Ita/255/2012 Of Madathil Zainuddin v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR &THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE THURSDAY, THE 28TH DAY OF NOVEMBER 2013/7TH AGRAHAYANA, 1935 ITA.No. 255 of 2012 () ----------------------- IT(SS)A. 33/2006/Coch/06 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT(S)/APPELLANT: ------------------------------ MADATHIL ZAINUDDIN MADATHIL HOUSE, KAVANNUR, AREACODE MALAPPURAM. BY ADV. SRI.S.ARUN RAJ RESPONDENT(S)/RESPONDENT:------------------------------------ COMMISSIONER OF INCOME TAX I.S. PRESS ROAD, KOCHI - 682 018. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 28-11-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 255/12------------- APPENDIX APPELLANT'S EXHIBITS ------------------------------ ANNEXURE -A TRUE COPY OF THE ASSESSMENT ORDER-BLOCK ASSESSMENTYEARS: 1997-98 TO 2003-04 (UPTO 23.12.02) ANNEXURE -B TRUE COPY OF THE CIT(a) ORDER DT.25.1.06 IN APPEAL NO.C-053/05-06 ANNEXURE -C TRUE COPY OF THE TRIBUNAL ORDER DT.22.6.12 IN IT(SS)A.33/C0CH/2006 ANNEXURE -D TRUE COPY OF THE CASH FLOW STATEMENT FOR THE PERIOD1.4.96 TO 23.12.112 ANNEXURE -E TRUE COPY OF APPELLANT;S LETTER DT.2.1.03 TO THE DEPUTYDIRECTOR OF INCOME TAX, (INVESTIGATION), CALICUT ANNEXURE -F TRUE COPY OF THE APPELLANT'S LETTER DT.29.10.04 TO THEADDL.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, CALICUT ANNEXURE -G TRUE COPY OF THE APPELLANT'S LETTER DT.19.1.05 TO THEADDL.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, CALICUT. //True copy// PS to Judge. uj. MANJULA CHELLUR, C.J &A.M.SHAFFIQUE, J. --------------------------------------------- I.T.A.No.255 of 2012 --------------------------------------------- Dated 28[th] November, 2013 JUDGMENT Manjula Chellur,C.J By consent of both parties the matter is heardand disposed of on merits. The following substantialquestions of law arises for consideration. 1)Whether on the facts and in thecircumstances of the case and also consideringthe reasons set out in the Grounds above, theTribunal is right in law in sustaining addition ofRs.58 Lakhs as “undisclosed income” of theappellant under section 158B(b) of the Act forthe AY 2003-04 ? 2)Whether on the facts and in thecircumstances of the case and also consideringthe reasons set out in the Grounds above, theTribunal was right in law and had material to holdthat the accumulated cash as per the cash flowstatement offered and assessed as undisclosedincome of the assessment years 1997-98 to2002-03 cannot be source for the amount of Rs.65 Lakhs found by the police and requisitionedby the department under section 132 A of theAct ? 3)Whether on the facts and in thecircumstances of the case and also considering thereasons set out in the Grounds above, the Tribunalwas right in law and fact in not appreciating theevidentiary value of the spontaneous statement ofMr.K.K.Azeez, the carrier of the cash of Rs.65Lakhs and the modus operandi of the goldbusiness explained by the appellant and holdingthat the appellant's claim of trading in gold is nottrue ? 4)Whether on the facts and in thecircumstances of the case, the Tribunal havingupheld the assessment of the cash of Rs.65 Lakhsseized as the appellant's undisclosed income forthe assessment year 2003-04, ought to haveallowed the amount seized as loss incidental to theappellant's business of trading in gold ?” 2.The issue pertains to block period 1997-98and 2003-04. The facts that lead to filing of the presentappeal are as under. Chennai police recovered a sum of .₹65 lakhs on 21/12/2002 from a car occupied by four persons,i.e. Mr.K.K.Azeez and three others. Mr.K.K.Azeez made a -:3:- 4)Whether on the facts and in thecircumstances of the case, the Tribunal havingupheld the assessment of the cash of Rs.65 Lakhsseized as the appellant's undisclosed income forthe assessment year 2003-04, ought to haveallowed the amount seized as loss incidental to theappellant's business of trading in gold ?” 2.The issue pertains to block period 1997-98and 2003-04. The facts that lead to filing of the presentappeal are as under. Chennai police recovered a sum of .