1. The appeal of the revenue has been filed against the order of the Commissioner (Appeals), Ludhiana, in the block assessment relating to the block period ending on 8-2-2000 and the other appeal has been filed by the assessee against order of Commissioner (Appeals), Ludhiana, dated 11-12-2003 passed under Section 154 of the Income Tax Act, 1961, relating to the same period of the block assessment completed by the I assessing officer. Since the issues raised in both the appeals arise from the same block assessment completed by the assessing officer and appeals decided - by the Commissioner (Appeals), both were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. First, we take up appeal filed by the revenue, where following two grounds of appeal have been taken: l. That the learned Commissioner (Appeals) has erred both in law and on the facts of the case in deleting the addition of Rs. 46,47,070 made on account of. interest paid by the assessee out of undisclosed sources on various loans.
2. That the learned Commissioner (Appeals) has erred both in law and on the facts of the case in deleting the addition of Rs. 5 lakhs on account of undisclosed investment made to acquire the right of his sister-in-law in family property." In addition, the revenue has also requested for admission of the following additional ground of appeal vide letter dated 4-10-2004: Without prejudice to the grounds of appeal already taken, interest element for the assessment year 1999-2000 amounting to Rs. 3,63,070 is not to be allowed as a deductions and, therefore, the learned Commissioner (Appeals)-I has erred both in law and facts of the case in ignoring the proviso to Section 69C of the Income Tax Act, 196 1.
3. The learned senior departmental Representative, Sh. P.S. Sachdev, submitted that the issue raised in the additional ground is purely a legal issue for which all relevant facts are on record and the case does not call for investigation of facts. Therefore, the additional ground raised by revenue deserves admission. He relied on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT .
3. The learned Counsel, for the assessee, Sh. Sudhir Sehgal, on the other hand, submitted that he has no objection to the admission of additional ground, but in the present case, there is no unexplained expenditure for which addition under s, 69 could be made.
4. We have heard both the parties and carefully considered the rival submissions. It is settled law that additional ground which is purely legal in nature for which relevant facts are already on record, can be raised before the Tribunal. The reliance in this regard is placed on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra). In the present case, the ground raised by the revenue is purely legal in nature and all relevant facts are already on record. In fact, the same relates to an addition made by the assessing officer and considered by the Commissioner (Appeals).
Therefore, we are of the considered opinion that it is a fit case for admission of additional ground. The same is admitted accordingly.
5. The relevant material facts relating to this case are that the IT authorities carried out search and seizure action under Section 132(1) of the Act at the residential and business premises of the assessee on 8-2-2000. During such acti6n, cash of Rs. 3 lakhs was found and incriminating documents more particularly referred to Annexs. A-7 and A-9 were also found and seized. The assessing officer issued a notice under s '. 158BC of the Income Tax Act, 1961 (In short 'the Act') on 8-2-2000. The assessee filed a return for the block assessment disclosing therein undisclosed income of Rs. 3,82,000. The income disclosed in the block return varied from Rs. 12,000 to Rs. 60,000 for the assessment years 1992- 93 to 2000-01 (upto the date of search). The assessee was carrying on business of purchase and sale of foreign made country liquor on wholesale basis. The assessing officer observed that the seized documents listed in Annexs. A-7 and A-9 indicated that the assessee had obtained loans amounting to lakhs of rupees from different persons on which he was paying interest at different rates. When the assessee was confronted with these documents and asked to explain the nature of transactions recorded therein, the assessee submitted that such transactions pertained to sale of empty bottles and cases of empty cartons of liquor in the last few years. However, the assessing officer rejected such explanation by observing that the entries recorded on the various, documents clearly indicated loan transactions for which interest has also been paid. The assessee was asked to file confirmatory affidavits from the persons in whose names these loan transactions appeared. However, the assessee filed none. Besides, the assessee also admitted that no books of account have been maintained to record these transactions.
5.1 The assessing officer also observed that the transactions noted on seized documents were in coded forms i.e. figure of 2,54,180 was recorded as "254.180". He noted that on reverse side of p. 17 of Annex.
A-7, the amount was correctly noted as Rs. 2,54,180. He also made similar observations in respect of other entries noted on pp. 3 and 4 of the assessment order. He also noted that the fact that transactions were written in coded form was obvious from noting on the seized documents compared with the withdrawals/deposits in the bank account.
For example, on 29-9-1997, seized document showed entry as '40', but on 29-9-1997, the bank account showed withdrawal of Rs. 40,000. Similarly, he noted other similar transactions on p. 4 of the assessment order.
Thereafter, the assessing officer referred to party-wise entries noted in the names of various persons like 'DPS'. 'Sh. Bimal', 'Sh. Bali', 'Sh. Shergill' ' 'S. Satnam Singh Shergill', Vallota', 'Mehar Chand Mahajan', 'Binny', Poph', 'Satish K. Aggarwal', 'Vasdev Ji', 'Parveen', 'Balbir Singh Handa', 'GDC', 'Dr. Grover', etc. These details have been noted on pp. 4 to 19 of the assessment order. On the basis of entries noted on seized documents listed at Annexs. A-7 and A-9, the assessing officer also worked out the interest paid by the assessee to various persons. The assessing officer referred to pp. 45 and 46 of Annex. A-9 seized from the residence of assessee where entries of date-wise addition/substraction of figures were noted. He also observed that assessee had also recorded month-wise summary of transactions which were written on back side of p. 21 of Annex. A-7. Thereafter, all the detailed transactions noted on the seized documents in the names of various persons were summarised on pp. 22 to 24 of the assessment order and the assessing officer arrived at figure of total loan transactions taken by the assessee during the period from 1997-98 to 1999-2000 at Rs. 1 ' 80,95,000. However, the assessing officer did not make any addition on account of unexplained cash credits despite the fact that the assessee had not filed any confirmation of the loan transactions along with any other supporting evidence.
5.2 As noted above, the assessing officer also worked out the interest paid by the assessee on the aforesaid amounts for which entries appeared on the seized documents. The assessing officer observed that the assessee had paid interest amounting to Rs. 42,84,000 before 31-12-1998 in respect of loans taken by the assessee. He also worked out interest of Rs. 3,63,070 in respect of loans taken after 31-12-1998 and both aggregated to Rs. 46,47,070 (i.e. Rs. 42,84,000 + Rs. 3,63,070). The assessing officer observed that the source of interest paid of Rs. 46,47,070 relating to both the periods was out of income from undisclosed sources. He, therefore, made an addition of Rs. 46,47,070 to the undisclosed income.
