2006-VIL-363-ITAT-JDP

Equivalent Citation: TTJ 104, 134, [2007] 16 SOT 36 (JODH.) (URO)

Income Tax Appellate Tribunal JODHPUR

IT APPEAL NO. 1406 (JP.) OF 1994

Date: 11.08.2006

ASSISTANT COMMISSIONER OF INCOME-TAX.

Vs

ASHOK KUMAR CHHUGANI.

BENCH

Member(s)  : R. S. SYAL., HARI OM MARATHA.

JUDGMENT

This appeal by the Revenue is directed against the order passed by the CIT(A) on 5th April, 1994 in relation to asst. yr. 1990-91.

2. First ground is against the reduction in the addition of Rs. 4,12,466 representing unexplained investment in construction of property to Rs. 2,07,063.

3. Briefly stated, the facts of this case are that a search action was taken upon the assessee on 17th Aug., 1990 in which certain incriminating documents were found and seized. As per Annexs. A-6 to A-8 of the Panchnama, one notebook and loose papers relating to the construction of the house were seized, the total investment in construction on the basis of which was worked out at Rs. 11,77,807. These seized papers contained bills and vouchers, etc. On being called upon to explain the loose papers, it was stated on behalf of the assessee that the expenses recorded in a number of papers seized were repetitive and also included delivery challans for supply of material, which were substituted by bills later on and the Department had taken into account both the challans as well as the bills. After completing the verification, the assessee worked out the undisputed amount as per Annexs. V, VI and VII at Rs. 5,71,599.60. The amount disputed by the assessee was at Rs. 84,895.65 totalling Rs. 6,56,495.25. Not satisfied with the working of Rs. 84,895 shown by the assessee, the AO referred the matter to the DVO who determined the investment at Rs. 5,49,566. The AO further enhanced it by 15 per cent to work out total expenditure at Rs. 6,56,495 to cover leakage of bills, etc. By considering the amount surrendered by the assessee, the AO made addition of Rs. 4,12,466 being the undisclosed investment in the construction account. In the first appeal, the learned CIT(A) reduced this addition by Rs. 2,05,403.

4. We have heard both the sides and perused the relevant material on record. There is no dispute about the fact that certain loose papers were found during the course of search, which transpired that the assessee had made investment in construction of property, which was not recorded in the books of account. It is further clear that there were certain duplications inasmuch as both the delivery challans as well as sales bills were included by the AO initially for the purposes of estimating the undisclosed investment. When the assessee submitted the details, the AO did not get satisfied and referred the matter to the DVO who determined the value at Rs. 5,49,566. Thereafter, the AO at his own made a further increase of 15 per cent to cover leakage. We are unable to appreciate the approach adopted by the AO. Valuation is a technical matter, which cannot be handled by all and sundry. The DVOs are experts in the field of valuation. The AO cannot step into the shoes of the Valuation Officer to presume further investment after receipt of report from the DVO that there is still some leakage, which has not been considered by the Departmental Valuation Cell. If the arbitrary enhancement is unloaded from the value determined by the DVO, we find that there is a total investment of Rs. 5,49,566 as determined by the DVO. The AO at p. 10 has discussed that the assessee had shown construction expenses in his balance sheet at Rs. 1,92,503. Further, the assessee's brother Shri Govind Ram surrendered a sum of Rs. 1.50 lakhs and the assessee has also surrendered a sum of Rs. 2 lakhs in the revised return. Thus, the total amount comes to Rs. 5,42,503. The difference of Rs. 7,063 (Rs. 5,49,566 minus Rs. 5,42,503) is hereby held to be sustainable.

5. Ground No. 2 is against the deletion of addition of Rs. 34,000 (wrongly typed as Rs. 30,000) representing benami deposits in the bank account in the names of S/Shri Ghanshyam Balani Rs. 25,000 and Hargundas Balani Rs. 9,000.

