1999-VIL-112-ITAT-PNE

Equivalent Citation: ITD 071, 245, TTJ 065, 327,

Income Tax Appellate Tribunal PUNE

Date: 13.01.1999

CHANDER MOHAN MEHTA.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : B. L. CHHIBBER., K. C. SINGHAL.

JUDGMENT

K. C. Singhal, Judicial Member - This appeal is against Block assessment order passed by Sri S. M. Keshkamat, ACIT (Inv.), Panaji, Goa dated 2bth February, 97. The block period consists of assessment years 1986-87 to 1996-97.

2. The assessee is an individual dealing in batteries. The premises of the assessee was searched u/s 132 of the Income-tax Act, 1961 on 10th February, 1996. The search completed on 28th February, 1996. In response to notice u/s 158BC the assessee filed his return for the aforesaid block period declaring undisclosed income at Rs. 2,10,000. According to the AO, the post search enquiries revealed that assessee was engaged in money lending business from the premises of his proprietary (concern M/s. Solar Batteries at Vasco-da-Gama and the assessee was not disclosing any income from this source. Hence, survey was conducted at the aforesaid premises of the assessee in the course of which some loose papers were found containing the money lending activities of the assessee.

Thereafter, the assessee was summoned u/s 131 and his statement was recorded on 22nd November, 1996. in this statement, it was confirmed by the assessee that money lending activities were being carried on by him for the last 3 to 4 years. Accordingly, the assessee filed the revised return on 9th January 1997 disclosing additional undisclosed income of Rs. 10,00,000 pertaining to A.Ys. 1993-94 to 1996-97. The loose papers found from the premises of the assessee contained the names of the persons from whom the assessee had borrowed money as well as the names of the persons to whom the money was lent. The borrowings amounted to Rs. 79,00,000 while the lending amounted to Rs. 89,00,000. This difference of Rs. 10,00,000 was considered and assessed as income from money lending business. The assessee was asked to furnish confirmations from all the persons from whom the assessee claimed to have borrowed funds for his money lending business. The confirmations were filed by the assessee. To test check the genuineness of the loans, 9 persons were issued notices u/s 131. These persons appeared before the AO. Their statements were recorded on oath wherein all of them confirmed that they had lent the money to the assessee at the rate of 24% interest. However, the AO rejected all the confirmations by observing as under :-

"On verification of confirmation letters produced by the assessee it was found that the assessee has merely got stereotype letters signed by some people. All of them claimed to have advanced money only to this assessee but nobody admitted to have any taxable income. All of them are supposed to be dealing in commodities which are not specified and the loan is attributed to saving from such business. Even those who have appeared before the undersigned in response to the notice under section 131 have given stereotype answers stating the source to be savings from manual labour, house hold savings, savings from salary etc. Even the confirmations which contain the total incomes for the last 3 years of a particular person were also found to be same in many cases. Further, it was claimed in the confirmation letters that the people have given loan only to this assessee and not any other else. All things considered the stereotype confirmation letters filed by the assessee are found to be not from genuine persons who had genuinely advanced money to this assessee. Thus, the entire loans of Rs. 79 lakhs borrowed by the assessee are considered bogus and added back to the total income of the assessee."

Aggrieved by this part of the order, the present appeal has been preferred by the assessee.

3. The learned counsel for the assessee Mr. Pathak has seriously assailed the order of the AO by raising various contentions. Firstly, it was contended by him that statement of the assessee recorded u/s 131 should be either accepted or rejected in toto unless there is material on the record to prove the contrary. According to him, if the statement of the assessee to the effect that he was carrying on money lending business and certain amounts were advanced by way of loan aggregating Rs. 89,00,000 as mentioned in the loose paper is accepted, then as a corollary, the other part of statements to the effect that he had borrowed the amounts from different persons as mentioned in the loose paper should also be accepted. In support of this contention, he relied on the decision of the Supreme Court in the case of Mahendra Manilal Nanavati vs Sushila Mahendra Nanavati AIR 1965 SC 364 and various other Tribunal decisions mentioned below :

1. Tribunal Ahmedabad Bench Decision in the case of Income-tax Officer vs Ghanshyambhai R. Thakkar [1996] 56 TTJ (Ahd) 460.

