Case Law Details

Case Name : Smt. Sushila Suresh Malge Vs ACIT (ITAT Mumbai)
Appeal Number : IT(SS)A No.06/Mum/2012
Date of Judgement/Order : 20/07/2012
Related Assessment Year :
Courts : All ITAT (7309) ITAT Mumbai (2108)

It is very sad that AO without following the principles of natural justice and inspite of clear findings of the ITAT in the order dated 18.06.2010 has repeated the same orders as was done originally way back in 1998. Inspite of levying the cost of 5000/- on AO, which we were informed was paid to assessee, there is no change in the attitude of the Revenue with reference to assessees/assessments are concerned. By taking up the assessment at the fag end of the time barring period and by denying natural justice and not considering the evidence on record, assessees were forced to file appeals before the ITAT unnecessarily by incurring heavy cost of not only appeal fees but also engaging Counsels to defend the case. There should be an end to this sorry state of affairs.  We have considered the plea of the learned Counsel that the order is bad in law, hence to be quashed. We could have accepted the plea but what we notice is that AO has issued a show cause notice dated 22.12.2011 after supply of the statement to assessee which was contested in earlier two rounds. We find that there is no reply given to the particular show cause notice and there is no  reference to the letters filed by assessees earlier which should have been considered by AO in the re-assessment proceedings. Since AO did not have much time to complete the assessment nor assessee has placed all the facts in its correct perspective before AO, we are constrained to set aside the matter again with clear directions to AO so that he could complete the assessment according to the law and facts.

AO should not rely on statement under section 132(4) alone for making addition in the assessments. This issue was already considered twice by the ITAT when the orders were set aside earlier. As copy of the statement was given to the assessees, AO is directed to complete the assessment only on the basis of incriminating material if any, after considering assessee’s explanation with reference to the papers seized and transactions/investments found by the Department. In no case AO should make assessment only on the basis of 132(4) statements which stands modified/ withdrawn, unless there is corroborative evidence linking the statement with the undisclosed /unearthed incomes. We make it clear that in case AO repeats the same orders without examining the material on record, the orders will be quashed without any further consideration.

AO should examine the books of account placed on record vis-à-vis the seized material, bank statements and other material placed by assessee, so as to quantify any undisclosed income. There is already evidence on record that Smt. Sushila Malge has been filing the returns much before the search and they were scrutiny assessments in her case as well. Just because her affairs are being looked after by her husband, it does not mean that she is benami. In case AO has to hold that she is benami, it should be based on evidence and burden is on the Revenue. Unless there is evidence, no addition should be made in the hands of Shri Suresh Malge on mere conjectures, surmises and presumptions. These  aspects should be examined by AO and only when there is clear evidence/findings addition of income of Smt. Sushila Malge can be made in the hands of Shri Suresh Babu, otherwise they should be examined separately/ independently without getting prejudiced by earlier orders of AO i.e. AO should determine the undisclosed income separately in respective hands. Further, on the facts of the case we order costs to be paid to assessees. AO should pay the cost of  Rs. 20,000/- to Shri Suresh Babu Malge for making him come again in appellate proceedings. This amount was fixed keeping in view that assessee has paid Rs. 10,000/- as appellate fees. In the case of Smt. Sushila Malge, AO should pay an amount of Rs. 15,000/- as cost as she has paid an amount of .5,500/- as appellate fees in her appeal. These amounts should be paid within two months from the date of the order and Revenue is free to decide whether these amounts should be recovered from the officer(s) concerned. Since the orders are being approved by a senior officer in the rank of Commissioner of Income tax, we sincerely hope that the CIT also monitors these assessments and applies his mind while granting the approvals.

The re-assessment proceedings should be started immediately without any loss of time so that there are no complaints by assessees that principles of natural justice have not been fulfilled and assessees are not been given enough opportunity. Assessees are also directed to co-operate with AO and furnish all the details so that examination of the seized material and the explanation of assessee can be considered by AO. Assessees are also requested to remind AO/ CIT, if no action was taken by AO as directed above. With these directions/observations, the orders of AO dated 30.12.2011 are set aside to do afresh, after considering the material on record, making fresh enquiries if required and giving due opportunity to assessees. We again make it clear that orders will be quashed if AO repeats the additions in the same manner, as was done thrice earlier.

