TaxTMI 
TaxTMI 
2006 (1) TMI 178
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.... Finance (P) Ltd., wherein all the aforesaid assessees were shareholders. In course of said search, the following assets were found and seized by the Department: Sri Kamal Kumar Singhania and Sri Bimal Kumar Singhania -------------------------------------------- Sl.No. Particulars Found Seized -------------------------------------------- 1. Cash 17,90,000 17,50,000 2. Gold 1204.5 gms. - 3. Diamond 28 carats - 4. Silver 6,000 gms. - 5. Stock from 51,707 - shop 6. Stock from 9,29,565 - godown 7. &....
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....sp; 4,00,000 4,00,000 4,00,000 investment in KVPs Interest on 40,000 80,000 40,000 KVP Undisclosed 1,01,12,272 capital upto 31-3-2001 Alleged 71,60,958 undisclosed net profit Undisclosed 77,30,876 investment in M/s Trade Friends Undisclosed 46,92,027 sundry debtors for asst. yr. 2002-03 Unexplained 41,765 amount receivable from Om Engg.Works Unexplained 1,11,395 expenses on tour --------------------------------------------------- Total  ....
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....not prove that the amounts received from the concerned companies were utilized in purchase of KVPs. (ii) The returns of the HUFs had been filed after the date of search. (iii) The fact that KVPs had been acquired out of cash received from M/s Tirupati Fiscal Services (P) Ltd., M/s Surya Commercial Ltd. and M/s Sandeep Salt & Bromine Industries Ltd. was not brought to record at the time of search, nor was it borne from any record seized at the time of search. 5. On appeal, the CIT(A) confirmed the additions made by the AO in the cases of all the three assessees on the following grounds: (a) On the date of conferring Memorandum of Understanding on 20th Oct., 1999, HUF did not possess the land and land was purchased in September, 2000 only. (b) Advance of Rs. 4,00,000 as claimed by the assessee, was received in the month of October, 1999 and invested in KVPs on 30th March, 2000. (c) For the first time HUF filed the return of income, that also after the date of search, for the asst. yrs 2000-01, 2001-02 and 2002-03 on 26th Feb., 2002. Prior to that, there was no existence of the HUF. (d) From the computation of income of HUF for the asst. yr. 2001-02, it was seen t....
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....akash Singhania (HUF) [JPS (HUF)]-pp. 166-173 of the paper book. (ii) Memorandum of understanding for receipt of advance and prospective sale of land: (a) MoU dt. 20th Oct., 1999 entered into between KKS (HUF) and M/s Tirupati Fiscal Services (P) Ltd.- pp. 221-222 of the paper book. (b) MoU dt. 20th Oct., 1999 entered into between BKS (HUF) and M/s Surya Commercial Ltd.-pp. 223-224 of the paper book. (c) MoU dt. 20th Oct., 1999 entered into between JPS (HUF) and M/s Sandeep Salt & Bromine Industries Ltd.-pp. 225-226 of the paper book. (iii) Letters confirming payment of advance of Rs. 4 lakhs giving full address and PAN of the following prospective buyers: (a) M/s Tirupati Fiscal Services (P) Ltd.-p. 227 of the paper book. (b) M/s Surya Commercial Ltd.-p. 228 of the paper book. (c) M/s Sandeep Salt & Bromine Industries Ltd.-p. 229 of the paper book. (iv) Returns of income, auditors report, balance sheets (showing advances given to the respective HUFs) and P&L a/cs for asst. yr. 2000-01 filed prior to the date of search in the cases of: (a) M/s Tirupati Fiscal Services (P) Ltd.-pp. 182-194 of the paper book. (b) M/s Surya Commercial Ltd.-pp. 195-207 ....
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.... 6,28,386 ------------------------------------------- 5. This HUF took an advance from M/s Tirupati Fiscal Services (P) Ltd., P-337, Lake Town, Calcutta - 89 which has been utilized for the purchase of Kisan Vikas Patra in the year ending 31st March, 2000. The IT return was filed on 26th Feb, 2002. 6. The abovesaid company is a private limited company and balance sheet for asst. yr. 2000-01 is signed on 28th Aug., 2000 and return was filed on 14th Nov., 2000 vide receipt No. 001269. 7. KVP was purchased by Kamal Kumar Singhania (HUF) in the name of Sri Kamal Kumar Singhania and Smt. Rachna Singhania. 8. The assessee has shown interest on KVP Rs. 40,000 in its total income of Rs. 1,09,958. The return for asst. yr. 2001-02 was filed on 26th Feb., 2002. 9. That apart, the return of the HUF for the asst. yr. 2002-03 was filed on 28th Feb., 2003 and has been processed accepting the status of HUF, its income, assets and liabilities and thus there cannot be any doubt regarding the genuineness of the status of HUF. (B) Similarly, regarding Bimal Kumar Singhania (HUF) and (C) Jaiprakash Singhania (HUF), identical explanations and evidences were filed before the AO to su....
