For making additions, FIR is contemporaneous evidence and the contents of the same cannot be ignored in the light of self-serving documents

DCIT Vs Mr Sanjeev R Kanwar (ITAT Mumbai)- For making additions, FIR is contemporaneous evidence and the contents of the same cannot be ignored in the light of self-serving documents. Human conduct and human probabilities are to be given weight age over the self generated evidences.

The learned counsel for the assessee has cited the judgement of the Supreme Court in the case of George & Others Vs. State of Kerala & Another, cited supra to contend that FIR is not substantive evidence and cannot be relied upon and that it only requires the police officer to carry out  investigation. In the present case, however, the question is whether the assessee who has filed the FIR on  the basis that he and his business associates had advanced Rs. 5 crores in cash to Mr. Amit Singh Gill can turn around and say that the amount advanced was not more than Rs. 1,87,50,000/-. In the aforesaid judgement, it has been held that FIR is not substantive evidence unless admitted under section 32(1) of the Evidence Act and can be used to corroborate or contradict the maker thereof.  What the departmental authorities have done in the present case is to contradict the assessee’s  version that he paid only Rs. 1,87,50,000/- through the two companies to Mr. Amit Singh Gill by  relying on the FIR in which he had stated that he paid Rs. 5 crores in cash to Mr. Amit Singh Gill. The conduct of the Assessing Officer  is  not  in  any  manner  contrary  to  the judgement cited above. In the result we reverse the decision of the CIT(A) and restore the addition of Rs. 3,12,50,000/-. The appeal of the department is allowed.

IN THE INCOME TAX APPELLATE TRIBUNAL

‘E’ BENCH, MUMBAI.

I.T.A. No. 5271/Mum/2009

(Assessment Year : 2002- 03)

The Deputy Commissioner of Income Tax Vs.   Sanjeev R.Kanwar,

O R D E R

Per R.V.Easwar, President: The brief facts giving rise to the appeal are these. The assessee, an  individual, lodged an FIR with the Anti-extortion cell, Mumbai on 7th October, 2002 stating that he had given, along with his business associates, a sum of Rs. 5  crores in cash to one Mr. Amit  Gill who  was his cousin’s husband on the understanding that the money will be Used to make super-normal profits by buying chemicals from an insurance company at cheap rates and selling them at very high rates due to demand for the same. The assessee appears to have been  told by Mr.  Amit  Gill  that  the chemicals were stored in a ship off the seas of Mumbai and that the ship had sunk resulting in the  insurance company taking over, the stock of chemicals which it  was selling at very cheap rates. Due to  his close familiarity with Mr. Amit Gill and taken in by Gill’s high life-style the assessee believed his  version and as per the FIR advanced  the aforesaid amount with  the expectation that  it will bring him super-normal profits. Soon the assessee realized that the promise made by Mr. Gill was hollow and  that no returns were forthcoming. After persistent demands, cheques for Rs. 1,75,50,000/- were given by Mr. Gill plus a profit cheque for Rs. 50,00,000/- (as a confidence measure) and predictably they bounced. The assessee naturally started pestering Mr. Amit Gill for the return of the money but  nothing happened. Instead, he started receiving threat calls from abroad. He recorded those calls in which one Sultan threatened to kill him if he continued pestering Mr. Amit Gill or his wife for the return of the money. This was in August, 2002. Fearing for his life, the assessee lodged the FIR. A copy of the same is at page nos. 266 to 276 of the paper book filed by the assessee.

2. Acting on a tax evasion petition the investigation wing of the income-tax department issued notice  u/s.131 to the assessee and recorded a statement from him on 22.12.2004. A copy of the statement is placed at page no. 257 of the paper book. These proceedings were taken apparently on the footing that the assessee had advanced a sum of Rs. 5 crores in cash to Mr. Amit Gill and the purpose of the  inquiry was to seek the source of the same from the assessee. In the statement the assessee denied  that he advanced Rs. 5 crores to Mr. Amit Gill and stated that sum of Rs. 1,54,50,000/- was advanced  by cheques (on various dates) by M/s. Upasana Resources Pvt. Ltd. and another sum of Rs. 33,00,000/- was advanced by cheques (on  various  dates) by  M/s. Tao Builders and Developers Pvt. Ltd. Both these are companies in which  the assessee was a director. It was stated by the  assessee  that only a sum of Rs. 1,87,50,000/- (aggregate of the above) was given to Mr. Amit Singh Gill and  that too  by cheques. When asked as to why he had stated in the FIR that he had advanced Rs.5  crores in cash, he explained that Mr. Amit Gill had  only stated that the amount would soon be worth Rs. 5 crores and that the FIR mentioned this figure which included the expected or anticipated profits also. He stoutly denied that anything over and above the sum of Rs. 1,87,50,000/- was advanced to Mr. Amit Gill. We shall refer to this statement in some detail a little later.