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

IT(SS)A No.05/Mum/2012

(Block Period: 1987-88 to 1997-98)

Smt. Sushila Suresh Malge  Vs. ACIT

IT(SS)A No.06/Mum/2012 – (Block Period: 1987-88 to 1997-98)

Shri Suresh Babu Ganpat  Vs. ACIT

Date of Pronouncement: 20/07/2012

ORDER

Per B. Ramakotaiah, A.M.

These two appeals are arising out of the block assessments framed in consequence of the search operations u/s 132 of the Act took against these two assessees on 13.7.1996. Though, the appeals are in respect of two difference assessees but as the facts are identical; the assessment passed by the A.O are also interlinked with each other and hence, both these appeals are disposed off by this common order.

2. The appeal in IT(SS)A 05/Mum/2012 in which the assessee has taken the following grounds:

“1. The learned Asstt.CIT erred in passing the order without providing sufficient and adequate opportunity of hearing to assessee as the copy of statement recorded was furnished only on 22/12/2011, further vide notice dt. 19/12/2011 received on 22/12/2011, AO asked assessee to furnish the details on 23/12/2011 thus providing only 1 day time.

2. The learned Asstt.CIT erred in passing the order dt. 30/12/2011 by merely copying the findings of the earlier orders dt. 31/7/1997 and dt. 26/12/2008 which was set aside by ITAT twice further AO failed to consider the submissions and details filed on 29/12/2011, the said facts shows that there was no independent application of mind by AO, therefore order is bad in law.

3. The learned Asstt.CIT (A) failed to appreciate that no assessment can be made on protective basis in the block assessment scheme, therefore, the assessment order is bad in law.

4. The learned Asstt. CIT (A) erred in treating assessee as benamidar of Shri Suresh Malge without appreciating that assessee herself is assessed to tax since last 10 years”.

3. The facts which reveal from the records are that in both these cases search and seizure operation u/s132 was carried on at the business and residential premises of these two assessees on 13.7.1996. Smt Sushila Suresh Malge is the spouse of Shri Suresh Babu Ganpat Malge. Further, survey action u/s 133(A) was also carried out in their business premises on 13.7.1996 and 17.7.1996. In consequence of the search operations, notices under section 1 58BC were issued to these assessees requiring them to file their returns of income for the block period from 1.4.1996 to 13.7.1996.

3.1 It appears that the assessees took time to file the block returns, but were regularly attending before the A.O and finally on 30.7.1997, the assessees filed their block returns declaring the undisclosed income at Rs.9,32,740/- and Rs. 5,54,380/- in respect of Shri Suresh Babu G Malge and Smt Sushila Suresh Malge respectively. The A.O has given the details in respect of their business activities in Para 18 to 22 of the assessment order.

3.2. It was alleged that the assessee had made huge investments in the building constructions and also in the film industry. During the course of search and seizure operations, statement of Shri Suresh Babu G Malge was recorded on 14.7.1996 u/s 132(4) of the Act. The reference of the said statement is made in para 43 of the original assessment. The A.O has noted that Shri Suresh Babu G Malge, in the statement given u/s 132(4) of the Act, has offered Rs. 50 lacs for himself and Rs. 1 crore on behalf of his wife Smt Sushila Suresh Malge as their undisclosed income. The A.O has reproduced the question no.20 and its answer given by Shri Suresh Babu G Malge which is as under:

“Question no.20 reads as under:

In view of the facts and circumstances of the basis of documents do you want to admit a concealment of income and evasion of tax for the period relevant to the current assessment year and last few years by you and your wife. Do you want to offer any additional income in respect of yourself and your wife voluntarily and prepared to pay the taxes accordingly in due course.

The reply of the assessee was as under:

I do not know exact position. I admit that there is concealment of income by myself and my wife of evasion of taxes. I do not know exact amount; however, considering all the facts and circumstances of the case, I am offering Rs. 50 lakhs for myself and Rs. 1 crore in my wife’s case without coercion, without torture, we will pay the taxes in due course and we shall not retract the offer under any condition. I keep my option open if anything on higher side, I shall offer my addition income in respect of myself and wife and pay taxes accordingly.”

