1993-VIL-177-ITAT-CHN

Equivalent Citation: TTJ 046, 353,

Income Tax Appellate Tribunal COCHIN

Date: 31.03.1993

MV MATHEW.

Vs

INCOME TAX OFFICER.

BENCH

Member(s)  : G. SANTHANAM., SMT. P. K. AMMINI.

JUDGMENT

Of these two appeals, one is by the assessee and the other is by the Revenue and both relate to the asst. yr. 1983-84.

2. The previous year of the assessee ended on 31st March, 1983 relevant to the asst. yr. 1983-84. The assessee had submitted a return of income on 31st March, 1986 disclosing income of Rs. 4,28,520 in addition to agricultural income of Rs. 17,000. The income of Rs, 4,28,520 consisted of share income from two firms in which the assessee is the managing partner, amounting to Rs. 1,11,494, income from other sources amounting to Rs. 3,25,000 and notional income from the residential house in a sum of Rs. 1,000. The above return was submitted after a search was conducted on 2nd Aug., 1985 in the business premises of the assessee as well as the firms in which the assessee is a managing partner. The return was in response to a notice under s. 148 of the IT Act, 1961, issued on 9th Dec., 1985 and submitted during the currency of the amnesty scheme. One of the seized material from the residence of the assessee is a Cool Foam Diary of 1973 in which entries were found in assessee's own handwriting. Although the diary is for the year 1973, entries have been made for the year 1981 onwards. But they are not seriatim entries, nor in a chronological order. We are concerned in these appeals before us with regard to a particular sheet of paper which is as follows:

Tranvancore Investments (P.S. Sathyan)

The entry against 2nd March, 1983 is not clear whether it refers to 'Rash' or Rasheed' or 'R. Ramesh Kumar'. The Asstt. Director of Inspection (IW), Cochin, examined the assessee on 12th Aug., 1985 with regard to the above entries in the diary and the questions and replies thereto are as follows:

"N. Acted means not accounted. The above advances/deposits are not accounted in the books of accounts where I am a partner.

1. AM stands for A. Moosa who is a partner in M/s Bharat Sea Foods, Chandiroor, who was and is a subscriber to various chitties conducted by us.

2. KSP stands for K.S. Pareed, who is a dealer in Sea Foods. I understand that he is a subscriber in several chitties run by us.

3. K.C. Markose is a planter at Chemmbu. He is a subscriber in our chitties.

4. Kutty Moosa is a partner in M/s Sea Pearl at Chandiroor. He is subscriber in our various chitties.

5. KKB stands for K.K. Basheer. He was subscribing to our chitty in 1981. I think he has from a place near Arookutty.

6. 'Rash' — I think stands for Rasheed He was a subscriber to our chitties. I do not readily recall his address. The address can be collected from Chitt 'Thalavariola'.

7. P.S. Sathyian was the manager of the Federal Bank, Tripunithura three years ago. He is now at Jamshedpur in the same bank. He is a subscriber to our chitties.

8. I am not readily able to explain the three entries TDR one Bus MFC for total amount of Rs. 1,30,000. MFC stands for Manickanamparambil Chitties". Subsequently, the assessee was also examined by the AO on 20th June, 1986. In the cross examination by the assessee's counsel it transpired that the assessee sought to correct the impression he had given to the Asstt. Director of Inspection (IW) in his statement on 12th Aug., 1985 as regards the entry against; 2nd March, 1983 as referring to 'Rasheed' The following questions and answers are relevant:

Q.1 In the course of recording of the sworn statement before the Asstt. Director of Inspection on 12th Aug., 1985 you were asked about the noting 'Rash'—Rs. 3,11,380 written in the torn sheet of paper taken from your house, you said, I think—stands for Rasheed. Is it correct?

A. It is not correct. The correct name is Ramesh Kumar.

Q.2. Can you explain the transactions with Ramesh Kumar?

A. The above said Mr. Ramesh Kumar has collected Rs. 3 lakhs from various persons and deposited with me on different dates.

Q.3. Can you prove the deposit of Rs. 3 lakhs received through Mr. Ramesh Kumar?

A. It is difficult to prove. So 1 have decided to treat this as my income.

Sd/

M.V. Mathew

Further questions—asked by the ITO.

Q.4. Do you know the address of Mr. Ramesh Kumar,

A. A. Ramesh Kumar, Usha's, Cherpu, Kadavanthara, Cochin-20

Q.5. What is your connections with Ramesh Kumar?

A. Mr. Ramesh Kumar is a subscriber in many chitties of our firm.

Q.6. Have you given this amount to Ramesh Kumar or have you received this amount from him.

A. I have received it from Ramesh Kumar.

Q.7. Have you received it for interest?

A. On 12 per cent interest.

Q.8. When you have returned this amount?

A. On various occasions. I don't remember exactly.

Q.9. What is Ramesh Kumar's business?

A. He is a glass merchant at Tripunithura.

Q.10. Why you have told Asstt. Director of Inspection that Rush means Rasheed?