3. The assessee had filed a return declaring total income of Rs. 6,59,037/-on 31.7.2002. This consisted of salary income as director and profits from the business as also income from other source. The  return seems to have been processed. However, apparently based on the tax evasion petition, the assessment was reopened by issue of notice under section 148 of the Income Tax Act on 7.7.2006. In  response thereto the assessee requested the Assessing Officer to treat the return filed earlier as a  return pursuant to the notice. In the course of the assessment proceedings the Assessing Officer  issued notice under section 143(2) which, inter-alia, asked the assessee about the transactions with Mr. Amit Singh  Gill. The assessee, according to the Assessing Officer, was only able to produce details  and justification for  Rs. 1,87,50,000/- paid to Mr. Amit Singh Gill and in respect of the balance of Rs. 3,12,50,000/-, he could not produce any evidence for the source. The Assessing Officer thereupon called the assessee  to produce Mr. Amit Singh Gill for examination. In fact, the Assessing Officer  seems to have issued at least three requisitions for producing Mr. Amit Singh Gill. However, the  assessee could not produce him. However, a Memorandum of Understanding dated 20th February, 2006 (pages 72 to 83) seems to have been filed before the  Assessing  Officer. This was entered into between Tao Builders and Developers Pvt. Ltd. through the assessee who was its director and Mr.  Amit Singh Gill. The Memorandum of Understanding narrated that Mr. Amit Singh Gill had made various payments by cheques to the assessee by way of return of  the monies taken by him, that the cheques had bounced and proceedings under section 138 of the Negotiable Instruments Act, 1973 were pending, that the entire matter was being settled by payment of Rs. 33 lakhs by Mr. Amit Singh Gill to the aforesaid company and further that all the cases pending before the Magistrate court at the  instance of the assessee shall be withdrawn. A similar Memorandum of Understanding was entered  into between Upasana Resources Pvt. Ltd. through the assessee who was its director and Mr. Amit Singh Gill on the same day. The terms and conditions were similar to the other memorandum of  understanding except that in this case Mr. Amit Singh Gill was required to pay Rs. 1,42,00,000/- to  the company. A third Memorandum of Understanding was entered into again on the same day between Upasana Resources Pvt. Ltd and Mrs. Tanushka Amit Gill, the wife of Mr. Amit Singh Gill for return by her of Rs. 25  lakhs to the company, the other terms and conditions being the same to the other two memorandum of understandings.

4. The Assessing Officer however refused to believe that the assessee paid anything less than Rs. 5 crores to Mr. Amit Singh Gill. He did not accept the assessee’s version that he paid only Rs. 1,87,50,000/- to Mr. Amit Singh Gill. The assessee would appear to have requested the Assessing  Officer to issue summons to Amit Gill which request was turned down as a ploy to delay the further  proceedings. The Assessing Officer however deputed his inspector to verify the antecedents of Mr. Amit Singh Gill in the address furnished by the assessee. The inspector reported that he could not serve the summons on Mr. Amit Singh Gill because on inquiry he found tha  Mr. Amit Singh Gill was not staying in the address given by the  assessee. In these circumstances, the Assessing Officer held  that the assessee could not  adduce satisfactory explanation  for  the nature and source of the amount of Rs. 3,12,50,000/-. He  added the same to the assessee’s income under section 69A of the Act.

5. It would appear that reference to section 69A is not appropriate and the  appropriate section to be referred to should be section 69 which speaks of investments made by the assessee during the relevant previous year which are not recorded in the books of account maintained by the assessee and for which the assessee offers no explanation about the nature and source.

