Case Law Details

Case Name : Shri Vinit Ranawat Vs ACIT (ITAT Pune)
Appeal Number : ITA Nos.1105 and 1106/PN/2013
Date of Judgement/Order : 12/06/2015
Related Assessment Year : 2006-07 & 2007-08
Courts : All ITAT (4621) ITAT Pune (134)

Facts of the case

The assessee in the instant case was an individual and proprietor of M/s. S. Chains engaged in the business of job work in gold ornaments. M/s. S.D.D. Agencies was the C&F Agent of M/s. Dhariwal Industries Ltd. in the State of Maharashtra for their Gutkha and Pan Masala business. A search and seizure action on the premises of Mr. Mittulal at Bangalore was carried on 09-10-2009 wherein documents maintained by Mr. Sohan Raj Mehta, C&F Agent of M/s. Dhariwal Industries Ltd were found. The AO noted that as per the seized pages being Bundle No. A/M/08 of the panchanama dated 09-10-2009 the assessee has received an amount of Rs.21 Crores from M/s. Dhariwal Industries Ltd. The assessee’s premise was also searched on 20-01-2010, i.e. after a period of about 3 months and 10 days. During the course of search at the premises of the assessee he was questioned about the documents found from the premises of Mr. Mittulal which contain documents maintained by Mr. Sohan Raj Mehta. Based on the statement of Shri Sohan Raj Mehta on oath u/s 132(4) that the said amount of Rs.21 crores as mentioned in seized documents was paid by M/s Dhariwal Industries Ltd to the assessee through him as per instructions received from Sri Rasiklal M. Dhariwal/SriPrakash R. Dhariwal, a show cause notice was issued to the assessee. The assessee in response to the questionnaire flatly denied to have received any such amount and to have any connection with Shri Sohan Raj Mehta nor any business connection with M/s. Dhariwal Industries Ltd. in his personal capacity. The assessee also requested the AO to provide the copy of statement recorded u/s 132(4) during the course of search of Shri Sohan Raj Mehta, Shri Rasiklal M. Dhariwal and Prakash M. Dhariwal. The assessee also requested the AO to grant opportunity of cross examination of Shri Sohan Raj Mehta, Shri Rasiklal M. Dhariwal and Prakash M.Dhariwal. However, the AO was not convinced with the explanation given by the assessee and made addition in the hands of the assessee as undisclosed cash receipt. Before CIT(A) the assessee challenged the validity of the assessment on the ground that no incriminating documents were found from the assessee during the course of search from his custody, does not belong to the assessee and not in his hand writing. However, the Ld.CIT(A) also was not convinced with the arguments advanced by the assessee. So far as the validity of the assessment u/s.153A is concerned he held that the requirement of making assessment/reassessment u/s.153A has no relation with the nature of incriminating material found or not found in the course of search. Total income will include any kind of income and it cannot be restricted to undisclosed income or escaped income. In view of the above he dismissed the above contention of the assessee as misplaced and not tenable. The Ld.CIT(A) further held that the amount is without consideration and liable to tax under provisions of section 56(2)(vi)of the I.T. Act. Aggrieved with such order of the CIT(A) the assessee filed an appeal before ITAT by taking the following grounds:-

Grounds of Appeal

“The ground or grounds of appeal are without prejudice to one another.

1. a) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in not appreciating that the assessment order passed u/s. 143(3) r.w.s. 153A by the AO is without jurisdiction and bad in law as the jurisdiction u/s. 153A is vitiated.

b) The Id. CIT(A) failed to appreciate that neither any incriminating document nor any unaccounted asset or investment was found in the course of the search carried out at the premises of the Appellant.

2. a) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in confirming the addition of Rs.1,00,00,000/- made by the AO to the income of the Appellant on account of undisclosed cash receipts on the basis certain notings on papers seized from the third party without allowing any opportunity to cross examine the third party inspite of specific request for the same.

b) The Id. CIT(A) failed to appreciated that :-

(i) the seized papers relied upon by the AO were found from the possession of the third party,

(ii) the seized papers were not in the handwriting of the Appellant;

(iii) in recording statement u/s. 132(4) of the Appellant, it was explained in explicit terms that no cash was received by the Appellant from Shri Sohan Raj Mehta;

(iv) neither copy of such seized papers and statements of the third parties were provided to the Appellant nor any opportunity was allowed to the Appellant to cross examine those third parties;

(v) there was no business connection of the Appellant either with M/s.Dhariwal Industries Ltd. or Shri Sohan Raj Mehta; and

(vi) the assessment is completed contravening the principles of natural justice.

c. In reaching to the conclusion and confirming such addition the Ld.CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors.

