D.b. Income Tax Appeal v. Ranjeet Singh Deora

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJAIPUR BENCH, JAIPUR :O R D E R: D.B. Income Tax Appeal No.121/2010CIT Jaipur-II, Jaipur Vs. Ranjeet Singh Deora Date of Order : 10[th] July 2013 HON'BLE MR. JUSTICE DINESH MAHESHWARI'HONBLE MR. JUSTICE NARENDRA KUMAR JAIN-II Mr.R.B.Mathur for the appellant. <><><> BY THE COURT:(Per Dinesh Maheshwari,J.) By way of this appeal under Section 260-A of the Income TaxAct, 1961 [‘the Act’], the revenue seeks to question the order dated23.10.2009 passed by the Income Tax Appellate Tribunal, JaipurBench, Jaipur [‘ITAT’] in ITSSA Nos.18/JP/2007 & No.19/JP/2007for the block period 01.04.1996 to 09.10.2002. In brief, the relevant background aspects of the matter arethat the respondent-assessee, as proprietor of M/s DeoraEnterprises, has been carrying on the business of manufacturingcopper/aluminum wires/conductors. Search and seizure operationsunder Section 132 of the Act were conducted on 09.10.2002 at theassessee’s residence and factory premises wherein, certain allegedincriminating documents and other documents were seized. In theblock assessment, the Assessing Officer [‘AO’] proceeded to makeseveral additions. As the subject matter of this appeal, with referenceto the grounds urged and substantial questions of law suggested, isconfined to two such additions, only the facts related thereto are required to be noticed herein. In the block assessment proceedings, the AO referred to thefact that a loan account of the respondent-assessee was found andseized from the residence of one Shri D.L.Purohit carrying theentries relating to period 01.03.1996 to 21.03.2001. The AO referredto the facts that the paper so seized had been initialed by one ShriMahendra Choudhary with mark ‘OK’; and the respondent-assesseehad been an ex-employee of Emgee Cable and Communication Pvt.Ltd., of which, the said Shri Mahendra Choudhary was a Director.The AO concluded on the basis of this document that the assesseepaid interest of Rs.10,42,541/- on account of a loan of Rs.7,50,000/-taken from the said Shri Mahendra Choudhary. The AO observedthat on the paper in question, the loan given to the assessee onvarious dates had been noted with the details of interest accrued andpayment received. While summarizing such entries and taking noteof the response of the assessee, the AO concluded that suchpayment towards interest had been of unexplained expenditureduring the block period and added the same as undisclosed incomeof the assessee in the following manner:- The assessee claimed that when the loan was used for hisbusiness purposes and invested in establishment of factory, some part of the component of interest was out of the block period and theremaining amount may be allowed as deduction from the income tobe assessed under Section 158BC of the Act while allowingproportionate depreciation on the investment in factory building andmachinery. The AO rejected this contention with the observationsthat unexplained expenditure could not be allowed as deductionunder any head as per the provisions of Section 69C of the Act. TheAO further observed that the assessee had failed to submit anyevidence in support of his contention that the loan was used for hisbusiness purpose and was invested in establishment of factory underthe name and style M/s Deora Enterprise; and no source of paymenthad been filed nor the expenditure was found recorded in his booksof accounts. Hence, the AO concluded that the loan was taken forother than business purposes. The AO also referred the matter foraction because of violation of Section 269T of the Act on the findingthat most of the repayment of interest had been made in cash. The AO further found that on the said seized document,another account showed that the assessee paid an amount ofRs.5,91,336/- to Shri Mahendra Choudhary between 16.03.2001 to21.03.2001 and the balance of Rs.18,182/- was to be paid by him,which was the figure appearing on the front side of the page. TheAO referred to the fact that in the cash book of assessee seized fromthe factory premises, no payment to Shri Mahendra Choudhary orany person had been shown; and, thus, concluded that cashpayment of Rs.5,73,000/- was out of the books; and hence, addedthis amount also to the undisclosed income of the assessee andagain referred the matter for violation of the provisions of Section 269T of the Act. In appeal by the assessee, the Commissioner of Income