6. The  assessee  appealed to the CIT(A) and took up several contentions including the validity of the reassessment proceedings on the ground of non-furnishing of the reasons recorded for reopening the assessment. The  CIT(A) upheld the validity  of  the  reassessment proceedings  against  which there  is no appeal filed by the assessee before us. As regards the merits of the addition of Rs. 3,12,50,000/- the assessee, apart from reiterating the submissions before the Assessing Officer, also filed an  affidavit from Mr. Amit Singh Gill as additional evidence under Rule 46A  of  the  Income Tax Rules. A copy of the affidavit is placed at pages 286 to 288 of the paper book. It is styled as “Affidavit cum Undertaking”. In  this affidavit, Amit Gill stated that  between  December, 2002 and March, 2003 he had taken Rs. 1,75,50,000/-from Upasana Resources Pvt. Ltd. and Tao Builders & Developers Pvt. Ltd. excluding a sum of Rs. 12  lakhs taken by him earlier as loan which was also immediately returned. The amount of  Rs.1,75,50,000/- was described as “business  loans/ advances”. Mr. Amit Singh Gill  further stated in the affidavit due to business problems he was unable to repay the amount and the cheques issued by him also bounced. He thereafter issued fresh cheques for Rs. 1,75,50,000/- and another cheque for Rs. 50 lakhs as lump sum profit on the transaction. These cheques  also bounced. He further proceeded to state that he wrongly represented to the assessee he had invested the money in purchasing some chemicals from capsized ship through an insurance company in which the assessee’s companies would stand to make super-normal profits since the chemicals were being sold at very cheap rates. According to him, such representations were made to the assessee in order to maintain his standing and to buy further time. He had also represented to the assessee at various times that the investment in the chemicals had grown or accumulated to Rs. 4 to 5 crores. The  affidavit further states that the assessee filed an FIR in October, 2003 in order to settle the dispute  including the dispute relating to cheque bouncing, he settled  the cases in 2006 and repaid to Upasana  Resources Pvt. Ltd. and Tao Builders a sum of Rs. 2 crores in full and final settlement with the  condition that all proceedings including those under section 138 of the Negotiable Instruments Act  and all criminal cases filed by the crime branch should be withdrawn. He reiterated that all the  allegations made by the assessee against him are false and were made only with a view to recover the  amounts advanced by the two companies in which the assessee was a director. He reiterated that he did not take any amount over and above what has been stated in the affidavit and that “all the balance money claimed was based on my promise of profits that were never really there”. He also submitted  evidence along with affidavit regarding the nature and source of the amount paid by him to theassessee.

7. The affidavit was received in evidence by the CIT(A). A letter dated 20th January, 2009 was written by the CIT(A) to the ACIT, which is reproduced below:-

“During the course of the appellate proceedings in the case of the above assessee for the assessment year 2002- 03 the authorized  representative of the appellant has  filed additional  evidence under  Rule 46A. The written submissions along with paper book are forwarded to you for your comments/ objections, if any. You are therefore requested to send a report in the matter by 10.02.2009 positively.”

Thereafter, in para 9.4 of his order, the CIT(A) refers to the fact that Mr. Amit Singh Gill was produced before the Assessing Officer on 25.02.2009 in the course of the remand proceedings and he was examined on oath by the Assessing Officer and that in the said statement Mr. Amit Singh Gill has clearly mentioned that a sum of Rs.1,87,50,000/- alone has been advanced to him by the assessee.

8. The Assessing Officer’s remand report has also been referred to by the CIT(A) in para 9.5 of his  order. According to this paragraph the Assessing Officer had confirmed that Amit Gill was produced  before him for examination and that his statement was recorded in the course of the remand proceedings in which he has confirmed that only Rs. 1,87,50,000/- was paid to him by the assessee. The Assessing Officer, according to the above paragraph, also appears to have stated in the remand  report that according to the memorandum of understanding Amit Gill had agreed to return Rs. 2.25  lakhs to the assessee  but eventually paid only Rs. 2  crores and therefore he was liable to account for the full amount of Rs. 2,25,00,000/-. The Assessing Officer also stated that interest @ 18% was to be paid for the delay and therefore this amount also needs to be added to the total income. Having said this, he stated that the issue may be decided on merits.