Contention of the Assessee

The Ld. Counsel for the assessee strongly opposed the order of the CIT(A). Referring to the provisions of section 153A he submitted that the same is to be invoked for making an assessment of the person searched on the basis of the material found during the course of search on that person. Since the assessment for A.Y. 2006-07 was already completed u/s.143(3) prior to the search, therefore, in the course of assessment u/s.153A the scope should have been limited to the incriminating material found in the course of search on the assessee group. He submitted that if the material is found with some third party the assessment ought to be initiated u/s.153C which is a specific provision for such purposes. Therefore, on the basis of the incriminating material found with a third party, the addition cannot be made u/s.153A. The seized papers indicate payments to one Mr. Vinit and at a few papers the name Vinit Ranawat is mentioned. Referring to the decision of the ITAT, Ahmedabad Bench in the case of Shri Mushtafamia Sheikh he submitted that Shri Sohan Raj Mehta had retracted from the statement. During the course of survey on its premises nothing incriminating was found during the survey to indicate that the assessee has received the above amounts from Dhariwal Group. Therefore, it cannot be concluded that simply because the assessee’s name figures in the seized papers, he has received these amounts from Dhariwal group and that too as an income. Further, if such unaccounted money was received from Dhariwal Group then during the course of search on the assessee, some evidence would have been found in the form of loose papers or unaccounted assets, etc. However, no such things were found. Both these clearly indicate that there is no justification to hold that the assessee has received the payments from Dhariwal Group. Referring to Question No.34 he submitted that the authorized officer had termed the notings on the loosepapers as “short term advances given to the assessee”. Thus, if this sum is a short term advance the question of the same constituting income of the assessee does not arise. Referring to the reply given by Mr. Mehta the Ld. Counsel for the assessee submitted that Mr. Mehta has clarified that he has given the advances as per the instructions of Shri Dhariwal to the bearer of the chits. He has never identified the assessee. He submitted that when the persons were given the money on the basis of chits in that case the same might have been given to some other person. There may be so many people by name Mr. Vinit and therefore it does not mean that the assessee has received the amount from Mr. Mehta. Referring to the provisions of section 56 he submitted that the said provision can be applied only when the sum of money exceeding Rs.50,000/- or more is received without consideration by an individual from any person or persons therefore, applying the above provision, one has to prove directly that the money has been received. He submitted that the CIT(A) is confirming the addition because of the deeming provision on the basis of the loose paper found. Therefore, provisions of section 56(2)(vi) are not applicable to the facts of the present case. He accordingly submitted that no addition can be made in the hands of the assessee.

Contention of the Revenue

The Ld. Departmental Representative on the other hand strongly supported the order of the CIT(A). He submitted that the papers found from the residence of Mr. Mittulal which was minutely maintained by Shri Sohan Raj Mehta clearly indicates that assessee has received an amount of Rs. 21 crores from the Dhariwal group.

Held by Tribunal

The ITAT found force in the submission of the Ld. Counsel for the assessee that the search party during the course of search at the premises of the assessee has not found any evidence whatsoever to substantiate that the assessee has infact received any amount either from Mr. Sohan Raj Mehta or from Mr. Rasiklal Manikchand Dhariwal/Mr. Prakash M. Dhariwal or M/s. Dhariwal Industries Ltd. No unaccounted asset, investment or loose paper evidencing such huge receipt has been found. Further, it was found from the query raised during the course of search that the authorised officer has treated the same as “short term advance” given to the assessee. Therefore, the submission of the Ld. Counsel for the assessee that if the amount was ‘a short term advance’ the question of the same constituting income in the hands of the assessee do not arise. Further from the statement recorded during the search proceedings, it is seen that Mr. Sohan Raj Mehta has never identified the assessee. It is also an admitted fact that the request of the assessee to cross examine Mr. Sohan Raj Mehta was not granted on the ground that the same will not serve any purpose. The court further found that Mr. Rasiklal Manikchand Dhariwal in his statement recorded u/s.132(4) on 21-01-2010 in reply to Question No. 9, 11 and 12 has answered as “This is a signed chit in my handwriting dt…… wherein I have instructed Shri Vinit Ranawat to hand over an amount of Rs….”. Hence at one place the Department was treating the amount as short term advance by Mr. Rasiklal Manikchand Dhariwal to the assessee (Question No.34 to assessee u/s 132(4) on 20-01-2010). and at another place in his reply to Question Nos. 9, 11 and 12 recorded u/s.132(4) of the I.T. Act it has stated that he has instructed Mr. Vinit Ranawat to hand over the various amounts. Therefore, it is not clear as to whether the Assessing Officer is correct or the Investigation Wing at the time of examining the assessee are correct or the answer of Mr. Rasiklal Manikchand Dhariwal is correct. It is also an admitted fact that the papers were found with Mr. Sohan Raj Mehta at Bangalore. Therefore u/s 132(4A) they can be presumed to be true, genuine and correct only in the case of the searched person, i.e. Mr. Sohan Raj Mehta who has admitted that the papers belong to him. Therefore, we find force in the submission of the Ld. Counsel for the assessee that on the basis of the papers found with some third party addition cannot be made in the hands of the assessee particularly when there is no business connection between the assessee and that party.

