Ita/980/2009 Of Commissioner Of Income Tax v. M/S.meriya Bankers

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 WEDNESDAY, THE 15TH DAY OF JANUARY 2014/25TH POUSHA, 1935 ITA.No. 980 of 2009 ( ) ------------------------ (IT(S&S)A.NO. 72/COCH/2005 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH) ---------------------- APPELLANT/RESPONDENT : ------------------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, INCOME TAX RESPONDENT/APPELLANT : -------------------------------------------- M/S.MERIYA BANKERS, CHITS & INVESTMENTS, PALA. BY ADV. SRI.P.BALAKRISHNAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 15-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A.NO.980/2009 APPENDIX PETITIONER'S ANNEXURES: RESPONDENT'S ANNEXURES:NIL /TRUE COPY/ P.A.TO.JUDGE Manjula Chellur, C.J. & A.M. Shaffique, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= I.T. Appeal No. 980 of 2009=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=Dated this, the 15[th]day of January, 2014.J U D G M E N T Shaffique, J The appeal is filed by the Revenue challenging the orderpassed by the Income Tax Appellate Authority, Cochin Bench inI.T(S&S)A No. 72/Coch/2005. The Tribunal allowed the appealfiled by the assessee in part in respect of three matters. Theaddition made on account of interest on gold loan amounting toRs. 1,14,806/- was deleted, the unaccounted interest onunaccounted daily loan business assessed at 10% of the amountadvanced was reduced to 5% and set off was allowed in respectof Rs. 15,77,192/- on account of shortage of cash found at thetime of search. 2. The facts involved in the above appeal would disclosethat the assessee is a partnership firm engaged in the businessof money lending against pledging of gold and also involved inchitty transactions. Pursuant to a search conducted in thebusiness premises of the assessee on 28.6.2001, proceedingswere taken after issuing notice under Section 158BC of theIncome-tax Act (hereinafter referred to as the Act). Blockassessment was completed as per order dated 27.6.2003. Totalof the undisclosed income for the block period was assessed atRs. 49,42,107/-. 3.The determination of undisclosed income was inrespect of unaccounted gold loan advanced, unaccounted dailyloan business and the interest thereon. Telescoping funds I.T. Appeal No. 980 of 2009 -: 2 :- availability was reduced from the total unaccountedamounts and the undisclosed income was arrived at theaforesaid figure. 4.As far as the unaccounted gold loan advancedand unaccounted daily loan business were concerned, theTribunal confirmed the finding of fact by the AssessingOfficer as well as the CIT (Appeals). However, in respectof unaccounted interest on daily loan business, which wascomputed at 10% of the amount advanced, the Tribunalmade a deduction to 5%, though the said addition wasconfirmed by the CIT (Appeals). The Tribunal furtherdeleted the addition made on account of the interest on goldloan amounting to Rs. 1,14,866/-. The Tribunal furtherallowed set off in respect of shortage of cash found at thetime of search to the balance unaccounted advance ofRs. 15,77,292/- and observing that no addition is requiredin respect of balance unaccounted advances to the extent ofRs. 15,77,292/- 5.The Revenue has raised the following substantialquestions of law: 5.The Revenue has raised the following substantialquestions of law: “1.Whether, on the facts and in the circumstancesof the case, the Tribunal is right in law and infact in allowing the set off of shortage of cashagainst the amount assessed as unexplainedinvestment in money lending business eventhough no such ground was raised before theTribunal by the appellant and is not the abovefinding of the Tribunal perverse and againstlaw and practice? I.T. Appeal No. 980 of 2009 -: 3 :- 2.Is not the presumption of the Tribunal that theshortage of cash in hand (accounted money)was invested in the unaccounted money lendingbusiness perverse and against normal businesspractise?shortage of cash in hand (accounted money)was invested in the unaccounted money lendingbusiness perverse and against normal businesspractise? 3.Whether, on the facts and in the circumstancesof the case, the Tribunal in right in law and infact in placing the burden on the AssessingOfficer by stating that he ought to haveexamined partner Shri Davasia?of the case, the Tribunal in right in law and infact in placing the burden on the AssessingOfficer by stating that he ought to haveexamined partner Shri Davasia? 