9. After going through the remand report and the submissions of the assessee, the CIT(A) held that as  per the statement recorded by the Assessing Officer from Amit Gill in the course of the remand proceedings, the assessee had advanced only Rs. 1,87,50,000/- to him through two companies in which the assessee was a director. The CIT(A) further observed that the assessee has been continuously providing the details and the explanation before the Assessing  Officer. According to him, Amit Gill repaid about Rs. 25 lakhs during the financial year ended  31.03.2002 and this, along with the amount of Rs. 12  lakhs returned immediately after taking the advance of Rs. 1,87,50,000/-, came to Rs. 37,50,000/-, which if deducted from the amount advanced, left a balance of Rs. 1,50,00,000/- as outstanding from Amit Gill.  In  the assessment year 2003-04 the said amount was written off as bad debts in the books of Upasana Resources Pvt. Ltd. and Tao. The bad debts claimed had been  allowed by the Assessing Officer assessing those companies under section 143(3) of the Act. The CIT(A) referred to the order of the Kolkata Bench of the Tribunal dated 25.05.2007 in the case of the aforesaid two companies in which their claim of bad debt has been accepted by the Tribunal. According to the CIT(A) Amit Gill just gave assurance and promise that the investment of Rs. 1,87,50,000/- would grow to Rs. 5 crores. When he was unable to return even this amount and the cheques  issued by him also bounced, he entered into a settlement or understanding with Upasana Resources Pvt. Ltd. and Tao Builders and ultimately paid Rs. 2 crores as full and final settlement, subject to the withdrawal of all the cases against him. Apart from these facts, the CIT(A) also referred to the remand report submitted by the Assessing Officer and held that the total amount received back by the assessee was Rs. 2,25,50,000/- but only a sum of Rs. 2 crores was received under the memorandum of understanding because the balance of Rs. 25,50,000/- had been returned by Amit Gill even earlier to entering into the memorandum of understanding. As regards the Assessing Officer’s reference to the interest on the amount is concerned, the CIT(A)  held that since  the  assessee has already received the said amount and offered the same to tax there is no need to levy interest on the same nor was any further interest recovered by the  assessee. In this view of the matter, the  CIT(A) deleted the addition of Rs. 3,12,50,000/- from the assessment.

10. It is against the aforesaid decision of the CIT(A) that the revenue has preferred an appeal before the Tribunal.

11.  The  contention of  Mr.  Hemant  Lal,  the  learned  CIT  DR  is that it is the assessee, who filed an  FIR before the anti-extortion cell of the police department in Mumbai claiming that he had paid Rs. 5 crores in cash to Amit Gill and that the FIR should be taken as contemporaneous evidence and the later developments such as memorandum of understanding etc. should not be taken into account as they were all the result of afterthought. He submitted that taking all the facts into consideration it cannot be believed that the assessee did not invest Rs. 5 crores with Amit Gill and that he invested only Rs. 1,87,50,000/- through the two companies expecting Amit Gill to return Rs. 5 crores, the  difference of Rs. 3,12,50,000/- representing super normal profits. According to Mr. Lal  the story that Amit Gill only promised Rs. 5 crores in return for Rs. 1,87,50,000/- is unbelievable. He submitted that the CIT(A) has misread and misappreciated the evidence and the conduct of the parties and has taken a view which is wholly untenable and contrary to the normal course of human conduct and probabilities. He strongly relied on the judgement of the Supreme Court in the case of Sumati Dayal, 214 ITR 801. He contended that the assessment order should be restored.

12. On the other hand, the learned counsel for the assessee submitted that the memorandum of  understanding had been entered into even before the issue of notice under section 148 which means  that the memorandum of understanding was not an afterthought. He drew our attention to the  assessee’s statement dated 22.12.2004  made on oath under section 131 in response to  the summons  dated 17.12.2004 and pointed out that in this statement itself the assessee has clearly explained in answer to question no. 5 as to why he stated in the FIR that he paid Rs. 5 crores to Amit Gill. The  learned counsel  for  the assessee  further pointed out that Amit Gill appeared before the Assessing  Officer for the first time during the remand proceedings and confirmed that he received only Rs. 1,87,50,000/-. He had also filed an affidavit earlier before the CIT(A) which was taken on record by  the CIT(A) as additional evidence under Rule 46A. According to the learned counsel, the statement  made by Amit Gill in the course of the remand proceedings which confirms his earlier affidavit is material evidence on the basis of which the CIT(A) has come to the conclusion that nothing more than Rs. 1,87,50,000/- had been paid to him by the assessee. Even the remand report of the Assessing  Officer does not challenge the veracity of the statement of Amit Gill. According to the learned counsel for the assessee, the Assessing Officer has wrongly interpreted the FIR and concluded that the  assessee has advanced  Rs. 5  crores  to Amit  Gill, overlooking the assessee’s answer to question  no. 5  in the statement recorded under section 131. The Assessing Officer, according to the learned counsel,  made the addition only on the ground that Amit Gill could not be produced before him and that the addition was not based on the statement made by the assessee in the FIR. When the Assessing Officer was able to examine Amit Gill in the course of the remand proceedings and when Amit Gill also stated  before him that he received only Rs. 1,87,50,000/- from the two companies, there is no scope for further doubt. He submitted that the statement made by the assessee under section 131 on oath as also before the Assessing Officer in the course of the remand proceedings have more evidentiary value than the FIR filed before the police authorities by  the assessee. He cited the judgement to the Supreme  Court in George & Others Vs. State of Kerala and Another AIR (1998) SC 1376 and relying on the observations at paragraph 30 of the judgement submitted that the FIR is limited to investigation by police and is not substantive evidence. He also drew our attention to section 154 of the Code of Criminal Procedure, 1973 which says that the first information given by any person is for the  purpose of carrying out further investigation by the police officer and is not conclusive. He also  submitted that in the present case the assessee filed FIR only because of threat calls received by him allegedly at the instance of Amit Gill. The learned counsel for the assessee also drew our attention to the fact that the FIR was lodged in the name of the assessee as director of the two companies namely Upasana Resources Pvt. Ltd. and Tao and not in his individual name. He thus contended that the order of the CIT(A) requires no interference.