₹65 lakhs on 21/12/2002 from a car occupied by four persons,i.e. Mr.K.K.Azeez and three others. Mr.K.K.Azeez made a -:3:- statement under Section 131 of Income Tax Act disclosingthat the cash of .65 lakhs found with him in fact belongs to₹assessee. It was further disclosed that it was given to himfor the purpose of purchasing gold biscuits. 3.Subsequently, the assessee sent a letter dated2/1/2003 to Deputy Director of Income Tax (InvestigationWing), Calicut wherein he clearly admits that .65 Lakhs₹found with Mr.Azeez belongs to him. He also admits that theamount was given to him for the purchase of gold for thepurpose of busniss to be started by his brother and otherpersons. Said letter also reveals, he was acting as an agentto transfer funds from Mumbai to Kerala through his bankaccounts maintained with Manjeri Co-operative UrbanBank, during a short period between 12/12/2001 to6/4/2002. So far as peak credit of deposits found in the bankaccount amounting to .50 Lakhs, he voluntarily offered the₹said cash as his income. 4.Proceedings were initiated with issuance of notice -:4:- under Section 158 B C read with Section 158 B D of the Act.In response to the said notice the assessee filed block returndeclaring undisclosed income of .65 Lakhs for the above₹said block assessment period. During the assessmentproceedings, the Assessing officer came across importantmaterial that there was a deposit of an amount of .₹2,62,15,000/- in his bank account on various dates, duringshort spell between 12/12/2001 to 6/4/2002. All the depositswhich came to Manjeri Co-operative Urban Bank Branchwere credited showing “Head Office Advice”. Those amountswere withdrawn immediately on the very same day in cash.When details of the deposits were called for by theAssessing Officer, the assessee could not give the namesand addresses of the persons from whom deposits werereceived and on the other hand, he gave explanation thatthose amounts relate to transaction of business of purchaseand sale of gold carried on by him. But he was not able tofurnish names of either the buyers or the sellers. Declining -:5:- to accept the explanation of the assessee, the Assessingofficer proceeded to treat the entire deposits of ₹.2,62,15,000/- as undisclosed income of the assessee. Asthere was voluntary offer of .50 lakhs on the part of the₹assessee in his block return, the Assessing Officer added .₹2,12,15,000/- to the income disclosed by the assessee. 5.This came to be challenged before CIT(Appeals), who confirmed the addition of bank deposits. Buthowever, CIT(Appeals) issued notice of enhancement to theassessee as he was of the opinion that cash of .65 Lakhs₹seized by the police, should be assessed separately for thereason that the aggregate income declared in the blockreturn could not be considered as a source for the cashseized by the police. This opinion of CIT(Appeals) wasformed by referring to contradictory stand by the assesseewith regard to the deposits found in the bank account beforethe Deputy Director of Income Tax(Investigation Wing) andthe Assessing Officer. The assessee was also not able to -:6:- explain the time gap between last withdrawal made from theBank and the cash seized. Therefore, according to CIT(Appeals) ₹.65 Lakhs also be assessed as undisclosedincome in the hands of the assessee, in addition to what wasalready assessed by the Assessing Officer. -:6:- explain the time gap between last withdrawal made from theBank and the cash seized. Therefore, according to CIT(Appeals) ₹.65 Lakhs also be assessed as undisclosedincome in the hands of the assessee, in addition to what wasalready assessed by the Assessing Officer. 