Commissioner Of Income Tax v. Phool Chand Saraogi

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR D.B.INCOME TAX APPEAL NO. 189 / 2004 D.B.INCOME TAX APPEAL NO. 194 / 2004 COMMISSIONER OF INCOME TAX ----Appellant Versus PHOOL CHAND SARAOGI ----Respondent __________________________________________ For Appellant :Mr. Anuroop Singhi For Respondent : Mr. Naresh Gupta __________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE DINESH MEHTA Judgment Per Hon’ble Mr. Jhaveri, J.20/12/2016 1. By way of this appeal, the appellant has assailed thejudgment & order of the Tribunal whereby the Tribunal haspartly allowed the appeal preferred by the department as wellas the assessee modifying the order of CIT(A). 2.This Court while admitting the matter on 5[th] April, 2005,framed the following questions of law which reads as under:- “i) Whether on the facts andcircumstances of the case, the ITAT wasright and justified in deleting the additionof Rs. 3,86,000/- made on account ofundisclosed cash found merely for thereason that same has been stated by theassessee in the cash flow statementsubmitted by him alongwith the return forthe block period? ii) Whether on the facts and circumstancesof the case, the ITAT was right andjustified in deleting the addition of Rs.8,33,870/- made on account ofundisclosed income earned from businessof share trading and motor vehicle,ignoring the fact that the said amount wasduly admitted by the assessee as hisunexplained income? iii) Whether on the facts andcircumstances of the case, the ITAT wasjustified in deleting the addition of Rs.89,942/- made on account of perquisitesby holding that the same falls outside thescope of chapter XIV-B of the Act of 61? iv) Whether on the facts andcircumstances of the case, the ITAT wasjustified in deleting the addition of Rs.2,50,000/- made on account of incomeearned from STD/PCO by ignoring thestatement of Shri Naresh Kumar Jain,which proved that assessee has concealedincome? v) Whether on the facts and circumstancesof the case, the ITAT was justified indeleting the addition of Rs. 24,33,618/-made on account of profit on sale of stockof M/s Bangkok Gems & Jewelleryirrespective of the fact that the entirestock was not found during search? vi) Whether on the facts andcircumstances of the case, the ITAT wasjustified in deleting the addition of Rs.5,16,083/- made on account ofunexplained investment in jewelleryirrespective of the fact that the assesseefailed to corelate and explain the samewith his own declaration? vii) Whether on the facts andcircumstances of the case, the ITAT wasjustified in deleting the addition of Rs.70,000/- made on account of undisclosedinvestment in purchase of 300 table clocksinspite of the fact that the assesseehimself made contrary statements on16/11/1999 and 25/11/1999? viii) Whether on the facts andcircumstances of the case, the ITAT wasjustified in deleting the addition of Rs.7,50,000/- made on account of estimatedinterest income inspite of the fact that the same was submitted as well as worked outby the assessee himself. ix) Whether on the facts andcircumstances of the case, the ITAT wasjustified in ignoring the fact that theassessee can not retract from thestatements made by him when the factthat statements were made by theassessee voluntarily was duly upheld bythe ITAT as well as the CIT(A)? x) Whether on the facts and circumstancesof the case, the finding of the ITAT as wellas the CIT(A) is perverse, contrary to therecord and untenable in the eye of law? In D.B. Income Tax Appeal No. 194/2004: This Court while admitting the matter on 5[th] April, 2005, framedthe following questions of law which reads as under:- same was submitted as well as worked outby the assessee himself. ix) Whether on the facts andcircumstances of the case, the ITAT wasjustified in ignoring the fact that theassessee can not retract from thestatements made by him when the factthat statements were made by theassessee voluntarily was duly upheld bythe ITAT as well as the CIT(A)? x) Whether on the facts and circumstancesof the case, the finding of the ITAT as wellas the CIT(A) is perverse, contrary to therecord and untenable in the eye of law? In D.B. Income Tax Appeal No. 194/2004: This Court while admitting the matter on 5[th] April, 2005, framedthe following questions of law which reads as under:- “i) Whether on the facts and circumstances ofthe case, the ITAT was right and justified indeleting the addition of Rs. 5,75,000/- madeon