6. Facts apropos of this ground are that on the perusal of bank passbooks seized from the bedroom of the assessee, it was revealed that in the account of Shri Ghanshyam Balani, a sum of Rs. 25,000 was deposited in cash during the year under consideration. Similarly, in the account of Shri Hargundas Balani, S/o Shri Ghanshyam Balani a sum of Rs. 9,000 was deposited in cash. During the course of search in connected cases of Shyam Oil & Cake Co., statement of Shri Ghanshyam Balani was recorded in which he was asked to explain the reasons for finding of the passbooks of his and his family members from the bedroom of Shri Ashok Kumar and was also called upon to explain the source of deposits made in the account. Shri Ghanshyam Balani in his statement admitted that deposits made in his account and in the accounts of his family members recovered from the bedroom, in fact belonged to Shri Ashok Kumar. He further admitted that he and his family members had only signed the forms and all other formalities were done by Shri Ashok Kumar. During the course of assessment proceedings, the assessee was called upon to explain the source of deposits in the two accounts. It was submitted that these deposits were made by Shri Ghanshyam Balani and his son Shri Hargundas Balani and they were income-tax assessees. The AO observed that all the slips for deposits and all the cheques for withdrawals were made by the assessee from these bank accounts and even the forms for opening these accounts were prepared by him. Considering these facts, he made an addition of Rs. 34,000, which was deleted in the first appeal.

7. We have heard both the sides and perused the relevant material on record. It is noted that Shri Ghanshyam Balani is related to the assessee as uncle and Shri Hargundas Balani as cousin. Shri Ghanshyam Balani in his statement admitted that the transactions of cash deposited in their bank accounts were made by the assessee and the passbooks were also found in the custody of the assessee.

However, the assessee in his statement under s. 132(4) on 23rd Aug., 1990, copy placed at page, in answer to question No. 62 stated that he was not aware of any statement given by Shri Ghanshyam Balani and the work was done by him in the capacity of a relative. It has been claimed on behalf of the assessee that both Shri Ghanshyam Balani and Shri Hargundas Balani were filing the returns right from 1983-84 and had been duly assessed. The copies of the IT returns of these two persons along with computation of income, etc. have been placed at pp. 28 to 44 of the paper book. It is further important to note that the amounts of deposits were made in the bank accounts of these two persons and not the assessee. Both of them had declared the bank accounts in their respective returns. Merely because these passbooks were found from the assessee, it could not lead to the fact that the assessee had made deposits out of his undisclosed income. If it had been so, there was no need to open bank accounts in the names of relatives. It is further not the case that the assessee had forged the signatures of these persons. Thus, the primary onus to explain the source of the deposits was on both of them in whose bank accounts the amounts were found to have been deposited. It is further interesting to note that the assessee was not allowed to cross-examine Shri Ghanshyam Balani to bring out a case in his favour. By considering these facts in totality, we are of the considered opinion that the learned CIT(A) was justified in deleting this addition. This ground is not allowed.

8. Third ground is against the deletion of addition of Rs. 39,458 representing interest on deposits found in the names of various family members.

9. Facts of this ground are that during the course of search, bank passbooks of assessee's wife, mother, sons and other relatives were found from the bedroom of the assessee in which huge deposits were made. The AO determined the total of the deposits at Rs. 5,48,069. It was observed that the genuineness of the deposits could not be examined because they related to asst. yr. 1988-89. Accordingly the AO held that the income earned by these persons was includible in the assessee's total income on protective basis. The learned CIT(A) deleted this addition.

10. We have heard both the sides and perused the relevant material on record. It is noted that the AO has already accepted the substantive status of these family members for interest income in the individual cases. Once an addition has been made in the respective hands on substantive basis, there is no justification for making such addition on protective basis in the hands of the assessee. It is further a million dollar question that if the genuineness of the credits stands accepted in the earlier year, how the disallowance of interest can be justified? In our considered opinion, the learned CIT(A) rightly deleted this addition.

11. Next ground is against the deletion of disallowance of Rs. 1,21,095 being the interest to the extent of interest not charged on the funds advanced to the family members.

