TaxTMI 
TaxTMI 
1995 (7) TMI 106
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....g Shri J.P. Shah, assessee's counsel was fair enough to submit that no decision is required to be given by us in these appeals in respect of grievance No. (i) above as no grievance was made out for each of the two years in the first appeal before the Appellate Commissioner (A/c). We are, therefore, not giving any decision in that regard. 3. The sum and substance of facts relating to other two grievances can be stated as follows: Various firms of Khatiwala viz., Associated Engineering Corporation (AEC), M/s. Seema Enterprises (SE)(Proprietress Mrs. Nirmala Khatiwala) and other firms secured contracts from the Irrigation Department of the Government of Gujarat for supply of ERW pipes. The rate for supply which the Khatiwala firms secured was nearly or more than double than the prevailing market rate of similar material. As a result there were news item in local newspapers viz. Gujarat Samachar and Sandesh highlighting this deal (contract). Pursuant to such news search operations under section 132 of the IT Act were conducted on the assessee as well as on the Khatiwala group of firms. Shri Pravinchandra Khatiwala (PK) who was associated as the main man with the various firms of Kha....
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....in the assessment order from pages 18 to 23. 4. When the assessee was questioned under section 132(4)on 11-12-1986 (search day) and again on 25-1-1990 during the course of assessment proceedings he denied having any business connection with Khatiwala firms except admitting that he knew Shri PK through the house owner Shri R. F. Patel. The assessee on the same day in his own statement admitted that he also had his account with Dena Bank, Fatehgunj Branch, Baroda and that he introduced Shri PK for opening bank account in the name of AEC with Dena Bank, Fatehgunj Branch, Baroda. The assessee did not deny that on some days either he or some of his employees/associates got cash from the bank account of AEC in Dena Bank on "self-cheques" drawn by PK and delivered the withdrawn cash to him (PK). The assessee on both the occasions when his oath statements were recorded emphatically denied having received or paid any brokerage or commission at 50 per cent from or by Khatiwala firms in relation to the said Government contracts with the Irrigation Department. The income-tax authorities found substantial deposits in the bank accounts of his driver Ishubhai and other employees for which neit....
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....g the additions made by the Assessing Officer for both the years written submissions were filed a copy of which is placed from pages 1 to 9 in the assessee's paper book in the present appeals. It was also contended before the Appellate Commissioner that if the payment of brokerage/commission by the two Khatiwala firms was true and genuine then same was required to be allowed as an expenditure in arriving at the assessable/taxable income of those two firms for the assessment years 1982-83 to 1984-85 but the officers assessing those two firms did not give any deduction or allowance in respect of the alleged payment of brokerage to the assessee in those two years. This contention did not find favour with the Appellate Commissioner solely on the ground that the assessee did not file before him copies of the assessment orders passed in the cases of M/s AEC and M/s. SE, Surat. Similar pleadings and submissions were made before the Appellate Commissioner as were made before the Assessing Officer but the same did not find favour with the Appellate Commissioner who held in the impugned order that the assessee did receive brokerage from Khatiwala firms viz. M/s. AEC and M/s. SE and confirmed....
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....the case of the Revenue. 9. Our anxious considerations on the facts and material on record of the case coupled with the reasoning of both the lower authorities make one thing very obvious and clear that the brokerage income is assessed not on the basis of satisfactory and convincing evidence but on the basis of words and statements of the alleged payer Shri P.K. The case regarding brokerage income has been built up by the Assessing Officer on the theory of "your word against my word" or "your statement" vs. "my statement". On the one side there was oath statement of PK that the assessee was paid brokerage/commission for the Government contracts and on the other hand, there was oath statement of the assessee that he did not receive any brokerage commission or profit from Khatiwala firms. Thus, there were contradictory statements by the alleged payer and the alleged receiver and each belying the other. In such a situation the case has to be decided and adjudicated on the basis of weight and credibility of evidence either documentary or oral, which may again be direct or indirect, that is to say, circumstantial. As stated by us earlier there is not a shred of firm and direct docume....