account of unexplained investment inshares inspite of the fact that the said amountwas admitted by the assessee in his depositionrecorded on 27/12/99, before the DDIT(Inv.),Jaipur? ii) Whether on the facts and circumstances ofthe case, the ITAT was right and justified inreducing the addition of Rs. 6,88,830/- tomerely Rs. 1,75,570/- made on account ofundisclosed income earned from business ofshare trading and motor vehicle, ignoring thefact that the said amount was duly admittedby the assessee as his unexplained income? iii) Whether on the facts and circumstances ofthe case the ITAT was justified in deleting theaddition of Rs. 7,25,000/- made on account ofprofit and loss statement of M/s BangkokGems & Jewellery found during the course ofsearch irrespective of the fact that the saidbusiness was not disclosed the tax authoritiesever? iv) Whether on the facts and circumstances ofthe case, the ITAT was justified in reducing theaddition of Rs. 8,17,139/- made on account ofundisclosed household expenditure to merelyRs. 1,00,000/- when, the assessee himself hasadmittedtheunexplainedhouseholdexpenditures to the tune of Rs. 8,06,000/- v) Whether on the facts and circumstances ofthe case, the ITAT was justified in reducing theaddition of Rs. 88,447/- made on account ofundisclosed rent receipt to merely Rs.15,164/- by ignoring the provision of Section132(4A) of the Act of 61? vi) Whether on the facts and circumstances ofthe case, the ITAT was justified in reducing theaddition to Rs. 6,00,000/- made on account ofundisclosed marriage expenses to Rs.3,00,000/- inspite of fact that assesseehimself has admitted an unexplainedexpenditure of Rs. 6,00,000/-? vii) Whether on the facts and circumstances ofthe case, the ITAT was justified in allowing theassessee benefit of telescoping and setoff andfor that matter restoring the file to theAssessing Officer? viii) Whether on the facts and circumstancesof the case, the ITAT was justified in ignoringthe fact that the assessee cannot retract fromthe statements made by him when the factthat statements were made by the assesseevoluntarily was duly upheld by the ITAT as wellas the CIT(A)? ix) Whether on the facts and circumstances ofthe case, the finding of the ITAT is perverse,contrary to the record and untenable in theeye of law?” 3.Brief facts of the case are that the search and seizureproceedings were carried out from 16/11/99 at residentialpremises of assessee located at 67, Geeta Path, Suraj nagar (5 of 9 ) viii) Whether on the facts and circumstancesof the case, the ITAT was justified in ignoringthe fact that the assessee cannot retract fromthe statements made by him when the factthat statements were made by the assesseevoluntarily was duly upheld by the ITAT as wellas the CIT(A)? ix) Whether on the facts and circumstances ofthe case, the finding of the ITAT is perverse,contrary to the record and untenable in theeye of law?” 3.Brief facts of the case are that the search and seizureproceedings were carried out from 16/11/99 at residentialpremises of assessee located at 67, Geeta Path, Suraj nagar (5 of 9 ) (West), Civil Lines, Jaipur cash of Rs. 3,36,600/- was found, outof which Rs. 3,00,000/- were seized. In addition to cash otherassets, valuables etc were found and seized as per panchnamaprepared on 16/11/99. Thus, the search proceedings werefinally concluded on 27/12/99 at the residential premises ofassessee. Similarly the search proceedings were also conductedon 16/11/99 at the business premises of partnership firm Ms.Sohan Service Station, Ajmer Road, Jaipur, in which assessee isone of the partner. Notice under Section 158 BC was issued on20/12/2000 requesting him to file return of block period from1/4/89 to 16/11/99 within 30 days of service of the notice. Inresponse to which the assessee has filed return of block periodon 16/2/2001 declaring undisclosed income of Rs. 36,52,385/-.Assessee has prepared fund flow statement of sources andapplication of found and annexed details of computation ofundisclosed income declared by him in this return of blockperiod. 4.The AO made addition of various amount invested inshares, in the hands of assessee, who was found in possessionof the original share certificate. 5.Counsel for the appellant has relied upon the judgment inthe case of Commissioner of Income Tax vs. Lovely Exports (P)Ltd. Reported in 319 ITR 5 (SC) and taken us to the order ofAO particularly page 37 to 39 of the paper bookwhichwerenot confirmed by the CIT(A). However, the same was reversedby the ITAT holding as under:- 4.The AO made addition of various amount invested inshares, in the hands of assessee, who was found in possessionof the original share certificate. 