3.3 The A.O has further noted that vide letter dated 17.7.1996 addressed to the DDI (Inv), Head Qtrs. Aaykar Bhawan, the assessee modified his statement/declaration which was given on 14.7.1996 by taking contention that in respect of the offer of the undisclosed income, the same should be modified to the extent of the evidence found during the course of search operation. The A.O has also noted that the assessee wrote a letter dated 30.7.96 to the ADIT (mnv), Head Qtrs. clarifying that his earlier letter dated 17.7.96 was not a retraction but only a clarification. The A.O has also reproduced the part of the letter in the assessment order. Finally, the A.O passed the assessment order by determining the total undisclosed income of the assessee at Rs. 1.50 crores and the same was treated as the income of Shri Suresh Babu G Malge and substantive assessment was made in his hand and in the case of Smt Sushila Suresh Malge, she was treated as benamidar of Suresh Babu G Malge and was assessed accordingly. The operative part of the assessment order reads as under:

“As already discussed in the above paras the assessee is not maintaining any books of accounts, nor does he have bills and vouchers for his expenses, as well as receipts for the payment and advanc3es received the profit and loss account as well as the balance sheet filed for the block period have been rejected as not being a true and complete reflection of the business activities of the assessee.

Further, the bank deposits and withdrawals both by cash as well as cheque cannot be verified because of want of books of accounts, specially the daily cash book. Thus, the undisclosed income cannot be estimated from the P&L account filed and therefore, the unaccounted income of 9,32, 740/- shown by Shri Suresh Malge and of 5,54,380 shown by Smt Sushila Malge cannot be accepted.

Looking into the totality offacts and circumstances of the case ie. the nature of the business and volume of turnover in the construction activity, land development, film production, film distribution etc., the amount surrendered by the assessee of Rs. 1.50 crore appears to be a very fair estimate of his own unaccounted  income, which he has arrived after considering all the facts and circumstances of his business.

Hence, the undisclosed income of the assessee as per the above discussion is taken at Rs. 1.50 crore. This unaccounted income includes the undisclosed income of Rs. 9,32,240/- shown by Shri Suresh Malge in his block return as well as the undisclosed income of 5,54,380 shown by Smt Sushila Malge in her block return, which has already discussed above is stated to be a benami of Shri Suresh Malge.

The total undisclosed income as discussed above is 1,50,00, 000/-“.

4. In sum and substance, final determination of the undisclosed income by the A.O was based on the income allegedly offered by the assessee on 14.7.96 in the statement recorded u/s 132(4) of the Act. However, these orders had chequered history.

4.1 Both these assessees had challenged the said assessment orders before the Tribunal by way of appeals being IT(SS)A No.170 and 171/Mum/1997. The main grievance of the assessees before the Tribunal was that the statement recorded by the search party was not supplied to the assessee despite their repeated requests and the A.O made the addition relying on the said statement. The Tribunal set aside the orders of the A.O in both these cases and restored the matter to his file with the direction to reframe assessment de-novo after supplying the copy of the statement and the evidences on which the A.O intended to rely for making the addition. The operative part of the order of the Tribunal dated 11.1.2008 was as under:

“2. During the course of hearing of the appeal, the ld counsel for the assessee has invited our attention the statement of the assessee Shri Suresh Babu Ganpat Malge was recorded during the course of the search and on the basis of which, the Assessing Officer had estimated a lumpsum income of Rs. 1,50,00,000/- in the hands of Suresh Babu Ganpat Malge, the husband of the other assessee Smt Sushila Suresh Malge without taking into account the fact that voluntary disclosure made by the assessee, was later on retracted. The Assessing Officer has also made an addition in the hands of other assessee Smt Sushila Suresh Malge on protective basis, on the basis of the statement of his husband Shri Suresh Babu Ganpat Malge. The ld counsel for the assessee further invited our attention to the fact that the statements recorded by the search party, were not supplied to the assessee despite his repeated requests and the Assessing Officer made addition relying upon the same. Even till date, the copies of the statements were not supplied. The ld counsel for the assessee has further submitted that in the light of these facts, the matter should be remanded back to the file of the Assessing Officer with a direction to supply the copy of the statement of Sri Suresh Baby Malge or other statement on which Assessing Officer intend to rely.

3. This proposition was not objected to by the ld DR.

4. Since both the parties have aggrieved for restoration of the matter to the file of the Assessing Officer for re-adjudication of the impugned issues afresh, we set aside the order of the Assessing Officer in both the cases and restore the matter to his file with a direction to frame the assessment de-novo after supplying the copy of the statement and the evidence on which Assessing Officer intend to rely for making an addition and after affording an opportunity of being heard to the assessee in the interest ofjustice”

5. The A.O passed the fresh assessment order u/s 158BC (c) r.w.s 254 of the Act on 26.12.2008 and again determined the total undisclosed income at Rs. 1.50 crores. The operative part of the order is as under:

“36. Looking into the totality of facts and circumstances of the case i.e. the nature of the business and volume of turnover, in the construction activity, land development, film production, film distribution etc., the amount surrendered by the assessee of Rs. 1.50 crore appears to be a very fair estimate of his own unaccounted income, which he has arrived after considering all the facts and circumstances of his business.