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....ll suffer and lose their hard-earned moneys and properties and the consequences will be devastating and disastrous. We cannot do so. 10. We agree with the assessee's counsel that the Appellate Commissioner has not at all considered the affidavits of Shri B.A. Patel, one of the employees of the municipal corporation of Baroda and the other two employees viz. Shri Bhailalbhai A. Pandya and Shri Ashwinkumar R. Kothari which are placed and found in the assessee's paper book from pages 36 to 44 with English translations. 11. It appears from the facts of the case that Shri B.A. Patel, municipal employee is one of the key witnesses in the whole episode. He has stated in his affidavit that in his spare time he worked for Shri PK in relation to the Government contracts obtained by the two firms viz. M/s. AEC and M/s. SE. It is further stated by the said Shri B.A. Patel that lie was withdrawing cash from the batik accounts of the two Khatiwala firms one in Dena Batik, Fatehgunj branch and the other in SBI, Mandvi branch, Baroda. Whenever he could get time for withdrawing cash from the said bank accounts he used to either deliver the "self cheques" signed by Shri P.K. to the assessee or....
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....e subjected to tax on the same reasoning for lack of evidence? If there is no evidence there, then there is no evidence here also, and as such the assessee cannot be subjected to tax for lack of evidence. 13. It is also brought to our notice by the assessee's A.R. during the course of hearing that in the case of another firm of Khatiwala i.e., M/s. SE similar disallowance of brokerage payment to the assessee has been made and the assessee was unable to obtain copies of the assessment orders from the concerned ITO at Surat assessing the said firm of M/s. SE. However, a copy of the assessment order dated 28-9-1987 for assessment year 1984-85 passed by the ITO, Circle 2, G-Ward, Surat for assessment year 1984-85 in the case of M/s. SE has been filed by assessee's A.R. Shri Rajendra K. Shah on 19-7-1994 as directed by us during the course of hearing on 22-6-1994. On perusal of the said order, we find that the said ITO has also negatived the claim of M/s. SE about the alleged payment of brokerage/commission to the assessee on the strength of the oath statement of Shri PK. The ITO in the said order has also mentioned that he is intimating to the ITO assessing the assessee to tax the s....
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....We are also not convinced with the further submission of the D.R. in the said letter of 1-7-1994 that sufficient circumstantial evidence has been collected by the Assessing Officer justifying the addition towards brokerage income earned by the assessee from the two Khatiwala firms. According to us, there is absence of direct and convincing documentary evidence either direct or indirect which could go to establish convincingly that the Khatiwala firms paid and the assessee received brokerage/commission in respect of the Government contracts. Even the oral evidence of Shri PK on the raid day or through several letters and submissions in various petitions to different I.T. authorities cannot go to establish satisfactorily and convincingly that the assessee received brokerage/commission from the Khatiwala firms. 16. We, therefore, unhesitatingly hold that the assessee did not receive any brokerage or commission either from Shri PK or from any of the Khatiwala firms as and by way of brokerage/commission in relation to the Government contracts with the Irrigation Department for the supply of ERW pipes. We, therefore, reverse the finding and conclusion of the Appellate Commissioner and....
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....Shri Khatiwala and his allied concerns were accepted at the rates more than even double of the market price. The pipes were supplied at the rate of Rs. 448 per metre as against the market price of Rs. 195.50 per metre. The excessive payment received in this transaction amounted to Rs. 48,71,917. In another transaction the pipes valued at Rs. 359.30 per metre were supplied but the payment was made at the rate of Rs. 575 per metre. The above two concerns namely M/s. Seema Enterprises and M/s. Associated Engineering Corporation had received Rs. 1.20 crores approximately as extra payment. It was published in news item in Gujarat Samachar dated 8-5-1986. As a result of this, 24 officers of the Irrigation Department were suspended for these irregularities in the purchase of E.R.W. Pipes. Search and seizure operations were carried out at the business and residential premises of' the Khatiwala group and the assessee in order to unearth the extra income generated by these persons. The excessive payments received by these concerns were routed through several bank accounts as per details on page 3-5 of the assessment order. It was spontaneously admitted by the Surat parties in their statement....