5.Counsel for the appellant has relied upon the judgment inthe case of Commissioner of Income Tax vs. Lovely Exports (P)Ltd. Reported in 319 ITR 5 (SC) and taken us to the order ofAO particularly page 37 to 39 of the paper bookwhichwerenot confirmed by the CIT(A). However, the same was reversedby the ITAT holding as under:- “We have heard both the parties and gonethrough the material available on record fromwhich it appears that the assessee is a Directorof M/s Padma Finlease Pvt. Ltd. Who has issuedthe shares in the market. In response to theshare applications, assessee has receivedmoney and issued the shares but she saidshares were not dispatched to the concerningpersons. Obviously, it was lying with theDirector of the Company. The shares wererecovered from the premises, which was usedfor residence as well as office of the company.So the premises are common. In the shareapplication form, the details of the personswere mentioned. The money for the shareapplication was received by account payeecheque. The identity was established as the fulldetails were available in the share applicationform. At the instance of the assessee, the AOissued summons under section 131 to theshareholders but none appeared. For the non-appearance of the shareholders, assesseecannot be punished. The company has alreadyissued the certificates to the applicants whichwere due to be dispatched. The AO made noattempt to enquire from his own sources likethe Banks from where the cheques were issuedto the company along with the applications. Nofurther attempt was made by the AO to knowthe genuiness of the application money. It wasrequired to make deep investigation into thematter as per the ratio laid down by Hon’bleSupreme Court in the case of CIT vs. StellerInvestment, 164 CTR 287 (SC) read with CITvs. Sophia Finance, ITA 98 (Del.). For the non-cooperation of the shareholders, assesseecannot be punished. No material was broughton record that assessee was benami of the saidshareholders. The assessee has alreadysurrendered a sum of Rs. 1 lac suo moto, whenit is so, then we find no justification for makingthe addition of the remaining amount of Rs.5.75 lacs in the hands of the assessee. If theaddition is to be made that will have to bemade in the hands of the company who hasissued the shares to various persons. Thecompany is an independent legal entity.Therefore, no addition can be made in thehands of the assessee in his individual capacity.However, the department will be at liberty tomake the addition in the hands of thecompany, if need be. With these remarks, weset aside both the orders of the lower authorities and delete the addition of Rs. 5.75lacs from the hands of the assessee. Theassessee will get the relief of this amount.” 6.This Court and the Supreme court held where the shareswhich are retained by the company are not required to beadded as income in the hands of the company rather theyshould be included in the hands of individuals. In view of thelaw declared by the Supreme Court it has to be assessed in thehands of the person concerned, who is the assessee in thepresent case. 7.However, the Tribunal in para 29 has observed as under:- authorities and delete the addition of Rs. 5.75lacs from the hands of the assessee. Theassessee will get the relief of this amount.” 6.This Court and the Supreme court held where the shareswhich are retained by the company are not required to beadded as income in the hands of the company rather theyshould be included in the hands of individuals. In view of thelaw declared by the Supreme Court it has to be assessed in thehands of the person concerned, who is the assessee in thepresent case. 7.However, the Tribunal in para 29 has observed as under:- “29. We have heard the rival submission andperused the material available on record. It is truethat the profit of Rs. 7.25 lacs appears on theseized document page 41 of exhibit A-13 (supra).It has also been observed that assessee hassurrendered a sum of Rs. 12,00,000/- towardsthe profits in M/s Bangkok Gems & Jewellery. It isalso an admitted fact that the business activity ofthe said firm was closed in the year 1992 anddepartment has not been able to bring on recordany material which suggest that assessee hassold the stock at higher price. Assessee