The Commissioner Of Income Tax, Patiala (Punjab v. Shri Hazari Lal

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Case No. : I. T. A. No. 631 of 2008Date of Decision : December 12, 2008. The Commissioner of Income Tax,Patiala (Punjab)....AppellantVs.Shri Hazari Lal Prop., Samana,District Mansa (Punjab)....Respondent CORAM : HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE L. N. MITTAL * * * Present :Ms. Urvashi Dhugga, Standing Counselfor the Revenue. * * * ADARSH KUMAR GOEL, J. (Oral) : 1.Revenue has preferred this appeal under Section 260-A of theIncome-tax Act, 1961 against the order of the Income Tax AppellateTribunal, Chandigarh Bench `A', Chandigarh dated 31.10.2007 passed in IT(SS) A No.18/Chandi/2001 (in a combined order passed in IT (SS) A. No.18and 38/Chandi/2001 and CO. No.57/Chandi/2007 in the case of Shri HazariLal, proposing to raise following substantial questions of law :- “4.1 Whether on the facts and in thecircumstances of the case, the ITATwas right in law in holding the nonexistence of Commission Agency prior 4.2 4.3 to the period relevant to A. Y. 1997-98on the ground that the documentsdated 22.05.1993 found during searchoperation neither contained anymention of the assessee nor itsrelevance to the assessee particularlywhen on the contrary, the provisions ofsection 158 BB (3) of the Actspecifically cast onus on the assesseeto establish the non-relateability of thedocument found during search withsupporting documentary evidence ? Whether on the facts and in thecircumstances of the case, the ITATwas right in law in allowing relief ofRs.10,02,250/- to the assessee on theground that the document dated22.05.1993 seized was not confrontedto the assessee during search operationwhen the document seized at the timeof search had been confronted to theassessee during the assessmentproceedings ?circumstances of the case, the ITATwas right in law in allowing relief ofRs.10,02,250/- to the assessee on theground that the document dated22.05.1993 seized was not confrontedto the assessee during search operationwhen the document seized at the timeof search had been confronted to theassessee during the assessmentproceedings ? Whether on the facts and in thecircumstances of the case, the ITATwas right in law in allowing relief ofRs.33,80,000/- by merely relying onthe statement recorded under section132 (1) of the Act ignoring the factthat the assessee had failed to explaincircumstances of the case, the ITATwas right in law in allowing relief ofRs.33,80,000/- by merely relying onthe statement recorded under section132 (1) of the Act ignoring the factthat the assessee had failed to explain the documents seized at the time ofsearch and that the A.O. wasempowered to draw an adverseinference under Section 114 of theIndian Evidence Act especially whenthe assessee failed to substantiate hisliability with supportive documentaryevidence ? 4.4Whether on the facts and in thecircumstances of the case, the ITATwas right in law in deleting theaddition of Rs.14,00,000/- made on thebasis of seized document withoutplausible reasons particularly when theassessee failed to discharge his onus toexplain the contents of a documentswith any corroborative material inview of the specific provisions ofsection 158 BB (3) of the Act ? 4.5 Whether on the facts and in thecircumstances of the case, the ITATwas right in granting relief to theassessee by recording a perversefinding contrary to evidence onrecord ? 4.6Whether the findings recorded by the Ld.ITAT are legally sustainable in view ofthe admission made by the assesseeduring the course of assessmentproceedings ?” 4.4Whether on the facts and in thecircumstances of the case, the ITATwas right in law in deleting theaddition of Rs.14,00,000/- made on thebasis of seized document withoutplausible reasons particularly when theassessee failed to discharge his onus toexplain the contents of a documentswith any corroborative material inview of the specific provisions ofsection 158 BB (3) of the Act ? 4.5 Whether on the facts and in thecircumstances of the case, the ITATwas right in granting relief to theassessee by recording a perversefinding contrary to evidence onrecord ? 4.6Whether the findings recorded by the Ld.ITAT are legally sustainable in view ofthe admission made by the assesseeduring the course of assessmentproceedings ?” 2.Search operation was conducted on 29.09.1998 and certaindocuments were seized. During block assessment, inference of income fromcommission agency for sale and purchase of vehicles was sought to bedrawn. Block assessment was made on the basis of inferences drawn fromdocuments seized during the search, which was upheld by the CIT (A). TheCIT (A) partly allowed the appeal of the assessee. 