12. The AO on the perusal of details noted that the assessee had claimed expenses on account of interest at Rs. 14,47,372. He made out a chart of 15 entities in respect of which it was opined that the assessee had made huge advances to these persons/relatives on which no interest was charged. It was further held to be diversion of income by borrowing interest-bearing funds and diverting them as interest-free loans to the family members. An addition of Rs. 1,21,095, being interest receivable on the advance made to relatives was made which came to be deleted in the first appeal.

13. We have heard both the sides and perused the relevant material on record. It is obvious that the AO made addition by presuming that the assessee had diverted interest-bearing funds by advancing loans to the relatives without interest. No nexus worth the name has been established that interest-bearing funds were advanced by the assessee to these parties. We further note that the Tribunal in the case of assessee's brother in Govind Ram Chhugani vs. Asstt. CIT (2002) 77 TTJ (Jd) 339 has deleted similar addition which fact has not been controverted by the learned Departmental Representative. The learned Authorised Representative has rightly relied upon ITO vs. Kundanmal Surana (2004) 83 TTJ (Jd) 582, Shyam Oil Cake Ltd. vs. Asstt. CIT (2004) 83 TTJ (Jd) 414 and other cases. to contend that no addition is called for under these circumstances. In view of these facts, we hold that the learned CIT(A) was justified in deleting this addition.

14. Last ground is against the deletion of disallowance of Rs. 34,829 being loss from speculative transactions.

15. Facts of this ground are that the AO on the perusal of trading transactions in gwar dal noted that the assessee had purchased 4131 bags of gwar dal at the cost of Rs. 36.11 lakhs and sold 3006 bags of Rs. 27,82,080 and leaving the closing stock of 1125 bags. It was further noted that the assessee had purchased 125 bags of gwar dal on 10th Aug., 1989 through Prakash Trading Company for Rs. 84,900 and sold the entire quantity on the same date to M/s Ugam Raj & Co. for Rs. 89,300. It was further observed that the assessee also purchased 623 bags of gwar dal on 13th Sept., 1989, 249 bags on 14th Sept., 1989 and 812 bags on 18th Sept., 1989 through various brokers and these bags were sold to various parties on 15th Sept., 1989, 18th Sept., 1989, 27th Sept., 1989 and 28th Sept., 1989. It was seen by him that all these purchases were made through brokers and sales were also made through them directly and no delivery of the goods was taken by the assessee, meaning thereby that the transactions of gwar dal on these dates were of speculative nature. After allowing deduction for speculative loss suffered by the assessee, the AO came to hold that there was net speculative loss of Rs. 34,829, which was added back. In the first appeal, the learned CIT(A) deleted this addition by observing that the AO had not been able to prove that there was no actual delivery of goods purchased by the assessee on which this loss was claimed.

16. After considering the rival submissions and perusing the relevant material on record, we observe that the bone of contention in this ground is the applicability or otherwise of s. 43(5), according to which, speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The case of the AO is that the assessee had not taken delivery in respect of the transactions specifically noted in the assessment order. The learned CIT(A) went on to delete the addition by observing that the AO had not proved that there was no actual delivery. When a specific addition has been made by the AO then the onus of proving the delivery was upon the assessee. No such evidence has been placed on record before us nor the learned CIT(A) had the occasion to discuss that. A speculative transaction should fulfil the following four conditions:

(i) The contract should be for purchase or sale.

(ii) Purchase or sale should be of stock or share or commodities.

(iii) Periodical or ultimate settlement of the contract.

(iv) Settlement should be done (otherwise than) by actual delivery or transfer.

When these conditions are fulfilled, the transaction comes within the ambit of s. 43(5), subject to the proviso contained in this section. Since the necessary information is not available on record, we are of the considered opinion that it would be just and fair if the impugned order is set aside and the matter is restored to the file of the AO. We order accordingly and direct him to decide this point afresh after taking into consideration the necessary ingredients of this section as well as the factual matrix and thereafter pass a speaking order on this point.

17. In the result, the appeal is partly allowed for statistical purposes.

 

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