Trishul Buildtech Infrastructure (P) Ltd. Vs JCIT (ITAT Bangalore)
ITAT Bangalore held that u/s. 292C of the Income Tax Act, there is a presumption that the documents found in the possession or control of any person in the course of search, belongs to such person and contents of such document are true.
Facts- The assessee is a partnership firm. There was a search and seizure operation carried out u/s. 132 of the Income-tax Act, 1961 in the case of the assessee. The AO issued a show cause notice asking the assessee to explain the entries in the seized material. The assessee filed a reply disowning knowledge of the seized material. Apart from disowning the entries in the seized diaries, the assessee also submitted that the entries are mere scribblings and they do not result in any income. The assessee also pleaded that the persons who wrote the diary should alone explain the entries. AO rejected the reply and brought undisclosed income to tax.
Conclusion- Held that u/s. 292C of the Act, there is a presumption that the documents found in the possession or control of any person in the course of search, belongs to such person and contents of such document are true. In the light of the fact that the assessee owned the entries in the seized diary, the contents should be presumed to be true and it is for the assessee to show that all the entries in the seized diary does not represent income. The assessee having miserably failed to point out with reference to each of the entries in the seized diary as to how it does not give rise to income, the assessee cannot take a valid plea that he disowned the diary and therefore no reliance can be placed on the diary to make addition in the hands of assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The appeals in ITA Nos.1362, 1363 & 1367/B/13 are by the assessee against the common order dated 16.8.2013 of the CIT(Appeals)-VI, Bengaluru relating to assessment year 2004-05, 2005-06 & 2007-08.
2. The assessee is a partnership firm. There was a search and seizure operation carried out by the authorities u/s. 132 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] in the case of the assessee on 20.11.2009. Simultaneous search proceedings u/s. 132 of the Act were also carried out in the case of M/s. Gold Finch Hotels Group. Mr. K. Prakash Shetty [hereinafter referred to as “K.P. Shetty] was one of the partners of the assessee and was also a partner in other group entity companies. One Mr. Vijay Bhat, Manager of K.P. Shetty, was also searched on 20.11.2009. In his residential premises, a bunch of diaries were found and seized. Those were marked as A/UB/2 of the seized material. The diaries contained recording of receipts and payments from and to various persons. The transactions so recorded were mostly cash transactions, besides some cheque transactions.
3. In post search proceedings, Mr. Vijay Kumar, Manager of the assessee was examined. In his statement, he admitted that the writing in the diaries was written by him and one Ms. Indira, Office Assistant. The writings in the diaries were made as told by Mr. K.P. Shetty and Smt. Asha P. Shetty, another partner of the assessee and other seniors of Trishul Developers (the assessee). The questions and answers in this regard is reproduced for better appreciation of facts:-
“Q.No.3: I am showing you the pages 1 to 167 of the seized material marked A/VB/2 which was seized from your residence during the course of search proceedings under section 132 on 20.11.2009. Please go through the seized material and explain the contents of the seized material?
Ans.: I have gone through the pages 1 to 167 of the seized material marked A/VB/2. These are the diaries most of which are written by me except pages 1 to 47 which were written by Miss Indira, office assistant.
These pages contains the cheque and cash transactions written by me as told by Mr. Prakash Shetty, the Managing Director, Smt. Asha P Shetty and sometimes by the other seniors of Trishul Developers.
I am not aware of the details of the transactions and only Mr. Prakash Shetty is aware of it. I had written what was told by the Mr. Prakash Shetty.”
4. The Assessing Officer noticed that most of the transactions in the diaries were by cash and not accounted in the regular books of account.
5. During the course of another statement recorded from Mr. Vijay Kumar B on 17.12.2009, he has stated that he has written the transactions on the instructions received by him from Mr. K Prakash Shetty and he has also stated that these cash transactions pertains to M/s Trishul Developers. When he was asked to explain the cash transactions, he stated that he has written the transactions on the instructions given by Mr. K Prakash Shetty and that he can only explain these transactions. The relevant portion is reproduced as follows:
“Q.No.4: Please explain the transaction written in these diaries from page numbers 48 to 167?