3.The Tribunal granted further relief to the assessee by recordingfollowing findings :- “16.We have considered the rivalsubmissions carefully. We have also perused thedocument in question and orders of the lowerauthorities as also the written submissions of theassessee to the lower authorities. On considerationof the aforesaid, we find that the crux of thedispute resolves around understanding the meaningof notations of the amounts and certain namesfound recorded in document No.34 which wasseized in the course of the search of the assessee.A copy of the said document has been annexed aspart of the assessment order. Now, according tothe Revenue the said document contains entrieswhich depict either undisclosed incomes orundisclosed investments made by the assessee.Prima facie a glance of the said document does notshow as to what it contains or what it means. Thenotations of the amounts and the names do notcarry any description of the nature of thetransaction as made out by the Revenue.Therefore, in order to make out an intelligibleinference of such document, the same has to be deciphered by its author. Since it has been foundfrom the assessee it becomes the duty of theassessee to explain the same. The assessee wasconfronted with the said document in the course ofassessment proceedings. The Assessing Officerrequired the assessee to explain as why theimpugned amounts be not held as unexplainedinvestment assessable in the hands of the assessee.The plea of the assessee was that in so far as theamounts totaling Rs.33,80,000 is concerned, thesame reflects summary of payments which weredue from various dealers and the payments inrespect of which were to be made to the customerswho sold the vehicles. The assessee submitted thathe being in the business of commission agency,was only acting as a middleman in thesale/purchase of vehicles. The explanation of theassessee has been negated by the Assessing Officeras well as by the Ld. CIT (A). According to theRevenue, certainly impugned amounts reflected theamounts recoverable from sub agents with regardto the vehicle sold through the assessee but theexistence of the liability to hand over suchamounts to the seller of the vehicle does not standjustified. Now the response of the assessee to thisis that he does not purchase and sell the vehicleson his own account. Therefore, there cannot be asituation where any money is due to be receivedfrom the buyer which was not to be handed over tothe seller of the vehicle. Now the question is that the document in question does not by itself speakfully. In such situation, in our view, the documentis to be understood with reference to theexplanation tendered by the assessee andcircumstantial material, evidence and informationon record. No doubt, the assessee was foundearning commission income on sale/purchase ofvehicles in the course of search and such incomewas hitherto undeclared. For making the addition,Assessing Officer has proceeded on the basis thatthe assessee also bought and sold the vehicles withown funds and not acted merely as a commissionagent. It is not in dispute that the noting in theseized document relate to business of commissionagency. Now, if the assessee is to be held actingonly as an agent earning commission the impugnednotings do not partake the character of investmentsmade by the assessee. The Ld. CIT (A) hasproceeded on the basis that the line between acommission agent selling on commission basis orselling after purchasing it is very thin because itwas not necessary in the short period involved toget the vehicle transferred in assessee's namewhere he was selling it after purchasing from theseller.” We appreciate that there is a thin linebetween the two. So however, the present case isrelating to an assessment made in pursuance to asearch conducted by the department u/s 132(1) ofthe Act. Therefore, to infer that the assessee wasselling the vehicles after purchasing on its own is an inference which was required to be deducedfrom the material, evidence or any other suchinformation available with the Assessing Officerwhich was relatable to the evidence on materialfound during the search. In this light, we haveperused the statement of the assessee recordedduring the course search, the seized material inquestion, the informations furnished by theassessee before the Assessing Officer and findnothing to infer that the assessee was purchasingthe vehicles and thereafter selling them on his ownaccount. In fact, undisputedly a delivery book wasseized at the time of search and the assesseecontended that its examination does not reveal thatthe assessee ever purchased the vehicles on its ownaccount and thereafter sold the same. Thisaverment was made before the Assessing Officer.There is no rebuttal to this from the side of theRevenue. Therefore, to reach at such presumptionand thereafter use it to decipher the contents of thedocument No.34 would be unjustified. In thissituation, it is safe to deduce that the explanationtendered by the assessee with regard to theimpugned notations is plausible and deserves to beaccepted in the background of fact that the contrainference by the Assessing Officer is not based onany material. Therefore, we do not find anyjustification for sustaining the addition ofRs.33,80,000.17.Now in so far as the addition of Rs.14.00 lakhs is concerned, herein also we findthat the inference drawn by the Assessing Officerin para 4.7 of his order that the assessee had madeinvestment in flour mill is not based on anycorroborative material. Now, with regard to thesum of Rs.5,50,000 relating to the addition madeon account of unexplained investment in milkchilling plant in our view the assessee has beensuccessful in explaining that the same is relatableto his business interest in partnership firm M/sJohri Mill, Samana in which the income fromletting out of milk chilling plant is derived. So,however, it is also important for the assessee toexplain the nature of the noting in question andwhether the same finds a proper place in theaccounts of M/s Johri Mills, Samana. This aspect,in our view is factual in nature and has not beengone into by the lower authorities. Therefore,while setting aside the orders of the lowerauthorities this issue, we direct the AssessingOfficer to allow a reasonable opportunity to theassessee to explain as what is the nature of thesaid noting vis-a-vis the firm M/s Johri Mill,Samana in question. After considering theexplanation furnished by the assessee, theAssessing Officer shall pass an appropriate orderin accordance with law on this issue. With respectto addition of Rs.3,18,000 also we find that nospecific explanation has been furnished before thelower authorities. The assessee has not denied the relevance of the amounts in question and thus theonus was on the assessee to offer credibleexplanation in this regard. The explanationsfurnished by the assessee on this count have notbeen found to be satisfactory and thus the additionhas been rightly sustained by the Ld. CIT (A). 