Tax(Appeals) Central, Jaipur [‘CIT(A)’] granted relief against certainadditions while sustaining the others. The CIT(A) though held thepaper in question to be an admissible piece of evidence and did notagree with the contention of the assessee that no addition could bemade on its basis but then, proceeded to infer that the amount ofRs.7,50,000/- might have been utilized for the purpose of businesson which the assessee might have earned some income; and on thisguess work, proceeded to estimate the income at Rs.1,00,000/- andrestricted the addition to this amount of Rs.1,00,000/- only. In regard to such findings and directions of CIT(A), theassessee as also the revenue were in appeal before ITAT. Theassessee objected against retention of the addition to the tune ofRs.1,00,000/-. On the other hand, the revenue urged that the CIT(A)had erred in deleting the addition of Rs.10,42,541/- on account ofpayment of interest and Rs.5,73,000/- on account of repayment ofloan, which was made on the basis of seized paper in spite of thefact that the CIT(A) accepted it to be an admissible evidence. While deciding the issues in favour of the assessee, the ITATheld that no presumption could be drawn against the assessee underSection 132 (4A) in respect of the paper not recovered from him; andfound no justification for addition on the basis of document recoveredfrom a third party in the absence of corroborative evidence as alsowithout affording opportunity of cross-examining the personsconcerned. The consideration of ITAT in relation to these aspectsreads as under:- “GROUND NO.1(iv) (Assessee) and GROUND NO.4 (Department):18.From page no,.24 to Exhibit A-2 seized from the residenceof one Shri D.L.Purohit for the period 1.3.96 to 21.3.2001, the AOnoticed that on loan taken from Shri Mahendra Chaudhary, theassessee had made payment of interest on various datesamounting to Rs.10,42,941/-. Thus he made addition of the saidamount of Rs.10,42,941/- as undisclosed. The AO from the seizedrecord also noticed that the assessee had made payment ofRs.5,73,000/- between 16.3.2001 to 31.3.2001 though in the cashbook seized it was noted that the assessee had not shown anysuch payment to Shri Mahendra Chaudhary. The AO accordinglymade addition of Rs.5,73,000/- as undisclosed income of theassessee. The ld.CIT(A) has restricted the said addition ofRs.16,15,941/- (Rs.5,73,000 + Rs.10,42,941/-) to Rs.1,00,000/-.Thus the parties are in appeal. 19.In support of the ground preferred by the assessee, theld.A/R submitted that page no.24 of Exhibit A-2 was seized fromthe residence of one Shri D.L.Purohit. It was alleged that it was onaccount of repayment of loan and interest by the assesseeto Shri Mahendra Chaudhary, though the language of page 24says otherwise (page 16). Not a single entry on page 24 tally withassessee’s regular books of account or seized record. ShriD.L.Purohit or Shri Mahendra Chaudhary were neither examinedby the AO nor were allowed any cross examination to theassessee before any conclusion was shown. The said page 24starts with the following dates, description and figures:- 19.In support of the ground preferred by the assessee, theld.A/R submitted that page no.24 of Exhibit A-2 was seized fromthe residence of one Shri D.L.Purohit. It was alleged that it was onaccount of repayment of loan and interest by the assesseeto Shri Mahendra Chaudhary, though the language of page 24says otherwise (page 16). Not a single entry on page 24 tally withassessee’s regular books of account or seized record. ShriD.L.Purohit or Shri Mahendra Chaudhary were neither examinedby the AO nor were allowed any cross examination to theassessee before any conclusion was shown. The said page 24starts with the following dates, description and figures:- 1.3.95 CASH PAID2,50,0001.3.95 CH. ISSUE FROM REN(ASHA KOTHARI)3,75,0001.3.95 CH.ISSUE FROM R.S.DEORAPERSONAL A/C1,25,00031.3.95 INTT.DR.IN A/C.1.3.95 TO 31.3.95 @ 24% on 7.5 BAL TO BE TAKEN7,65,000/- ______________________________________________ 7,65,000 7,65,000 20.The ld. D/R on the other hand relied upon the assessmentorder with the submission that the ld. CIT(A) was not justified indeleting the addition substantially though he has accepted theseized paper to be admissible evidence. 