Ita/782/2008 Of The Commissioner Of Income Tax v. Ajje Gowda

IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATEKED THIS THE[th]DAY OF AUGUST 2014 PRESENT THR HON BLE MR. JUSTICE N. KUMAR. AN D THR HON’BLE MRS. JUSTICK RATHNAKALAINCOME TAX APPEAL No.’7782 OF 20BBRITWRE 1.The Commissioner of Income-Tax,C.R.Building, Queens Road,Bangalore. 2.The Dy. Commissioner of|Income-Tax,Central Circle-1(3),C.R.Building, |Queens Road,Bangalore. .. APPELLANTS (By Sri. K.V. Aravind, Advocate)| ANT) Ajje Gowda,No.1051, ©New street, Yelahanka, |Bangalore. _ RBSPONDENT (By Sriyuths A.Shankar and M. Lava, Advocates) RRERRR This ITA is filed under Section 260-A of I.T. Act,|1961 arising out of Order dated 10.33.2008 passed inIT(SS)A.No.35/Bang/2007 for the Block AssessmentPeriod 1991-92 to 2001-02, to formulate the substantialquestions of law stated therein and to allow the appealand set aside the order passed by the ITAT, Bangalorein IT(SS)A.No.35/Bang/2007 dated 10.3.2008 andconfirm the order of the Appellate Commissionerconfirmingthe|order.passedby the.DeputyCommissioner of Income Tax, Central circle — 1(3),Bangalore. This appeal coming on for hearing this day,N. KUMAR, J.delivered the following:- JUDGMENT This appeal is by the Revenue against the order passedby theIncomeTax|AppellateTribunal,Bangalore. 2. This appeal was admitted on 16.4.2012 toconsider the following substantial questions of law: 1)Whether the Appellate Authorities were|correct|in|deletingthe|advancesof|Rs.9,20,000/- as undisclosed income of theassessee as held by the Assessing Officerbased on material detected in the searchShowing loan amounts advanced by _ thassessee to various persons on interest basisin cash (these amounts were recorded in diaryseized and marked as A/AG/2 in the handwritingof|assessee’s|wife)andotherstatement recorded which was not consideredin the proper prospective and consequentlyrecorded a perverse finding?|2)Whether the Appellate Authorities were|correct in holding that site No.687, YelahankaBangalore purchased at Rs.4,82,000/- wasnot|under|value|by|ignoringand|notconsideringthe|evidenceIn|theproperprospectivethat|theseller’shusbandMr.Bassavaraj, had availed of a loan ofRs.13.5 lakhs from the assessee and in orderto discharge the same the site was sold bysmt. Vatsala,W/oMr.Basavaray]totheassessee’s.wifesmt.GayathriDevt, the agreement to sell seized in search showedthat the actual sale consideration was PRs.?1lakhs + registration and stamp duty charge ofRs.97,155/- and as per the_ statementsrecordedand|consequentlyrecorded(Operverse finding? 3)Whether the Appellate Authorities were|correct in holding that site No.21, YelahankaNew Town, Bangalore was not under valuedby ignoring and not considering in the properprospective, that Sri.Gurudeep Singh Bajajand others had purchased this property fromoru.D.R.Subbarayjuvidesaledeed|dated03.06.1995 for a consideration of Rs.9.45lakhs and on 12.04.1999 assessee purchasedit for Rs.1O lakhs from Mr.Gurudeep Singhand the market value as per the office of theSub-Registrar showed Rs.14.10 lakhs and on05.11.1997 an agreement to sell the site wasentered into by the assessee with Mr.LakshmtiNarasaiah for a sum of Rs.18,76,500/- +stamp duty and _ registration charges oRs.2,10,370/- and consequently recorded aperverse finding? 4)Whether the Appellate Authorities were|correct in holding that the loan amount availedof by the assessee being restricted to Rs.25lakhs out of a claim of Rs.35 lakhs was notjustified despite there being no confirmationfrom all the parties among other statementsandconsequentlyrecorded(Operversefinding? o)|Whether the Appellate Authorities werecorrect in holding that the bad debts claimed|by the assessee of a sum of Rs.69.03.000/-|out of Rs.1,43,79,000/- was an allowable|deduction as the cheques had been seized by|the Department which was found to _ bincorrect and did not satisfy the conditions|stipulated u/s 36 of the Act and consequently recorded a perverse finding? 4)Whether the Appellate Authorities were|correct in holding that the loan amount availedof by the assessee being restricted to Rs.25lakhs out of a claim of Rs.35 lakhs was notjustified despite there being no confirmationfrom all the parties among other statementsandconsequentlyrecorded(Operversefinding? o)|Whether the Appellate Authorities werecorrect in holding that the bad debts claimed|by the assessee of a sum of Rs.69.03.000/-|out of Rs.1,43,79,000/- was an allowable|deduction as the cheques had been seized by|the Department which was found to _ bincorrect and did not satisfy the conditions|stipulated u/s 36 of the Act and consequently recorded a perverse finding? 