13. In his reply, the learned CIT DR put forth the following submissions:-

(a) The FIR is not  lodged in the name of the company. As seen from column 6 of the FIR, it has been lodged by the assessee only. The reference to the companies, if there is such reference, is only descriptive.

(b) Later statement of the assessee that Amit Gill had only stated that the initial investment had swelled to Rs. 5 crores is only a cover up affair or an afterthought and should not be believed since it contradicts the FIR.

(c) The Assessing Officer ought not to have exceeded the directions of the CIT(A) which were only to comment or object to the additional evidence adduced by the assessee. He was wrong in recording the statement from Amit Gill in the course of the remand proceedings in the absence of any such directions issued by the CIT(A).

(d) No reasons have been recorded by the CIT(A) for admitting the affidavit of Amit Gill.

(e) There is no evidence to show that Amit Gill promised to return to the assessee a sum of Rs. 5  crores including super-normal profits on the initial investments of Rs. 1,87,50,000/-. This is only a  later thought to explain away the case made out by the Assessing Officer.

14. We have carefully considered the facts and the rival contentions. We are unable to uphold the decision of the CIT(A). As the facts show, it is the assessee who filed the FIR with the Anti-Extortion Cell in Mumbai. It was filed on 7.10.2002. As pointed out on behalf of the revenue, it was not filed by the two companies in  which the assessee was a director, but was filed by the assessee himself as seen from column 6(a) of the copy of the FIR placed at page 269 of the  paper book. An English translation of the FIR has also bee  filed at pages 266 to 268. Therein the assessee has stated the circumstances under which he reposed faith and trust on Amit Gill. Amit Gill had married the assessee’s cousin by  name Tanushka. They were leading a high lifestyle. They had represented to the assessee that he was the Indian representative of a Minister of Trade and Finance of Oman and was looking after his business interests in India. He had also borrowed Rs. 12 lakhs from the assessee for the purpose of  buying property for Rs. 2.25 crores in Mumbai. The money had  been returned  to  the  assessee. This also enhanced the confidence which the assessee had in Amit Gill. The FIR further states that Amit Gill thereafter came to the assessee with the proposal for making super-normal profits by selling chemicals taken out of a capsized ship. According to the FIR between January, 2002 and March, 2002, the assessee and businessmen known to him/ business colleagues collectively gave Rs. 5 crores in cash to Amit Gill. The FIR further states that Amit Gill had given a confirmation letter as well as guarantee letter for the same and his wife was also assuring the assessee of getting heavy profits from the sale of  chemicals. More importantly the FIR states that on 27.04.2002, when the assessee first started getting doubt about the claims of Amit Gill and his wife, Amit Gill gave it in writing to the assessee “that he has taken Rs. 5 crores from him and shall  also return it to him and as a guarantee, he told that he will give him his flat valuing Rs. 2 crores”. Thus not only had Amit Gill orally assured the assessee about  the return of the  money, he had also given in writing to the assessee in which he had mentioned that  he  has taken Rs.5 crores from the assessee which he will return. In the FIR the assessee even stated  that he found later that the letterheads in which Amit Gill gave the confirmation letters belong to non-existent companies. It is difficult to believe that Amit Gill would have stated in writing that he  received Rs. 5 crores from the assessee unless it was true. In fact when the FIR was lodged, it was a contemporaneous and first act on the part of the assessee and when he stated Amit Gill had even acknowledged in writing on 27.04.2002 that he has taken Rs. 5 crores from the assessee and will return it and had further stated that he will  give his flat as a guarantee, that must be taken to be a true statement. The assessee has also later in  the FIR categorically stated that Amit Gill and Tanuska Gill “with the common intention have conspired against him and have cheated for Rs. 5  crores to myself  and my business colleagues”