5.3 The other addition made by the assessing officer was of Rs. 5 lakhs. BrieRy stated, the facts of the case are that the documents listed in Annex. A-9 seized from the residence of the assessee also included of 'memorandum of oral family settlement' dated 31-12-1991 on pp. 14 to 22. The said family settlement indicated that they were legal owners in respect of property No. 573, Model Town, Jalandhar, namely, Mrs. Sudershan Ghumman W/o Late Sh. Harjit Singh Ghumman (brother of the assessee), Mrs. Jasrajpal Ghumman W/o Late Sh. Jagbir Singh Ghumman (brother of the assessee) and Sh. Ranjit Singh Ghumman S/o Late Sh.
Kapoor Singh Ghumman (i.e. the assessee). On the date of settlement, the cost of plot was valued at Rs. 26,00,000 and that of the building at Rs. 3,68,000. It was mutually agreed that Smt. Sudershan Ghumman shall get a piece of land adjacent to the house No. 573 along with a sum of Rs. 1,23,000 from the assessee in lieu of surrender of her share in the property. Similarly, Smt. Jasrajpal Ghumman was to receive Rs. 8,69,666 from the assessee in lieu of her share in the property. In exchange of consideration, the assessee would become owner of the entire House No. 573. It was decided that Sint. Sudershan Ghumman would receive her consideration by last week of January, 1992 and handover the possession to the assessee by 30-4-1992. Similarly, Sint. Jasrajpal Ghumman was to receive her consideration by 30-6-1992. Pages 4 to 11 of Annex. 9 were receipts dated 20-1-1992 to 26-1-1992, totalling Rs. 1,23,000 signed by the first party indicating receipts of the entire amount by Sint. Sudershan Ghumman, where she also stated that she had received the entire consideration and now had no connection with the ownership of House No. 573 for which the possession was also handed over on 30-4-1992. Page 25 of the same annexure indicated receipt of Rs. 1,84,666 through DD dated 30-6-1992 signed by Smt. Jasrajpal Ghumman as per family settlement. She further stated that there was nothing due from Sh. Ranjit Singh Ghumman as she had received full amount against her share in the property No. 573. She also stated that she had no connection with the said property for which the possession had already been given to the assessee. The assessee was confronted with these documents and was asked to explain the source of entire payments. However, the assessee submitted that he had not paid full consideration till now and payment of Rs. 5,00,000 was still outstanding. During the assessment ' proceedings, the assessee also filed certificate from Smt. Jasrajpal Ghumman stating that the amount of Rs. 5 lakhs: was still due from the assessee. The assessing officer observed that the submission of the assessee was not correct because the seized document found during the course of search indicated that she had received the full amount of consideration. She also handed over the possession of her share in the property and nothing was due to her after that date. Since the assessee failed to explain the source of payment of Rs. 5,00,000, the assessing officer made an addition of the said amount as income from undisclosed sources.
6. Being aggrieved, the assessee impugned the additions in appeal before the Commissioner (Appeals). It was submitted before the Commissioner (Appeals) that additions made by relying on documents seized during the search listed in Annexs. A-7 and A-9 were arbitrary and uncalled for. It was submitted that the assessee had explained the entries made on the seized documents represented petty undisclosed income from business of sale of loose bottles/cases and empty whisky cartons sold outside the books of account. Such income was duly disclosed in the return filed for the block assessment. It was submitted that notings on pp. 45, 46 and 47 of the Annex. 9 where plus/minus figures were noted were explained to be inrespect of cards game played for fun in leisure time. It was stated that the assessing officer was wrong in treating the loan transactions aggregating to Rs. 1,80,95,000 in para 4.23 of the assessment order. It was submitted that during the course of search only cash of Rs. 3,00,000 was found and the same was also accepted by the assessing officer. No other valuable assets in the form of immovable properties, gold, ornaments, jewellery, FDRs, etc. were found. In case the assessee had received loans aggregating to Rs. 1,80,95,000, there should have been matching assets/investments found at the time of search. Thus, the assessee pleaded that the conclusion drawn by the assessing officer that assessee had raised loans amounting to Rs. 1,80,95,000 was unjustified.
It was also submitted that no person would give such huge loans to the assessee without taking any security. The assessee did not have any assets except 1/3rd share in the ancestral residential house.
Therefore, the inference drawn by the assessing officer that these were transactions of loans was not correct. During the course of appeal proceedings, the assessee also submitted cash flow statement on the basis of incomings and outgoings noted by the assessing officer in the assessment order based on seized documents: It was submitted that even if the contention of the revenue was accepted that the assessee had received loans aggregating to Rs. 1,80,95,000, the assessee would be left with a surplus cash of Rs. 3,79,125 on the date of search after making payment of interest and part repayment of loans. Thus, it was submitted that the assessing officer was not justified in making an addition of Rs. 46,47,070 on account of repayment of interest made out of undisclosed income for the reason that the cash available with the assessee was sufficient to cover the impugned repayments of interest.
The learned Commissioner (Appeals). considered these submissions and observed that the averments made by the assessee that pp. 45, 46 and 47 of Annex. 9 as well as other pages of Annex. 7 as representing of cards games played for fun at leisure time were not whole-heartedly correct.
However, he observed that the additions were otherwise unwarranted because of the following reasons: (a) As per assessing officer, the assessee has raised loans aggregating to Rs. 1,80,95,000 on which interest of Rs. 46,47,070 had been paid. However, during the course of search only cash of Rs. 3 lakhs was found and the same was also accepted by the assessing officer. No other valuables in the shape of money, cash, bullion, gold, jewellery were found. Only an investment of Rs. 6.50 lakhs: was noted in purchase of flat at Shimla. Thus, the learned Commissioner (Appeals) observed that the presumption of the assessing officer that the assessee had raised loans of such a huge amount was not correct.
(b) The assessing officer has not identified the persons from whom so-called loans had been procured by the assessee i.e. 'DPS', 'Sh.