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.... the same ? RS. (i) Cheque No. C/0311609 dated 3-3-1982 1,00,000 (ii) Cheque No. C/0311616 dated 12-4-1982 51,000 (iii) Cheque No. C/0311625 dated 14-6-1982 2,00,000 (iv) Cheque No. 0301002 dated 14-6-1982 80,000 (v) Cheque No. 031003 dated 15-6-1982 1,00,000 (vi) Cheque No. 0301004 dated 16-6-1982 1,00,000 (vii) Cheque No. 0301006 dated 1-7-1982 3,40,000 Ans. Out of above cheques Sr. Nos. 4 and 7 bear the signature of Shri B.A. Patel. I cannot say about the signature on the r....
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....s not therefore material. Further as held by the Madhya Pradesh High Court (172 ITR 244) an admission is good evidence and has to be taken into account. Similar is the case of filing of affidavits by Shri Bharat B. Pandya and Ashwin Kothari, employees of the assessee. Therefore, these affidavits cannot be given credence and are merely filed as self-supporting evidence. Moreover these persons were either employees of the assessee or under the influence of the assessee and hence the assessee was in a position to obtain such false affidavits." In my opinion, the CIT (Appeals) was perfectly right in not placing any credence on the contents of these affidavits. It is because the statements of Khatiwala group and the assessee recorded during the search operations under section 132(4) were spontaneous statements on the point and inspired full confidence. The filing of affidavits subsequently was not only an afterthought but also self-serving statements and hence no value therefor could be attached to such an afterthought version. As regards my learned Brother's finding that "even the unexplained deposits in the bank account of driver Ishubhai and other employees though cast great doubt....
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.... lakhs in assessment year 1982-83 and Rs. 1.25 lakhs in assessment year 1983-84 to the assessee and his other family members. During the course of assessment proceedings the Assessing Officer noticed that different members of the assessee's family had claimed to have received the following gifts during assessment year 1982-83 :--- ------------------------------------------------------------------------- Name of the donee Amount Date of Name of the Rs. Gift donor ------------------------------------------------------------------------- 1. Safatulla A. 30,000 5-4-1981 Saroj Jal Pathan (son)&nb....
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....; 2-5-1981 Smt. Veluben (daughter) Jal Contractor 7. Paresha A. Pathan 30,000 2-5-1981 (daughter) -------- Total : 2,40,000 ------------------------------------------------------------------------- Similarly in the assessment year 1983-84 such gifts received by different members of the family amounted to Rs. 1.25 lakhs. The assessee was required to produce complete addresses of the donors and their creditworthiness. The assessee failed to produce evidence. The Assessing Officer noted that th....
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..... In the instant case there was no such occasion. Further in the abovenoted case the Hon'ble Punjab & Haryana High Court has held that gift from a stranger who is not a man of means and even gift from a relative who had other more important liabilities cannot be treated as genuine gift. As stated above there is no occasion for the gift, the identity of the donors is not known, their creditworthiness is not established by the assessee and accordingly the presumption of the CIT (Appeals) that the amounts gifted were the income of the assessee is well founded. Note for reference to the Hon'ble President, ITAT As we are differing in our views in the appeals filed by the assessee, Shri A.A. Pathak, being ITA Nos. 1640 & 4140/Ahd./93 for the A.Ys. 1982-83 and 1983-84, we request the Hon'ble President, ITAT, to refer under section 255(4) of the Income-tax Act, 1961 the below given points/ questions to other Member(s) of the Tribunal for his/their opinion: (i) Whether, on the facts and in the circumstances of the case and on the basis of available evidence and material on record, the assessee can be assessed in respect of a sum of Rs. 8,31,055 for Assessment year 1983-84 and for a....
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....r in relation to the gifts received by the assessee and his other relatives for the two assessment years should be remanded to the Appellate Commissioner for his decision on the merits of the case ?" 2. These appeals filed by the assessee are against the common order of the CIT(A) dated 30-3-1993 for the assessment years 1982-83 and 1983-84 for which the previous years ended on 31-3-1982 and 31-3-1983, respectively. The assessee is an individual. According to the Assessing Officer (A.O. for short) for the assessment year 1982-83 the assessee filed return of income declaring total income at Rs. 45,180 plus agricultural income at Rs. 4,000. The original assessment was completed under section 143(1) on 14-10-1983. For the assessment year 1983-84 the return of income was filed declaring a total income at Rs. 30,100 and agriculture income at Rs. 3,500. The original assessment was completed under section 143(1). Search under section 132 was carried out on 11-12-1986 at the residence of the assessee during the course of which fixed deposit receipts, National Saving Certificates etc., worth Rs. 6,13,400 were seized. Various books of account, files, loose papers etc., were also seized. V....
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.... Surat parties had filed their returns under the "Amnesty Scheme' in September 1986 i.e., prior to the searches carried out. 5. According to the A.O. who passed the assessment order for the assessment year 1982-83, "excessive payments were routed through the bank accounts'. In the said assessment order he observed as under : "5. Modus Operandi: M/s Seema Enterprises, M/s Associated Engineering Corporation: Shri Pravinchandra Khatiwala and Smt. Nirmalaben P. Khatiwala had received all the payments through cheques. The excessive payments were routed through the following bank accounts: (i) Current account with Dena Bank, Fatehganj, Baroda. (ii) Current account with State Bank of India, S.I.B. Division, Mandvi, Baroda. M/s Seema Enterprises: S.Y. 2037 - A.Y. 1982-83 (8-11-1980 to 27-10-1981) 1. Punjab National Bank, Rauder/ Rs. Adajaj Road, Surat &nbs....
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....bsp; 31,70,870.00 2. State Bank of India, SIB Divn., Baroda 12,15,479.00 ------------ 43,86,349.00 ....
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....sp; Rs. 1. IDD-3/SK/ERW/Rec./4492 6,24,698.72 2. IDD-3/SK/ERW/Rec./4492 2,41,298.49 3. IDD-3/SK/ERW/Rec./4492 2,41,366.18 4. IDD-3/SK/ERW/Rec./4492 2,40,791.79 &....
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.... Total 53,12,342.17 ------------ 2. M/s Associated Engg. Corporation : Rs. 1. ERW/Pipe/119/C/236 ....
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....bsp; Total 66,30,781.39" ------------ The Surat parties had claimed secret commission payments but the claim was not allowed by the A.O. because the factum of payment and the identity of the person receiving the commission was not fully established. The Surat parties had also claimed deduction on account of brokerage at 50% of the net profits. On being asked to furnish the details they provided the name of the assessee. On scrutiny of the bank accounts with Dena Bank and State Bank of India, Baroda it was noticed that numerous cheques of "self" withdrawals were drawn by the Surat Parties. Copies of such cheques have been obtained by issuing summons to the banks. On the back side of the cheques, there were signatures of ei....
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....e above irregularities appearing in "Gujarat Mitra". 7. According to the A.O. who passed the assessment order for the assessment year 1982-83, "copies of all the relevant papers were duly supplied to the assessee on 3-1-1990 and thereafter his statement was recorded on 25-1-1990'. Certain questions and answers from the said statement recorded on 25-1-1990 were reproduced in the assessment order. From the said questions and answers the A.O. observed that it was evident that major chunk has been received by the assessee in collusion with Shri Khatiwala, that all the above documents clearly established that the assessee had certainly earned his brokerage in connection with the supply of E.R.W. pipes to the Irrigation Department, that a perusal of the seized material by the ACIT Surat and the case records of Shri Khatiwala showed that the assessee had acted as a Liaison Officer in the matter, and that it was noticed that the State Government had already started recovery from the Surat parties in connection with the excess payments towards supply of G.I. pipes. 8. In the statement recorded on 13-4-1987 the assessee stated that the locker in the name of Shri Arvind Kumar Ambalal Pa....
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....d as income from undisclosed sources. 12. Thus in the assessment order passed under sections 143(3) and 148 on 12-3-1990 for the assessment year 1982-83 the A.O. computed the total income of the assessee at Rs. 11,25,110. In the said computation the following were included: 'Gifts in benami names treated as Rs. income from undisclosed sources 2,40,000 Brokerage from Rs. (i) AEC 6,0....