3. The assessee is a leading money lender inYelahanka, a suburb of the Bangalore City. A searchwas conducted in his premises on 21.12.2000 and.subsequent dates where incriminating documents wereunearthedwhichrevealedNnNuUMeEeundisclosed. transactions and undisclosed assets having definiterevenue implications of the assessee. A notice undersection 158BC of Income Tax Act (hereinafter referred toas ‘the Act’ for short) was issued to the assessee on29.4.2001 directing him to furnish his returns for theblock period. Notice was duly served. The assesseefiled return of income on 23.7.2001 admitting anundisclosed income of Rs.25,47,000/- for the blockperiod. The assessing authority after considering thereply and various submissions of the assessee furnishedduring the course of assessment proceedings framed anassessment order taking note of the seized documents,the statement of the assessee recorded as on the date otsearch and the submissions made by the assesseeduring the course of block assessment proceedings. —One of the items is regarding the amount advanced as.loan to various persons. The seized dairy discloses thatthe total amount advanced as per the notings in thesaid dairy is Rs.1,43,79,000/-. In the statement of assets and liabilities filed by the assessee, he has shownthe loans advanced as Rs.1,34,99,000/- and thus hehad understated to an extent of Rs.9,20,000/-. Thereason given by the assessee was that the said amountwas received by the assessee between 11[th]December|and the date of search 1.e., on 21.12.2000, which has)not been recorded in the relevant dairies. The said|explanation was not accepted and the AssessingAuthority held that the receivables of the assessee as onthe date of the search is taken at Rs.1,43,79,000/-. 4. In the appeal preferred by the assessee againstthe said finding, the first appellate authority was of theview that the Assessing Authority did not consider thereconciliation done by the assessee towards advances. —Therefore, by letter dated 28/4/2004 the assessingauthority was asked to decide on merits. The assesseehad declared in the statement of affairs that total|advances aggregate to Rs.1,34,00,000/-, after giving due credits for the realization between 11.12.2000, uptoto the date the dairy had been written and 21.12.2000,on which date the search took place, the figure ofRs.1.46 crores does not represent the aggregate ofadvances made as per the dairy, but the figure noted isrough abstract made as per the dairy not accuratelycorresponding to the aggregate advances made. Ajiterreconciliation the figure was taken at Rs.1,34,00,000. |The reason why the assessing authority rejected thesaid claim was that the assessee did not offer the'explanation which was offered on the date of search.The appellate authority took note of the fact that theassessingauthorityhas|adopted certain figures.According to the assessee, the gross figure is notRs.1.46 crores but Rs.1.53 crores from which anéamountoT Rs.18,50,000/-.hadbeenreduced.Therefore, the figure of Rs.1.46 crores also does notrepresent the aggregate of advances as per the dairy,but the figure which is noted in the rough extract of the dairy. The appellate authority was of the view that mererejection of the explanation on the ground that some |thing else was stated or not stated during the course ofsearch is not a correct or valid approach. The|computation and working of income tax be on the basisof tacts and figures arrived at from the materialavailablebeforetheassessingofticerandtheexplanation given by the assessee. As the assessee hasrendered adequate explanation for the reconciliation,the assessing authority was directed to give him a reliefof Rs.9.20 lakhs on the same. So. In the appeal filed by the Revenue to theTribunal, the Tribunal was of the view that the figure ofRs.1.46 crores noted as receivables was not from the!seized dairies. When this basic fact is not forthcomingfrom the diaries seized, it could not be controverted.Therefore, the finding of the first appellate authority was confirmed. It is against the said finding, the presentappeal is filed. 