Bimal', 'Sh. Bali', 'Sh. Shergill', 'S. Satnam Singh Shergill', 'Jallota', 'Mehar Chand Mahalan','Binny', 'Popli', 'Satish K. Aggarwal', 'Vasdev Ji', 'Parveen', 'Balbir Singh Handa', 'GDC', 'Smt. Karamjit, Dr. Grover', 'IS', 'SS Randhawa', M', etc. He observed that assessing officer could not trace out these persons to corroborate his suspicion. One Sh. G.D. Chaudhary also filed confirmation dated 15-2-2002 in whose name amount was shown as loan stating that he had not given any loan to Sh. Ranjit Singh Ghumman nor had received any interest.
(c) The cash flow statement prepared by the assessee on the basis of seized documents indicated the availability of cash for the so-called interest payments. Even if the stand of the revenue that these transactions represented amounts borrowed by the assessee was accepted for argument's sake, the assessee could have been left with the surplus cash to the tune of Rs. 3,79,125 as on the date of search. This also takes into account the repayment of interest and part payment of loans. Thus, no addition of Rs. 46,47,070 was called for on this score as well.
(d) If the contention of the assessing officer that the assessee had paid interest amounting to Rs. 46,47,070 on amounts borrowed was accepted, the assessee would be entitled to deduction of the corresponding amount because the amount could only be considered for the purpose of business. Thus, the net effect is that no addition would be called for.
(e) The learned Commissioner (Appeals) also observed that the onus of proving that the payment was not real was on the party who claimed it to be so. He relied on the judgment of Hon'ble Supreme Court in the case of CIT v. Daulatram Rawatmull .
He also observed that there was little logic in assessing officer's contention that the assessee must have taken loans for investment not disclosed to the department, because no such evidence was found during the course of search. He observed that i1i assessment proceedings suspicion, however, strong may be, cannot take the place of evidence. He relied on certain decisions of Tribunal.
(f) He further observed that it was settled law that for the purpose of block assessment, addition could be made only on the basis of evidence found during the course of search and if no material has been found during the course of search then no addition could be made on presumptions. He relied on the following judgmentsDolly Farms & Resorts (P) Ltd. v. Dy. CIT (2000) 69 TTJ (Del)(TM) 821 : (2001) 14 IT Rep. 159 (Del); (iii) CIT v. Ra vi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 15 IT Rep. 539 (Del) (iv) Jaya S. Shetty v. Assistant Commissioner (1999) 64 TTJ (Mumbai) 551 : (2000) 12 IT Rep. 526 (Mumbai); (v) Elite Developers v. Dy. CIT (2000) 68 TTJ (lVag) 616 : (2000) 73 177) 379 (Nag); (vi) Sunder Agencies v. Dy. CIT (1997) 59 7TJ (Mumhai) 610 : (1997) 63 ITD 245 (Mumbai); (vii) Harakchand N. Jain v. Assistant Commissioner (1998) 61 YTJ (Mumbai) 223.
Thus, the learned Commissioner (Appeals) deleted the entire addition of Rs. 46,47,070.
7. As regards the addition of Rs. 5 lakhs made by the assessing officer being undisclosed investment in the property for acquiring 1/3rd share in residential house No. 573, Model Town, Jalandhar, from Smt.
Jasrajpal Ghumman, wife of the deceased brother, the assessee submitted that assessee had made only two payments of Rs. 1,85,000 and Rs. 1,84,000 out of total payment of Rs. 8,69,666 due to Smt. Jasrajpal Ghumman were found and the remaining amount of Rs. 5 lakhs was still payable to her. It was also submitted that a certificate from Smt.
Jasrajpal Ghumman stating that amount of Rs. 5 lakhs was still due to her was also filed. However, the assessing officer neither summoned Smt. Jasrajpal Ghumman nor made any enquiry and simply made the addition by referring to the seized documents found during the course of search. Accepting the contentions of the assessee, the learned Commissioner (Appeals) deleted the addition of Rs. 5 lakhs. The revenue is aggrieved with the order of the Commissioner (Appeals). Hence, this appeal before the Bench.
8. The learned senior departmental Representative, Sh. P.S. Sachdev, heavily relied on the findings recorded by the assessing officer in the block assessment order. He submitted that in this case search and seizure action under Section 132(l) was carried out at the premises of the assessee on 8-2-2000. During the course of search cash of Rs. 3 lakhs: was found and further incriminating documents listed in Annexs.
A-7 and A-9 were found and seized. He submitted that in response to notice issued under Section 158BC of the Act, the assessee filed return for block assessment admitting undisclosed income of Rs. 3,82,000 for the various assessment years falling in the block period. He submitted that the assessee was carrying on business of sale of foreign made country liquor on wholesale basis. On scrutiny of the seized documents, the assessing officer noted that these were written in coded form i.e.
amount of Rs. 2,54,180 was written as 254.180. He referred to p. 3 of the assessment order and submitted that the assessing officer has given detailed reasons supported by entries noted on the seized documents itself. He submitted that amount of Rs. 40 represented Rs. 40,000 written in the seized documents. He referred to pp. 3 and 4 of the assessment order, where the assessing officer has given specific instances in support of his finding that figures were written in coded form. He further stated that the assessee was confronted with these documents, he gave a strange reply that these transactions represented sale of empty bottles/cartons made outside the books of account. He submitted that the assessing officer rejected these submissions which were apparently not correct. He submitted that seized documents were found from the premises of the assessee and entries made therein were in his own handwriting. The assessee has never disputed the fact that these do not belong to him or the entries made therein do not relate to him. The onus was entirely on the assessee to explain the nature of these transactions. He drew strength from Sub-section (4A) of Section 132 which provides that if any books of account or other documents are found from the premises of the assessee during the course of search, the presumption is that such documents belong to such person and the contents noted therein were true. But in the present case, the assessee did not discharge the onus in explaining the nature of the entries noted therein. The assessing officer also carried out scrutiny of these documents and found that the same represented loan transactions in grey market. He also drew our attention to pp. 4 to 21 of the assessment order which contained period-wise details of the loans taken by the assessee and repayment of interest therein. He then drew our attention to para 4.22 on p. 21 of the assessment order where the assessing officer has referred to pp. 45 and 46 of Annex. A-9 which contained account of entries of date-wise addition and substraction of figures.