21.Considering the above submissions, we find substance inthe contention of the ld. A/R that no presumption can be drawnagainst the assessee under section 132(4A) in respect of papernot recovered from him and no addition can be made on the basisof documents found from third party and in absence ofcorroborative evidence as well as without affording opportunity ofcross examination to the persons whose statements have beenused against the assessee. Under these circumstances the AOwas not justified in making addition of Rs.16,15,941/- nor the ld.CIT(A) was justified in sustaining addition of Rs.1,00,000/- out ofthe said addition. The same is thus directed to be deleted. Groundno.1(iv) of the appeal preferred by the assessee is thus allowedand that of ground no.4 preferred by the revenue is rejected.” Seeking to question the order passed by the ITAT, it issubmitted by the learned counsel for the revenue that the ITAT wasnot justified in deleting such additions. It is submitted that the ITATwas not justified in holding that no addition could be made on thebasis of document in question despite the fact that the assessee didnot dispute during the assessment proceedings that the documentrelated to him. It is also submitted that on the facts and in thecircumstances of the case, when sufficient evidence was there toprove that the assessee made payment of undisclosed loan out ofthe undisclosed income, there was no justification for the ITAT todelete the additions altogether; and if at all the ITAT proceeded onthe ground of denial of adequate opportunity to the assessee, thematter ought to have been restored to the file of AO for appropriateproceedings. In our view, the submissions do not make out any substantialquestion of law for consideration. The grounds as urged and thequestions as suggested essentially relate to the matters ofappreciation of evidence for factual enquiry and rendering findingson facts. Apparent it is that several inferential aspects entered into theconsideration of the AO as also the CIT(A) in this matter. However,indisputably, the paper in question was seized from the residence ofa third person Shri D.L.Purohit. The paper was allegedly initialed byShri Mahendra Choudhary; and the assessee is said to be an ex-employee of the private limited company of which, the said ShriMahendra Choudhary was a Director. Admittedly, the assessee was In our view, the submissions do not make out any substantialquestion of law for consideration. The grounds as urged and thequestions as suggested essentially relate to the matters ofappreciation of evidence for factual enquiry and rendering findingson facts. Apparent it is that several inferential aspects entered into theconsideration of the AO as also the CIT(A) in this matter. However,indisputably, the paper in question was seized from the residence ofa third person Shri D.L.Purohit. The paper was allegedly initialed byShri Mahendra Choudhary; and the assessee is said to be an ex-employee of the private limited company of which, the said ShriMahendra Choudhary was a Director. Admittedly, the assessee was never given the opportunity by the AO to cross-examine the said ShriD.L.Purohit or Shri Mahendra Choudhary. Then, the CIT(A)proceeded on a different view point and proceeded to estimate theincome out of the loan amount of Rs.7,50,000/- to the tune ofRs.1,00,000/-. The ITAT has pointed out that neither Shri D.L.Purohitnor Shri Mahendra Choudhary were examined by the AO nor wereallowed to be cross-examined by the assessee. The ITAT has furtherobserved, and in our view rightly so, that no presumption could bedrawn against the assessee under Section 132(4A) in respect of thepaper not recovered from him and in the absence of corroborativeevidence. It is but clear that the matter essentially relates to theappreciation of evidence on record as also the implication ofevidence not brought on record. On the basic and core aspects, theapproach of ITAT cannot be said to be unjustified or suffering fromany error of law where it has held that merely on the basis of theentries on a paper seized from a third party, additions could not havebeen straight-away made as undisclosed income of the assessee. In an overall view of the matter, we are satisfied that the orderpassed by the ITAT neither suffers from any perversity nor from anywrong application of principles so as to give rise to any substantialquestion of law. Consequently and in view of the above, the appeal fails and is,therefore, dismissed summarily. (NARENDRA KUMAR JAIN-II), J. (DINESH MAHESHWARI), J. CERTIFIED THAT ALL CORRECTIONS MADE IN THE JUDGMENT / ORDER HAVE BEEN INCORPORATED IN THE JUDGMENT / ORDER BEING EMAILED C.P.GoyalPA