2. Tribunal Delhi Bench decision in the case of Ashwani Kumar vs Income-tax Officer [1991] 39 ITD 183.

3. Tribunal Jaipur Bench Decision in the case of Kishanchand Sobhrajmal vs Asstt. Commissioner of Income-tax [1992] 41 ITD 97.

4. Tribunal Ahmedabad Bench Decision in the case of Devilal Gherilal Shah vs Dy. Commissioner of Income-tax [1995] 127 CTR (Trib, Ahd) 135.

In view of the aforesaid decisions, it was submitted by him that the contents of loose paper found in the course of survey should be accepted in toto and the fact that the assessee has borrowed money from the persons as mentioned in the loose paper should be accepted. Secondly it was contended that the provisions of section 68 cannot be applied to the facts of the present case since the loose papers found in the course of survey cannot be considered as books of account maintained by the assessee in view of the decision of Tribunal Pune Bench in the case of Kantilal & Bros. vs Asstt. Commissioner of Income-tax [1995] 52 ITD 412. According to him, the loose paper was never meant for disclosing to the income-tax authorities and therefore, the contents of the loose paper are to be accepted in toto unless the department brings in material on the record to disprove the case of the assessee. Thirdly - it was his contention that the provisions of Chapter XIV-B provide for assessment of undisclosed income. Section 158BA being charging section to assess the undisclosed income, the burden is on the Revenue to prove the undisclosed income of the assessee by bringing positive material on the record. According to him, not even a single material has been brought on record to prove that borrowings mentioned in the loose paper amounted to undisclosed income of the assessee. The assessment is purely on the basis of surmises and conjectures. Fourthly - his submission was that if the statement of the assessee is rejected in toto, then the loose paper found from the premises of the assessee would be a dump paper and no inference can be drawn on the basis of such paper, because even the name of the assessee is not written on the loose paper. It is not clear from the loose paper whether it pertains to money lending business. The amounts shown against the names of persons are very small amounts which may not even exceed Rs. 20,000 in aggregate. Fifthly - even assuming that onus was on the assessee to prove the genuineness of the borrowings, no fault can be found with the assessee. It was only in the beginning of February, 1997 that assessee was asked to file the confirmation Lion from the creditors and a very short time of 8 days was given to file the confirmation. The assessee furnished all the confirmations before the AO and thereafter nothing was asked from the assessee. To test check the genuineness of the confirmations, the AO of his own issued summons to 9 persons who appeared before him and their statements were recorded u/s 131. These 9 persons confirmed before the AO that they had lent the money to the assessee on interest at the rate of 24% per annum. Since nothing further was asked from the assessee, he was under the bonafide impression that the confirmations filed by him were accepted by the AO. But, to his surprise, he received the assessment order wherein the entire borrowings had been rejected on flimsy grounds. According to Mr. Pathak, the onus which lies on the assessee has been duly discharged and the same were shifted to the AO for disproving the stand of the assessee. According to him, not even a single material has been brought on record to suggest that confirmations filed by the assessee were false or bogus. In support of his contention that no addition can be made if primary burden is discharged, the reliance was placed by him on the following decisions :

1. Smt. Narinder Bedi vs Income-tax Officer [1996] 59 ITD 417 (Chd)

2. Commissioner of Income-tax vs Sahibganj Electric Cables (P.) Ltd. [1978] 115 ITR 408 (Cal)

3. Commissioner of Income-tax vs Shyam Sunder & Co. [1990] 181 ITR 187 / [1989] 45 Taxman 248 (Cal)

4. Pragati Construction Co. vs Income-tax Officer [1997] 60 ITD 201 (Delhi).

Lastly, it was submitted by him that even the draft order proposed by the AO was not disclosed to the assessee and therefore, the question of rebuttal did not arise.