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....so, in whose hands the value of these KVPs and interest thereon should be included as investment out of undisclosed sources. It is an admitted position that in course of search in the residential premises of Sri Jai Prakash Singhania, KVPs worth Rs. 12,00,000 in the names of the assessees (who are all brothers to each other) were found and seized. It was the claim of the assessees that although - the names of the individual assesses are appearing on the KVPs of Rs. 4 lakhs each, but these were belonging to their respective HUFs and the source of investment was claimed to be out of advance received from intending buyers of a plot of land and hence the investment of Rs. 4 lakhs in each case was out of disclosed sources of the respective HUFs and not undisclosed investment by the Kartas of those HUFs, as alleged by the Revenue authorities. In the above background, the question to be decided first is about the existence/genuineness of the HUFs. As stated above, search in these cases took place on 30th Jan., 2002. On perusal of pp. 158-181 and 230-245 of the compilation, we find several documents which clearly go to establish the existence of the HUFs even before the search was conducte....
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....the said plots had already been completed jointly by KKS (HUF), BKS (HUF) and JPS (HUF) during financial year 1999-2000 although the final conveyance deeds were executed only in financial year 2000-01. As such, Khemka Group agreed to acquire the said land from the concerned HUFs at a price which was 20 per cent above the amounts paid by the HUFs. Accordingly, they advanced Rs. 4 lakhs each to the concerned HUFs in October, 1999. The formal agreements for purchase of land by the HUFs were duly executed in the subsequent year, i.e. financial year 2000-01 (relevant to asst. yr. 2001-02) and accordingly, the investments in lands were depicted in the returns of income and balance sheets of the concerned HUFs for asst. yr. 2001-02. It may be noted that acquisition of the said plots in the financial year 2000-01 by the HUFs out of regular sources of funds has been accepted by the AO also. 8.3 As stated somewhere above in this order that KKS-HUF, BKS-HUF and JPS-HUF received advance of Rs. 4 lakhs each from M/s Tirupati Fiscal Services (P) Ltd., M/s Surya Commercial Ltd. and M/s Sandeep Salt & Bromine Industries Ltd. These parties have also shown in their balance sheets and returns of i....
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....positive evidence on record. Further, the contention of the CIT(A) that on the date of receipt of advances, the HUFs did not possess the land, is not of much relevance in the block assessment of the assessee-individuals. Since the impugned advances and subsequent purchases of land had been duly disclosed in the regular balance sheets of HUFs, the logic behind receiving such advances prior to completion of purchase of land can only be questioned in course of regular assessments of the HUFs and not in the case of the assessee-individuals. 8.4 We further find that even the AO did not feel the need to conduct any further enquiry into the matter by summoning the representatives of the said payer-companies but simply brushed aside the evidence furnished by the assessee without assigning any plausible reason for the same. As such, the assessee-individuals discharged the onus of proving that the investments in KVPs were not made by them in their individual capacities but by their HUFs out of disclosed sources of funds. The AO however, failed to discharge the said onus. The CIT(A) also on the above facts was not justified in upholding the action of the AO on flimsy grounds and by relying....
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....akash Singhania, in response to question Nos. 15 and 16 stated that it was 2 a.m. (midnight) and after 18 hours of continuous search, he was tired and exhausted; as such he was not in a position to explain the said books after looking into the same. Copy of the said statement is placed on pp. 272 to 275 of the paper book. Later on, vide various written submissions filed before the AO, Sri Kamal Kumar Singhania and Sri Jai Prakash Singhania explained that the said books were fabricated for production before the banks in order to procure loans from them. It was further explained that a rosy picture had been painted in such accounts solely for the purpose of obtaining a good amount of loan from bank. However, while preparing such accounts, accounted entries were also incorporated therein with a view to give the fabricated books a touch of reality. Further, bank transactions of different family members were reflected in the said accounts with the apprehension that the bank may verify the transactions with their books. The various submissions of the assessees have been reproduced by the AO in the assessment orders of Sri Kamal Kumar Singhania and Sri Jai Prakash Singhania. 9.2 The AO....