hasalready disclosed Rs. 12,00,000/- towards theincome from the business of M/s Bangkok Gems &Jewellery which includes the profit of Rs. 7.25 lacsand cannot be added separately, hence the sameis hereby deleted.”perused the material available on record. It is truethat the profit of Rs. 7.25 lacs appears on theseized document page 41 of exhibit A-13 (supra).It has also been observed that assessee hassurrendered a sum of Rs. 12,00,000/- towardsthe profits in M/s Bangkok Gems & Jewellery. It isalso an admitted fact that the business activity ofthe said firm was closed in the year 1992 anddepartment has not been able to bring on recordany material which suggest that assessee hassold the stock at higher price. Assessee hasalready disclosed Rs. 12,00,000/- towards theincome from the business of M/s Bangkok Gems &Jewellery which includes the profit of Rs. 7.25 lacsand cannot be added separately, hence the sameis hereby deleted.” 8.He further contended that the assessee himself hasdisclosed 7.25 lacs therefore, the issue regarding 7.25 lacs isrequired to be answered in favour of the department againstthe assessee. Further, counsel for the respondent Mr. NareshGupta has supported the order of the Tribunal and contendedthat the view taken by the Tribunal is just and proper. Nointerference is called for. (8 of 9 ) 9.For the first issue relating to share application money, herelied upon the following decisions:- (1) Commissioner of Income Tax vs. Orissa Corporation Pvt.Ltd. (1986) 159 ITR 78 (2) Shree Barkha Synthetics Ltd. vs.Assistant Commissioner of Income Tax (2006) 283 ITR 377 (3)Commissioner of Income Tax vs. Stellar Investment Ltd. (1991)192 ITR 287. 10.In that view of the matter, addition of 7.25 lacs is contraryto evidence and is required to be interfered. Thus, the viewtaken by the Tribunal is upheld and the addition is required tobe maintained and no interference is called for. 11.We have heard Mr. Anuroop Singhi counsel for theappellant and Mr. Naresh Gupta counsel for the respondent. 12.On the first issue in view of the decision of the SupremeCourt and decision of this Court since shares were not sent tothe respective applicants/share holders and were found in thecustody of the assessee, we hold that the amount is required tobe assessed in the hands of respondent-assessee. He furtherrelied on the decision of this Court in Commissioner of IncomeTax-I vs. M/s ARL Infratech Ltd. in DBITA No. 24/2014 decidedon 28[th] September, 2016. 13.Taking into consideration we feel that in relation to firstissue, the Tribunal has committed an error in deleting theamount of share holding from the assessee’s income, as theshares were not dispatched which ought to have beendispatched. (9 of 9 ) 12.On the first issue in view of the decision of the SupremeCourt and decision of this Court since shares were not sent tothe respective applicants/share holders and were found in thecustody of the assessee, we hold that the amount is required tobe assessed in the hands of respondent-assessee. He furtherrelied on the decision of this Court in Commissioner of IncomeTax-I vs. M/s ARL Infratech Ltd. in DBITA No. 24/2014 decidedon 28[th] September, 2016. 13.Taking into consideration we feel that in relation to firstissue, the Tribunal has committed an error in deleting theamount of share holding from the assessee’s income, as theshares were not dispatched which ought to have beendispatched. (9 of 9 ) 14.In that view of the matter, the first issue is required to beanswered in favour of the department and against theassessee. 15. As far as second issue is concerned we agree with thecontention raised by Mr. Naresh Gupta that 12 lacs income wassurrendered but nonetheless for 7.25 lacs the assessee hasshown books of accounts and his contention is that it is out ofown business and M/s Bangkok Gems & Jewellery, which didnot find support from either the order of AO or CIT(A). 16.We are of the opinion that the ITAT has committed noerror in deleting the sum of 7.25 lacs, disclosed after search. Inthat view of the matter, the view taken by the AO and CIT(A)was erroneous and the view taken by the Tribunal is just andproper. No interference is called for. Therefore, the issue No. 2,4, 5, 6, 7 & 8 are required to be answered in favour of theassessee against the department. 17.The last issue is not required to be answered. 18.The appeals are dismissed. A copy of the order be placed in each of the file. (DINESH MEHTA)J. (K.S. JHAVERI)J. A.Sharma/15