Full Judgment
2. The premises of the assessee, a known director of Hindi feature films, were subjected to search under section 132 of the Income-tax Act on 18-12-1996. In response to statutory notice, the assessee filed return for the above-mentioned block period. The Assessing Officer computed undisclosed income having regard to the material available on record. The position of returned and assessed income is as under :-------------------------------------------------------------------------Assessment Total income returned/ Total incomeDifference Year assessed including undis- closing income computed u/s 158BB------------------------------------------------------------------------1987-88 Rs. 51,594 Rs. 87,5941988-89 Rs. 48,962 Rs. 80,9621989-90 Rs. 75,563 Rs. 1,16,5631990-91 Rs. 80,461 Rs. 1,23,4611991-92 Rs. 53,981 Rs. 31,95,9841992-93 Rs. 60,851 Rs. 1,18,8511993-94 Rs. 2,47,332 Rs. 2,87,3321994-95 Rs. 2,71,400 Rs. 14,48,5121995-96 Rs. 2,75,385 Rs. 17,74,1291996-97 Rs. 32,76,529 Rs. 38,07,0151997-98 Rs.1,08,19,344 Rs. 1,26,74,287 Till 18-12-1996------------------------------------------------------------------------Total Rs. 1,72,61,405 (Sic) Rs. 2,37,14,690 Rs. 64,53,285------------------------------------------------------------------------------------------------------------------------------------------------ 3.1 During the course of search, an agreement (Annexure A-1) was seized from the premises of the assessee. The agreement was between one, Mrs.
Pushpa Rawal and Mrs. Kiran Mohan, elder sister of assessee's wife, Smt. Karuna Dhawan (alias Lali) and related to 9 shops in Shopping Arcade, TCM Road, Bangalore. As per the terms of the agreement, M/s Mandlia Developers were constructing Shopping Arcade at Bangalore and Mrs. Kiran Mohan had purchased 9 shops in the said Arcade for a total consideration of Rs. 31 lakhs. The agreement was signed by Mrs. Pushpa Rawal as Managing Director of M/s Mandlia Developers and by Mrs. Kiran Mohan as purchaser. The total consideration of the deal was stated to have been received on 29-2-1992 when the agreement was executed and signed in the presence of three witnesses. The Assessing Officer, during the course of assessment proceedings recorded statement of Mrs.
Pushpa Rawal, who admitted to have received cash from Mrs. Kiran Mohan.
Mrs. Kiran Mohan made contradictory stance relating to cash paid to Mrs. Pushpa Rawal. She stated that the deal was canceled. The Assessing Officer disbelieved statement of Mrs. Kiran Mohan and as the document was found from the premises of Shri David Dhawan, he was held to have made benami investment of Rs. 31 lakhs on 29-2-1992. The said sum was accordingly treated as undisclosed income of the assessee. The assessee has come up in appeal.
3.2 We have heard submission of both the parties. The basis of addition of Rs. 31 lakhs in the hands of the assessee under section 158BC in a summary manner are as under : (i) That agreement (Annexure A-1), the most important evidence relating to undisclosed investment was recovered and seized from, possession of Shri David Dhawan in search.
(ii) The assessee, when confronted with unaccounted cash transaction of Rs. 31 lakhs did not give any satisfactory reply except stating that investment pertained to his sister-in-law, Mrs. Man Mohan.
(iii) The assessee's wife stated that it was not their paper and she had nothing to do with that paper.
(iv) No confirmation from Mrs. Kiran Mohan was furnished before the Investigation Wing in the course of search proceedings.
(v) Mrs. Kiran Mohan in her statement recorded on 13-11-1997 stated that agreement of sale was not related to Dhawans and that she was planning to buy the properties at Bangalore.
(vi) In her statement on 2-12-1997, Mrs. Pushpa Rawal admitted the document and her statement showed that 'version of Mrs. Kiran Mohan is fabricated and incorrect one and that she was trying to help, her sister and brother-in-law. Mrs. Rawal also admitted that she had received Rs. 31 lakhs at the time of signing of agreement and that amount was spent on construction, although, Mrs. Kiran Mohan had denied payment of Rs. 31 lakhs. As Mrs. Kiran Mohan denied the payment, the only inference that was possible was that payment was actually made by Shri David Dhawan. The Assessing Officer also made the following observations to justify the addition in the hands of the assessee :- "Even if, for a moment, it is presumed that the investment was made by Smt. Kiran Mohan and not by the assessee, the said agreement should have been kept with Smt. Kiran Mohan and could not have been recovered from the custody of the assessee during the search. Making undisclosed investment by paying so much unaccounted cash makes the deal shady and secret. The only available evidence for such undisclosed transaction can be a document signed by both the parties and only, the genuine investor will keep it safely with him for any future eventuality." (vii) The presumption of correctness of entries under section 132(4A) was invoked by the learned Assessing Officer. He further observed that there was no evidence on record which might prove the financial capacity of Mrs. Kiran Mohan. Except stating that she was assessed at Delhi, no evidence of return or income was filed before him.