37. Hence, the undisclosed income of the assessee as per the above discussion is taken at Rs. 1.50 crore. This unaccounted income includes the undisclosed income of Rs. 9,32,740/- shown by Shri Suresh Malge in his block return as well as the undisclosed income of Rs. 5,54,880/- shown by Smt Sushila Malge in her block return which has already discussed above is stated to be a benami of Shri Suresh Malge.”

6. Since, the directions of ITAT was not followed in re-assessment proceedings and the statement crucial for deciding the addition was not provided in spite of directions given, the Hon’ble ITAT vide the orders in IT(SS)A Nos. 8 & 9/Mum/2009 has restored the matter with certain observations particularly about the gross violation principles of natural justice and levying a cost of 5000/ – upon AO, for completing it de novo.

6. Consequent to these orders of the ITAT, AO took upon the assessment as late as 22.12.2011, gave opportunity to reply by posting the case on 23.12.2011 and allowed inspection on 26.12.2011 and considering the letter dated 29.12.2011 filed by assessee without mentioning the same in the order, repeated the same order as passed originally with the same conclusions treating assessee Shri Suresh Malge as benamidar of his wife Smt. Sushila Malge and assessed the income on the basis of statement under section 132(4) at 1,50,00,000/-, even though the said statement was stands modified/withdrawn. Therefore, assessee is again in appeal in the third round before us.

7. The learned Counsel reiterated the same submissions made earlier before the ITAT in the 2nd round that AO has not considered the contentions and repeated the additions without application of mind and pleaded for quashing the assessment order. The plea was already made earlier and recorded by the ITAT vide order Nos. IT(SS)A 8 & 9/Mum/2009 vide Para 7.2. It was his submission that AO has not only violated the principles of natural justice by not allowing assessee any opportunity to reply, but also repeated the same additions, which was subject matter of appeal twice without examining the issue on merits, even though the assessment was set aside de novo for considering the evidence seized and also filed by assessee. He referred to the finding of the ITAT vide Para 9 in the above referred order admittedly, ‘determination of undisclosed income is not based on the analysis of the evidence seized in the form of documents and other things/ records during the course of search operations, though lengthy discussions has been made by AO in respect of the business affairs and investments of both these assessees’. It was his contention that if AO were to make assessment, merely on the basis of the statement recorded under section 132(4) without considering the evidences on record, no addition can be made as the statement was not supported by any other documents seized or incriminating material. Not only that the statement indicates disclosure of 50.00 lakhs in the hands of assessee Shri Suresh Malge and 1 .00 crore in the hands of the wife from whom no statement was recorded under section 132(4), no addition can be made of 1 ,50,00,000/- as substantive addition in the hands of Shri Suresh Babu Malge, protective in the hands of Smt. Sushila. Even on merits, it was submitted that assessee, Smt sushila was assessed already and referred to Para 5.17 of the assessment order to submit that even as early as AY 1991-92 Smt. Sushila was assessed under section 143(3), the fact of which was accepted by AO. Therefore, holding her as benamidar is not correct. He relied on the orders of the Hon’ble Delhi High Court in the case of S.K. Bahadur vs. Union of India, 345 ITR 95 to submit that the addition of income from assets belonging to the wife of assessee was not justified in the hands of assessee. The findings given by AO are not based on evidence and but only on presumptions, surmises and conjectures, which cannot be upheld. The burden is on the Revenue to prove that Smt. Sushila Malge is a benamidar of husband and the burden was not discharged. He referred the copy of the statement placed in paper book in page No.35 to submit that she owned up her business and income. Therefore treating as benamidar of husband is not correct on the facts of the case. It was his submission that since AO did not pass the assessment on the basis of record available, inspite of setting aside twice with specific directions, the order is to be considered bad in law and should be quashed.

8. The learned DR in reply, however, while admitting that due to administrative reasons the assessment was taken up at the fag end of the period however, submitted that AO has utmost respect to the orders of the ITAT and as directed by the ITAT copy of the statement was given to assessee and accordingly order was passed. He relied on the findings / observations in the assessment order that AO has listed out by the investment made by assessee for which proper explanation was not given and in the absence of the explanation, was bound to complete the assessment on the basis of the statements alone.

