1. There was a difference of opinion between the Members of the Bench and the following questions were referred to the Third Member for his opinion : "Whether on the facts, whether the finding that the amount of 'on money' of Rs. 1,18,000/- available with the appellant can be held as a correct finding despite the Tribunal already having accepted and directed to set off the same in the hands of partnership firm M/s.
Vaishali Enterprises or that the view of the ld. Accountant Member is justified in not accepting the explanation or claim of the appellant that the amount of Rs. 1,00,000/-found from the appellant is the same and thereby sustained the addition?" "Whether on the facts and in the circumstances of the case and in view of the order of the Commissioner of Income-tax (A) who has set aside the assessment order with certain directions, the assessing officer was justified in not allowing the claim of the assessee of Rs. 1 lakh on different grounds despite the fact that the directions of the Commissioner of Income-tax (A) are binding on the assessing officer in view of the judgment of the Hon'ble Supreme Court of India in the case of Asst. CCE v. Dunlop India Ltd. (1985) 154 ITR 172 (SC) and recent judgment in the case of Bank of Baroda v. HC Shrivastava (2002) 256 ITR 385 (Bom.)? 2. The Hon'ble President, Shri Vimal Gandhi, sitting as Third Member, by his order dated 28th September, 2004, has concurred with the view of the ld. Judicial Member, who had deleted the trading addition of Rs. 1,00,000/-.
3. Therefore, in accordance with the majority view, the issue is decided in favour of the assessee and the appeal of the assessee is partly allowed.
1. The learned Members of ITAT Jaipur Bench have referred this appeal to me under Section 255(4) of the Income-tax Act. The Members could not agree on the question which would cover the difference and have, accordingly, referred the following questions for consideration : "Whether on the facts, whether the finding that the amount of 'on money' of Rs. 1,18,000/- available with the appellant can be held as a correct finding despite the Tribunal already having accepted and directed to set off the same in the hands of partnership firm M/s.
Vaishali Enterprises or that the view of the ld. Accountant Member is justified in not accepting the explanation or claim of the appellant that the amount of Rs. 1,00,000/-found from the appellant is the same and thereby sustained the addition?" "Whether on the facts and in the circumstances of the case and in view of the order of the Commissioner of Income-tax (A) who has set aside the assessment order with certain directions, the assessing officer was justified in not allowing the claim of the assessee of Rs. 1 lakh on different grounds despite the fact that the directions of the Commissioner of Income-tax (A) are binding on the assessing officer in view of the judgment of the Hon'ble Supreme Court of India in the case of Asst. CCE v. Dunlop India Ltd. (1985) 154 ITR 172 (SC) and recent judgment in the case of Bank of Baroda v. HC Shrivastava (2002) 256 ITR 385 (Bom.)? 2. The facts of the case briefly stated are that M/s. Godfrey Philips (India) Ltd. (GPI for short) and its allied companies and their associates were subjected to search operation under Section 132 of Income-tax Act on 09.01.1986. M/s. Vaishali Enterprises, Ajmer was a wholesale dealer of GPI and assessee as a partner of above concern was also searched. A sum of Rs. 2,56,689/- was found in cash from the premises. Out of the above sum, Rs. 2,00,000/- were claimed by the assessee to belong to M/s. Vaishali Enterprises, Ajmer and lying with him as a partner of above concern.
2.1 The AO in the first assessment order did not accept the explanation of assessee and treated Rs. 2,00,000/- as income from unexplained sources. On appeal, the CIT(A), vide his order dated 05.03.1990, remanded the case back to the AO with the following observations: "I feel that the matter needs to be examined once again by the ld. assessing officer in the light of the above facts and then a fresh finding is to be recorded. Obviously, the Department is not able to make out a case that either the on money earned by the appellant itself as its own share amounting to Rs. 1,22,659/- and taxed in that case for assessment year 84-85 to 86-87 has been utilized prior to 9.1.86 or adjustment has been demanded and allowed for the same against seized cash in any other assessee of this group, then certainly the adjustment of Rs. 1,00,000/-demanded in the appellant's case is to be allowed and thus, in my view, the ld. assessing officer will re-examine the case on this point from this angle and then give a fresh finding." 3. It is further established on record that as per direction of GPI, M/s. Vaishali Enterprises was charging 'on money' on sale of cigarettes made by them. In their assessment, addition of Rs. 1,22,659/- was made for the 'on money' received as per the following details: In their appeal for the assessment year 1986-87, M/s. Vaishali Enterprises wanted to have weightage of above addition for 'on money'.