(viii) The Assessing Officer also relied on anomalies and contradictions regarding destruction of copy of agreement from statement of Mrs. Pushpa Rawat and Mrs. Kiran Mohan.
3.3 Taking into account above circumstances with emphasis on the fact that Mrs. Kiran Mohan denied payment of agreed amount, the Assessing officer concluded that the assessee made undisclosed investment of Rs. 31 lakhs and added the same in his income.
4. We have heard both the parties. The learned counsel for the assessee, Shri A. V. Sonde submitted that no material has been brought by the revenue to establish that the assessee made investment of Rs. 31 lakhs in the properties at Bangalore and that Smt. Kiran Mohan was benamidar of the assessee. Shri Sonde in this respect readout statement of the assessee, his wife, Mrs. Kiran Mohan and of Mrs. Pushpa Rawal and also referred to agreement dated 29-2-1992. Neither the statements, nor the original document in any way establish that assessee had made the investment. He also pointed out that the Assessing Officer wrongly recorded that Mrs. Kiran Mohan had denied payment of consideration at the time of execution of document. Shri Sonde also brought to our notice letter dated 5-1-1998 of the assessee filed before the Assessing Officer informing him that Mrs. Kiran Mohan had made a disclosure under the Voluntary Disclosure Scheme and disclosed the amount including Rs. 31 lakhs invested by her in Bangalore property. He accordingly argued that addition of Rs. 31 lakhs as undisclosed investment in the hands of the assessee was totally unjustified. The learned departmental representative on the other hand supported the impugned order.
5. On careful consideration of rival submissions, we find force in the submission advanced on behalf of the assessee. A copy of original agreement dated 29-2-1992 is available at pages 24 to 26 of paper book.
The said agreement is entered into between Mrs. Pushpa Rawal and Mrs.
Kiran Mohan, resident of M-16, Kailash Colony, New Delhi. The document also establishes receipt of Rs. 31 lakhs by Smt. Pushpa Rawal from Mrs.
Kiran Mohan. The statement of the assessee and his wife recorded at the time of search under section 131 also confirm that property at Bangalore was purchased by Mrs. Kiran Mohan, who is sister of assessee's wife. Mrs. Pushpa Rawal in her statement dated 2-12-1996 had stated on oath as under :- "Kiran Mohan agreed to make some investments in my project and had advanced me a sum of Rs. 31 lakhs in cash. An agreement was also made to this effect." 5.1 The aforementioned documentary evidence and oral evidence clearly establish that Mrs. Kiran Mohan invested sum of Rs. 31 lakhs in purchase properties at Bangalore on 29-2-1992. By no stretch of imagination and from the record, an inference can be drawn that the assessee invested Rs. 31 lakhs in purchase of shops. With utmost humility and respect, we say that the Assessing Officer did not make out any case to establish that the assessee is benami owner of properties in question or investment was made by him. Even suggestion to that effect was not made by the Assessing Officer while examining the witnesses. This is clear from the following questions put to Mrs.
Pushpa Rawal and her answers :- "Q. 5. When the agreement was prepared and who had arranged the witnesses Ans. The agreement typed on stamp paper brought by Mrs. Kiran Mohan on which I put my signature. The witnesses at Srl. Nos. 2 & 3 of agreement were also brought by Mrs. Kiran Mohan.
Ans. There was only one original copy of the agreement. I was give a xerox copy and the original was retained by her.
Q. 7. When the possession of these shops was given to Mrs. Kiran Mohan Ans. As the project is incomplete there is no question of giving possession.
Q. 8. Whether Mrs. Kiran Mohan made any enquiries regarding completion of the project Ans. Yes. She was in constant touch with me and even ask me to return back the money as the future of project is hanging.
Q. 10. At which place the payments were made to you by Mrs. Kiran Mohan and its agreement was signed 5.2 The only relevant question put to the assessee about the matter in dispute was the following : "Q. No. 15. Please explain the contents of page Nos. 45 to 48, which is an agreement, what do you say about this In this agreement one Mrs. Kiran Shiv Mohan paid Rs. 31,00,000 in cash to Mrs. Pushpa Rawal, M.D. of Mandalia Developers Pvt. Ltd. for some immovable property why was this agreement in your possession and found at the time of search at your place Ans. Mrs. Kiran Mohan is my wife's sister, and I have to consult her before giving answer to this question. So kindly give me some time.
"Q. No. 5 After going through pages 45 to 48 of A/1 of the panchanama 18-12-1996, it is seen that the property papers of Rs. 31,00,000 in cash have been found from your residence. Under the Indian Evidence Act, the presumption is that the same belongs to you. It is presumed that it is benami property of yours, purchased by paying cash in the name of some Mrs. Kiran Mohan. What do you have to say about Q. No. 6 What evidences and proof you have that this property papers do not belong to you Ans. I will arrange confirmation letter from the concerned parties i.e. Mrs. Kiran Mohan, who will claim the transactions in the said documents.
Q. No. 7 As this does not answer my question and you have not given any proof or evidence for the above categorically, I am asking the same question i.e. Q. No. 6 above, again. Please state categorically whether you have any proof/evidence to prove that the said property papers do not belong to you Ans. Please give me some time to produce the proof, and I will furnish the same. Coincidentally the party concerned i.e. Mrs. Kiran Mohan, happens to be my sister who lives in Delhi, and she will own the papers.
Evidently, the case is being made on the basis of 'presumptions' under the Evidence Act. A layman not having knowledge of Evidence Act cannot reasonably be expected to say that presumption raised against him /her in the question are wrong. But we do not know how when name of the purchaser is specifically recorded in the agreement, any presumption of ownership can be raised against the assessee. At any rate, above statement on oath rebuts the presumption and shifts the onus on the revenue to prove that the assessee was benamidar of the property and had made the investment.
6. As already noted, the revenue has not established that the assessee is in control and possession of the property. The statements of Mrs.
Pushpa Rawal and Mrs. Karuna Dhawan on oath clearly establish the contrary. The conduct of the parties relating to the property has also not been examined to show that test laid down by their Lordships of the Honourable Supreme Court for holding a person benamidar is satisfied in this case. The learned counsel for the assesses had rightly placed reliance on decision of Supreme Court in the case of CIT v. Daulat Ram Rawatmall [1973] 87 ITR 349 to contend that the apparent is real and that no case against the assessee was established.
7. Of the several circumstances relied upon by the Assessing Officer for making addition of amount in dispute, the three in our view' are relevant. The first and foremost being the seizure of agreement of sale from the residence of the Dhawans. If Mrs. Kiran Mohan was owner of the property then the document should normally be in her possession and not in possession of assessee and his wife. Here, the explanation of the assessee was that Mrs. Kiran Mohan was sister of assessee's wife and had left the document for safe custody and assessee on account of close relationship could not refuse to keep the document. For this reason, the assessee did not elaborate on this document when questioned during the course of search and stated that he would have to ask Mrs. Kiran Mohan as to why document was left in his house.
8. The second circumstances is the vague statement of Mrs. Kiran Mohan.
The relevant question put to her and her answer on agreement of sale and payment of amount is as under :- "Q. No. 10. I am showing you pages 45 to 48 of Annexure A-1 seized from the residence of Mrs. David Dhawan. These pages are Agreement in respect of purchase of shops at Bangalore where you had paid a sum of Rs. 31,00,000 in cash to Mrs. Pushpa Rawal of M/s Mamdila Developers Pvt. Ltd. Please explain whether this investment was made by you and what was the sources of investment Whether this is reflected in your I.T. Returns. Please also explain how this Agreement pertaining to you was found at the residence of Shri David Dhawan Ans. The Agreement which you have shown me now which was found at the residence of Mr. & Mrs. David Dhawan has no connection with Mr.
