificate numbers/distinctive numbers. At page No. 71 the assessee has furnished delivery note dated 1-3-1993 issued by M/s. Adinath Investments. In this delivery note, distinctive numbers and share certificate numbers are not mentioned against column of distinctive number/share certificate numbers. Similarly in the correspondence with Jagdish V. Patel, assessee could not point out the distinctive numbers or share certificate numbers of ICICI delivered to the assessee. In this case search was conducted on 16-2-1993 and no evidence regarding purchase of shares of IPCL and ICICI were found by the search par....
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....eculative transaction" contained in section 43(5) and provisions contained regarding set off of speculative losses in section 73 of the I.T. Act, 1961. 20. For the reasons given hereinabove, I therefore hold that alleged loss of sale and purchase of shares amounting to Rs. 3,48,300 is correctly disallowed by Assessing Officer. I, therefore, reverse the order of learned CIT(A) on this issue and restored the disallowance of Rs. 3,48,300 made by the Assessing Officer. Ground No.2 of revenue appeal for the assessment year 1993-94 is allowed. 21. Ground No.2 of assessee's appeal is that ld. CIT(A) erred in confirming the addition of Rs. 2,00,000 made by Assessing Officer as investment in house property which was disclosed by the assessee in the search proceedings. 22. In order to appreciate the controversy involved in this ground of appeal, I have carefully gone through the statement recorded during the course of search and finding of the Assessing Officer in the assessment order. The assessee is M.Com. A statement of the assessee was recorded during the course of search under section 132(4) on 16-2-1993. In reply to question No.7 assessee has admitted that investment of approxim....
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....report of the valuer cannot be believed in its true spirit. There is an evidence that renovation has been carried out. The assessee has made disclosure for renovation, furniture etc. The report of the valuer does not reflect any investment in furniture. Therefore, the disclosure made for Rs. 2,00,000 on account of renovation of house etc., is a definite evidence which should be taken into account. The argument of the assessee that the disclosure was made under threat and pressure, carries no weight because there is evidence or renovation in the house property. Considering these aspects, I hold that the assessee has made investment in the house property as disclosed during the course of search. Therefore, an addition of Rs. 2,00,000 is made on account of unexplained investment in house property and furniture etc. Penalty proceedings under section 271(1)(c) are initiated on this count." 24. On appeal, in the impugned order ld. CIT(A) upheld the addition of Rs. 2,00,000 made by Assessing Officer on the ground that in the search on 16-2-1993, assessee has admitted that he made investment for renovation, furniture, purchase of TV etc. for about Rs. 2,00,000 not disclosed in the books....
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....nt left for any such expenditure for renovation, repairs etc. in HUF property. 27. I have carefully gone through the orders of authorities below. Rival submissions were also considered. In the statement recorded during the course of search under section 132(4), on 16-2-1993, it was stated by the assessee that he made investment for renovation, furniture, purchase of TV etc. for about Rs. 2,00,000. The statement recorded by the search party contained 46 questions and answers. From the perusal of same, I found that in respect of disclosure of Rs. 2,00,000 the assessee in reply to Q.7 has clearly given even the source of earning of undisclosed income. The statement made by the assessee is voluntarily and same is binding on the assessee. For this reliance can be placed on Judgment of Kerala High Court in the case of V. Kunhambu & Sons. Neither before the Assessing Officer nor CIT(A) the assessee has furnished the cash flow chart of HUF. In the return of income of HUF for the assessment year 1993-94, the assessee has disclosed agricultural income of Rs. 1,86,987. The return of income is furnished by the assessee in the month of Feb., 1994. It is pertinent to note that in reply to quest....
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....f Rs. 3,48,300 or Judicial Member is justified in reversing the order of ld. CIT(A) on this issue for the assessment year 1993-947" ITA No. 4646/Ahd./1995 - Asst. Year 1993-94 "Whether, on the facts and circumstances of the case, the Accountant Member is justified in reducing the addition of Rs. 2 lakhs to Rs. 12,500 or Judicial Member is justified in upholding the order of ld. CIT(A) confirming the addition of Rs. 2,00,000?" The President, Income-tax Appellate Tribunal referred this case for my opinion on the aforesaid two differences as a Third Member. 2. The facts are that search and seizure action was taken in the case of the assessee on 16-2-1993 in the course of which certain cash, ornaments and share certificates aggregating to Rs. 10,63,487 "were seized. The assessee was found operating 10 bank accounts in different names of the family members. When appraised of the provisions of Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961, the assessee voluntarily declared unaccounted income of Rs. 25lakhs stated to have been earned from the business of sale and purchase of shares which was not shown in the current year's books and the details of the assets in ....
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....h Adinath Investment, Prop. Shri Bhagehand G. Jain Purchase and sale of ICICI 400 shares through Jagdish P. Patel 1. Date of contract for purchase 2-11-1992 12-2-1993 2. Date of delivery of shares 1-3-1993 27-2-1993 3. Date of payment 23-3-1993/356200 10-3-1993 /2,00,000 17-3-1993 /2,00,000 1,55,200 5,55,200 4. Dated of contract for sale 4-3-1993 5-3-1993 5. Dated of delivery of sold shares 22-3-1993 6-3-1993 6. Dated of receipt of payment 26-3-1993/139100 17-3-1993 /1,24,000 (encashed on 27-3-1993) 22-3-1993 /3,00,000 4,24,000 7. Short term loss claimed 2,17,000 1,31,200 In order to verify the loss the Assessing Officer issued summons to Adinath Investment and Shri Jagdish P. Patel through whom the purchase and sale of shares were alleged to have been routed through. His Inspector reported that the concern Adinath Investment was not found available and on enquiry it was reported that the said party had closed the business and its whereabouts were not known. The Assessing Officer, therefore, asked the assessee to pr....
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....ery, sale and receipt and payment of purchase and sale consideration. The Assessing Officer in these circumstances failed to understand that when the broker can confirm the transaction in writing to the assessee, why he could not remain present before him in spite of the summons issued and why the assessee could not produce him either. He, therefore, formed a strong belief that the alleged transaction of ICICI shares was fishy and the loss claimed was a fictitious one to siphon off the income declared as bogus transaction. He, therefore, disallowed the entire claim of loss of Rs. 2,48,300. 6. The CIT(A) allowed the claim of the assessee by observing that the transactions were incurred through the broker appointed by the Government of India, that both the brokers have confirmed the transactions and copy of transfer memo, payment, delivery, etc. have been filed that the assessee bad also filed a copy of the bank account to prove the payment for purchase of shares and the receipt in the bank account; that the shares of both the companies were quoted in the stock exchange and the rate of transactions was verified from the quotation and that there was no evidence with the Assessing Off....
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.... He also observed that the search was conducted on 16-2-1993 and there was no evidence regarding the purchase of shares of IPCL and ICICI found by the search party though from the perusal of the statement recorded and seized material it could be seen that the search party seized loose papers which were contained in file Annexure A-9 which were confronted to the assessee during the course of search vide question No. 39. He also found it unbelievable that the assessee made purchases of shares on 21-1-1992 and 12-2-1993 but contract notes were not received till the date of search on 16-2-1993. He also found considerable force in the contention of the Departmental Representative that after selling the shares of both the companies the assessee could pay only the difference amount of the loss namely Rs. 2,17,000 and Rs. 1,31,200. He further observed that the assessee had not provided the distinctive numbers/share certificate numbers of IPCL and ICICI alleged to be purchased and claimed to have delivered after the date of search. He, therefore, formed an opinion that the Assessing Officer was fully justified in taking the view/that the alleged loss in the purchase and sale of shares was a....
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....dinath Investments whose proprietor is stated to be Shri Bhagchand Jain and who is claimed to be broker originally. The party was not found available on enquiries made by the Inspector as they had closed their business and on being told, the assessee produced said Shri Bhagchand Jain who though acknowledged the transaction but affirmed for having not maintained any books of account. He could not file any details or as to from whom he had purchased the shares and to whom they were sold. He was not having any contract book nor any delivery book nor the sale book or Sauda Vahi book. Another middleman Shri Jagdish Patel did not respond to the summons. He was also not produced by the assessee. A confirmatory letter dated 16-1-1999 was, however, filed from him for purchase, sale, receipt and payment of purchase and sale consideration. Only a bill dated 16-2-1993 is filed which gives an impression of a contract having been entered into on 12-2-1993. No copy of the said contract is filed. The identity of this person thus cannot be said to have been proved on account of his absence to appear. Documents submitted are not sufficient to prove the transaction. 11. The delivery period for settl....
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....incurred the loss and in absence of the examination of broker, his books of account and other material, it was not proved particularly when no details of the distinctive numbers/certificate numbers of the shares purchased and sold was claimed to have been taken or given through the brokers were brought on record. 16. The second point of difference is for the addition of Rs. 2 lakhs under the head investment in the renovation of the house, 45 Juhu Park House at Nava Vadaj, Ahmedabad. In the statement under section 132(4) vide answer to question No.7, the assessee admitted that approximately Rs. 2 lakhs expenditure was made in repairing the house, purchase of furniture, household goods, etc. which was the investment from unaccounted income. The answer to question No. 46 giving details of the disclosure of Rs. 25 lakh also include investment in the house and furniture of Rs. 2 lakhs which is evident from the portion extracted above. The said declaration of Rs. 25 lacs was in response to Explanation 5to section 271(1)(c) by the authorised officer to the assessee. The said question No. 46 and answer thereto are as under:- "Q. 45 I am explaining you the Explanation 5 of section 271(1)....
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.... CIT(A) sustained the addition by observing in paragraph 28 as under:- "28. I have considered the facts and I find that there is no house property in the name of the individual but the assessee can make the investment of for renovation and furniture in the property of HUF also. The accounts of the HUF of last four years have been discussed above while considering the household expenses and some investment in shares. There was no amount left for any such expenditure for renovation, repairs etc. in the HUF property. I, therefore, agree with the Assessing Officer that the investment should be considered in the hands of the individual. This has already been admitted in the search proceedings and the addition of Rs. 2,00,000 is, therefore, sustained." 20. When the matter came up before the Tribunal there was a difference between the two members. The Accountant Member held that the assessee had proved by furnishing valuation report in respect of the house property that there was no major renovation of the house during the relevant financial year; that the value of the household articles found as narrated in Annexure-V of Panchnama prepared during the course of search, values around Rs....
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....ich, according to him, indicated that the assessee had inflated the agricultural income to cover up the undisclosed income in the absence of any cash-flow chart. The CIT(A), according to him, gave cogent reason for upholding the addition and he upheld the same. 21. The submissions of both the sides were heard and considered. The addition was made by the Assessing Officer primarily on the basis of the statement given by the assessee under section 132(4). His statement is to be taken and used as an evidence against the assessee by virtue of the provisions of section 132(4) which reads as under:- "132(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any-books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act." 22. It is true that an assessee has a right to retract but that has to be based on evidence brought on record to the contrary and there must be justifiable reas....
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....cannot be a ground for demolishing the version of the assessee made under section 132(4) of the Act stating that he has invested Rs. 2 lakhs in the house and household goods. Not only at one place, the assessee has stated at other places that he has invested Rs. 2 lakhs in repairs / renovation, furniture and household goods. (see question No.7 and answer thereto which are extracted in the order proposed by the Accountant Member) and for the sake of convenience it is reproduced hereunder "Q.7: Have you made any other investment other than shares and deposits as explained above from your unaccounted income if any, given the details? A.7: The expenditure made approx. more than Rs. 1 lacs in purchase of Gold Ornaments and approx. Rs. 2 lacs in purchase of furniture, household goods, etc. in my house. No other investments made by me." Again, I find a mention of the said declaration of Rs. 2 lakhs in answer to question No. 46 which has been extracted above. 23. A dispute is raised by the assessee that the statement does not say or repair and renovation and it was wrongly stated by the Assessing Officer. According to the assessee, the declaration the disclosure was for investment in....