It is nobody’s case that apart from the assessee and the two companies in which he was director, anybody else’s money was involved in the transaction. It has been established on the basis of the accounts as well as the statement given by the assessee under section 131 of the Act before the investigation wing of the department that Upasana Resources Pvt. Ltd. and Tao had given Rs. 1,87,50,000/- to Amit Gill by cheques. Since the total amount mentioned in the FIR is Rs. 5 crores, it is a very fair and reasonable inference that the balance of Rs. 3,12,50,000/- has come from the assessee and that too in cash.

15. The argument of the learned counsel for the assessee however is that FIR does not have any evidentiary value and it has been clarified by the assessee in the statement given before the Assessing  Officer under section 131 of the Act on 22.12.2004 (page 257 of the paper book). We have carefully gone through this statement to which we have earlier also referred to while narrating the arguments  of the assessee. It must be remembered that this statement was given by the assessee in December, 2004, more than two years after the FIR was  lodged. The assessee was quite aware that he has been summoned under section 131 of the Act  only for the  purpose of explaining the transactions with Amit Gill. This is confirmed by the notice dated 27.10.2004 issued by the Assistant Director of Income Tax (Investigation) Unit  II(3), Mumbai, copy of which is placed at pages 255 & 256 of  the  paper book. In this letter the assessee, inter-alia, has been called upon to explain the mode and source of the  payments aggregating to Rs. 5 crores made to Amit Gill between January and March, 2002 and also to furnish the copies of the bank statements reflecting these payments. Apparently it was inconvenient  for the assessee to explain the nature and source of the amount of Rs. 5 crores which according  to  the  FIR alleged by him was paid by him to Amit Gill. Since Rs. 1,87,50,000/- out of the sum of Rs. 5  crores had been paid by the two companies  in which he was a director by cheques, he  had  to  own up to the same, but it was convenient, nay, necessary for him to deny that anything more was paid to Amit Gill. But then he had to find an answer to question no. 5 posed by the Assistant Director of Income Tax  by which  he  was  confronted with the FIR in which he  had  stated that  he  paid  Rs. 5  crores to Amit Gill. It is not as if he was surprised by this question because even in the letter he had been  informed that he should explain the mode and source of the payment of Rs. 5  crores.  The  assessee therefore came up with the story that nothing more than the cheque amount was paid to Amit Gill and to support the same he was compelled to tout the theory of super-normal profits being promised to be paid by Amit Gill  on the investment of Rs. 1,87,50,000/-. The assessee therefore had to answer that Amit Gill “kept promising him that all the chemicals were with him and I had nothing to worry about, as my investments  were worth much more than Rs. 5  crores. He has always continuously reiterated  that I had nothing to worry and he would return him Rs.5 crores as all the goods were in his possession”. He further stated  that since Amit Gill had promised him that his original investment had grown to Rs. 5 crores he had lodged the FIR  for the  said amount. This is a facile explanation which cannot be believed. We may recall that even in the FIR the assessee had stated that Amit Gill had given  it to him in writing on 27.04.2002 that he has taken Rs. 5 crores  from the assessee and shall return it to him. There was nothing which could have prevented the assessee from mentioning in the FIR that he had advanced Rs. 1,87,50,000/-through two companies in which he was director, to Mr. Amit Singh Gill. He could have also mentioned therein  that Amit Gill had promised that he would  return  Rs. 5  crores to the assessee including super-normal profits on the initial investment of Rs. 1,87,50,000/-  but  that was not the case. There is also no good reason why Mr. Amit Singh Gill could have  given it in writing that he has taken Rs. 5 crores from the assessee  and shall  return it to him. There is no direct or contemporaneous evidence of Amit Gill having stated that he had taken only Rs. 1,87,50,000/- from the assessee which will grow to Rs. 5 crores including super-normal profits, which amount would be paid back to the assessee.