& Mrs. David Dhawan. The said Agreement is not even registered at Bangalore. In fact the pages are just Memorandum of Understanding. I was planning to buy this property at Bangalore for which two copies of the said MOU were made. The next at the residence of Mrs. David Dhawan, my sister. There was some dispute and the agreement was cancelled and tore off my copy of the said papers. It seems that Mrs. Rawal left her copy which was no value to her behind." 9. It is clear from the above that she did not deny having made payment to Mrs. Pushpa Rawal but took a stand that deal was cancelled and original agreement was torn off. The agreement seized might have been kept by Mrs. Rawal. This statement, of course, is against other material available on record and, therefore, cannot be accepted.
10. The third important related question raised by the Assessing Officer is that clear evidence of capacity of Mrs. Kiran Mohan to make the disputed investment was not shown. Against this, during the course of hearing, the learned counsel for the assessee brought to our knowledge assessee's letter dated 5-1-1998 filed before the Assessing Officer to the effect that Mrs. Kiran Mohan had made a disclosure under the Amnesty Scheme and that disclosure covers Rs. 31 lakhs in dispute.
The above evidence clearly established, the capacity of Mrs. Kiran Mohan to make investment in question. Our attention was also drawn to the copy of certificate accepting disclosure in the hands of Mrs. Kiran Mohan placed at page 45 of the paper book. As per the said certificate issued by the Commissioner of Income-tax, Delhi-VII, New Delhi, Mrs.
Kiran Mohan has disclosed the following sums :--------------------------------------------------------------------Assessment Year Amount-------------------------------------------------------------------1992-93 Rs. 31,00,0001993-94 to Rs. 4,00,0001996-97-------------------------------------------------------------------Total Rs. 35,00,000------------------------------------------------------------------- She has further paid tax of Rs. 10,50,000 on the above disclosed income. The certificate has been issued under section 68(2) of the Voluntary Disclosure of Income Scheme, 1997. In the light of statutory provision, this certificate has to be treated as 'a conclusive evidence and cannot be challenged. Thus, on the basis of material, it has been contended that Smt. Kiran Mohan had sufficient funds to make investment in the properties at Bangalore. The said investment was not from a disclosed source and, therefore, she subsequently made voluntary disclosure.
11. We have considered the relevant material and in particular, the three circumstances referred to above. We shall first take up the second and the third circumstances. We agreed with the revenue that Mrs. Mohan's statement that original agreement was cancelled and destroyed is not correct and is contrary to documentary and other oral evidence brought on record. But other part of her statement that Mr. & Mrs. David Dhawan have no connection with the document is fully corroborated with other materials oh record and has to be accepted.
There is no justification to reject this part of the statement.
Further, she never denied execution of the document and it is not correct to infer that she denied payment of consideration. At any rate, after considering entire material, it is difficult to infer that Mrs.
Kiran Mohan is benamidar of the assessee. On the facts of the case, there is no reason to reject the statement on oath of Mrs. Pushpa Rawal who admitted having sold the property to Mrs. Kiran Mohan and having received consideration from her. It is also difficult to hold that Mrs.
Kiran Mohan had no money to make investment as reflected in the agreement of 'sale. The certificate issued under the Voluntary Disclosure of Income Scheme, 19917 is good proof to hold that she had means to make investment. The revenue which had to establish that she did not have such means have not brought any material on record to establish that she could not make investment as disclosed. Therefore, second and third circumstances mentioned above do not advance the case of the revenue. Now, turning to fact that agreement of sale was recovered from the possession of Mr. & Mrs. the above fact alone cannot be treated as conclusive or irrefutable to hold that the assessee as a benamidar of Mrs. Kiran Mohan. The relative importance of this fact is to be taken with other documentary and oral evidences available on record. Therefore, on consideration of all circumstances, we find it difficult to accept the case made out by the revenue. The possession of agreement has also been reasonably explained. Therefore, in our opinion, the Assessing Officer was not justified in making addition of Rs. 31,00,000 as 'income from undisclosed income'. The same is directed to be deleted.
12. In the next ground of appeal, the assessee has challenged the addition through disallowance of fees of Rs. 2,50,000 paid for acquiring membership of Otters Club.
12.1 The Assessing Officer was of the view that the assessee is a famous director and, therefore, he does not need membership 6i any club for professional or business purposes. He need not take anybody to the club as producers all around are always ready to take him to clubs. He, therefore, disallowed the fees paid and treated the same as 'Income from undisclosed sources'.