4. The learned senior D.R. has supported the order of the AO by reiterating the reasonings by the AO which need not be repeated since the same have been reproduced by us in earlier paras. Regarding the first legal contention of Mr. Pathak, it was submitted by him that statement of the assessee can be disbelieved in part. He also relied on the same decision of the Supreme Court which was relied upon by Mr. Pathak. In support of his submission, he relied upon the observations of the Hon'ble Supreme Court in para 213 of the order appearing at page 404 of the report. Particular reliance was placed on the observations "no doubt what applies to an admission in the pleading would not apply to statements made by witness in evidence." According to him, the statement of the assessee u/s 131 cannot be considered as an admission in order to accept it fully. Further stated that defence which is false can be rejected.

Regarding the second contention of Mr. Pathak, it was submitted by him that AO has not invoked the provisions of section 68 and therefore, the same has to be ignored. According to him, the general principles applicable to the borrowings would apply and the burden is on the assessee to prove the identity, the creditworthiness of the creditors and genuineness of the transactions.

Regarding the onus, it was submitted by him that the same has not been discharged by the assessee. Onus is shifted to the Revenue only where the initial burden which lies on the assessee is discharged. In support of his submission, he relied on the decision of the Bombay High Court in the case of Orient Trading Co. Ltd. vs Commissioner of Income-tax [1963] 49 ITR 723 and the decision of the Tribunal Hyderabad Bench in the case of Asstt. Commissioner of Income-tax vs Dhanalaxmi Steel Re-rolling Mills [1996] 55 TTJ (Hyd) 679. He then drew our attention to the confirmations filed by the assessee to point out the inherent weakness in such confirmations. In this regard, he repeated the reasonings given by the AO namely - (1) that confirmations were in the stereotype form (2) the nature of business carried on by the creditors not specified (3) all of them claimed to have advanced money only to the assessee. It was further stated by him that most of the creditors had shown similar income. Loans were received in odd figures which is not a probability. Income-tax Form No. 4A were filed after the search and therefore, have no evidentiary value. Reliance was placed on the decision of the Tribunal in the case of Govindram M. Oberoi vs Income-tax Officer [1997] 57 TTJ (Pune, TM) 1. He also referred to the decision of Ahmedabad Bench in the case of Dhaneshkumar B. Shah vs Asstt. Commissioner of Income-tax [1995] 52 TTJ (Ahd) 185, in support of his submission. It was further submitted that all the loans were received in cash, though banking facilities were available. He also referred to a pronote appearing on the last page of the paper book to show that assessee was in the habit of borrowing money on the basis of pronotes and therefore, cash transactions could not be believed. It was also pointed out by him that in fact the total borrowings were to the extent of Rs. 65,60,000 while the confirmations were given for Rs. 78,00,000 which shows that the confirmations filed by the assessee were bogus. A query was raised from the Bench as to why all the persons from whom money was borrowed by the assessee were not examined. It was stated by him that assessee had requested in a statement not to make investigations as his business would be ruined. It is because of this reason that all the persons were not examined.

The learned D.R. also invited our attention to the notes on confirmations appearing at pages 1 to 4 of the paper book filed by him to show the weaknesses in the statement or the persons who appeared before the AO.

Lastly, it was submitted by him that on the basis of the loose paper, there was negative balance on 18th September, 1996 to the extent of Rs. 18,20,000 which remains unexplained and therefore, the addition to this extent has to be sustained. He also raised an alternative ground to the effect that assessee had made investment by way of loans and the source of money has not been proved by the assessee. Therefore, the additions should be sustained u/s 69. He referred to various decisions mentioned below for the proposition that addition can be sustained even on other grounds :

1. 22 ITD 983 (sic)

2. Marolia & Sons vs Commissioner of Income-tax [1981] 129 ITR 475 (All)

3. P. Ibrahim Haji vs Commissioner of Wealth-tax [1998] 98 Taxman 249 (Ker)

4. Steel Containers Ltd. vs Commissioner of Income-tax [1978] 112 ITR 995 (Cal)

5. Bishamber Nath Ram Sarup vs Commissioner of Income-tax [1987] 163 ITR 87 / [1986] 25 Taxman 52 (Delhi)

6. D. M. Neterwalla vs Commissioner of Income-tax [1980] 122 ITR 880 (Bom)

5. In reply to the submissions of the learned D. R., Mr. Pathak has submitted that statement of the assessee u/s 131 was recorded on the very same date of the survey and the statement was spontaneous. Therefore, such statement has to be believed and cannot be brushed aside as an afterthought. He also drew our attention to page 5 of the departmental paper book which is a letter from Commissioner of Income-tax to show that no addition was proposed by the AO and it was at the instance of the CIT that assessee was required to file the confirmations. According to him, it shows that AO was satisfied with the statement of the assessee. Confirmations were filed in response to such request, but, thereafter, neither the CIT nor the AO asked the assessee to prove further. He also drew our attention to the order of assessment to show the fact that assessee was engaged in the money lending business has been accepted by the AO in the earlier years, which shows that in the past also the assessee must have made borrowings and lendings in the earlier years, which is a continuing process. Sometimes there are renewals of the loans which may appear in the loose paper. He, again reiterated that loose-paper was not meant for the Income-tax Officers and assessee never anticipated the survey. Therefore, the correctness of the loose paper cannot be disputed.

6. The rival contentions of the parties and the material placed before us have been considered carefully. At the outset, it would be useful to refer the well-settled legal position, that burden lies on the Revenue to prove. that case of assessee falls within the four corners charging provisions of the fiscal statute. Special provisions have been enacted by the legislature in Chapter XIVB for assessing the undisclosed income. Section 158BA is the charging section which authorises the AO to assess the undisclosed income in accordance with the provisions of Chapter XIVB. What is undisclosed income is defined in section 158B. Section 158BB provides that undisclosed income shall be computed on the basis of evidence found as a result of search and such other materials as are available with the AO. The combined reading of these provisions reveals that AO has to prove, on the basis of the evidence or material found as a result of search or as available with the AO, that assessee had the undisclosed income chargeable to tax under section 158BA.

7. Now the question is whether there is any material or evidence on the record which was available to the Assessing Officer to prove the undisclosed income of the assessee. The perusal of the record shows that only materials found in the course of survey of the business premises of the assessee, though after the search, are certain loose papers containing the list of certain persons against whom some small amounts varying between Rs. 5 to Rs. 150 are mentioned and the statement of assessee recorded under section 131 on the date of survey itself. These loose papers, even do not indicate the name of the assessee. From the list of persons, it cannot be inferred that either any loan or any advance was given to these persons or received from these persons. The total amount on these loose papers would not exceed even Rs. 20,000. Therefore, if we consider these loose papers as the only material, then in our opinion, it would lead to no conclusion whatsoever and these loose papers will have to be considered as dump papers having no evidentiary value. In such situation, no addition can be sustained on the basis of such dump papers in view of the Tribunal decision in the case of Ashwani Kumar (supra).

8. However, if we consider above loose papers alongwith the statement recorded under section 131, then certainly these loose papers can be considered as relevant material having evidentiary value. Therefore it is necessary to examine this statement. The statement explains the nature of the transactions. It has been explained in the statement that particular list contained the names of the persons to whom the assessee had advanced monies as loan on interest at the rate of 36% p.a. It is further explained that the other list in the loose papers contains the names of the persons from whom the assessee had borrowed the money on interest at the rate 24%. 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 (supra). The decision of the Supreme Court in the case of Mahendra Manilal Nanavati (supra), also says that admission has to be considered in its entirety. However, the Senior D.R. has also relied on para 213 of the aforesaid decision of the Supreme Court for the proposition that even the part statement can be rejected. We find that para 213 is part of the dissenting judgment. According to the majority judgment, the entire admission was to be acted upon. We therefore reject this submission of the learned senior D.R.