18.In the result, in ground No. 4 whereasthe additions of Rs.33,80,000 and Rs.14.00 lakhsare deleted, the addition of Rs.5,50,000 is restoredto the file of the Assessing Officer the addition ofRs.3,18,000 is sustained. Thus on this ground theassessee partly succeeds.” 4.The Tribunal also dismissed the appeal of the Revenue, byrecording the following finding :- “23.In this connection, we find that thefactual aspect is that in the course of assessment,the assessee was asked to explain the householdexpenses. The assessee gave replies giving thedetail of his family size and the level of expensesclaimed to have been incurred to meet thehousehold expenses in the period relevant to BlockPeriod in question. The Assessing Officer was notsatisfied and considering the social status of theassessee and the household articles etc. owned bythe assessee found the expenditure claimed by theassessee to be on the lower side. He made anaddition of Rs.5,37,239 as unexplained householdexpenses. The Ld. CIT (A) has since deleted thesaid addition by making the following discussionin Para 7.3 of his order which reads as under :- “7.3The contention of the Ld.Counsel that the department did not discoverany evidence during the search and seizurewhich proved conclusively that thehousehold expenses declared by the assesseewas less than the actual and therefore, noaddition could be made u/s 158 BC for it bysimply estimating the expenditure is correct.Therefore, in view of the arguments of theLd. Counsel for the assessee and the caselaw relied upon by him as also in view of theorder of the HTAT Mumbai `B' Bench in thecase of Sunder Agencies V DCIT (1997) 59TTJ (mum) 610, the addition made by theAssessing Officer for low householdexpenses is deleted from the assessment u/s158 BC. However, the Assessing Officermay take action u/s 148.” “7.3The contention of the Ld.Counsel that the department did not discoverany evidence during the search and seizurewhich proved conclusively that thehousehold expenses declared by the assesseewas less than the actual and therefore, noaddition could be made u/s 158 BC for it bysimply estimating the expenditure is correct.Therefore, in view of the arguments of theLd. Counsel for the assessee and the caselaw relied upon by him as also in view of theorder of the HTAT Mumbai `B' Bench in thecase of Sunder Agencies V DCIT (1997) 59TTJ (mum) 610, the addition made by theAssessing Officer for low householdexpenses is deleted from the assessment u/s158 BC. However, the Assessing Officermay take action u/s 148.” In this background, we have considered thevalidity of the impugned addition. Undoubtedly,the finding of the Ld. CIT (A) is that no material ofevidence was discovered during search whichproved that the household expenses declared bythe assessee was less than the actuals. In thisregard we find that the findings of the Ld. CIT (A)which we have extracted above, remain un-rebutted. The Ld. CIT (A) has held that the searchu/s 132 (1) has not proved that the householdexpenses declared by the assessee wereunderstated. Therefore, following the aforesaid finding which remained uncontroverted before us,the addition made by the Assessing Officerbecomes unsustainable. We hold so. Accordingly,on this ground the Revenue fails. 24.The second ground relates to the issueof unexplained investment in the construction ofthe house. The background and the manner inwhich the addition has been made at Rs.1,94,008on this count can be understood as follows. TheRevenue seized from the residence of Shri LajpatRai photocopies of drawing plan of the house inwhich three brothers namely, S/Shri Sat Pal, HazariLal and Lajpat Rai (the present assessee) reside. Incomparison to the drawings found, the houseappeared to have under gone major modifications.Therefore, the Assessing Officer referred thematter to the Department Valuation Officer (DVO)for valuation. The VO submitted his report to theAssessing Officer valuing the property year wiseas detailed in the order of the Assessing Officer.The Assessing Officer after considering thevaluation report dated 21.9.2000 which gave yearwise estimated investment made in the propertyand after comparing it with the investmentdeclared by the assessee treated Rs.1,94,008 asundisclosed investment in the construction of thehouse, as detailed in his order, after rejecting theexplanation of the assessee.” We have heard learned counsel for the Revenue and perused I. T. A. No. 631 of 2008 6.The findings recorded by the Tribunal are findings of factsbased on appreciation of evidence. 7.No substantial question of law arises. 8.The appeal is dismissed. (ADARSH KUMAR GOEL)JUDGEJUDGE December 12, 2008monika ( L. N. MITTAL ) JUDGE