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....; -------- 8,67,082" Aggrieved by the said assessments the assessee preferred appeals before the CIT(A). 14. Before the CIT(A) the assessee's counsel pleaded that the entire action of the A.O. was based on bias. On one hand, the Department was relying on the statement of Shri Khatiwala that the commission or brokerage had been paid to the assessee on the other hand, the Department had not allowed the said amounts as deduction even in the hands of Shri Khatiwala. The CIT(A) observed that the assessee's counsel, however, could not produce the appellate order in the different firms belonging to Shri Khatiwala to show whether these amounts were allowed in the appellate proceedings or not. A detailed writte....
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....en found in the form of signature in the bank account but also the introduction of the Khatiwala in the bank account, maintenance of benami lockers and depositing huge amounts in the account of the small employees. In the circumstances, I do not find any justification or reason to interfere with the additions made by the A.O. for both the years." 17. Regarding the gifts, the assessee's counsel pleaded before the CIT(A) that there was no nexus between the assessee and the gifts received by the different members of the family. The information called for by the A.O. could not be produced as Shri J.B. Contractor and Smt. Veluben Jai Contractor have since expired. However, the CIT(A) deleted the addition of gift amounts observing as under : "3.2 I have carefully gone through the assessment order and the submissions made. In the course of discussion in the earlier part of the appellate order, I have held that the appellant had earned huge amount of income by way of brokerage from Khatiwala Group. Keeping in view the total amount of income involved and the gifts received, the demand drafts could have been easily purchased out of the income generated from the income confirmed by me i....
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....cion may be, yet it always remains a suspicion and only suspicion and, therefore, cannot take the place of proof or evidence. The plea of the revenue that since the assessee introduced PK to Dena Bank for opening account in that bank in the name of AEC and that since the assessee and his employees/associates withdrew and brought cash from the account of AEC from Dena Bank by signing on the reverse side of "self cheques" conclude that the assessee had business dealings with the Khatiwala firms in relation to the Government contracts and the "self cheques' withdrawn amounts were towards brokerage for the said Government contracts is not acceptable. The learned J.M. agreed with the assessee's counsel that the CIT(A) has not at all considered the affidavits of Shri B.A. Patel, employee of the Municipal Corporation of Baroda and Shri Bhailabhai A. Pardya and Shri Ashwin R. Kothari. Shri B.A. Patel in his affidavit stated that in his spare time he worked for Shri PK in relation to the Government contracts obtained by AEC and SE, that he was withdrawing cash from the bank accounts of the two Khatiwala firms one in Dena Bank, Fatehganj Branch and the other in State Bank of India, Mandvi Br....
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....ea raised before him. The CIT(A) failed to do so by throwing burden on the assessee. The Departmental Representative urged in his letter dated 1-7-1994 that brokerage payment was not allowed in the cases of AEC and SE because the brokerage payment was opposed to public policy on Government contracts. It is not understandable as to how payment of brokerage in the case of Government contracts or even in the case of carrying on a normal business activity is against the public policy. Even secret commission is an allowable expenditure if there is trade practice/ commercial expediency. There is no satisfactory or convincing evidence to support or establish the payment of brokerage/commission to the assessee except a bare and bald statement of Shri PK, on the day of search operations, that he has made payment towards brokerage and commission to the assessee in respect of the Government contract which he could secure through the efforts of the assessee. There is absence of direct and convincing documentary evidence either direct or indirect which could go to establish convincingly that the Khatiwala firms paid and the assessee received brokerage/commission in respect of the Government con....