4.Whether, on the facts and in the circumstancesof the case:-a)did the assessee discharge the burden ofproof that lay on him?of the case:-a)did the assessee discharge the burden ofproof that lay on him? b)Should not the Tribunal have adverted toand considered the question as to whatprevented the assessee from recordingtransactions in his books of accounts if thebusiness was done with accounted cash?”and considered the question as to whatprevented the assessee from recordingtransactions in his books of accounts if thebusiness was done with accounted cash?” 5.The main contention urged on behalf of theRevenue is with reference to the set off or shortage of cashagainst the amount assessed as unexplained investment inmoney lending business. It is contended that no suchcontention was urged by the assessee before the Tribunaland therefore the finding fact is totally perverse. That apart,it is contended that at the time of search in the businesspremises of the assessee, a statement was recorded fromthe Managing Partner Sri. Basil Thomas. He has admittedin question No. 13 that if the cash book is updated, theamount available will be Rs. 21,76,761.50 and there is aspecific cash shortage of Rs. 20,89,801.57. Annexure D is I.T. Appeal No. 980 of 2009 the statement given by the Managing Partner of the firm,which is not controverted at any point of time. It iscontended that the Tribunal, however, proceeded on thebasis that the Assessing Officer should have recorded thestatement of Shri. Devassi Davassi, another ManagingPartner of the assessee, who had allegedly taken the saidmoney. But the Tribunal proceeds on the basis that no suchmaterial was found in support of the said contention.However, it is found that since the assessee was engaged indaily loan business, a presumption has to be drawn to holdthat shortage of cash was nothing but an investment in theunaccounted money lending business and therefore set offis to be given in respect of shortage in the cash found at thetime of search to the balance unaccounted advance ofRs. 15,77,292/-. 6.The learned standing counsel vehemently urgedthat the aforesaid finding of fact is absolutely baseless andperverse. When the undisclosed income had been foundbased on the materials available at the time of search andwhen it is confirmed by the authorities, it was not proper onthe part of the Tribunal to have allowed set off for the cashshortage. Undisclosed income had been arrived at afterreducing the telescopic funds availability and thereforethere is no reason to allow the set off. 6.The learned standing counsel vehemently urgedthat the aforesaid finding of fact is absolutely baseless andperverse. When the undisclosed income had been foundbased on the materials available at the time of search andwhen it is confirmed by the authorities, it was not proper onthe part of the Tribunal to have allowed set off for the cashshortage. Undisclosed income had been arrived at afterreducing the telescopic funds availability and thereforethere is no reason to allow the set off. 7.It is not in dispute that already set off has beengranted for an amount of Rs. 33,64,815/- which was seenfrom the books of account from the total undisclosed I.T. Appeal No. 980 of 2009 -: 5 :- income of Rs. 49,42,107/-. Therefore, the balance ofRs.15,77,292/- was treated as unexplained investment.The Tribunal did not rely upon any material to find that setoff could be given in respect of the aforesaid amountwhereas it proceeded on the basis that the assessee'sbusiness being money lending, a presumption could bedrawn to hold that the shortage was invested in theunaccounted money lending business. In fact, proceedingby Annexure D, the Managing Partner admits the fact thatthe physical cash shortage of Rs. 20,89,801.50 representsthe unaccounted drawing from Meriya Bankers, Chits andInvestment for the purpose of undisclosed investments inthe sister concern managed by Sri. Devassy Devassy. Whenphysical cash shortage is admitted and it is further admittedthat such amount is invested in the sister concern managedby another partner, there is no reason for allowing set offas stated by the Tribunal. This finding, according to us, isnot based on any material. That apart, cash shortage wasan admitted fact, which would indicate the undisclosedincome of the assessee. When undisclosed incomeremained unexplained by the assessee, there is no reason togive set off on a presumption that it being a money lendingbusiness, one could assume that it is only unaccountedinvestment. 8.Having regard to the aforesaid finding of theTribunal with reference to allowing of set off, in respect ofshortage of cash found at the time of search amounting to I.T. Appeal No. 980 of 2009 -: 6 :- Rs. 15,77,292/- is liable to be set aside. 9.As far as other issues are concerned, the samedoes not have much consequence as even the AssessingOfficer had deducted the said amounts while arriving atthe total undisclosed income and therefore suchquantification will not have much relevance. In the above circumstances, this appeal is allowedand the order passed by the Tribunal to the extent ofallowing set off in respect of Rs. 15,77,292/- is set aside. Sd/- Manjula Chellur, Chief Justice Sd/- A.M. Shaffique, Judge. Tds/ [True copy] P.S. to Judge.