In appeal before the Tribunal, however, the Tribunal, as per order dated 24.12.1991 (ITA No: 664/JP/1990), disposed of the appeal with the following observations : "However, we find some force in the argument of Shri Sogani that some weightage should be given to the additions made by the revenue on account of 'on money' in the preceding years and in the current year. According to Shri Sogani this works out to around Rs. 1,22,000/- out of which we have already given a set off of Rs. 4,635/- while dealing with ground No. 2. Therefore, a balance of Rs. 1,18,000/- may be available to the assessee for being set off against these additions. However, since we have got no definite information about the fate of those additions, particularly for the preceding years, we direct the assessing officer to verify if those additions have become final or not. In case they have become final, the assessee may be allowed a deduction from these additions, for amount upto Rs. 1,18,000/- depending as to how much additions have been finally sustained out of those additions." 4. When the assessment of the assessee was taken for the second time, the assessee sought to explain that Rs. 1,00,000/- out of addition of Rs. 1,22,000/- were with the assessee and, therefore, above amount be not treated as cash earned from undisclosed sources. The assessee further placed reliance on the decision of Tribunal dated 24.12.1991, referred to above. The AO, in the order dated 28.2.1992, observed that ITAT has already allowed credit for 'on money' earned in assessment years 1984-95 and 1985-86 upto Rs. 1,18,000/- with directions to verify the facts and that addition in three assessment years had become final.
Therefore, assessee's claim was held to be carrying no weight was accordingly rejected. The AO added Rs. 2,00,000/- as income from undisclosed sources for cash found with the assessee at the time of search.
4.1 The addition made was confirmed in further appeal by the ld.CIT(A).
5. The assessee then carried the matter in appeal before the Appellate Tribunal. During the course of hearing of appeal, assessee drew attention to order dated 05.03.1990 of CIT(A) remanding the case back to the AO. The assessee further relied upon the order of the Tribunal dated 24.12.1991, referred to above. It was submitted that no credit for addition made in the hands of M/s. Vaishali Enterprises (Rs. 1,22,659/-) was given in any hand, i.e., either in the hands of firm or its partners. It was, accordingly, submitted that finding recorded by AO was factually incorrect. The Department had not disputed that 'on money' was collected by M/s Vaishali Enterprises and the assessee as main partner of this group was dealing with GPI, as was evident from order passed under Section 132(5) of the Income-tax Act. It was further submitted that credit for Rs. 4,635/-was given out of addition of Rs. 1,22,659/- and this way, Rs. 1,18,000/- was still required to be adjusted towards available cash. The assessee sought adjustment only of Rs. 1,00,000/-.
6. After considering the submissions of both the parties, the ld.Accountant Member did not find any error in the order of the CIT(A). He found that during the time of search on 09.01.1986, the assessee, in his preliminary statement, has stated in Answer to Question No. 6 that whole of cash in his house was his own money and no cash belonged to any other person. However, in the final statement under Section 132(4) of the Act, the assessee has stated that out of Rs. 2,56,689/-, sum of Rs. 2,00,000/- belonged to M/s. Vaishali Enterprises. Still in the subsequent statement, assessee wanted adjustment of Rs. 1,00,000/- against Rs. 2,00,000/- claimed earlier. The ld. Accountant Member, therefore, found serious contradictions in the claim of the assessee.
He further held that CIT(A), in his order dated 05.03.1990, has required the AO to record a fresh finding whether sum of Rs. 1,22,659/- was assessee's share or whether any adjustment of above amount was required to be made, i.e., whether assessee was entitled to set off of any portion of amount added in the hands of firm. Likewise, the Tribunal in its order dated 24.12.1991 in the case of M/s. Vaishali Enterprises, had directed to verify whether addition has become final or not. The direction was relevant in the case of M/s. Vaishali Enterprises and not in the case of the appellant before us nor for the cash found from him. If M/s. Vaishali Enterprises was aggrieved on account of action of AO for not allowing credit for addition made, the remedy was available to the said concern. The direction of Tribunal could not be applied in the case of the assessee as M/s. Vaishali Enterprises did not make any claim of adjustment before the AO or even before ITAT. The claim of the assessee for adjustment was untenable.