In this account the assessee has worked out monthwise summary of the transactions which have also been written on the back side of p. 21 of Annex. A-7. He submitted that on the basis of these entries, the assessing officer has totalled up transactions on pp. 22 to 24 of the assessment order and found that the total loans aggregating to Rs. 1,80,95,000 were received by the assessee during the years 1997-98 to 1999-2000. He submitted that in para. 5 on p. 24 of the block assessment order, the assessing officer has also worked out interest payments aggregating to Rs. 42,84,000 before 31-12-1998 and Rs. 3,63,070 of the later period. Thus, the total interest paid aggregated to Rs. 46,47,070. He referred to p. 79 of the paper book which is a copy of seized document of Annex. A-7 where the account of one 'DPS' has been mentioned from which the details of pp. 4 and 5 of the assessment order have been noted by the assessing officer. He then referred to pp. 91 and 95 of the paper book in support of the contention that the amount of Rs. 2,54,180 was written in coded form as 254.180.
8.1 He then referred to the findings recorded by the Commissioner (Appeals) on pp. 7 to 10 of the impugned order. He submitted that the learned Commissioner (Appeals) was not correct in observing that since no corresponding assets/investments were found at the time of search, the conclusions drawn by the assessing officer that the transactions represented borrowing& by the assessee from different persons were not correct. He submitted that admittedly the seized documents were found from the residence of the assessee. The assessee was duly confronted with the same. The onus was entirely on the assessee to explain the nature of entries under Section 132(4A) of the Act. The assessee's explanation was found to be totally untenable. Drawing our attention to p. 8 of the impugned order, the learned departmental Representative submitted that even the learned Commissioner (Appeals) has observed that the explanation of the assessee that pp, 45, 46 and 47 of Annex. 9 as well as other pages of Annex. 7 representing cards game were not accepted. Therefore, the learned departmental Representative submitted that the findings recorded by the Commissioner (Appeals) that the assessing officer had not found out any matching investment to cover the huge amount of loans was contrary to the provisions of the Act. He stated that it was for the assessee to discharge such onus and explain the entries with some corroborative evidence. But, the assessee chose to give evasive reply instead of explaining the nature of entries.
Similarly, the reasoning of the learned Commissioner (Appeals) that the assessing officer has not identified the persons from whom the so-called loans had been raised is shorn off merit because as per law, it was not for the assessing officer to establish the existence and identity of these persons. This could have happened only if the assessee furnished the names and addresses of persons and explain the nature of transactions. Since this was not done, there was no onus cast on the assessing officer to prove the identity and existence of these persons. He further submitted that the learned Commissioner (Appeals) has referred to cash flow statement and has given a finding that on the basis of entries found in the seized documents, the source of repayments stands explained. He has also observed that, in fact, the assessee was left with a surplus. In this regard, he referred to the remand report dated 9-12-2002 of the assessing officer submitted to the Commissioner (Appeals) on the so-called cash flow statement. He referred to p. 5 of the said remand report where the assessing officer had given reasons that assessing officer had rightly drawn the conclusion that the assessee had borrowed funds from various persons duly supported by entries on the seized documents made by the assessee himself; repayment of interest was obvious from the interest rates mentioned at scores of places, the interest payments shown were in conformity with the period, interest rates and amounts mentioned in such documents themselves. He has also mentioned that wherever there was no payment of interest for a longer period like 2 or 3 months, the payments after such period were in proportion covering the intervening periods. Further, entries also indicated interest rate or amount depending on the increase or decrease in the principal amount. Further, entries found in the seized documents were also supported by bank transactions and proof that the amounts mentioned in the assessment order were actual amounts beyond reasonable doubt. He referred to p. 6 of the remand report where the assessing officer has pointed out that the assessee had taken only a few of loan transactions in the cash flow statement and not the entire transactions noted on the seized documents. He has also observed that the assessee must have definitely taken the loans for investments in some business or acquisition of assets which was not disclosed to the department. The assessing officer has also pointed out that the assessee should have disclosed investment and income from such investment before claiming benefit of availability of funds. He submitted that the assessing officer has also noted that certain transactions must have been squared up by making payment of the amounts taken from them still outstanding in the seized documents. He noted these transactions on p. 7 of the remand report. He submitted that if these payments were taken into account, there would have been huge negative balance in the account of receipt and payment which would have proved that the interest has been paid out of undisclosed sources.
He submitted that while deciding the present appeal and allowing the benefit of cash flow against payments of interest, the learned Commissioner (Appeals) has not written a word about the various points raised in the remand report. He submitted that the learned Commissioner (Appeals) has then referred to the judgment of Hon'ble Supreme Court in the case of CIT v. Daulatram Rawatinull (supra) to say that it was for the revenue to prove that the apparent was not real. He submitted that this situation could have happened only if the assessee could have proved that apparent was not real. But in the present case, the assessee has not done so. Thus, the learned departmental Representative submitted that the conclusion drawn by the assessing officer that the entries made on the seized documents represented loan transactions of the assessee were based on logical reasoning and human probability duly supported by corroborative evidence and entries in the seized documents. He submitted that the learned Commissioner (Appeals) has referred to various decisions noted on p. 10 of the order. But he submitted that none of the decisions is applicable to the facts of the present case for the simple reason that in this case, the assessee failed to explain the nature of entries. He also relied on the judgment of Delhi High Court in the case of Yadu Hari Dalmia v. CIT , where it was held that if expenditure is not accounted for, the same could be estimated as treated as income from undisclosed sources under Section 69C of the Act. Absence of direct evidence does not preclude assessment by inference and estimate. He further relied on the judgment of CIT v. Magwati Developers (P) Ltd. , where it was held that t assossee must prove the source of expenditure. On failure to do so, unexplained expenditure is liable to be treated as deemed income of the assessee under Section 69C of the Act.
8.2 As regards the additional ground taken by revenue, the learned senior departmental Representative drew our attention to p. 24, para.