9. We have considered the issue. We must note that it is very sad that AO without following the principles of natural justice and inspite of clear findings of the ITAT in the order dated 18.06.2010 has repeated the same orders as was done originally way back in 1998. Inspite of levying the cost of 5000/- on AO, which we were informed was paid to assessee, there is no change in the attitude of the Revenue with reference to assessees/assessments are concerned. By taking up the assessment at the fag end of the time barring period and by denying natural justice and not considering the evidence on record, assessees were forced to file appeals before the ITAT unnecessarily by incurring heavy cost of not only appeal fees but also engaging Counsels to defend the case. There should be an end to this sorry state of affairs.

9.1. We have considered the plea of the learned Counsel that the order is bad in law, hence to be quashed. We could have accepted the plea but what we notice is that AO has issued a show cause notice dated 22.12.2011 after supply of the statement to assessee which was contested in earlier two rounds. We find that there is no reply given to the particular show cause notice and there is no  reference to the letters filed by assessees earlier which should have been considered by AO in the re-assessment proceedings. Since AO did not have much time to complete the assessment nor assessee has placed all the facts in its correct perspective before AO, we are constrained to set aside the matter again with clear directions to AO so that he could complete the assessment according to the law and facts.

9.2 AO should not rely on statement under section 132(4) alone for making addition in the assessments. This issue was already considered twice by the ITAT when the orders were set aside earlier. As copy of the statement was given to the assessees, AO is directed to complete the assessment only on the basis of incriminating material if any, after considering assessee’s explanation with reference to the papers seized and transactions/investments found by the Department. In no case AO should make assessment only on the basis of 132(4) statements which stands modified/ withdrawn, unless there is corroborative evidence linking the statement with the undisclosed /unearthed incomes. We make it clear that in case AO repeats the same orders without examining the material on record, the orders will be quashed without any further consideration.

9.3 AO should examine the books of account placed on record vis-à-vis the seized material, bank statements and other material placed by assessee, so as to quantify any undisclosed income.

9.4 There is already evidence on record that Smt. Sushila Malge has been filing the returns much before the search and they were scrutiny assessments in her case as well. Just because her affairs are being looked after by her husband, it does not mean that she is benami. In case AO has to hold that she is benami, it should be based on evidence and burden is on the Revenue. Unless there is evidence, no addition should be made in the hands of Shri Suresh Malge on mere conjectures, surmises and presumptions. These  aspects should be examined by AO and only when there is clear evidence/findings addition of income of Smt. Sushila Malge can be made in the hands of Shri Suresh Babu, otherwise they should be examined separately/ independently without getting prejudiced by earlier orders of AO i.e. AO should determine the undisclosed income separately in respective hands.

9.5 Further, on the facts of the case we order costs to be paid to assessees. AO should pay the cost of  Rs. 20,000/- to Shri Suresh Babu Malge for making him come again in appellate proceedings. This amount was fixed keeping in view that assessee has paid Rs. 10,000/- as appellate fees. In the case of Smt. Sushila Malge, AO should pay an amount of Rs. 15,000/- as cost as she has paid an amount of .5,500/- as appellate fees in her appeal. These amounts should be paid within two months from the date of the order and Revenue is free to decide whether these amounts should be recovered from the officer(s) concerned. Since the orders are being approved by a senior officer in the rank of Commissioner of Income tax, we sincerely hope that the CIT also monitors these assessments and applies his mind while granting the approvals.

9.6 The re-assessment proceedings should be started immediately without any loss of time so that there are no complaints by assessees that principles of natural justice have not been fulfilled and assessees are not been given enough opportunity.

9.7 Assessees are also directed to co-operate with AO and furnish all the details so that examination of the seized material and the explanation of assessee can be considered by AO. Assessees are also requested to remind AO/ CIT, if no action was taken by AO as directed above.

10. With these directions/observations, the orders of AO dated 30.12.2011 are set aside to do afresh, after considering the material on record, making fresh enquiries if required and giving due opportunity to assessees. We again make it clear that orders will be quashed if AO repeats the additions in the same manner, as was done thrice earlier.

11. In the result both the appeals are considered allowed for statistical purposes.

Order pronounced in the open court on 20th July, 2012.

NF

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