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....ures of the assessee and his employees S/Shri Ashwin R. Kothari, Bharat Bhikalal Pandya, Ishubhai Daulatbhai Shaikh and B.A. Patel. Viewed in this background it cannot be said that the assessee helped the Khatiwala Group in the matter of procuring contract from the Irrigation Department and routing the payments to several bank accounts in his name, in the name of his son and in the names of his employees for the fun of it and not for consideration. The statement given by Shri PK reproduced by the A.O. at pages 19 and 20 of his order relating to asst. year 1982-83 was not only spontaneous but from very clear and categorical. This was also supported by substantial evidence in the form of deposit slips and cheques in the said accounts. The evidence gathered by the A.O. and reproduced in the assessment order established beyond any shadow of doubt that there was business connection between the assessee and Shri PK In a case like this the totality of the circumstances and the surrounding circumstances cannot be ignored. Viewed in the background and the surrounding circumstances, the irresistible conclusion is that the assessee was an active participant, that he rendered services to the K....
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....e assessee and that the presumption of the CIT(A) that the amounts gifted were income of the assessee was well founded. 22. The arguments of the assessee's counsel before me were to the following effect. Before deciding these appeals, the Tribunal has to look into (1) Has the Department proved that the assessee was appointed as a broker for some work by Khatiwala? (2) Has the Department proved that the assessee rendered services as a broker to get the contracts from the Irrigation Department to Khatiwala, and (3) Has the Department proved that the assessee earned the brokerage @ 50% of the profits? At the time of raid on 11-12-1986, not a shred of evidence connecting the assessee to Khatiwala as a broker for getting the contracts from the Irrigation Deptt., has come to be found out. The CIT(A) in his appellate order dated 11-2-1994 in the case of AEC for the assessment years 1982-83, 1983-84 and 1984-85 had observed in para 7 that "the appellant has, however, candidly informed me that it has no account books and also no evidence to prove its claim on account of overhead expenses or secret commission. It also admitted that there is no evidence to show that Mr. Pathan was sharing ....
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....thari filed before him. At the time of raid, the address of Shri B.A. Patel was given. This fact was mentioned in the letter dated 27-3-1992 addressed to the CIT(A) (Please see page 88 of paper book filed by the assessee). Reference can be made to page 15 of the assessment order in the assessment year 1982-83. In answer to question No. 31 as to the identity of Shri B.A. Patel and his complete address, the assessee stated that Shri B.A. Patel was serving as supervisor in O.N.G.C. and gave his full address as Wadi, Rang Mahal, Hathikhana Road, Baroda. Even though Patel's full address was given, the A.O. left him like that. In question No. 36 itself, the A.O. stated that almost entire drawing from the account of SE in State Bank of India, Mandvi Branch, Baroda was made through Shri B.A. Patel. The Department's only reliance is on the touch of money withdrawn from the bank accounts of Khatiwala. The affidavits of B.B. Pandya and A.R. Kothari referred to Dena Bank of Baroda only. At pages 50, 51 and 52 of the assessee's paper book, statements of income filed by AEC and SE were filed. In those statements, the said firms simply mentioned "brokerage given to broker". The name of the broker....
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.... para 7 is with reference to seized papers mentioned in the notice dated 16-11-1989. But the A.O. has made a sweeping statement that copies of all the relevant papers were duly supplied to the assessee. Actually this is not at all correct. The A.O. has referred to 17 items as detailed in pages 18 to 25 of his assessment order. The assessment order was passed on 19-3-1990. The items were not at all supplied to the assessee before the assessment order was passed. Vide letter dated 15-6-1990 the assessee's C.A. referred to earlier letter dated 28-11-1989 and submitted that 7 items were not supplied to the assessee even by that date 15-6-1990. The A.O. vide his letter dated 8-8-1990 gave only four items and mentioned that "as regards copies of other documents it is not possible to supply the same by this office'. The assessee was forced to write to the CIT through letter dated 8-9-1990. These letters can be seen at pages 45 to 49 of the paper book filed by the assessee. Non-supply of the papers relied on by the A.O. to draw adverse inference against the assessee is violation of principles of natural justice. Hence, the impugned orders should not be sustained. Shri Khatiwala himself con....
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....sons who might have involved in the business deal. He had to also manage for taking the payment from the Govt. Officer and the same is to be deposited in the Bank Account to be operated only from Baroda for his convenience and should be allowed to withdraw the money in the manner and fashion he like even by giving all the cheque signed and handed over, naturally Blank." It may be noted here that no evidence was produced by SE in support of the said allegations against the assessee made to suit its convenience. Free translation in English of letter dated 8-5-1985 said to have been addressed by the assessee to PK is given at page 79 of the paper book. This letter relates to assessment year 1986-87 and not to the assessment years 1982-83 and 1983-84 under appeal now. Here it may be stressed that nothing has been added in the assessment of the assessee for the assessment year 1986-87 towards the alleged brokerage/commission from Khatiwala. The assessment order of the assessee for the assessment year 1986-87 dated 8-3-1989 is filed before the Tribunal. Thus, the learned JM is fully justified when he held that the assessee did not receive any brokerage or commission either from Shri P....
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....d 20 of the assessment order. These questions and answers are taken from the statement of PK recorded under section 132(4) dated 16-12-1986. They reveal the fact of payment of brokerage to the assessee which was retained by him while making the payments to Khatiwala from the amount withdrawn by him/employees from banks encashing self bearer cheques of Khatiwala. Mr. Pathan had acquaintance with the engineers of the Irrigation Department. This is clear from the answer to question No. 8 in the statement recorded on 25-1-1990. He knows B.K. Engineer, Chief Engineer and K.V. Shah, Deputy Engineer besides R.F. Patel in whose house the assessee lived. This supports the fact mentioned by Khatiwala group that the assessee assured to procure the business from the Irrigation Department for the supply pipe on the condition that secret commission @ 30% would be charge for giving the same to the engineers and from the balance he would charge 50% as brokerage. Mr. Pathan confessed his signatures, in answer to question No. 28 given at page 206 of the revenue's paper book. The affidavits of B.A. Patel, Kothari and Pandya are much later to the date of the assessment order. They are dated 20-6-1990 ....
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....ikh is given at pages 230 to 232. The story is the same as in the case of B.B. Pandya. This gives circumstantial evidence that brokerage of Pathan received from Khatiwala group was utilised for converting into white income in the name of his employees. Their income-tax files were seized from the assessee's residence. It is very much clear from the cheques encashed by the assessee or his employees, his control over employees. The relationship of B.A. Patel with Pathan, averments of Khatiwala group and letter dated 8-5-1985 constitute evidence. These are to be judged in the light of the principle laid down in the Supreme Court judgment in the case of CIT v. Durga Prasad More [1971] 82 ITR 540. As observed by the Supreme Court in the said case the evidence has to be judged by applying the test of human probabilities. The assessee's representative filed a paper book showing the details of several documents (numbering 17) not supplied to him. But the order sheet entries dated 3-1-1990 and 8-8-1990 prove otherwise. In the order sheet entry dated 8-8-1990 it was clearly mentioned that "copies of relevant documents supplied to the assessee (vide application dated 15-6-1990 from Shri R.K. S....
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....e, i.e., payee's case does not have any bearing on the taxability of the brokerage in the hands of the assessee. Kindly see item No. 3 in "office note" in the assessment order dated 26-3-1990 in the case of SE for the assessment year 1983-84 given at page 258 of the revenue's paper book. The said note reads as under : "3. As regards net profit taken at 10% of total sales is as per the CIT (Appeals), Surat's decision for the A.Y. 1984-85. In this regard scrutiny report for the said appellate order has been submitted to the CIT, Surat, stating that the CIT(A), Surat's decision may be accepted. I have enquired into the matter today and it is learnt that the CIT, Surat has accepted the decision of CIT(A), Surat for the assessment year 1984-85. On said lines I have taken net profit at 10% on total sales.' 25. Here the net profit was taken at 10% of the total sales. This shows that expenditure claimed by the assessee has been allowed including the secret commission and brokerage to the assessee, Shri A.A. Pathan. Thus, the assessee cannot argue that it was not allowed in the case of SE. There is no question of double taxation. 26. In reply, the assessee's counsel contended as....