6. From the aforesaid facts, it is clear that theassessee in his statement admitted the gross figure asRs.1,53 crores and claimed deduction to the extent of)Rs.18,50,000/-. Thus, he arrived at the figure ofRs.1,34,59,000/- whereas the assessing authority heldRs.1,46 crores as the gross figure which is without anybasis. When two fact finding authorities after carefullylooking into the material on record have recorded afinding, we do not see any good grounds to interferewith the said finding of fact. /. During the course of search, it was ascertainedthat Mrs. Gayathri Devi, wife of assessee had purchaseda residential house located at Site No.687, MIG, IIIPhase, Yelahanka Extension, Bangalore for a registeredconsideration of Rs.4,82,000/- from Mrs.Vatsala, wife ofMr. Basavaraj. The unsigned agreement seized at the time of search revealed that this property was to bepurchased for Rs.21 Lakhs. The background behindthis transaction was the fact that Mr. Basavara}] tookloans from the assessee at various times, the interestaccrued on these amounts, as well as principal amountwere not paid on a regular basis. Consequently, asubstantial amount was outstanding as payable to theassessee. In order to repay this liability, Mrs.Vatsala,w/o.Basavaraj sold the property to Smt. Gayathri Devi. |Smt. Vatsala was examined on Oath on 21.12.2000 andher statement was recorded. She has stated that her'§husband had taken loan of Rs.3 Lakhs from the’assessee for business and the same had accrued toRs.13.95 Lakhs over a period of time. In order to repaythe debt the house was sold and the site and buildinghad been valued over Rs.20 Lakhs. In answer to the'§said statement, the assessee gave his response. He hasstatedthat|he|hadadvanced|Rs.14|lakhsTO Mr.Basavaraj on various dates. He agreed to sell the said property for a consideration of Rs.21 lakhs, whichwas registered for Rs.4,90,000/-. However, the)settlement was reached where under in respect of duesof Rs.14 Lakhs the said property is to be appropriatedand the market value as on the date was Rs.7,50,000/-.only. When he wanted to sell his property worthRs.7,00,000/- for Rs.21 Lakhs, the assessee did notaccept the said proposal and that is why he did not signthe agreement. The assessing authority did not acceptthe said explanation. However, in the appeal, the firstappellate authority was of the view that the adjacentproperty No.685 was purchased for Rs.4.80 lakhs. Theassessee’s figure of Rs.7.50 lakhs is almost 70% morethan the purchase consideration paid in the case of saidadjacent sites. In fact with the permission of thedepartment to discharge the tax liability the assesseesold the said site for a sum ot Rs.10 Lakhs ons15.2.2003. In those circumstances, he was of the viewthat no reliance could be placed on the unsigned agreement which showed the consideration as Rs.21.Lakhs. Therefore, he gave the benefit to the assessee. —The Tribunal taking note of the aforesaid facts was ofthe view that the department has not placed anydocuments to state that the seller has stated that he!has received an amount ot Rs.21.97 lakhs tor the'property. The order of the assessing authority cannotbe sustained and accordingly, the appellate authorityrightly set aside the same and therefore, did not findany merit in the appeal. 8. From the aforesaid facts, it is clear that theseller did not admit that he had received Rs.21.97 lakhsunder the unsigned agreement from the assessee. Thatwas his claim. According to the assessee the propertywas valued at Rs./7.50 Lakhs, though a sum of Rs.14Lakhs was due from the seller. The fact that threeyears after the purchase, with the permission of theIncome-tax department, the property was sold at Rs.10 Lakhs clearly demonstrates that the considerationmentioned in the unsigned agreement of sale was notthe consideration on the date of such agreement. —Therefore, in the circumstances, the findings recordedby the two appellate authorities cannot be found faultwith. 