6.Aggrieved by the same, the assesseeapproached the Tribunal contending that the transactionfound in the bank accounts clearly indicate, there wasrotation of funds, i.e, the amount received by way of HeadOffice Advice was immediately withdrawn and after thewithdrawal there was another set of deposit and withdrawalwhich was carried on so. Therefore, according to assessee itwould be justifiable only to assess the peak credits inrepetitive transactions, instead of assessing the entiredeposits. The Tribunal after addressing the contentions ofthe appellant assessee noticing the stand of the departmentthat the assessee has taken contrary stand with regard tothe deposits made in the bank accounts, i.e initially he WA No. 1689 of 2013 stated that he acted as an agent to transfer funds fromMumbai to Kerala through his bank accounts, later onduring the assessment proceedings he changed the saidstand saying he was carrying cash for the purchase ofgold biscuits. Therefore, having failed to substantiate bothstands by the assessee, only opinion that could bearrived at was that apart from the amount disclosed in thebank account, .65 Lakhs found in cash with Mr.Azeez also₹escaped income of the assessee. Ultimately, the Tribunalopined that the deposits found on various dates in the bankaccount have been credited in the bank account with a note“Head office Advice”. It clearly indicates that the amountswere transferred from some other branch of the bank. Thesource was not explained, as noticed by the AssessingOfficer. The deposits whenever made were immediatelydrawn also. 7. The Tribunal proceeded to analyse the facts on record and opined that the stand of the assessee was -:8:- different from time to time, so also opined assessee was noteven able to establish that the source of income was fromgold business. If the first stand of the assessee that fundswere transferred from Mumbai to Kerala through bankaccounts were to be believed, said amount cannot be hisamount. But it is also surprising to see that he admittedincome of .50 Lakhs in his bulk return as peak credit. This₹would only go to show, though he tried to establish thetransfer of funds from Mumbai to Kerala it was not properlyexplained. Then coming to the stand of the assessee, theassessee failed to bring on record any material tosubstantiate his stand and the same cannot be believedaccording to the Tribunal for the following reasons which areextracted below. The claim of the assessee does not appearto be true. (a)If the assessee had really carried ontrading in gold biscuits, he could have at least triedto reconcile the quantity details of gold vis-a-vis thedeposits found in the bank accounts. (b)Presuming for a moment that thedeposits represent sale value of gold, we notice thatthe deposits are always in lakhs that too in roundfigures, which would not be so in practical situations.There is also wide variation between two deposits,which would not be normally so if the assessee iscarrying on trading activity. (c)From the copy of the three bank accountsplaced in the paper book, we notice that theassessee has received an aggregate deposit ofRs.1.23 crores in the month of December, 2001. Evenif the initial deposit of Rs.12 lakhs each (TotalRs.24.00 lakhs) received in Account Nos.34 and11804 is considered as the capital of the assessee, itdoes not commensurate with the amount declared bythe assessee in his block return, i.e, up to 31/3/2001.The assessee has declared only a sum of Rs.8.00lakhs only as undisclosed income. (c)From the copy of the three bank accountsplaced in the paper book, we notice that theassessee has received an aggregate deposit ofRs.1.23 crores in the month of December, 2001. Evenif the initial deposit of Rs.12 lakhs each (TotalRs.24.00 lakhs) received in Account Nos.34 and11804 is considered as the capital of the assessee, itdoes not commensurate with the amount declared bythe assessee in his block return, i.e, up to 31/3/2001.The assessee has declared only a sum of Rs.8.00lakhs only as undisclosed income. (d)In the month of December, 2001, wenotice deposits of Rs.25.00 lakhs and Rs.50.00 lakhs,but there after the deposit amount was in the rangeof below ten lakhs only up to 20-03-2002. There afterthere is a deposit of big amount, i.e, Rs.24.00 lakhson 23.3.2002. The last deposit was Rs.20.00 lakhsmade on 06.4.2002. The assessee has not explainedthe reasons for stopping the alleged gold tradethereafter. -:10:- Paragraph 14 is the actual opinion of the Tribunal whichdeals with the details furnished by the assessee in the cashflow statement. The Tribunal made this exercise in order tounderstand the claim of the