A. I have told Asstt. Director of Inspection that I don't remember exactly and said I think stands for Rasheed.

Thus, in the initial statement the assessee referred to the impugned entry as referring to Rasheed. In the subsequent statement he referred to the amount as having come from Ramesh Kumar. He had also explained in his letter dt. 30th Dec., 1986 addressed to the ITO that "in this connection I may submit that I have filed my IT returns for the asst. yr. 1983-84 on 31st March, 1986 in which I have returned 'income from other source' Rs. 3,25,000. In the course of my disposition before your goodself I have stated that I have returned an income of Rs. 3,25,000 under the head 'other sources' and the details thereof can be submitted in the assessment stage. I submit that it is out of the above said income of Rs. 3,25,000 that the expenses and investment detailed in item (a), (b) and (c) of para 'I' above, are met. Under the circumstances I humbly submit that no addition is called for in this account in assessment for the year 1983-84. III. Referring to the sum of Rs. 3,11,380 referred to in your letter dt. 15th Dec., 1986, I once again draw your kind attention to my disposition that I have declared sufficient income under other sources to cover this amount. None of the seized records show any investments or expenses other than referred to items (a), (b) and (c) in para 'I' above which causes cash payments aggregating to more than what I have offered for the assessment under other sources". The ITO examined Ramesh Kumar who had stated that he has only taken loans from Manichanamparambil Chitties, Udayamperoor. He had denied having deposited any amount with the assessee or with the concerns in which the assessee is interested. Therefore, the ITO came to the conclusion that Ramesh Kumar could not have deposited the amount with the assessee. He held that it was an advance made by the assessee to some unknown person and computed the income as follows:

From the above calculation of Rs. 6,22,199, the ITO has reduced the drawings of the appellant from the two firms amounting to Rs. 43,778 (Rs. 15,677 + Rs. 28,101). He has also reduced the income disclosed under other sources amounting to Rs. 3,25,000 and agricultural income of Rs. 17,000. After reducing these figures, he has arrived at an unexplained resultant income of Rs. 2,36,421 which has been taken as income from other sources along with the amount of Rs. 3,25,000, making in all an amount of Rs. 5,61,421."

3. The assessee appealed against the addition of the income at Rs. 5,61,421. It was contended that the income admitted by the assessee in his return under other sources in a sum of Rs. 3,25,000 would cover the unaccounted education expenses of the children, household expenses and the peak of the bank deposits in the names of the assessee and others. As regards the sum of Rs. 3,11,380 it was contended that it was not a loan given by the assessee but rather a deposit received by him and as he was not in a position to prove the source, he had taken this amount into account while finalising the figure of Rs. 3,25,000. Further, it was contended that the ITO in arriving at the peak credit with regard to the bank deposits in the name of the assessee, his wife and children, erred in individually working out the peak credit in each of such accounts and if all the deposits standing in the name of the assessee, his wife and children are lumped together and peak is worked out, it would come to Rs. 1,06,000 as against Rs. 1,58,400 determined by the ITO. The CIT(A) on a consideration of the submissions made before him and the materials on "record, held that the assessee had been maintaining all along that the amount of Rs. 3,11,380 represented deposits received by him and that the ITO has not brought on record any clinching evidence to prove his contention that the said amount represented advance given by the assessee to some unknown person on which interest was received. Therefore, he gave the benefit of doubt to the assessee, holding that the amount represented a deposit rather than an advance. He also agreed with the assessee that the peak credit is to be ascertained on a comprehensive review of all the deposits standing in different names and in this view of the matter, he upheld the computation of peak credit in a sum of Rs. 1,06,000 as against Rs. 1,58,400 determined by the ITO. On a consideration of these facts, he held that "I would be prepared to agree with the appellant that the various unaccounted expenses and bank deposits would be covered by the amount of Rs. 3,25,000 as described by the ITO. However, in my view in a case like this where certain papers are seized and where no regular records are kept by the appellant, there is always a possibility of certain items of expenses not being fully accounted in case such transactions are not unearthed during the course of such proceedings. In view of this I would think that an addition Rs. 50,000 should be made to the declared amount of Rs. 3,25,000 for such possibilities. Thus, the income from undisclosed sources to be adopted by the ITO would be Rs. 3,75,000 as against Rs. 3,25,000 declared by the appellant. The other addition of Rs. 2,36,421 would be deleted in view of the above discussion". As a consequence of his findings, he held that there was no need to estimate the income from money-lending in a sum of Rs. 30,000 and the same was deleted. Both the Revenue and the assessee are aggrieved against the order of the CIT(A).

4. The short controversy before us is whether the sum of Rs. 3,11,380 represented advance made by the assessee or whether it represented deposit as held by the CIT(A).