Ans.: I am not able to explain the transactions written in the diaries at pages 48 to 167. Mr. K Prakash Shetty, Managing Director can only explain the transactions.
Q.No.5: Can you identify the transactions and the persons who had asked you to write these transactions in the diaries?
Ans.: I cannot directly identify the transactions and the seniors who had instructed me to write the transactions. But these have been written on the instructions of the Managing Director Mr. Prakash Shetty and other senior managers.
Q.No.6: Who had told you to keep these diaries at your residence?
Ans.: These diaries were kept in my residence as we had shifted our corporate office from Sadashiv Nagar.
Q. No. 7: Who has written the pages 1 to 47?
Ans.: Ms Indira, office assistant, has written the pages 1 to 47 of the seized material which is a pocket diary. She has written this pocket diary on my instructions. Whatever my Managing Director Mr. K Prakash Shetty had instructed me orally was instructed by me to Ms Indira and she had written the same in this pocket diary.”
6. Later, Mr. Prakash Shetty was confronted with the seized material marked A/VB/2 and also with the statement recorded from Mr. Vijay Kumar. Mr. Prakash admitted that the diaries and the notebooks in the seized material marked A/VB/2 have been written by his employees. The relevant portion is reproduced as under:
“Q.No.3: I am showing you the seized material marked A/VB/2 which was seized from the residence of Shri. Vijay Kumar B during the course of search proceedings under section 132 on 20.11.2009 at his residence. Please go through the seized material and explain the contents of the seized material?
Ans.: I have seen the seized material marked A/VB/2 which was seized from the residence of Shri. Vijay Kumar B on 20.11.2009. The seized material contains hand written pocket diaries written by Mr. Vijay Kumar B, Vice President (Infrastructure) of Goldfinch Hotels group and Ms Indira, office assistant. The entries in these pocket diaries are written by them. I will go through the diaries after taking Xerox copies and come back with detailed explanation as far as directly connected to my business income.
Q.No.4: lam showing you the statement recorded from Mr. Vijay Kumar B(Vijay Bhat,) wherein he has stated that these diaries are written by him on your instructions and also on the instructions of his seniors. Please go through the statement and comment on it?
Ans.: I have gone through the statement of Mr. Vijay Bhat and I have to go through the diary and which all entries which I had told, I will come and explain all the entries in two days.”
7. Subsequently. Mr. K Prakash Shetty filed a letter dated 02.02.2010 admitting undisclosed income pertaining to certain cash payments made by him for purchase of lands, interest payments to some persons, etc. which were found written in the above seized material marked as A/VB/2. The undisclosed income had been offered in the hands of M/s Trishul Developers and Prakash Shetty. The annexure I filed at the time of post search proceedings pertaining to undisclosed income is as below:-
8. The AO was of the view that the transactions in the diaries seized and marked as A/VB/2 contained receipts totaling to Rs.56,00,51,300 and total payments of Rs.88,24,82,425. The assessee has however chosen only a few selected items and offered income from those items to tax. According to the AO, this was unacceptable in the absence of any explanation by the assessee with regard to the entries in the seized diaries in respect of which assessee did not make any declaration of income.
9. There was a search carried out at Mangalore in the premises of one Mr. Prasad Kumar Shetty [hereinafter referred to as “Prasad Kumar”], who is the brother-in-law of K.P. Shetty. Prasad Kumar was involved in purchase of lands for the group concerns. In the course of search proceedings in the premises of Motel Infrastructure Pvt. Ltd., certain diaries were found and seized from the cabin of Prasad Kumar. These diaries were marked as A/TD/34, 35 and A/TD/36. Prasad Kumar was examined at the time of search and in his statement, he admitted that the diaries were written by him. Later on, a statement u/s. 131 of the Act was recorded from him on 13.4.2010. In the statement, he admitted that seized diary contains entries of cash payments and that payments were made on instructions from head office of Trishul Developers (assessee). The instructions were given by directors by K.P. Shetty and cash for payments were also accounted by the head office. The relevant questions & answers read as under:-
“Q.No.:4: I am showing you the seized material marked as A/TD/35 dated 20.11.2009 seized from the office of M/s Trishul Developers, Mangalore during the search proceedings. Please go through is state who has written this diary?