13. The learned counsel for assessee drew our attention to the following decisions in support of proposition that fees paid for acquiring membership of a club is a permissible deduction :-Gujarat State Export Corpn. Ltd. v. CIT [1994] 209 ITR 649 (Guj.) (3) Knik Chemical Engineers (P.) Ltd. v. ITO [1987] 20 ITD 302 (Bom.) Shri Sonde further contended that Assessing officer had no power to make a rowing enquiry relating to admissibility of expenses.
14. After heating learned counsel for assessee, we are of the view that expenditure in question could not be treated as "Income from undisclosed sources". The decisions cited by the learned counsel for the assessee fully supports the view that membership fees paid is a permissible deduction. That apart, there is no scope to make addition under section 158BC of IT Act. We, therefore, see no justification for upholding addition of Rs. 2,50,000. The same is directed to be deleted.
15. In the next ground of appeal, the assessee has challenged addition of Rs. 4 lakhs made on account of low household withdrawals. The Assessing officer examined the figures of withdrawals made from year to year between assessment years 1987-88 to 1997-98 by the assessee and his wife and held that these were too low. According to the Assessing Officer, the film career of the assessee started in the year 1980s and he had never to look back thereafter. All modern amenities were being used by the assessee and his family standard could not be sustained on the withdrawals shown by the assessee.
16. The learned counsel for the assessee has challenged the addition as based on no material. According, to him, there is no material on record to show that any undisclosed funds were utilised, for meeting household expenses. The learned departmental representative supported the impugned order of the Assessing Officer.
17. On careful consideration of rival submissions, we are of the view that addition made has no support of any material and is unjustified.
It is seen that even in the assessment years 1995-96 and 1996-97 when assessee and his wife showed household withdrawals of Rs. 78,000 and Rs. 1,20,000, the Assessing Officer made ad hoc addition of Rs. 20,000 and Rs. 42,000 on general observations and without giving any basis. We further find that the assessee earned substantial income only from assessment year 1994-95 onwards. Upto assessment year 1992-93, the income of the assessee ranged between Rs. 50,000 to Rs. 80,000 approximately. Having regard to the above figures, the withdrawals shown are quite reasonable. The Assessing Officer was not justified in applying the yard stick of latest year when income was shown at more than one crore in earlier years, when admittedly professional income ranged from Rs. 50,000 to Rs. 80,000. From assessment years 1993-94 onwards, the wife of assessee had also contributed to household withdrawals if those figures are taken into account, the withdrawal cannot be said to be inadequate. Without material to show that the assessee made unexplained investment or incurred unexplained expenditure, we are unable to hold that assessee earned and spent undisclosed income. The addition made in the above background is deleted.
18. In the next ground of appeal, the assessee has challenged restriction of deductions under section 80RR to Rs. 5,72,000, Rs. 5,84,736 in place of Rs. 7,03,757 and Rs. 6,66,750 claimed by the assessee in assessment years 1994-95 and 1997-98 respectively.
19. We have heard both the parties on this issue. As is evident from the impugned order, the Assessing Officer disallowed deduction claimed by the assessee by relying upon certain decision of the Honourable Supreme Court and other Courts. As already discussed, such disallowance cannot be made in proceedings initiated to assess 'undisclosed income' under section 158BC of the IT Act. Any expenditure incurred by the assessee and claimed legitimately, but disallowed, could not automatically become undisclosed income. The Assessing Officer undertook a duty which he could carry only in regular assessment proceedings. We, therefore, direct that disallowance made be, deleted from the assessment impugned before us.
20. In the last ground of appeal, the assessee has challenged the addition of Rs. 3,91,650 under section 28(iv) of the Income-tax Act.
21. The assessee has been directing many foreign shows held by film fare and other film groups and industrialists. On many of such foreign trips, the assessee takes his wife and children along. The expenditure incurred on wife and children has been taken as 'income from profession' falling under section 28(iv) of the Income-tax Act.
22. The learned counsel for the assessee explained that the assessee is a diabetic patient and is suffering from number of diseases. The job of direction and Organisation of shows abroad is strenuous and, therefore, the assessee cannot carry on alone in foreign land without his wife and children looking after him. Therefore, children accompany the assessee on some shows not for pleasure trip, but a matter of necessity. At any rate, the question whether provision of section 28(iv) is applicable to expenditure incurred on assessee's wife and children could not be considered in proceedings to determine undisclosed income.
23. We find force in above submission advanced by the learned counsel for the assessee and hold that income could not be added in these proceedings. Accordingly, we see no justification for addition in question as 'undisclosed income' and direct that the same be deleted.