assessee whether the incomedeclared by the assessee in various years including peakcredit amount can be taken as source for the cash of .65₹Lakhs seized by the police at Chennai. The cash flowstatement with reference to the financial year 2000-01shows .3 Lakhs followed by .2 lakhs in the financial year₹₹2002-03 indicating that .2 Lakhs was from brother Hussain₹in the business. There was no details with regard to thenature of business. On the other hand, in the first letteraddressed to the Deputy Director of Income Tax this .65₹Lakhs was given to Mr.Azeez to purchase gold biscuits forthe purpose of starting business by his brother and others. Inother words, it was not the amount pertaining to his goldbusiness but an amount for the purchase of gold for hisbrother's business. This is a relevant fact that has to be -:11:- taken note of. Having regard to this stand of the assesseeand also unexplained income reflected in the cash flowstatement, the Tribunal was justified in not placing muchreliance on the cash flow statement furnished by theassessee, as it was a self serving one without supported byany regular bank account and documents. 8.Then coming to the statement of assessee,the income of .One Lakh each declared in the years₹relevant to the assessment years 1997-98 and 1998-99,there is doubt expressed by the Tribunal whether that TwoLakhs was still remaining with the assessee after a gap offour or five years and according to us it is a genuine doubt.With regard to the declaration of peak credit of .50 Lakhs,₹the Tribunal was justified in saying, by operation of law aslegal fiction provided under Section 68 and 69 in theabsence of proper explanation of the assessee relating tobank transactions .50 Lakhs becomes taxable. Then the₹question is whether the amount of .65 Lakhs in the hands₹ WA No. 1689 of 2013 -:12:- 8.Then coming to the statement of assessee,the income of .One Lakh each declared in the years₹relevant to the assessment years 1997-98 and 1998-99,there is doubt expressed by the Tribunal whether that TwoLakhs was still remaining with the assessee after a gap offour or five years and according to us it is a genuine doubt.With regard to the declaration of peak credit of .50 Lakhs,₹the Tribunal was justified in saying, by operation of law aslegal fiction provided under Section 68 and 69 in theabsence of proper explanation of the assessee relating tobank transactions .50 Lakhs becomes taxable. Then the₹question is whether the amount of .65 Lakhs in the hands₹ WA No. 1689 of 2013 -:12:- of the assessee in December, 2012 would represent cashcredit amount in the banks when the assessee fails toexplain the source of income so far as the bank account inthe light of the fact that what exactly the business of theassessee was not proved. In the absence of documentssupporting such contention, the Tribunal was justified inconfirming the opinion of the appellate authority that all theamounts shown in the bank accounts are entirely differentfrom the amount of cash .65 Lakhs found in the hands of₹the assessee in December, 2012, because if he was reallydealing with gold business, it is hard to believe that he waskeeping .65 Lakhs idle with him for a period of more than₹nine months, that too, to start business for his brother ingold as explained in the letter. First letter immediatelyaddressed after seizure of the gold becomes very relevant. Ifhe was dealing in the gold business he would have declaredso in the said letter. But his explanation regarding the bankaccount was that he acted only as an agent for transferring funds from Mumbai to Kerala through his bank accounts. 9.In the light of the above stand of theassessee at the earliest point of time there is clear indicationthat the amount reflected in the bank accounts pertain tothe transactions shown in the bank accounts having noconnectivity with the cash shown in the hands of theassessee. In these circumstances, we decline to interferewith the orders of the Tribunal. All the questions areanswered against the appellant assessee. Accordingly this appeal is dismissed. (MANJULA CHELLUR) CHIEF JUSTICE. uj. (A.M.SHAFFIQUE) JUDGE.