The AO did not say that set off has already been allowed in the hands of M/s. Vaishali Enterprises. He has simply denied the claim of the assessee for the reasons that assessee was not able to link up cash found with him with the 'on money' earned by the firm. With aforesaid observations, the ld. Accountant Member held that addition of Rs. 2,00,000/- in the hands of assessee as income from undisclosed sources was fully justified.
7. The ld. Judicial Member, on the other hand, after considering the order of the CIT(A) dated 05.03.1990 and that of the Tribunal dated 24.12.1991, held that assessee was entitled to adjustment of Rs. 1,00,000/- with the following observations : "10. We have carefully considered the rival submissions of the parties and perused the material available on record. We find that the impugned assessment was made as a result of the order of the CIT(A) , who has set aside the assessment vide his order dated 05.03.1990 with certain specific directions, which we have already mentioned in para 3 of this order. The CIT(A) has not set-aside the assessment de novo. When the assessment has been set-aside with certain directions, therefore, it was the duty of the AO to follow those directions and decide the issue accordingly. Even the Tribunal, in the case of the firm M/s. Vaishali Enterprises, has also directed to allow the deduction of Rs. 1,18,000/-. On the combined reading of the orders of the Tribunal and the CIT(A) dated 24.12.1991 and 05.03.1990 respectively, it is crystal clear that the amount of on money of Rs. 1,18,000/- was available with the assessee, who is main partner of the firm M/s. Vaishali Enterprises.
Since the ld. CIT D/R has not placed any material as to show that the credit of Rs. 1,18,000/- or Rs. 1 lakh, as claimed by the assessee. has already been allowed either to the assessee or to the firm M/s. Vaishali Enterprises or any other assessee of this group, therefore, I am of the view that the AO was duty bound to follow the directions of the CIT(A) of his order dated 05.03.1990 and the AO should not have tried to distinguish the same on untenable grounds.
This view finds support from the various judgments, namely, Basudeo Prasad Agarwalla v. ITO And Ors (1989) 180 ITR 388 (Cal), CIT v. Mansa Ram And Sons (1991) 190 ITR 453 (All), CIT v. Hope Textiles Ltd. (1997) 225 ITR 993, 996 (MP), CIT v. Nandram Narayandas (1994) 122 Taxation 110,113 (MP), Bhopal Sugar Industries Ltd. v. ITO (1960) 40 ITR 618, 622 (SC), Tobacco Manufacturers (India) Ltd. v. CST (1961) 12 STC 87 (SC) = AIR 1961 SC 402, Bishnu Ram Borah v. Parag Saikia (AIR 1984 SC 898), CIT v. S.V. Divakar (1993) 201 ITR 914, 918, 919 (Ori.) and recent judgment of Hon'ble Bombay High Court in the case of Bank of Baroda v. H.C. Shrivastava, reported in (2002) 256 ITR 385 wherein it was held (page 390): "At this juncture, we cannot resist observing that the judgment delivered by the Income-tax Tribunal was very much binding on the Assessing Officer. The Assessing Officer was bound to follow the judgments in its true letter and spirit. It was necessary for judicial unity and discipline that all the authorities below the Tribunal must accept as binding the judgment of the Tribunal. The Assessing Officer being an inferior officer vis-a-vis the Tribunal, was bound by the judgment of the Tribunal and the Assessing Officer should not have tried to distinguish the same on untenable grounds.
In this behalf, it will not be out of place to mention that "in the hierarchical system of courts" which exists in our country, "it is necessary for each lower tier" including the High Court, "to accept loyally the decisions of the higher tires. "It is inevitable in a hierarchical system of courts that there are decisions of the supreme Appellate Tribunal which do not attract the unanimous approval of all members of the judiciary. But the judicial system only works if someone is allowed to have the last word, and that last word once spoken is loyally accepted." The better wisdom of the court below must yield to the higher wisdom of the court above as held by the Supreme Court in the matter of Asst. CCE v. Dunlop India Ltd. (1985) 154 ITR 172".
Accordingly, the AO is directed to allow a relief of Rs. 1 lakh to the assessee on this account and to this extent, the ground taken by the assessee is allowed." In the above back-ground, the difference between the two ld. Members has come up for my consideration.