16. Mr. Shivram, learned counsel for the assessee however contends that there is evidence to show that the assessee advanced only Rs. 1,87,50,000/- in the form of affidavit of Amit Gill and the statement recorded from him on 25.02.2009 in the course of the remand proceedings. A copy of the affidavit is at page 286 of the paper book and we have already referred to the contents thereof in brief. This  affidavit is sworn to on 29.12.2008 more than six years after the assessee filed the FIR and almost four years after the assessee gave the statement under section 131 before the investigation wing of  the income tax department. The evidentiary value of the affidavit given at such a late stage is open to doubt. It must be remembered that the assessment order was passed on 14.12.2007 and right  from September, 2007 the Assessing Officer has  been requesting the assessee to produce Mr. Amit Singh Gill before him. The assessee was not able to do so but surprisingly in the course of the appeal before the CIT(A) Mr. Amit Singh Gill pops up from nowhere and files an affidavit which is adduced before him as additional evidence. As already stated at this  later stage it was convenient for both the assessee as well as Mr. Amit Singh Gill to confirm that only Rs. 1,87,50,000/- was paid and not Rs. 5 crores. In our view, having regard to the normal course of human conduct  and probabilities, little evidentiary value can be placed on the affidavit of Mr. Amit Singh Gill. If at all, it is the FIR on which much evidentiary value has to be placed since it was the first document and a contemporaneous document in the filing of which the assessee was under no pressure or compulsion.

17. Mr. Shivram has also drawn our attention to the memorandum of understanding entered into on 20th February, 2006 to which also we have already referred. They are stated to have been filed before the Assessing Officer and the assessment order contains reference to them. Again it is surprising that in the year 2006 the assessee was able to enter into a memorandum of understanding with Mr. Amit Singh Gill but was unable to produce him in the course of the assessment proceedings between September and December, 2007. Be that as it may, the same  reasons  which  have prompted us not  to place any reliance  on  the  affidavit  of  Mr.  Amit  Singh Gill also apply in the case of  Memorandum of Understanding, persuading us not to place reliance on  them in support of the assessee’s plea. The Memorandum of Understanding are no doubt good  for  the purpose of showing that there was a settlement between the two companies and Mr. Amit Singh Gill. Obviously the companies and Mr. Amit Singh Gill could come on record to have the MoUs put through because the company had advanced the amounts to Mr. Amit SinghGill through cheques. There was no apparent difficulty or complication in bringing those amounts on record as they have been given through cheques. The difficulty is  only with regard to the amount which has been advanced to Mr. Amit Singh Gill over and above the cheque amounts. The Memorandum of Understanding only show that the advances made through cheques have been settled but then those amounts have not been added in the assessment. There is no dispute with regard to the cheque amounts and the MoUs therefore do not  take the assessee’s case further. They are actually neutral evidence.