9. In the search proceedings, the sale deed dated12.4.1989 was seized which disclosed that assessee andhis wife purchased site No.21, HIG, Yelahanka NewTown, Bangalore from Sri.Gjurudeep Singh Bajaj for aconsideration ot Rs.10 Lakhs. The vendor hadpurchased the said property on 3.6.1995 for aconsideration of Rs.9.45 Lakhs. In other words, whenhe was selling the property four years thereafter, hecould get only Rs.59,000/- as additional amount. Asper the Sub-Registrar’s rate, the market value of theproperty was Rs.14,10 Lakhs. If stamp duty and theregistration charges are taken into consideration, the seller incurred a loss. When it was pointed out to theassessee, he stated that he had entered into an)agreement with one Mr.Laxminarasaiah on 5.11.1997 to.purchase the said property for a consideration ofRs.18,76,900/- who acted as a broker for Sri.Gurudeep_singh and others. When the property rates fell all)around Bangalore, he requested for payment of Rs.8&Lakhs paid under the agreement. Then the said LaxmiNarasaiah requested him to directly get in touch withthe owner. After speaking to the owner, the propertywas renegotiated for a consideration of Rs.10 Lakhs. ©Therefore, it was contended that the amount of Rs. 10)Lakhs is the only consideration which is paid. Theassessing authority did not accept this explanation.However, the first appellate authority took note of thefact that the assessee with the permission of thedepartment sold the said property on 13.2.2003 for asum of Rs.14,85,000/- to discharge the tax liability. —Therefore, he was of the view that the consideration| mentioned in the sale deed as Rs.10 Lakhs was the!proper consideration. In the appeal, the Tribunal hasconfirmed the said finding. 10. From the aforesaid facts, it is clear thatthough the agreement was entered into with the brokerforpurchaseot the.propertyforaSUTMoT Rs.18,75,000/- and an advance amount of Rs.8 Lakhs—was paid, due to fall in the real estate prices, theassessee wanted his money back and at that stage, atthe request of the broker the assessee contacted theowner and sought for refund of the amount. Probablyas the owner was a resident of Bombay, he wanted tosell this property. The price was renegotiated and it was.fixed at Rs.10 Lakhs and that is how the _ satransaction is concluded. He had purchased theproperty by paying Rs.9.45 lakhs and if stamp duty andregistration charges are added to the same when he soldit for Rs.10 Lakhs nearly four years thereafter, certainly 10. From the aforesaid facts, it is clear thatthough the agreement was entered into with the brokerforpurchaseot the.propertyforaSUTMoT Rs.18,75,000/- and an advance amount of Rs.8 Lakhs—was paid, due to fall in the real estate prices, theassessee wanted his money back and at that stage, atthe request of the broker the assessee contacted theowner and sought for refund of the amount. Probablyas the owner was a resident of Bombay, he wanted tosell this property. The price was renegotiated and it was.fixed at Rs.10 Lakhs and that is how the _ satransaction is concluded. He had purchased theproperty by paying Rs.9.45 lakhs and if stamp duty andregistration charges are added to the same when he soldit for Rs.10 Lakhs nearly four years thereafter, certainly he had incurred loss. But in Real Estate, when value)has come down it is unavoidable. The tact that the'|assessee has sold the very same property four yearsthereafter for a sum oft Rs.14 lakhs whereas its costprice was Rs.11,95,000/- the appellate authorities werejustified in accepting the explanation of the assesseeand setting aside the order passed by the assessingauthority. In the facts of the case, having regard to theconcurrent finding of fact recorded by both the appellateauthorities, we do not see any justification to interferewith the said concurrent finding of fact. © 11. In the statement of affairs filed by theassessee, he claimed lability of Rs.30 lakhs and gavethe names of persons from whom he had borrowedmoney. In fact on the date of search he made asubmission that there is lability of Rs.390 lakhs. He was.called upon to furnish the confirmation letters fromthose persons. He was able to get confirmation letters to an extent of only Rs.24 Lakhs. For not being able toget the confirmation letters, he had stated that thepersons who had lent money are not willing to giveconfirmation letters lest they would be answerable tothe department. Therefore, he pleaded his inability toprove the remaining loan creditors as required underlaw. Therefore, the assessing authority proceeded onthe footing that as the burden of proving the said loansis on the assessee he has failed to discharge the saidburden. Therefore, he deleted Rs.11 Lakhs from theliabilities. However, the first appellate authority was ofthe view that in the affidavit filed by the assessee, hehad claimed lability of Rs.3o Lakhs. Even before thesaid claim was made and even on the date of search, he)was able to produce confirmation letters from lenders tothe extent of Rs.24 Lakhs. Merely because he was.unable to give confirmation letters from