8. I have heard both the parties. The ld. counsel for the assessee brought to my notice that as per instruction of GPI, M/s. Vaishali Enterprises was collecting 'on money' on sale of cigarettes. For above 'on money', addition of Rs. 1,22,659/- was made in the hands of the firm of which assessee was a major partner. It is an admitted position that assessee was dealing with GPI on behalf of M/s. Vaishali Enterprises and, therefore, the amount was lying with the assessee at the time of search. The assessee has sought adjustment of Rs. 1,00,000/- as above and his case was partly accepted by CIT(A) in his order dated 05.03.1990 and by ITAT in order dated 24.12.1991. The above authorities merely for verification of certain facts have remanded the cases back to the AO. The AO, by recording a wrong finding that amount in dispute already stood adjusted as per order of ITAT, denied benefit of claim and rejected the explanation of the assessee relating to Rs. 1,00,000/- seized in search. But this explanation has rightly been accepted by the ld. Judicial Member. The ld. counsel, accordingly, placed strong reliance on the facts recorded in his favour by the ld.Judicial Member and prayed that benefit as claimed be allowed to the assessee.
9. The ld. D/R, on the other hand, pointed out that in the preliminary statement under Section 132(4) at the time of search the assessee had stated that cash at his house belonged to him and not to anybody else.
In the statement recorded after the search, he claimed that out of the cash found, Rs. 2,00,000/- belonged to the firm, M/s Vaishali Enterprises. Later on, the above stand was again changed and benefit of Rs. 1,00,000/-was claimed out of an addition of Rs. 1,22,659/-. The claim of the assessee was an afterthought and was liable to be rejected on account of contradictions in the claim. The ld. D/R further argued that assessee had only 10% share and, therefore, could not reasonably assert that he was controlling the affairs of firm M/s. Vaishali Enterprises and was, therefore, entitled to benefit of entire cash found with the above concern. The ld. D/R further relied upon presumption under Section 132(4A) of Income-tax Act to support the case of the revenue and proposed order of ld. Accountant Member. He argued that assessee failed to establish live link between addition made in the hands of firm and cash found with the assessee at the time of search. This way, order of the ld. Accountant Member was supported.
10. After careful consideration of the rival submissions of the parties and in the light of material available on record, I am inclined to agree with the order proposed by the ld. Judicial Member. There is no dispute that M/s. Vaishali Enterprises was receiving 'on money' on sale of cigarettes in cash outside the books of accounts and for above action, a sum of Rs. 1.22,659/- was added in the hands of the firm. The benefit of above addition for explaining available funds was required to be allowed. The assessee had claimed that out of above Rs. 1,22,659/-, a sum of Rs. 1,00,000/- was with him as he was principal partner of M/s. Vaishali Enterprises in dealing with GPI. This claim that assessee was a major partner has been accepted even by the ld.Accountant Member and the revenue has not controveted this fact by referring to any material on record. It is true that assessee has to prove, as a matter of fact, that income earned by firm was lying with him and was found in the shape of cash at the time of search. A probable case has been established by the assessee and this is evident from orders of CIT(A) and that of ITAT, referred to above and relied upon by the assessee. It is no doubt true that revenue authorities after verification and investigation could not bring material on record to show that claim of the assessee was untenable and factually wrong.
Nothing on the lines indicated above was done by the revenue authorities and by recording erroneous findings of facts, the claim was denied. Although no benefit of addition made in the hands of firm was allowed to the firm or any of its partners, yet AO recorded erroneous findings to deny the claim to the assessee. The other important reason given by the ld. Accountant Member that assessee, in his preliminary statement, did not state that cash in his house belonged to M/s.
Vaishali Enterprises, in my view, is not very material. The assessee, before the raid was concluded, in a statement under Section 132(4), had stated that Rs. 2,00,000/-, out of the cash found, belonged to the firm. Subsequently, he restricted his claim by stating that Rs. 1,00,000/- out of cash found with him belonged to the firm. The assessee has established prima facie case and revenue, inspite of opportunities provided to them, have not brought any material to controvert above claim. Accordingly on facts of the case, I am inclined to hold that Rs. 1,00,000/-, out of cash found with the assessee, be treated as belonging to M/s. Vaishali Enterprises and as explained. In the above circumstances, the addition of Rs. 1,00,000/- as income from undisclosed sources is unjustified and should be deleted. For the aforesaid reasons, I agree with the order proposed by the ld. Judicial Member. The case be now placed before the regular Bench for disposal of the appeal in accordance with law.