9. In view of the above, it is held that the entire statement of the assessee has to be accepted. If that is so, no addition can be sustained on the basis of the materials mentioned above. The loose papers were maintained and kept by the assessee for his private knowledge and information and not meant for disclosing to the Department. If the statement of the assessee is to be rejected in toto, then no addition can be made on the basis of loose papers since those would be dump papers as discussed in the earlier part of our order. If the statement of the assessee is accepted in toto, then contents of the statement are to be accepted and the borrowings mentioned in these loose papers have to be accepted as genuine. In either case, no addition is called for. No doubt, the presumption to the correctness of the documents can be rebutted by the Department, but the Revenue has not been able to bring any material on the record for rebuttal. Therefore, we are of considered view that no addition can be sustained on the basis of these materials.

10. Even assuming, for the sake of arguments, that burden lies on the assessee to prove the genuineness of the borrowings mentioned in the loose papers, we are of the view that the initial burden which lies on the assessee has been discharged. From the letter of the CIT dt. 31st January, 1997, it appears that no addition was proposed by the AO that implies that AO was satisfied with the genuineness of the borrowing made by the assessee. It was only at the direction of the CIT that assessee was asked to file the confirmations which were in fact filed by the assessee within the time allowed by the AO. Thereafter, nothing was asked by the AO from the assessee. On the other hand, he issued summons to 9 persons u/s 131 who appeared before the AO and their statements were recorded at the back of the assessee. All these 9 persons confirmed that they had advanced loans to the assessee on interest at the rate of 24% p.a. Despite this, the AO rejected all the confirmations filed by the assessee and made additions on the flimsy grounds which have been reproduced by us in the earlier part of our order. If the AO was not satisfied with the creditworthiness of the creditors and the genuineness of the transactions, he should have asked the assessee to produce all the creditors and the relevant evidence. The assessee cannot be burdened with the liability of the tax on account of failure of the AO in discharging his duties. No material has been brought on the record to prove that these confirmations were false. Further, there is nothing on the record to suggest that statements of the persons recorded by the AO were false. Therefore, the question of rejection of the confirmations does not arise. In our considered opinion, we are of the view that initial burden which lies on the assessee has been discharged and the onus shifted to the Revenue to prove that evidences produced by way of confirmations were false. In the absence of any adverse material on the record, the addition cannot be sustained on mere surmises and conjectures. We need not repeat the reasons given by the AO which have been reproduced by us while stating the facts of the case. Therefore, even on this alternative ground, the assessee must succeed.

11. Now we deal with the contention of the learned Senior D.R. to the effect that at least addition of Rs. 18,20,000 should be sustained on account of negative balance on 18th September, 1996. In our opinion, there is no force in such contention of the learned D.R. There is no material available on the record to prove any cash flow in the hands of the assessee. Admittedly, the assessee had been carrying on the business of money lending for the last 4 years i.e. assessment years 1993-94 to 1996-97 as is apparent from page 4 of the assessment order where the AO has accepted the undisclosed income of Rs. 10,00,000 on account of money lending business pertaining to the above 4 years. This amount was therefore available with the assessee for investment for which credit has to be given. Besides this, the assessee must have been receiving the money back from the borrowers which could be re-invested by the assessee. In the absence of any material on record in this regard, it cannot be said positively that there was any negative balance on the date stated by the learned D.R. Hence, this contention of the D.R. cannot be accepted.

12. Since it has been held that assessee has discharged his onus regarding his borrowings, the question of considering the contention of the learned Senior D.R. regarding unexplained investment u/s 69 does not arise.

13. In view of the above discussions, the impugned addition of Rs. 79,00,000 cannot be sustained. The order of the AO is, therefore, set aside on this issue and the impugned addition of Rs. 79,00,000 is hereby deleted.

14. In the result, appeal of the assessee is allowed.

 

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