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....ries of cash book marked SIB-3. Accordingly, he added Rs. 71,60,958 towards alleged undisclosed profit of Sri Kamal Kumar Singhania. (B) Sri Jai Prakash Singhania: The AO observed that pp. 32 and 33 of SIB-3 reflected the Kuccha trial balance of M/s Trade Friends as at 31st Dec., 2001. The said trial balance is a summary of all the accounts found in the alleged Kuccha ledger marked as SIB-20. Copy of the trial balance is placed on pp. 251 and 252 of the paper book. The credit side of the trial balance shows balance of Rs. 77,30,897 under the head 'TW' which the AO read as M/s Trade Wings-proprietary concern of Sri Jai Prakash Singhania. The said balance as on 31st Dec., 2001 is also reflected on p. 167 of seized document marked SIB-20, being the account of M/s Trade Wings in the books of M/s Trade Friends. Accordingly, the AO concluded that this assessee had made an undisclosed investment of Rs. 77,30,876 upto 31st Dec., 2001 in M/s Trade Friends. The same was thus, added to his undisclosed income for asst. yr. 2002-03. 10. When the matter came in appeal before the CIT(A), he upheld the aforesaid additions mainly endorsing the views adopted by the AO. 11. The assessee's....
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.... challan, sales bills or any correspondence with suppliers would have been found in the course of search. As such, the odds clearly weigh in favour of the assessee's explanations as against the AO's allegations. 11.1 It was further submitted that the stock found and valued on the date of search (30th Jan., 2002) in the shop and godown of M/s Trade Friends was Rs. 8,13,991 whereas the impugned fabricated accounts show an amount of Rs. 60,34,182 as stock-in-trade as on 31st Dec., 2001. The assessee's regular books of account, on the other hand, show closing stock of Rs. 15,42,744.18 comprising of physical stock of Rs. 7,85,026.50 and goods sent on approval of Rs. 7,57,717.68 as on 30th Jan., 2002. The difference of Rs. 28,964.50 between the value of stock found on the date of search and value of physical stock as per regular books of account relates to damaged stock (mainly of sparklers which became ineffective on lapse of time). As such, even the stock found in the course of search coincides with the stock as per regular books of account. This also fortifies the contention of the assessee that the figures in the impugned seized books and trial balance were deliberately inflated i....
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....g) of profits at the rate of 5 per cent of turnover in cases of retailers subject to the conditions specified in the said section. According to the learned counsel, it is needless to point out that in case of wholesalers, the expected profits are even lower. As such, the unrealistic results portrayed by the impugned books also strengthen the unswerving stand of the assessee that the said books were fabricated solely for the purpose of presentation before the bank. 12. The learned Departmental Representative on the other hand, supported the orders of the Revenue authorities. He submitted that the trial balance and other accounts found during search were the end result of the Kuccha cash books (SIB-1 and SIB-3) and ledger (SIB-20) where all the real transactions have been recorded methodically. The draft numbers as well as issuing banks are also mentioned in cash book. Post-search enquiries in the concerned banks in this regard has established the genuineness of cash drafts. Entries in the ledger account of various banks matched with the corresponding deposits and withdrawals found in the respective account statements received from the bank. In the personal account, the entries re....
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....see that the entries in the said books do not represent the real transactions of M/s Trade Friends or any of the members of the Singhania Group except to the extent discussed above. Since all the premises belonging to the Singhania Group were covered under the search operation, if at all the assessee indulged in any unaccounted transaction to the extent apparent from the seized books, at least some evidence in the form of purchase challan, purchase bills, sales challan, sales bills or any correspondence with suppliers would have been found in the course of search. Further, we find substantial force in the contention of the assessee that if the assessee had indulged in unaccounted transactions to the extent apparent from the fabricated books and trial balance, the value of stock found in course of search would have corresponded approximately to the figures appearing in the fabricated books and not to the stock as per regular books of account. As such, the odds clearly weigh in favour of the assessee's explanations as against the AO's allegations. It is also an admitted fact that expected rate of profit in case of a wholesaler is generally low. In this case, unrealistic results have ....
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....and the same was accepted as such by the AO. The jewelleries found at his residence were explained as belonging to Smt. Rachna Singhania and Smt. Minakshi Singhania and duly disclosed in their regular balance sheets. The said explanation was verified and found to be correct by the AO. Similarly, the cash seized from the premises of Sri Jai Prakash Singhania was explained as part of regular cash of M/s Trade Wings. The same was also verified and found to be correct by the AO. Likewise, the jewellery found at his residence was duly disclosed in the balance sheet of Smt. Shanti Devi Singhania. Accordingly, the said jewellery was not seized by the search party. The stocks inventorised in course of search in the premises of M/s Trade Friends and M/s Trade Wings were also found to be part of regular stock of the said concerns. As such, no unaccounted assets or properties were found in course of search in case of Singhania Group. 13.3 That apart, few books were found and seized in course of search in the premises of Sri Jai Prakash Singhania. The assessee explained all along that the said books had been fabricated on the basis of regular bank transactions for the purpose of availing lo....