Ans.: 1 have gone through the seized material marked as A/TD/35 dated 20.11.2009. This diary has been written by me.
Q.No.5: Please go through the page number 1 to 6 of the diary marked A/TD/35 and explain the contents of these pages?
Ans.: I get instructions through phone from the staff at the head office of by the head office at Bangalore to make payments to various persons. Accordingly, I make the payments and the same are written by me in this diary. However, I do not remember the exact nature of these payments. I do not know the details of the persons to whom the payments are made and in what context.
Q. No. 6: Who gives you the instructions to make the payments?
Ans.: I used to get calls from the various persons working in the corporate office of M/s Trishul Developers. They used to tell me about the instructions given by the Managing Director to pay or receive money from various persons at Mangalore. I acted upon the instructions to receive or pay the amount.”
10. Page 2 of the seized material marked as A/TD/34 contains a receipt account of a total sum of Rs.10,13,68,000 during the F.Ys. 2008-09 and 2009-10 as under:-
F.Y.2008-09 : Rs. 1,90,00,000/-
F.Y.2009-l 0 : Rs. 8,23,68,000/-
11. During the statement recorded from Mr. Prasad Kumar, he was asked to explain the cash receipt in this page. He stated that the cash receipts of Rs.10.13,68,000 were received from the head office of M/s Trishul Developers, Bangalore and that it has been paid to various persons as their instructions. His statement is reproduced hereunder:-
“Q.No.32: The pages 1 and 2 contains total receipts of Rs. 10,13,68.000/-. Please explain the nature of these receipts and state what you did with that amount. It is also noted that no names are also written against the receipts shown on page 2. Can you state from whom these amounts were received?
Ans.: All these amounts of Rs.10,13,68,000/- as mentioned in pages 1 and 2 were received from the head office of M/s Trishul Developers, Bangalore, by cash and paid to various persons as per their instructions. The head office people use to tell me that the instructions were given by the MD. I do not know the nature of these payments.”
12. When confronted with the seized material during the course of recording of statement from Mr. K.P. Shetty and asked to explain the entries, he has stated that except for a few entries, he does not know other entries, persons or the transactions.
13. In the above background, a reconciliation statement was prepared on the basis of entries in the said diaries during the post search investigations. The said reconciliation prepared contains both receipts and payments. The total receipts as per this is Rs.56,00,51,000 and total expenditure is Rs.88,24,82,425.
14. The AO issued a show cause notice dated 9.12.11 asking the assessee to explain the entries in the seized material. The assessee filed a reply disowning knowledge of the seized material. Reply by the assessee is extracted in page 7 of the assessment order. Apart from disowning the entries in the seized diaries, the assessee also submitted that the entries are mere scribblings and they do not result in any income. The assessee also pleaded that the persons who wrote the diary should alone explain the entries.
15. The AO, however, rejected the reply filed by the assessee and held as follows:-
“8. The above contentions made by the assessee are not acceptable. It is a fact that certain diaries were found and seized in the residential premises of the manager of Shri. Prakash Shetty and also in the Mangalore premises managed by his brother-in-law as stated earlier. The diary entries were discussed during the course of search proceedings. The assessee has admitted certain entries present in the diaries and has admitted undisclosed income of Rs. 10.46 crores for various years in the hands of M/s Trishul Developers and in the hands of Shri. K Prakash Shetty. However, a total reconciliation of the diary entries during the search proceedings revealed that the total receipts were of 56,00,51,300/- and total payments were of 88,24,82,425/-.
9. During the course of assessment proceedings the diary entries were verified and it was found that only a few entries have been admitted by the assessee group. The circumstantial evidence and preponderance of probability suggests that the assessee has had numerous transactions which are in the nature of receipts and payments.
10. In view of the facts and the circumstances of this case and the type of diary entries available, it would be fair and reasonable to compute the difference in the receipts and payments and bring the same to tax. Accordingly, the following undisclosed incomes are being brought to tax:
