TaxTMI 
TaxTMI 
2005 (9) TMI 233
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....ion under s. 132 was carried out on 3rd Jan., 1995 and 4th Jan., 1995. During the course of search cash, jewellery was found and seized as detailed below: 1. Cash seized from residence Rs. 95,000 2. Appropriation of cash from bank Rs. 5,44,079 3. Seizure of jewellery Rs. 28,900 3. In addition to the above, the authorized officers found incriminating documents which were marked as A-1, 2, 3, 4 and 5 and were seized. A-1 is list - of Hundis indicating names of borrowers and lenders, rate of interest and date of borrowing and date of maturity. A-2 and A-4 are two diaries, which contain the names of borrowers, lenders, rate of interest, date of borrowing, amount and the date when money is to be returned and the amounts of commission. The name of the borrower is written at the top indicating thereby that borrower had borrowed the funds from various lenders as listed therein. All these transactions were recorded in A-2 and A-4 are through cheques and the assessee earned brokerage thereon. These transactions are admittedly found to be duly recorded in the regular books of account of the assessee. This position was accepted by the AO in the assessment order as....
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....ts meaning thereby that Rs. 30 recorded in the diary would stand for Rs. 30,000. During the course of search, the statement of the assessee was recorded and he made a disclosure of Rs. 40 lacs, which was later retracted vide his letter dt. 12th Sept., 1996. The disclosure was reduced from Rs. 40 lacs to Rs. 10 lacs, as the assessee alleged that disclosure at the time of search was made under pressure and threats. This reduced disclosure included renovation of the house for which additional disclosure of Rs. 10 lacs was made during the search under s. 132(4). 6. During the course of assessment proceedings for the asst. yr. 1994-95, it was explained to the AO that the diaries A-3 and A-5 contain a record of his brokerage and commission received/receivable by him on arranging the funds from the lenders to the borrowers. The outgoings are not from him but from lenders to the borrowers. The assessee was only entitled to his brokerage and commission for arranging the finance. The only difference in A-2/A-4 and A3/A-5 is that former is record of transactions made through banking channels while the latter is the record of cash transactions. Otherwise, there is no difference. The AO did ....
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....s been accepted by the AO as no addition of this nature has been made on the basis of A-2 and A-4. This is a fact that similarly written diaries A2 and A-4 contain entries and transactions pertaining to others and the lending is not appellant's money should also apply in respect of A-3 and A-5. The appellant would be under tremendous risk of loss of life and physical harm if he would furnish the names and addresses of those who lent money and all those who borrowed the money. The assessee is only entitled for brokerage, which is his only income. The CIT(A) considered the arguments of the assessee and of the AO in the assessment order and confirmed the additions by observing as under; "3.3 The argument of the appellant and fact of the case have been considered. The case laws relied upon by the appellant have been gone through. The first issue to be resolved is whether the appellant is only a finance broker or he has been advancing loans on his own out of his own funds and charging interest as has been claimed by the AO. The second issue that needs to be resolved is regarding the statement recorded under S. 132(4) which was later on retracted by the appellant. Ordinarily....
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....of account books marked A-3 and A-5 is very important. It has been stated by the appellant that these two books contained the details of money advanced by him to different parties on different dates as cash loans. These two books may be containing the ledger accounts of various parties for the financial year 1993-94 and the current financial year. Actually these are in the form of the fund flow on various dates. The exact quantum cannot be worked out right now and for that the peak is to be drawn for the loans advanced. However, the appellant could recollect that in the total cash loans, the funds involved for financial year 1993-94 and financial year 1994-95 are around Rs. 40 lacs, this amount of Rs. 40 lacs is not accounted in books of account and, therefore, the appellant admitted that this is his unaccounted income for the financial year 1993-94 and financial year 1994-95. From the statement, it is quite clear that the appellant has suppressed income by declaring that he is only earning 1.2 per cent per annum as brokerage whereas, as per his statement given under s. 132(4) he had advanced cash loans out of his own funds, on which he must be earning very high rate of interest. I....
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....his statement and came out with the explanation that he was only a finance broker and all the cash funds were provided by others. Whatever be the truth, which is known to the appellant, he is holding back information, which is vital to determine his taxable income. He is also not co-operating by not furnishing complete information about those persons whose names are recorded in his diaries. By doing so he is abetting the malady of black economy. The Commission cannot be used to provide shelter to such appellant and his associates who are nurturing the black economy and in the spirit of rectitude is not corning forward with full and true disclosure of information.' 11. Sri C.V. Kothari, advocate's argument that non-furnishing of addresses of persons who allegedly provided cash funds to the appellant for advancing loans, does not make settlement application incomplete, is not acceptable. Information regarding identity of those persons whose names are recorded in the diaries maintained by the appellant is necessary to verify the correctness of the appellant's claim that he did not invest his own cash funds [as against his statement under s. 132(4) that he had inve....