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....ficer is not justified to draw such presumption in all cases without application of mind judiciously to the facts of a particular case. Even if such presumption is drawn against an assessee the same is rebuttable and the person against whom such presumption is drawn is free to lead evidence to rebut such presumption and when that is done, the officer or authority shall consider all the evidence and facts judiciously. Now the question is what quantum of evidence is required to rebut such presumption in a given case or set of facts? In our opinion, no hard or fast rule can be laid down nor has been laid down by any Courts. The evidence for rebutting presumption may be either direct or indirect or may be both. And in some cases perhaps even the statement of the assessee may be enough to rebut such presumption drawn by the officer or authority. To say so we draw support from the decision of the Rajasthan High Court in the case of Addl. CIT vs. Thahrayammal Balchand 1977 CTR (Raj) 219 : (1980) 124 ITR 111 (Raj) at p. 117 ...... Apparently no cause of action can lie between the assessee and Naihati Jute Mills Co. on the basis of such unsigned MoU and, therefore, there is no obligation or....
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....e contents of these documents, the AO was under a legal obligation either to corroborate the contents of these documents with transactions of the assessee by independent material or by ocular or documentary testimony or connect this paper with the proprietor of BSC." 13.5 In view of our above discussions and deliberations, we hold that the impugned additions being based on uncorroborated entries in the fabricated books in the hands, of Sri Kamal Kumar Singhania and Sri Jai Prakash Singhania, the same are directed to be deleted. We order accordingly. 14. The next ground of appeal in respect of appeal concerning Jai Prakash Singhania being ground. No. 4 is against addition on account of undisclosed sundry debtors of Rs. 46,92,027. The impugned addition has been made by the AO on the basis of aggregating balances of ledger cards as found in seized records under identification marks SIB-4, 5, 6, 9 to 14, 16 and 17 seized from the residential premises of Sri Jai Prakash Singhania. The AO alleged that Sri Jai Prakash Singhania had made huge purchases and sales outside the books. He further alleged that unaccounted sales had been effected through estimates for approval slips in comp....
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.... Rs. 43,02,836 were sold for Rs. 46,92,027. Therefore, amount of Rs. 3,89,191 (i.e., Rs. 46,92,027 - Rs. 43,02,836) being profit on such transaction can at best be taxed as undisclosed income. It was further emphasized that the source of acquisition of the impugned stock costing Rs. 43,02,836 is explained and recorded in the regular books of account. The said stock was sold for Rs. 46,92,027. The entries for the said sales were, however, not recorded in the books of account till the date of search. As such, only the unrecorded profit on sales can be included in the undisclosed income of the assessee. To substantiate the claim of the assessee, the assessee's learned counsel has filed a trading account of M/s Trade Wings as on 30th Jan., 2002 duly recasted after incorporating the unaccounted sales as under: Revised Trading account of M/s Trade Wings for the period ended 30th Jan., 2002 ------------------------------------------------------- Particulars Amount ....
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....bsp; prepared by search party) --------------- ---------------- 1,32,26,650.94 1,32,26,650.94 ------------------------------------------------------- GP as per revised trading account Rs. 13,92,091.60 Less: GP as per regular accounts Rs. 10,02,900.60 ------------------ Unaccounted profit &n....
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....nd payments received from them. Therefore, it can safely be said that the goods were not sent for approval but those were actual sales. Therefore, the closing balance as per ledger cards of Rs. 46,92,027 has rightly been treated as undisclosed sundry debtors and the addition was justified. 17. On consideration of the seized documents and the regular books and the assessee's submissions in this regard, we find substantial force in the contentions of the assessee's learned counsel. On perusal of paper book pp. 66 to 73 and 139 to 142, we find that the stock as per regular books sent on approval amounted to Rs. 41,36,555 and the stock as per regular books found short by Rs. 1,66,281, aggregating to Rs. 43,02,836 which were sold for Rs. 46,92,027. Therefore, as fairly conceded by the assessee's learned counsel, there was a clear difference of Rs. 3,89,191 being profit on such transaction. This has not been accounted for in the regular books of account, and hence undisclosed. The recasted trading account of M/s Trade Wings reproduced above gives a clear picture and this recasting of trading account and adding the difference to the undisclosed income is also supported by the decision ....
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....p; Expenses 23,750 ------- 32,750 Debit Side 23,750 Travelling Expenses BKS 4,000 Railway 5,000 Raju Garodia ---------------------------------------------- The CIT(A) further observed that this account had been ledgerised under the head "Khata-BKS". He ....