the lendors hecannot be denied the benefits as his stand was'consistent from starting to the end. In appeal, the Tribunal has upheld the said findings. In the facts ofthis case, we are satisfied that the assessee has claimed|Rs.35 lakhs as lhability on the date of search, againbefore the authorities, he has claimed the said amount. —He had filed affidavit to that effect and also producedletters of confirmation of the lenders. Merely becausehe could not get the confirmation letters and that letterof confirmation was produced before the first appellateauthority, which is now accepted, we are of the viewthat the said finding recorded by the two appellateauthorities do not call for any interference. 12. The assessee has put forth a claim forRs.69,03,000/- as bad debts. When he was called uponto give the particulars, he gave the particulars for thebad debts including a sum of Rs.16,39,000/-, whichwas classified as ‘miscellaneous bad debts’. After the'|assessee gave complete particulars of the bad debts, itwas worked out as 48% of the receivables. Then the'| assessee was directed to produce the debtors forexamination and then he filed a written statement on|19.19.9002. 12. The assessee has put forth a claim forRs.69,03,000/- as bad debts. When he was called uponto give the particulars, he gave the particulars for thebad debts including a sum of Rs.16,39,000/-, whichwas classified as ‘miscellaneous bad debts’. After the'|assessee gave complete particulars of the bad debts, itwas worked out as 48% of the receivables. Then the'| assessee was directed to produce the debtors forexamination and then he filed a written statement on|19.19.9002. 13. On considering the aforesaid facts, theAssessing Authority was of the view that if the case ofthe assessee were to be accepted, no money lendercould do business and therefore, the AssessingAuthority allowed the bad debts to the extent of 15% ofthe total receivables, which comes to Rs.21,56,850/-. |Agegrieved by the said order, the assessee preferred anappeal. The Appellate Commissioner was of the viewthat when the total debts was taken at Rs.1,03,64,1938/48% of the same should be taken into consideration andnot 48% of Rs.1,43,79,000/-. To that extent, he hasreduced the bad debts claimed by the assessee. —Agegrieved by the said order, the Revenue preferred anappeal to the Tribunal, which has affirmed the saidfinding. 14. The learned Counsel for the Revenue assailingthe said finding contended that bad debts cannot beallowed on the basis of percentage especially in a casewhere money lender states that he is not able to recoverthe monies given to several persons. The material onrecord discloses that when the assessee claimed bad|debts, he gave the names of the debtors and thereaiterhe arrived at the figure of Rs.68,93,000/-. He did notclaim anything on the basis of percentage. TheAssessing Authority after taking note of the said claimwas of the view that if the claim of the assessee 1s accepted, it amounts to 48% of the receivables, which isnot permissible according to him. The AppellateAuthority was of the view that, 48% is to be worked outnot on Rs.1,43,79,000/-, but it should be worked outon Rs.1,34,59,000/-. In fact, the law on the point iswell settled. The Apex Court in the case ofVijaya Bank—vs- Commissioner of Income-Tax and Another reported in(2010) 323 ITR 166 (SC)and this Court inthe case ofCommissioner of Income Tax & Another -vs- K.Raheja Development Corporation|reported in(2010) 47 DIR (Kar) 212have clearly held that thecondition precedent for claiming deduction of bad debtis that the assessee should write otf the said debt as!bad debt. Once the assessee writes off a debt as bad|debt in his accounts, he can claim deduction under)section 36(1)(vii) of the Act. Once that condition isfulfilled, the assessee is entitled to the deduction of theamount written off. In view of the same, the assesseewhen he filed the statements, he has given theparticulars of the bad debts as against each debtor andthen that amount as a part of said amount wasincluded in the money lent in the ordinary course.Therefore, he is entitled to deduction. We do not seeany infirmity in the order passed by the AppellateAuthority. 1s. All the substantial questions of law are answered in favour of the assessee and against theRevenue. For the aforesaid reasons, we do not see any merit in this appeal. Accordingly, the appeal is dismissed. Sd/-.JUDGE|Sd/-|JUDGE| ALB/KNM/-|