It was further found that identical issue had come up before various Benches of the Tribunal on the basis of the notings of Mr.Sohan Raj Mehta found during the course of search wherein Ahmedabad Bench of the Tribunal in the case of Shri Mustafamiya H. Sheikh has observed as:-

7.9. Taking into account the submissions of the assessee, the stand of the AO, reasoning of the CIT (A) in sustaining the action of the AO and also in conformity with the rulings of the Hon’ble jurisdictional High Court (supra), we are of the considered view that that learned CIT (A) was not justified in sustaining the addition of Rs.57.5 lakhs made by the AO in the hands of the assessee for the following reasons:

(i) that the learned AO had solely depended upon the information received from the Investigation Wing of Pune;

(ii) that the AO had failed to substantiate the same with any credible documentary evidence to the effect that the assessee had indeed received the alleged cash payment of Rs.57.5 lakhs from Shri Sohanraj Mehta as the assessee had categorically pleaded before the AO that he was making purchases through Ambika Distributors who were the C & F Agents for Gujarat Region;

(iii) that the total unaccounted sales effected by Shri Sohanraj Mehta C& F of RMD Gutkha on behalf of Dhariwal Industries Limited for the period of April 2003 to Feb 2008 was Rs.345.72 crores (approx). The unaccounted income for the AY 2004-05 was arrived at Rs.40,88,32,514/-, the same was added substantively in the case of M/s. Dharival Industries Limited and concluded the assessment for the AY 2004-05 u/s 153A r.w.s. 143 (3) of the Act, dated 29.12.2011 by the ACIT, C.C. 1(1), Pune [Courtesy: P 231 – 238 of PB AR];

(iv) that once the alleged sum of Rs.57.5 lakhs was subjected to tax in the hands of Dhariwal Industries Limited, the same cannot be subjected to suffer further tax. This view has been fairly conceded by the CIT (A) “(On page 54) 2.27…….The appellant is right to the extent that no income can be taxed twice……”

(v) that the AO had candidly admitted that during the course of assessment proceeding itself the assessee had sought permission to cross examine Shri Sohanraj Mehta which was summarily rejected by taking refuge “…..Due to paucity of time, the cross examination could not be granted”

[Refer: Para 2.8 (Page 10) of the CIT (A)’s order].

This stand of the AO, to view it mildly, is against the spirit of judicial pronouncements;

(vi) that the AO had merely come to a conclusion based on a statement of a third party, without bringing any credible documentary evidence to the contrary on record to nail the assessee; &

(vii) No reliance can be placed on the statements of a third person whose premises were subjected to a search since he had retracted his own statement made earlier on oath and precisely the assessee has been denied to cross-examine him to bring out the truth.

7.9.1 For the above said reasons, we hereby hold that the addition made for Rs.57,50,000/- by the learned AO on account of undisclosed income, which was further sustained by the learned CIT(A) requires to be deleted and accordingly, we hereby direct the revenue to delete the same. Thus, ground No.1 raised by the assessee with respect to reopening of the assessment u/s 148 of the Act is dismissed and ground No.2 with respect to addition on account of undisclosed income is allowed in favour of the assessee.”

Similar observation in favour of the other appellant assessee is made by Bangalore Bench of the Tribunal in the case of DCIT Vs. H.S. Chandramouli, Lucknow Bench of the Tribunal in the case of M/s. Mohd. Ayub Mohd. Yakub Perfumers Pvt. Ltd, Lucknow Bench of the Tribunal in the case of DCIT Vs. Pawan Kumar Agarwal, Delhi Bench of the Tribunal in the case of M/s. Bhola Nath Radha Krishan, Pune Bench of the Tribunal in the case of Pradeep Amrutlal Runwal.

Since in the instant case the assessee from the very beginning has denied to have received any such payment from M/s. Dhariwal group through Mr. Sohan Raj Mehta and since no incriminating material was found from the residence of the assessee during the course of search and since the assessee is not dealing with M/s. Dhariwal group in his individual capacity, therefore, respectfully following the decisions cited above and in view of our reasonings given earlier, Tribunal was of considered opinion that no addition in the hands of the assessee can be made. Since it is held that the assessee has not received any amount, therefore, the question of taxing the same u/s 56(2)(vi) as held by CIT(A) does not arise. In this view of the matter, the order of the CIT(A) was set aside and the Assessing Officer was directed to delete the addition of Rs.1 crore for A.Y. 2006-07 and Rs. 20 crores for A.Y. 2007-08. Grounds raised by the assessee on this issue were accordingly allowed.

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