5, of the assessment order where the assessing officer has quantified interest before 31-12-1998 at Rs. 42,84,000 and interest of Rs. 3,63,070 after 31-12-1998. He referred to the amendment introduced the Finance (No. 2) Act, 1998, with effect from 1-4-1999., whereby proviso to Section 69C has been inserted. He submitted that as per proviso to Section 69C, it has been clearly mentioned that if the source of expenditure is deemed to be the income of the assessee, the same shall not be allowed as a deduction under any head of income. He submitted that even if interest of Rs. 42,84,000 related to the period prior to 1-4-1999, the remaining expenditure of Rs. 3,63,070 should not have been allowed by the Commissioner (Appeals), in view of the amendment to Section 69C. Thus, he submitted that the order of the Commissioner (Appeals) may be set aside and that of the assessing officer restored.
9. The learned Counsel for the assessee, Sh. Sudhir Sehgal, on the other hand, heavily relied on the order of the Commissioner (Appeals) and reiterated the submissions which were made before the authorities below. He submitted that earlier the assessee was carrying on business of sale and purchase of foreign made country liquor on wholesale basis.
This business was closed in the year 1998. Search action under Section 132(l) was carried out by the revenue authorities at the premises of the assessee on 8-2-2000. Thereafter, the assessee filed the return in response to notice issued under Section 158B declaring therein undisclosed income of Rs. 3,82,000 for the various assessment years covered under the block period. He submitted that the assessing officer has made additions on the basis of entries recorded on documents listed in Annex. A-7 and A-9. He submitted that the assessee had given an explanation that the entries on the seized documents represented sale of empty bottles and cartons left over in the earlier assessment years.
He submitted that this explanation of the assessee was not accepted and the assessing officer treated the entries as representing loans transactions of the assessee during the period from assessment years 1997-98 to 1999-2000. He drew our attention to para. 4.23 on p. 24 of the assessment order, where the assessing officer has aggregated loan transactions of Rs. 1,80,95,000. He submitted that during the course of appeal proceedings, the assessee had taken an alternative plea that even if the contention of the revenue that the amount of Rs. 1,80,95,000 represented loan transactions of the assessee was accepted, the source of repayment of interest amounting to Rs. 46,47,070 stood explained. For this purpose, the assessee had also submitted a cash flow statement made on the basis of entries of receipts and payments noted by the assessing officer in the assessment order. He referred to a copy of such cash flow statement placed at pp. 20 to 27 of the paper book. He submitted that copies of accounts of various parties referred to by the assessing officer in the block assessment order are at pp. 28 to 46 of the paper book. He referred to the remand report submitted by the assessing officer to which our attention was also drawn by the learned departmental Representative. On p. 7 of the remand report, the assessing officer submitted that the assessee had not included some of the accounts which must have been squared up before the search and if these were taken into account, there would have been huge negative balance in the account of receipt and payment reflected in the cash flow statement. He submitted that nowhere the assessing officer had pointed out even a single transaction noted by the assessing officer in the assessment order and which has not been taken into account by the assessee while preparing cash flow statement. He submitted that the expression used by the assessing officer that these accounts must have been squared up falls in the realm of presumptions and assumptions.
Despite the fact that the search had been carried out but no other document was found indicating any further payment than those noted by the assessing officer in the assessment order, he submitted that even the learned departmental Representative has not been able to point out as to which particular entry has been omitted by the assessee. Relying on the judgment of Delhi High Court in the case of Vinay Kumar Modi v.CIT , the learned Counsel submitted that addition cannot be made on the basis of presumptions and assumptions by using expressions,, "must have been", 'must be', etc. He submitted that cash flow statement was prepared by taking into account each and every transaction noted on the seized document. The learned Commissioner (Appeals) considered the cash flow statement and held that on the basis of entries of receipts and payments, the source of interest of Rs. 46,47,070 stood explained out of the amounts received as loans and no addition under Section 69C was called for. He submitted that the assessee has discharged the onus in explaining the source of payment of interest. As regards the additional ground of the revenue, the learned Counsel for the assessee submitted that question of making an addition under Section 69C would arise only if any part of the expenditure is treated to be unexplained. However, in the present case, the source of entire repayment of interest of Rs. 46,47,070 including an amount of Rs. 3,63,070 stands explained on the basis of entries noted on the cash flow statement. He further stated that the assessee has not claimed any deduction for repayment of interest. Therefore, no addition/disallowance of Rs. 3,63,070 relating to the period after 31-12-1998 can be made by relying on the insertion of proviso to Section 69C. Thus, he concluded his arguments by saying that the learned Commissioner (Appeals) has rightly deleted the addition of Rs.46,47,070.
10. We have heard both the parties at some length and given our thoughtful consideration to the rival contentions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities below and referred to the relevant pages of the paper book to which our attention has been drawn. The undisputed facts of the case are that the revenue authorities had carried out search and seizure action at the premises of the assessee on 8-2-2000 and during such operation, cash of Rs. 3,00,000 was found. In addition, certain incriminating documents indicating undisclosed income were found and seized. The documents listed in Annexs. A-7 and A-9 are not disputed by the assessee to the effect that these do not belong to him or entries made therein are not pertaining to him. Thus, the assessee has accepted that these documents pertain to him. In response to notice under Section 158BC, the assessee filed return for block assessment declaring therein undisclosed income of Rs. 3,82,000. Sub-s. (4A) of Section 132 of the Act provides that where any books of account, other documents, etc. are found in the possession or control of any person in the course of search, it may be presumed that such books of account and other documents belong to such person and that the contents of such books of account and other documents are true. The section further provides that such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably assumed to have been signed by or to be in the handwriting of any particular person are in that person's handwriting. Thus, the person from whom these books of account/documents have been found cannot simply get away by saying that these do not belong to him or entries noted therein do not relate to him. Sub-s. (4A) of Section 132 casts heavy burden on the assessee to explain the nature of entries recorded on the seized documents and also explain the transactions. No doubt, Section 132(4A) raises a presumption which is rebuttable. But whether such presumption has been rebutted or not has to be seen in the light of facts and circumstances of each case. In the present case, we find that the assessee was confronted with the entries in the seized documents. He explained that the same represented sale of loose bott1jes/cases and empty cartons of whisky, etc. sold outside the books of account. This explanation of the assessee was absolutely untenable, to say the least. The assessee was carrying on business of sale of foreign made country liquor on wholesale basis. The said business was closed in the year 1998. The assessee was not running a distillery where the empty bottles and empty cartons could be leftover with the assessee. The assessee purchased the Indian made foreign liquor in bottles in the packed cartons and sold the same in the same position as the assessee was a wholesaler. Therefore, where was the question of having any surplus empty bottles and cartons available with the assessee and where these were stored when this business already stood closed. There is no entry in the seized documents to show purchases of such huge quantity resulting in volume of transactions amounting to Rs. 1,80,95,000. Further, how does assessee explain entries relating to rate of interest and interest paid at a number of places, if these were only sale transactions. Thus, it was only a cock and bull story and the explanation was evasive which could not be believed. We also do not accept the contention of the assessee that entries in respect of pp. 45 and 46 of Annex. A-9 as well as other pages of Annex. A-7 were representing of cards game played for fun at leisure time. In fact, such explanation has been rejected by the learned Commissioner (Appeals) himself. The so-called plus/minus figures noted on these pages are to be seen in the light of transactions noted on other pages of the seized documents. The transactions noted therein indicate minus/plus figures on the various dates which also match with the figures noted on documents in Annex. A-7. Moreover, no specific arguments in support of his contention that the transactions noted therein were only minus/plus figures of cards game played during the leisure time were advanced before us. Thus, the explanation of the assessee was bald, uncorroborated and, therefore, bereft of truth. We, therefore, reject the finding of Commissioner (Appeals) that the inference drawn by the assessing officer that amounts represented loans taken by the assessee was far-fetched. Since the transactions recorded on the seized documents were within the knowledge of assessee, it was for him to explain the same. It appears that learned Commissioner (Appeals) has not referred to the seized documents before recording such finding.
10.1 Thus, in the light of these facts and circumstances of the case, we are of the considered opinion that the assessee had not given proper explanation about the entries noted on the seized documents found during the course of search. Since these entries were written in the handwriting of the assessee himself and the same were not disputed, the onus was on the,assessee to rebut the presumption raised under Section 132(4A) of the Act. However, the assessee has given evasive reply and has not,explained the transactions noted on the seized documents.
Therefore, the presumption raised under Section 132(4A) remained unrebutted by the assessee.
10.2 Now the next aspect that requires to be decided by this Bench is whether in the absence of any valid explanation given by the assessee for the entries noted on the seized documents, the assessing officer was justified in treating these transactions as representing amounts borrowed by the assessee. The detailed discussion in the assessment order with reference to each page of the seized documents does not leave any doubt in our mind that the amounts represented loan transactions raised in the grey market. The names of various parties noted by the assessing officer and the amounts shown against their names indicating datewise/month-wise position of the borrowings, repayment of interest and principal amount. This fact is also reinforced from the notings on the seized documents at various places about the rate of interest and amount of interest paid to the parties.
These details have been noted by the assessing officer in para 4.21 on p.22 of the assessment order. Besides, the assessing officer has also summarized all these transactions on the basis of entries found in the seized documents on pp. 22 to 24 of the block assessment order. The working given by the assessing officer has not been challenged by the assessee either before the Commissioner (Appeals) or even before us. We have also referred to the seized documents to which our attention has been drawn which give detailed position about the amounts of loan and interest, rate of interest paid to the parties. Thus, on the basis of entries noted on the seized documents and in the absence of any rebuttal by the assessee with some credible evidence, we are of the considered opinion that the assessing officer was justified in treating the amounts as loan transactions of assessee and also computing the interest paid by the assessee on these loans at Rs. 46,47,070.
10.3 Now the next important aspect of the case which requires consideration by this Bench is whether the learned Commissioner (Appeals) was justified in deleting the addition of Rs. 46,47,070. We find from p. 24 of the block assessment order that the assessing officer worked out the aggregate amount of loans at Rs. 1,80,95,000 which has not been challenged before us by the parties. Such working is also based on seized documents. It is pertinent to mention that the provisions of sections 68, 69, 69A, 69B and 69C have specifically been made applicable to block assessments and are included iri sub-section.
(2) of Section 158BB dealing with the computation of undisclosed income of the block period. Despite the fact that the assessee failed to furnish even the names and addresses of the parties from whom such amounts were borrowed and appeared in the seized documents, much less of filing any confirmation or any supporting evidence for proving the genuineness of such credits, the assessing officer has not made any addition under Section 68 of the Act. Even if these amounts are to be treated as receipts, the onus was entirely on the assessee to prove the nature of such receipts and show how these were exempt from income-tax.
Reliance in this regard is placed on the judgment of Hon'ble Supreme Court in the case of Roshan Di Hatti v. CIT 1977 CTR (SC) 200 : (1977) 107 TTR 938 (SC). We do not agree with the finding of Commissioner (Appeals) that revenue has failed to establish the identity of persons in whose names loan transactions appeared with the seized documents.
The 'onus' was on the assessee to furnish such evidence/details. But the assessee chose to keep quiet about the same. The burden shifts to revenue only when the assessee explains the entries recorded on the seized documents with some evidence. It was for the assessee to prove that apparent was not real. However, no addition in respect of credits appearing in the seized documents though relating to block period has been made by the assessing officer. Further, it is a fact that the assessee borrowed these amounts for the purpose of earning some income either by way of investment or by way of carrying on business. The assessee must not be borrowing huge amounts on interest from grey market just for the purpose of keeping the amounts at home without utilizing the same for the purpose of earning some income. After all, the assessee was not doing any charitable activity. Admittedly, the assessee has not disclosed the investment or the business where borrowed funds were invested by the assessee. However, the assessing officer has not made any addition on account of income from such undisclosed business though the provisions of Section 145 have also been made applicable with retrospective effect from I-7-1995.
10.4 Now the effect of the action of the assessing officer is that the availability of amount of Rs. 1,80,95,000 in the hands of the assessee in the form of loans has been established and is supported by the entries in the seized documents. Therefore, the question arises as to whether the assessing officer could still make an addition under Section 69C on the ground that the same represented expenditure incurred out of undisclosed income. The cash flow statement was prepared by the assessee on the basis of seized documents and the same appeared at pp. 20 to 27 of the paper book. The learned Counsel for the assessee made a statement at the Bar that all the entries noted in the seized documents by the assessing officer have been taken into account while preparing cash flow statement. Copies of accounts noted by the assessing officer in the block assessment order have also been placed at pp. 28 to 46 of the paper book. We have also referred to the remand report dated 9-12-2002 submitted by the assessing officer before the Commissioner (Appeals) where he has noted that some of the accounts must have been squared up before the search, but these have not been reflected in the cash flow statement. He has specifically noted certain transactions on p. 7 of the remand report. However, there is absolutely no mention in the seized document that these loans were returned by the assessee or were squared up. It is settled law that block assessment has limited scope and is to be made with reference to the books of account, documents and other valuables, material, information found during the course of search. Since the repayment of loan/squared up account mentioned on p. 7 of the remand report is not supported by any entry in the seized documents, it cannot be presumed that the assessee must have repaid those amounts. Now, on the basis of cash flow statement, the source of repayment of interest to the tune of Rs. 46,47,070 stands explained. The learned Commissioner (Appeals) has observed that the assessee would be left with surplus of Rs. 3,79,125 as on 17-2-2002 and such finding has not been challenged by the revenue. In fact, neither the assessing officer nor the learned departmental Representative has been able to point out even a single entry of repayment noted in the seized document which was omitted by the assessee in the cash flow statement. That being so, the source of payment of entire amount of interest stands covered by the availability of cash worked out by the assessing officer on the basis of seized documents. Therefore, no addition is warranted when the assessing officer himself has not considered the loans/receipts of Rs. 1,80,95,000 as undisclosed income of the assessee under Section 68 of the Act.
10.5 As regards the claim of the revenue that provisions of Section 69C are applicable, the same would apply only if there is unexplained expenditure. Once the assessing officer has accepted the receipt of loans aggregating to Rs. 1,80,95,000 on the basis of seized documents, the availability of the same has to be considered against the payments of interest and also other payments made during the same period. Since the entire payment of interest is covered by an amount of Rs. 1,80,95,000, there does not remain any unexplained repayment of interest. Moreover, the assessing officer has not estimated income from undisclosed business where borrowed amounts were invested. The deduction of expenditure and interest could be considered against such undisclosed income. Now in order to invoke provisions of Section 69C, there must exist unexplained expenditure. But in the present case, the source of such expenditure stands explained on the basis of own finding of the assessing officer. We are, therefore, of the opinion that no addition under Section 69C is liable to be made on account of repayment of interest both for the period prior to 31-12-1998 and after the said date. However, we do not accept the finding of Commissioner (Appeals) that even if the source of payment of interest remains unexplained, the assessee would be entitled to deduction against business income. This question would arise only if the assessee had disclosed business income against which expenditure is claimed. But in this case, neither the assessee had disclosed income from the business where borrowed funds were invested nor the assessing officer has estimated any such income.
Therefore, how could deduction of the expenditure be considered and allowed to the assessee. Considering the fact that source of payment of interest. stands explained, addition under Section 69C cannot be made.
In this view of the matter, we confirm the order of the Commissioner (Appeals) for this reason and reject this ground of appeal as well as additional ground of appeal of the revenue.
11. The next grievance of the revenue relates to deletion of an addition of Rs. 5 lakhs made on account of undisclosed investment made to acquire the right of his sister-in-law in family property. The facts relating to this ground have already been discussed while dealing with the facts in regard to ground No. 1.
12. The learned departmental Representative has drawn our attention to para 6.2 on p. 25 of the assessment order. He submitted that during the course of search a 'memorandum of oral family settlement' dated 31-12-1991 listed on pp. 22 to 24 of the paper book was found which indicated that there were three joint owners in respect of ancestral property i.e. House No. 537, Model Town, Jalandhar. As a result of such family settlement, the land was valued at Rs. 26,00,000 and that of the building at Rs. 3,68,000. It was mutually agreed that one sister-in-law, namely, Sint. Sudershan Ghumman, shall get a piece of land adjacent to House No. 537 along with a sum of Rs. 1,23,000 from the assessee. He submitted that pp. 102 to 109 of Annex. A-9 are the receipts of amounts aggregating to Rs. 1,23,000 by Smt. Sudershan Ghumman. Thus, she received the entire amount of Rs. 1,23,000. However, the other joint owner, Smt. Jasrajpal Ghumman, was to be paid an amount of Rs. 8,69,666 by the assessee in lieu of surrender of her share in favour of the assessee and the said payment was required to be made by 30-6-1992. He submitted that p. 113 of the paper book is the receipt of Rs. 1,84,666 by demand draft dated 30-6-1992 signed by Smt. Jasrajpal Ghumman and in the said receipt she has further submitted that no amount was due from the assessee and the possession of he~ share in the property has already been handed over. During the course of search, the assessee was confronted with this fact where he stated that he had already taken the possession of the. premises. However, he stated that the amount of Rs. 4,50,000 was still payable. Later on, he stated that the amount of Rs. 5,00,000 was payable. He referred to p. 113 of the paper book where Smt. Jasrajpal Ghumman has clearly confirmed having received the entire amount. He submitted that subsequently the assessee also filed a certificate from Smt. Jasrajpal Ghumman placed at p. 54 of assessee's paper book statin g that the amount of Rs. 5 lakhs was still due from Sh. Ranjit Singh Ghumman. He submitted that on the basis of seized documents which clearly confirmed that the entire amount of Rs. 8,69,666 had already been paid as full consideration and she had handed over the possession of the property and nothing was due to her after the said date, the so-called certificate filed by the assessee w4s only a self-serving statement. Therefore, the learned Commissioner (Appeals) was not justified mideleting the impugned addition.
13. The learned Counsel for the assessee, on the other hand, heavily relied on the order of the Commissioner (Appeals) and reiterated the submissions which were made before the authorities below. He submitted that out of two sisters-in-law, the assessee did not have cordial relations with Smt. Sudershan Ghumman. Therefore, the receipts for payments made to her (copies placed at pp. 102 to 109 of the paper book) are on proper revenue stamps. However, the assessee had cordial relations with the other sister-in-law, namely, Smt. Jasrajpal Ghumman.
Even the payments made to her were not on proper revenue stamps.
Therefore, the assessee had not paid the remaining amount of Rs. 5 lakhs. Drawing our attention to p. 54 of the paper book, he submitted that a certificate dated 24-1-2002 was furnished from Smt. Jasrajpal Ghumman stating that the amount of Rs. 5 lakhs was still due to her. He submitted that the assessing officer had not made any enquiry to find out the truth from Smt. Jasrajpal Ghumman. She was neither summoned nor examined by the assessing officer. Thus, he submitted that factual position stated by the assessee was rightly accepted by the Commissioner (Appeals), thus, he contended that the order of the Commissioner (Appeals) does not merit any interference.
14. We have heard both the parties and carefully considered the rival contentions, examined the facts, evidence and material placed on record. The factual position stated above that there was a 'memorandum of oral family settlement' dated 31-12-1991 which stipulated the after said payments to be made by the assessee, to the other joint owners, is not disputed by the assessee. The said document also mentioned that the payment to Smt. Sudershan Ghumman was to be made by last week of January, 1992 and the possession was to be given by 30-4-1992. It was also mentioned that Smt. Jasrajpal Ghumman was to receive an amount of Rs. 8,69,666 by 30-6-1992. Now, p. 25 of Annex. A-9 referred to and relied upon by the assessing officer for making impugned addition (copy placed at p. 113 of the paper book) duly signed by Smt. Jasrajpal Ghumman reads as under: We have received the sum of Rs. 1,84,666 (one lakh eighty-four thousand six hundred and sixty-six) only vide draft No. 7650970, dated 30-6-1992 payable at Canara Bank, Civil Lines, Jalandhar City,' as per the family settlement with regard to property No. 573, Model Town, Jalandhar City. Now, there is nothing due from Ranjit Singh Ghumman and we have received full amount against our share of property in question. We have now no connection or concern with the ownership of the portion of the property in question. The possession of the share of our property in question has already been given to Ranjit Singh Ghumman.
A perusal of the same shows that the amount of Rs. 1,84,666 received on 30-6-1992 which was the stipulated date for making the payment to her was the final payment. She clearly stated that no other amount was due from the assessee and "we have received fufl amount against our share of property in question." She also confirmed that there was no connection or concern with the ownership of the property and the possession of the same has already been handed over to Sh. Ranjit Singh Ghumman. Now if the assessee had cordial relation with Smt. Jasrajpal Ghumman and the amount of Rs. 5 lakhs was still due to her, it is not understood as to why there was any need for her to say that payment of Rs. 1,84,666 was the full and final payment of the amount payable to her. Therefore, the contents of the receipt found during the course of search have to be accepted true, particularly when the said receipt is duly signed by Smt. Jasrajpal Ghumman. The addition made on the basis of seized document found during the course of search supported by logical reasoning appears to be justified. During the course of assessment proceedings, the assessee only filed a certificate from Smt.
Jasrajpal Ghumman stating that the amount of Rs. 5 lakhs was still due to her. It was not even an affidavit. No reference was made to the receipt found during the search and the reason why she had earlier accepted that full payment had been received from the assessee.
Considering the documents seized during the search, where she had categorically acknowledged that entire consideration as a result of 'memorandum of oral family settlement' had been received and nothing was due to her, we are of the consideration opinion that the learned Commissioner (Appeals) was not justified in deleting the impugned addition.
Accordingly, we set aside the order of the Commissioner (Appeals) and restore that of the assessing officer. This ground of appeal is allowed.
15. As regards the appeal filed by the assessee, the only grievance of the assessee is that the learned Commissioner (Appeals) was not justified in not appreciating the application filed by the assessee under Section 154 of the Act. The facts of the case are that the assessing officer had made an addition of Rs. 3,00,000 on account of household expenses. On appeal, the learned Commissioner (Appeals) reduced the addition to Rs. 1 lakh.
16. Subsequently, the assessee filed an application under Section 154 before the Commissioner (Appeals) stating that addition of Rs. 1 lakh may be treated to have been covered by undisclosed income of Rs. 3,82,000 declared in the return filed for the block assessment.
However, the learned Commissioner (Appeals) rejected the request of the assessee on the ground that he had maintained an addition of Rs. 1 lakh in addition to income declared in the return filed for the block assessment. The assessee is aggrieved with the order of the Commissioner (Appeals). Hence, this appeal before us.
17. The learned Counsel for the assessee, Sh. Sudhir Sehgal did not advance any specific arguments in support of this ground except reiterating the submissions made before the Commissioner (Appeals).
18. The learned departmental Representative, on the other hand, relied on the orders of the authorities below.
19. We have heard both the parties and carefully considered the rival submissions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities below.
In the submissions made before the Commissioner (Appeals) and as noted by him in the impugned order, there is nothing to show that the assessee had taken the plea that income declared in the block assessment should also cover addition made on account of household expenses. The scope of power vested under Section 154 with the authority concerned is very limited to rectify only mistakes of law or facts which are apparent from records. All those issues which involve prolonged discussions and arguments fall outside the scope and provisions of Section 154 of the Act. Reliance in this regard is placed on the judgment of Honble Supreme Court in the case of T.S.. Balaram, Income Tax Officer v. Volkart Bros. & Ors. where the apex court has observed that all issues which involve prolonged discussions and arguments, where two conceivable views are possible fall outside the provisions of Section 154 of the Act. Now, in this case also, the matter whether the addition made was covered against the income declared in the return filed for block assessment or not was a debatable issue which required, examination into the facts. Further, no such plea was apparently taken during the course of appeal proceedings before Commissioner (Appeals). Thus, it could not be said to be a mistake apparent from record. If the assessee had any grievance against the finding of the Commissioner (Appeals) for maintaining an addition of Rs. 1 lakh, he should have filed an appeal against the order passed under Section 250. Therefore, even if the learned Commissioner (Appeals) has rejected the application under Section 154 on merits, we are of the considered opinion that the issue being debatable was not covered within scope and ambit of provisions of Section 154 of the Act.
In this view of the matter, we confirm the order of the Commissioner (Appeals) for this reason and reject the ground of appeal of the assessee.
20. In the result, the appeal filed by the revenue is partly allowed and the appeal filed by the assessee is dismissed.