18. We now come to the statement made by Mr. Amit Singh Gill before the Assessing Officer in the  course of the remand proceedings. We see force in the argument of Mr. Hemant Lal, learned CIT DR  that the Assessing Officer was not required to record any statement from Mr. Amit Singh Gill in the  course of remand proceedings. In fact in his letter dated 20th January, 2009 the CIT(A) has required  the Assessing Officer to forward his comments or objections, if any, to the additional evidence adduced by the assessee under Rule 46A. However, the Assessing Officer took it upon himself also to examine  Mr. Amit Singh Gill, who had no difficulty in appearing before the Assessing Officer in the course of  remand proceedings, though he had many difficulties in appearing before the Assessing Officer at the  time of the assessment proceedings. Be that as it may, the Assessing Officer appears to have thought  that he should cross examine Mr. Amit Singh Gill on the contents of the affidavit. Assuming that this  action is within the scope of the directions of the CIT(A), let us turn to the statement of Mr. Amit Singh Gill made before the Assessing Officer on 25.02.2009, a copy thereof is at pages 307 to 309 of the paper book. It is a statement recorded under section 131 on oath. In this statement he has stated that  he could not repay the amount of Rs. 1,87,50,000/- to the assessee on the promised dates and the cheques issued by  him had also bounced. He has also stated that he had promised “huge returns to the tune of Rs. 4/5 crores”. Again we have to reiterate that at this late juncture no credence or  credibility can be  attached  to the version of  Mr. Amit Singh Gill that he only promised to return Rs. 4 or 5 crores to the assessee on the initial investment of Rs. 1,87,50,000/-. He was only adopting the  same line which the assessee had taken in his statement given under section 131 of the Act five years earlier before the investigation wing. The whole picture we get is that by making such averments at a  ate stage  of  the proceedings, one corroborating the other, both the assessee and Mr. Amit Singh Gill were in a win-win situation. Moreover, Mr. Amit  Singh Gill would  have been hard put to come on record to say how he returned the cash amount of Rs. 3,12,50,000/-to the assessee by way of settlement. Therefore  both  the  parties have  conveniently  left  out  the  cash  portion  of  the  amount and took the common stand that  the  amount  advanced  was nothing more  than  Rs. 1,87,50,000/-. It  suited  the  interest  of  both  the assessee and Mr. Amit Singh Gill  to say so. However, they could not give satisfactory explanation for the statement in the FIR that  the amount advanced  was  Rs. 5  crores. The Assessing Officer, in our opinion, should have stuck to the assessment order in the remand report dated 26.02.2009, a copy of which is placed at page 310 of the paper book. He seems to have vacillated a bit after recording the statement of Mr. Amit Singh Gill which is perceptible from his statement that as per the MoU and the out of court settlement, the amount agreed to be paid was Rs. 2.25 crores but only Rs. 2 crores was actually paid and therefore interest @ 18%  was to be paid for the delay, which should be added to the total income of the assessee. After saying this he has requested the CIT(A) to decide the issue on merits. We are not prepared to countenance the view taken by the Assessing Officer. While making such observations in the remand report the Assessing Officer seems to have overlooked that no evidentiary value can be placed on the affidavit of Mr. Amit Singh Gill or on the statement recorded from him by way of cross examination on the contents of the affidavit. The CIT(A), with great respect, should not have gone by the later version of the assessee and Mr. Amit Singh Gill both of whom toed a common line which would be for the benefit of both. The CIT(A), again with respect, seems to have overlooked the normal course of human conduct and human probabilities and appears to have been swayed by the documentary evidence. It is well settled law and the legal position in this regard has been clearly adumbrated by the Supreme Court in at least three judgements.

(i) CIT Vs. Durga Prasad More (1971) 82 ITR 540

(ii) Sumati Dayal Vs. CIT., (1995) 214 ITR 801

(iii) CIT Vs. P.Mohanakala (2007) 291 ITR 278.

The gist of these judgements is that while examining the evidence including documentary evidence the taxing authorities are not required to put on blinkers. They have to probe the matter in order to find out whether the apparent is the real state of affairs and they are entitled to look into the surrounding circumstances to find out the reality of the recitals made in the documents. In the case of Durga  Prasad More (supra) the Supreme Court has cautioned that though it is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real, it is necessary for the department in some cases to require that the party who relies on recital in a  document  has to establish the truth of those recitals as otherwise it will be very easy to make self-serving statements in the documents and evade tax. The Supreme Court also remarked that courts and tribunals have to judge the evidence before them by applying the test of human probabilities. In the case of Sumati Dayal, cited  supra  this principle  was  reiterated  and a caution was administered that a superficial approach to the evidence should be avoided and it has to be considered in the light of the human probabilities. In the case of CIT Vs. Mohanakala cited supra, these  principles were reiterated. In the present case, the  appreciation of the evidence by the CIT(A) is not in the manner in which it has to be appreciated in the light of the aforesaid judgements.

19. The learned counsel for the assessee has cited the judgement of the Supreme Court in the case of George & Others Vs. State of Kerala & Another, cited supra to contend that FIR is not substantive  evidence and cannot be relied upon and that it only requires the police officer to carry out investigation. In the present case, however, the question is whether the assessee who has filed the FIR on the basis that he and his business associates had advanced Rs. 5 crores  in  cash to Mr. Amit Singh Gill can turn around and say that the amount advanced was not more than Rs. 1,87,50,000/-. In the aforesaid judgement, it has been held  that  FIR  is not  substantive evidence unless admitted under section 32(1) of the Evidence Act and can be used to corroborate or contradict the maker thereof. What the departmental authorities have done in the present case is to contradict the assessee’s version that he paid only Rs. 1,87,50,000/- through the two companies to Mr.Amit Singh Gill by relying on the FIR in which he had stated that he paid Rs. 5 crores in cash to Mr. Amit Singh Gill. The conduct of the Assessing Officer is not in any manner contrary to the judgement cited above.

20. In the result we reverse the decision of the CIT(A) and restore the addition of Rs. 3,12,50,000/-. The appeal of the department is allowed.

Order pronounced in the open court on this 31 day of January, 2011.