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.... tries to find prospective lender and match the requirements inter se. These funds are directly lent to the borrower by the lender. Similaily, the parties who intend to place funds, approach the assessee who match it with the requirements of the borrowers and the transactions between the two takes place. The assessee acted purely as broker and borrowing and lending take place on principal to principal basis. In no case, the funds are brought to the books of the assessee. He is entitled only for brokerage, which varies from 10 paise to 15 paise per hundred per month. The assessee has to maintain the diaries for recording the transactions and for keeping track of his brokerage. 11. As regards the note books A-2, A-3, A-4 and A-5, it was submitted by the learned counsel for the assessee that they are party ledgers in respect of business of finance brokerage done by the assessee. While the note books marked as A-2 and A-4 pertain to the finance brokerage business done through cheques, the diaries A-3 and A-5 pertained to the finance brokerage business done in respect of cash transactions. All the four books contained name of the borrower, name of the lender, amount, period, and brok....
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....orrowed from 50 parties 1 Lenders : Mithabhai Laxmichand Page No. 15 Page No.3 2 Bhanabhai Vijpal Page Nos. 15 & 60 Page Nos. 7 & 105 3 Sandhya Vilesh Page No. 41 Page Nos. 13 & 71 4 Indian Fabrics Page No.3 Page No. 49 5 Vasant Morarji Page No.9 Page No. 189 6 V. Hirji Page No. 55 Page No. 206 13. As per assessment order, the AO issued summons under s. 131 to these parties. There was no response from them except one, who stated that the assessee agreed to finance Rs. 50,000 to him and he has taken receipt for money on the promise that he will give cash but no cash was given or receipt was given back. Thus, this transaction was proved : After issuing summons, the AO stopped enquiries, meaning thereby that he was satisfied that the names mentioned in the diaries belong to those parties. 14. The learned counsel for the assessee also submitted that the theory of peak adopted by the AO is not workable because it presumed that money advanced to the borrowers belonged to the assessee, which is not true. Therefore, it is the total transactions without peak that matters. The learned counsel for the assessee took ....
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....proper that explanation of the assessee has been rejected merely on the ground of non-furnishing of names and address for which assessee has genuine difficulties and reasons which cannot be ignored by the Department. Such rejection of explanation cannot automatically lead to the additions of amounts contained in the diaries as assessee's undisclosed income under s. 69. For this proposition that an investment/income not belonging to the assessee cannot be taxed in the hands of the assessee under s. 69, the learned counsel for the assessee relied on the following decisions: (i) Miss Rose Ben vs. Asstt. CIT (1998) 65 ITD 57 (Mumbai); (ii) K.T.M.S. Mohammed vs. ITO (1980) 9 ITJ (Mad) 50l; (iii) Shivji Manji Amba vs. Dy. CIT (1995) 51 TTJ (Ahd) 61; and (iv) Asstt. CIT vs. Shailesh S. Shah (1997) 59 ITJ (Mumbai) 574 : (1997) 63 ITD 153 (Mumbai). 15. For various other arguments, the learned counsel for the assessee relied on following judicial pronouncements: (i) CIT vs. Rameshwar Prasad Bagla (1968) 68 ITR 653 (All); (ii) CIT vs. Moghul Durbar (1996) 130 CTR (AP) 200: (1995) 216 ITR 301 (AP); (iii) CIT vs. Daulatram Ra....
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....ore the Pune Bench of Tribunal in ITA No. 47/Pn/2000 for the asst. yr. 1995-96 in the case of Ramanlal P. Chordia vs. Asstt. CIT, decided on 7th Feb., 2001 [reported at (2004) 87 TTJ (Pune) 713-Ed.], wherein it was held that in case of finance broker, amount recorded in the diaries is not the assessee's income and cannot be taxed under s. 69. 17. At the end, the learned counsel for the assessee submitted that the money given to borrowers is not the assessee's money and, therefore, it cannot be taxed under s. 69. The Department has failed to establish that money advanced by the lender to borrowers was in fact assessee's own money. 18. The learned Departmental Representative primarily relied on the order of the AO and of the CIT(A) and submitted that onus is primarily on the assessee to furnish names and address of the lenders and borrowers so as to establish their identity. Thereafter, the onus will shift to the Department. In spite of repeated opportunities given to the assessee, he utterly failed in providing the names and addresses of the lenders and borrowers as recorded in A-3 and A-5. Since onus has not been discharged by the assessee, the amounts recorded in....
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....partment for all the three assessment years is based on two diaries A-3 and A-5 found during the course of search. The photocopies of the diaries produced before us in assessee's paper book were perused. It is an admitted fact that diaries were maintained in the normal course of finance business. We have also perused the xerox copies of diaries A-2 and A-4, which reflected cheque transactions. We find that the contents in the two sets of diaries are similar in nature. Against the name of the borrowers, the names of various lenders were written, against each transaction interest rate is mentioned. The names of lenders appear against more than one borrower on different pages. Similarly one borrower borrows money from different lenders. There are separate interest rates in respect of different lenders giving money to the common borrower. Each page is borrower-wise kept and no separate page or details is kept in respect of lenders. The transactions recorded in A-2 and A-4 are admittedly made through cheques and recorded in regular books of account and transactions in A-3 and A-5 are in cash and are not recorded in regular books of account. There are common parties in the two sets i....
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.... document found in search should be treated as genuine with respect to all the entries recorded therein. The Revenue is not, justified in taking a view that only a part of the contents, i.e., the names of the borrowers is correct and not the names of lenders. We derive support for this proposition that entire documents should read as a whole and contents of entire documents should be treated as correct or rejected as a whole, from the following decisions: 1. Glass Lines Equipment & Co. Ltd. vs. CIT (2001) 170 CTR (Guj) 470 : (2002) 253 ITR 454 (Guj); 2. Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC); 3. Navjivan Oil Mills vs. CIT; 4. Chander Mohan Mehta vs. Asstt. CIT (Inv.) (1999) 65 ITJ (Pune) 327 : (1999) 71 ITD 245 (Pune); and 5. Kantilal & Bros. vs. Asstt. CIT. 23. It may be seen that these two diaries A-3 and A-5 and for that matter A-2 and A-4 also, are neither a ledger nor cash book. A ledger is a record of individual account of parties, with whom the cash or credit transactions had been conducted by an assessee and such transactions find place in cash book or journal. Thus, ledger is a subsequent record of the events alrea....
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....or invoking s. 69, the Revenue has to establish that investment belonged to the assessee. In the present case, we find that onus cast on the Revenue to establish that outgoings belonged to the assessee has not been discharged. Therefore, in our view, the deeming provisions of s. 69 cannot be invoked in this case. For making addition under s. 69, there ought to be some material to prove that outgoings taken by the borrowers belonged to the assessee. 27. Where certain document is found in the search from the premises of the assessee then a presumption is drawn under s. 132(4A) that transactions recorded therein belonged to the assessee. But such presumption is not absolute. Sec. 132(4A) reads as under: "(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) th....
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....ded in A-3 and A-5 belonged to the assessee. No such material has been brought on record or no cogent reasons have been advanced. There cannot be two standards of presumption, one for set A-2 and A-4 and other for A-3 and A-5. 29. The difference the Revenue has tried to make between two sets is that while in the first, i.e., A-2 and A-4 the transactions are done through banking channels whereas in A-3 and A-5 transactions are done in cash. This cannot be a valid reason, in our view, to treat the outgoings in A-3 and A-5 as belonging to the assessee. There is no presumption that all the cheque transactions are genuine and hence deemed to have been explained or that all the cash transactions are non-genuine and hence unexplained. In the context of s. 68 Hon'ble Calcutta High Court held that the payment by account payee cheques are not always sacrosanct [Ref.- CIT vs. Precision Finance (P) Ltd (1994) 121 CTR (Cal) 20 : (1994) 208 ITR 465 (Cal)]. Therefore, it cannot be said that burden is not discharged from the assessee merely because transaction recorded in A-3/A-5 are in cash whereas burden is discharged from the assessee in respect of A-2 and A-4 from explaining as to whom ....
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...., all other items of expenditure were relatable to setting up of the plant and bringing fixed assets into existence and putting them into working condition, In none of the appellate orders, viz., those of the CIT(A) and the Tribunal, was there any discussion in relation to this part of the affidavit. In fact, the order of the Tribunal was absolutely silent as regards the affidavit and there was no indication whatsoever that the Tribunal was even aware about the existence of the affidavit which was on record, None of the authorities considered it necessary to cross-examine the deponent with reference to the statement made in the affidavit, and, hence, under these circumstances it was not open to the Revenue to challenge the correctness of the statement made by the deponent in the affidavit. In other words, consequently, the assessee was entitled to assume that the authorities were satisfied with the affidavit as sufficient proof on this point, In the present case, we find that the CIT(A) while dealing with the affidavit had conveniently chosen to accept only one part of the statement which was in favour of the Revenue and against the assessee while ignoring the portion wherein speci....
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....d have to presume that there were 18 high denomination notes on the 1st Jan., 1946, and that all cash receipts thereafter upto 18th January were received in notes of Rs. 1,000 which he found impossible to do, and assessed the whole amount of Rs. 61,000 as undisclosed profits. Before the AAC, the appellants produced affidavits from some persons to the effect that Rs. 43,000 were paid in 1,000 rupee notes during the relevant period. The AAC did not accept the affidavits and confirmed the order of the ITO. The Tribunal, on appeal accepted the appellants' explanation as to Rs. 31,000 but rejected it as to Rs. 30,000. The High Court held there were material before the Tribunal to hold that the sum of Rs. 30,000 represented undisclosed profits, and as the finding was one of fact and was not arbitrary or unreasonable, confirmed the Tribunal's order. On further appeal to the Supreme Court: Held: (i) that applying the true principles as to interference with findings of fact of the Tribunal, the Court was under the circumstances entitled to consider whether the finding that Rs. 30,000 represented undisclosed profits was correct; (ii) as the cash book of the appellan....
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....t in the loose papers contains the names of the persons from whom the assessee had borrowed the money on interest at the rate 24 per cent. It has also been explained that in such lists, the last three zeros have been deleted while recording the amount against the name of a person. For example, the sum of Rs. 50 would mean Rs. 50,000, Rs. 30 would mean Rs. 30,000 and so on. It is on the basis of this statement that AO inferred that assessee was engaged in money lending activity. Therefore, the evidentiary value attached to the loose papers is only because of this statement. In these circumstances, we are of the considered view that this statement has to be considered and accepted as a whole if the AO wants to use it in evidence. The AO cannot be allowed to blow hot and cold simultaneously. Revenue cannot be permitted to use that part of the statement which is beneficial to it and reject the other part of the statement which is detrimental to it. This view has also been taken by the Tribunal, Ahmedabad Bench in the case of Ghanshyambhai R. Thakkar. The decision of the Supreme Court in the case of Mahendra Manilal Nanavati, also says that admission has to be considered in its entirety....
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....aterial, the same has to be considered. The onus will shift on to the Department to adduce further material to support its contention that ostensible as appearing from the document is not real. (iv) The initial burden lying on the assessee to explain the transactions (in this case, outgoings) can be discharged either from the statement recorded under s. 132(4) or from other documents found and seized in the search. Once onus shifted from the assessee, it is for the Department to prove by adducing additional material that the statement so given was false or not true or that corroborative entries from other documents are false or not reliable. 34. There is another aspect of the case. It is not always desirable to reject the explanation furnished by the assessee. Totality of circumstances and preponderance of probability has to be taken into account before rejecting the explanation furnished by the assessee. If, as in the present case, the sources of income of the assessee are not such that it would yield large scale profits or there is no evidence of large scale hidden or secret wealth, then the plausibility of explanation of the assessee that outgoings are not his money ....
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....rs. (iv) There is no material adduced by the Department so as to show that money paid to the borrowers belonged to the assessee. (v) The AO issued summons to various lenders/borrowers but stopped thereafter from proceeding further to find out as to whether the money borrowed by the borrowings belonged to the lenders or to the assessee. Thus, the apparent factual aspects as reflected from the seized diaries A-3/A-5 were accepted by the AO as real. 36. The alternative ground of the learned Departmental Representative that incomings should be deemed to be income of the assessee under s. 68 also cannot be accepted. It is because the s. 68 can be invoked only when cash is passed through the books of the assessee, i.e., cash must come in the books of the assessee and then should be used by the assessee in his business or otherwise. 37. We have already discussed the nature of diaries A-3, A-5 and A-2/A-4. There are memorandum of transaction between lenders and borrowers arranged by the assessee on which the assessee is entitled for brokerage/commission. These diaries are neither cash book nor ledgers. They strictly do not fall in the definition of the book for the ....
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....der s. 132(4) has to be read as a whole and the liability of the assessee is to be restricted to what he has owned under s. 132(4). Since there is a retraction the onus lie on the Department to find out as to how much money so advanced belonged to the assessee. There is a categorical assertion by the learned counsel of the assessee that all the entries in A-3/A-5 contain the names of the lenders. We have also test checked. Since all the entries in A-3/A-5 contain the names of the lenders, therefore, what the assessee means in the statement is that money was advanced through him and it does not, therefore, lead to the inference that money so advanced belonged to the assessee. Thus, not much weight can be given to the question and answers recorded on 3rd Jan., 1995 particularly when legal implication of the words used in the statement are not clear to the deponent and when he is under lot of stress due to search operation and-fear of life due to disclosure of the names of the lenders. Further, the statement cannot be read in isolation of seized documents, which reflect that borrowings by borrowers belonged to the lenders. This is particularly important when Department did not pursue ....