5. We have heard rival submissions and perused the records. The seized sheet No. 7 giving rise to the controversy has been extracted by us in para 2 above and the statement given by the assessee before the Asstt. Director of Inspection (IW), Cochin, was also extracted in para 2. From the statement it is seen that the assessee had stated that the piece of paper represented 'not accounted' items. He had also indicated that the entries found therein represented advances/deposits. At that stage of the examination or at any time in the course of the said examination, no question would appear to have been put to the assessee to identify such of those items which represented advances and such of those items which represented deposits. From the statement it is seen that the assessee had explained the term 'Rash' as "I think stands for Rasheed" who was a subscriber to our chitties". From this the Department has gained the impression that the transaction is a deposit. This is confirmed in the letter of the ITO dt. 15th Dec., 1986 that "that you have deposed before the Asstt. Director of Inspection, Ernakulam, that "Rash" represents Rasheed and the amount of Rs. 3,11,380 is a deposit for a loan from this person on the date noted against the amount. However, when your sworn statement has been recorded by me you have changed the earlier version and stated that "Rash" represents A. Ramesh Kumar, Ushas, Kadvanthara and the amount is a deposit received from the person". From the above, it is evident that the Department itself has understood the. transaction only in the nature of a deposit received by the assessee, but not as an advance given by the assessee. This has also been the plea of the assessee in his further deposition dt. 20th June, 1986. There is also force in the contention of Sri R. Srinivasan, the learned chartered accountant, that in the case of unaccounted accounts, the assessee alone knows the true nature of the transactions and in the context of the Department accepting the assessee's version in the subsequent years that all other entries in the not accounted account represented advances given by him, the Department should not doubt the assessee's version that the impugned amount is a deposit receive by him. In case of doubt, clinching evidence must be brought on record to say that it was an advance. Whether the deposit came from Rasheed or from Ramesh Kumar is anybody's guess. As far as Rasheed is concerned, the assessee has went back on his statement. As far as Ramesh Kumar is concerned, the Department has obtained the statement from Ramesh Kumar who had denied having made the deposit. The assessee's grievance is that it was Ramesh Kumar who. had made the deposit, but as Ramesh Kumar was not willing to confirm it, he had to include the impugned amount in the sum of Rs. 3,25,000 offered under other sources.

6. We have carefully gone through the depositions of Ramesh Kumar. It is not as if Ramesh Kumar is a man of straw. Though he had his humble beginning as a worker in a footware firm, he has opened a footware shop "Stylo" in Tripunithura with a branch "Ashwathi" also in Tripunithura. More important is that he was able to open a business in M.G. Road, Ernakulam, a totally different business dealing in glass. He has also started a glass and hardware shop in Market Road, Ernakulam. He is not unknown to the assessee either. He had taken some loans also from the assessee which are recorded in the books of accounts on which there is no dispute. In such circumstances of the case, reading the denial of Sri Ramesh Kumar with the assessee's version that because of his inability to obtain confirmation from him for the deposit received that he had offered the sum of Rs. 3,25,000 as additional income, the CIT(A) gave the benefit of doubt to the assessee and held that the impugned amount could be viewed as deposit received rather than an advance made by him. Further, the CIT(A) felt that there was no clinching evidence to say conclusively that it is an advance given by the assessee to some unknown person. We concur with his findings.

7. Sri C. Abraham, the learned senior Departmental Representative submitted that if the impugned amount is held to be a deposit, the Revenue will be having no case. We agree with his submission and hold that the impugned amount was rightly considered as a deposit received and the inclusion of the sum of Rs. 3,11,380 as advance is not warranted in the facts of the case. The same was rightly deleted by the CIT(A). Therefore, the addition of Rs. 30,000 as notional interest earned on such sum was also rightly deleted.

8. Another related aspect is with regard to the computation of the peak credit. The ITO had compartmentalised the various deposit accounts standing in the name of the assessee, his wife and children and computed the peak credit in each such account so as to arrive at the peak credit of Rs. 1,54,400. When the deposits and bank accounts of the assessee and others are taken together for assessment, the proper method would be to have a comprehensive review of all the transactions in a chronological order cancelling the effect of "transfer to" and "transfer from" each of such accounts and work out the peak credit on that basis. It is agreed before us that the assessee's computation of peak credit in a sum of Rs. 1,06,000 is on this basis. Therefore, the CIT(A) is right in accepting the sum of Rs. 1,06,000 as the peak credit as against the sum of Rs. 1,54,400 determined by the ITO.

9. Turning to the assessee's appeal the grievance of Sri Srinivasan is that having held that the sum of Rs. 3,11,380 represented deposits and that the peak credit amounted to only Rs. 1,06,000 and the unaccounted educational expenses and household expenses would all be covered by the amount of Rs. 3,25,000 offered by the assessee as income from other sources in his return of income, the CIT(A) should not have sustained an addition of Rs. 50,000 on ad hoc basis entering the realm of conjunctures and surmises.

10. In our considered opinion, once the CIT(A) has found that the sum of Rs. 3,25,000 was more than sufficient to explain the outgoings in the form of unaccounted educational expenses, estimated household expenses and unaccounted bank deposits etc., no case is made out for making an addition on ad hoc basis. Therefore the addition sustained by the CIT(A) to the extent of Rs. 50,000 is deleted.

11. In the result, the Revenue's appeal fails end the assessee's appeal is allowed.

 

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