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..... in his paper book at page 28 gave the details of excess amounts paid, i.e., to be recovered from the suppliers (SE and AEC) for Rs. 48,71,917 only. Thus, it would be seen that the quantum of the so-called excess payments is shrouded in mystery. 28. In page 7 of the assessment order for the assessment year 1982-83 at para 5, the A.O. described D.A. Patel as an employee of the assessee. This is factually incorrect. He is an employee of the Municipal Corporation of Baroda as per the affidavit dated 17-9-1990 of B.A. Patel. (Please see English translation of the said affidavit given at pages 39 to 40 of the assessee's paper book). In this connection the answer to question No. 31 in the statement of the assessee dated 11-12-1986 can also be seen. In answer to question No. 31, the assessee answered that B.A. Patel was serving as supervisor in O.N.G.C. 29. In the statement recorded from the assessee on 11- 12-1986, in answer to question No. 24, the assessee clearly stated that he had no business dealings with SE and AEC. 30. In answer to question No. 35, the assessee denied the receipt of brokerage @ 50% of the income of SE and AEC. 31. In question No. 36 the A.O. himself ad....
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....evident that 50% brokerage the assessee was getting. He did not produce and file the said paper before the Department. No such paper was produced and filed before me. So, this answer does not prove the payment of alleged brokerage to the assessee. 37. The letter dated 16-10-1967 written by the ITO, Surat to the ITO, Ahmedabad is given at pages 37 and 38 of Department's paper book. In the said letter, the ITO, Surat informs the ITO, Ahmedabad that Mr. A.A. Pathan was accomplished by SE and that he was in overall charge of entire portion and that it is also established that he received commission or brokerage whatever it may be named out of (sic) this. The ITO, Surat suggested the ITO, Ahmedabad to make an assessment of Mr. A.A. Pathan on a "protective basis". The actual sentence in the said letter reads "It would therefore, be better, if the brokerage shown by my assessee as paid to Shri A.A. Pathan is assessed in the case of your assessee on a protective basis". This itself shows the uncertain mind of the Department on the question of brokerage alleged to have been paid to the assessee. 38. Computation of income of SE as given in page 39 of Department's paper book simply show....
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....,1983-84 and 1984-85 respectively. Here also, it is simply stated "brokerage given to broker". The said statement does not mention the name of the assessee Mr. A.A. Pathan as the recipient of the brokerage. So this computation statement of AEC does not advance the case of the revenue that the assessee Mr. A.A. Pathan received the alleged brokerage. 44. The A.O. referred to letters dated 29-9-1986 and 25-9-1987 from AEC to CIT and ITO respectively. The contents of them are the same as in letters dated 29-9-1986 and 25-9-1987 from SE to the said authorities. Hence, my observations above in paras 39 and 40 hold good here also. 45. The A.O. referred to letter dated 8-5-1985 addressed by the assessee to PK. This letter is in Gujarati. Its English translation is given at page 79 of the revenue's paper book. In the said letter, there is no whisper about the brokerage/commission to the assessee. But it must be noted here that no addition towards alleged brokerage/commission was made in the assessment order of the assessee for the assessment year 1986-87 made under section 143(3) on 8-3-1989. Hence, it has to be taken that the revenue itself did not attach any importance to this piece....
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....es. Even in the assessment orders in the case of AEC for the assessment years 1982-83 and 1983-84, the A.O. has allowed deduction at 5% of the sales towards carting, freight and office expenses. (See para 19 of assessment order for the assessment year 1982-83 of AEC placed at pages 240 to 244 of the revenue's paper book). In the appellate order dated 11-2-1994 for the assessment years 1982-83, 1983-84 and 1984-85 in the case of AEC, the CIT(A) categorically held "the appellants" request for giving specific direction to the A.O. to allow this claim for overhead expenses or secret commission or payment to Mr. A.A. Pathan are accordingly rejected". Earlier he held "it is futile to deal individually whether payments made to Mr. Pathan are genuine or what should be overhead expenses or secret commission". [See para 9 of the order of the CIT(A)]. 52. The CIT(A) has passed the appellate order on 30-3-1993 much long after the date of hearing, i.e., 11-3-1992. This is clear from the cause title portion of the impugned appellate order. This delay may be the reason for certain observations not based on record. In para 2.6 he says "the A.O. concluded that the appellant's connection was prov....