Case Law Details

Case Name : Alliance Hotels Vs ACIT – 12(1) (ITAT Mumbai)
Appeal Number : ITA No. 4076/Mum/2011
Date of Judgement/Order : 26/12/2012
Related Assessment Year : 2006- 07
Courts : All ITAT (4213) ITAT Mumbai (1410)

IN THE ITAT MUMBAI BENCH ‘A’

Alliance Hotels

versus

Assistant Commissioner of Income-tax – 12(1)

IT APPEAL NOS. 4076 & 4738 (MUM.) OF 2011

[ASSESSMENT YEAR 2006-07]

DECEMBER 26, 2012

ORDER

Sanjay Arora, Accountant Member

This is a set of cross-appeals by the Assessee and the Revenue, arising out of Order by the Commissioner of Income Tax (Appeals)-23, Mumbai (‘CIT(A)’ for short) dated 31-03-2011, partly allowing the assessee’s appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 30-12-2008 for the assessment year (AY) 2006-07.

2.1 The background facts of the case are that the assessee, a partnership firm in the business of providing boarding and lodging facilities, was subject to survey action u/s. 133A of the Act on May 11 & 12, 2007. Incriminating documents were recovered from its premises. The assessee having filed its return for the year on 31-10-2006 at a loss of Rs. 27.22 lakhs, the same was subject to the verification procedure under the Act by the issue of notice u/s. 143(2), and the impugned assessment framed. The first appellate authority having allowed the assessee partial relief, both the assessee and the Revenue are in appeal.

2.2 The two additions for the current year are on the basis of the material in the form of print-outs of computer back up files found on the system at the assessee’s premises, and addition/s based on which form the subject matter of the respective appeals, which we shall take up in seriatim.

Assessee’s Appeal (ITA No. 4076/Mum/2011)

3.1 The document under reference reads as:

Funds received from

Date

Amount

Funds used for

Alliance Hotel

Parvez sir

White House

Nawab Masjid

Adi Enterprises

Parvez sir

10.10.05

100000.00

100000.00

21.10.05

25000.00

25000.00

27.10.05

20000.00

20000.00

29.10.05

10000.00

10000.00

9.11.05

150000.00

119000.00

 31000.00

11.11.05

289000.00

21000.00

11.11.05

150000.00

5000.00

12.11.05

100000.00

13000.00

500000.00

16.11.05

60000.00

60000.00

17.11.05

20000.00

20000.00

18.11.05

100000.00

39000.00

36000.00

25000.00

19.11.05

15000.00

15000.00

21.11.05

25000.00

25000.00

22.11.05

100000.00

33000.00

37000.00

30000.00

23.11.05

20000.00

20000.00

24.11.05

12000.00

12000.00

25.11.05

50000.00

50000.00

25.11.05

20000.00

20000.00

26.11.05

20000.00

20000.00

30.11.05

10000.00

10000.00

06.12.05

6000.00

6000.00

07.12.04

6000.00

6000.00

07.12.05

52000.00

52000.00

10.12.05

6000.00

6000.00

TOTAL

1366000.00

398000.00

166000.00

115000.00

62000.00

625000.00

Page: 2

Funds received from

Date

Amount

Funds used for

Alliance Hotel

Parvez sir

White House

Nawab Masjid

Adi Enterprises

14.12.05

14000.00

14000.00

16.12.05

10000.00

10000.00

21.12.05

10000.00

10000.00

24.12.05

135000.00

135000.00

24.12.05

165000.00

165000.00

26.12.05

10000.00

10000.00

27.12.05

4500.00

4500.00

30.12.05

49000.00

49000.00

01.02.06

80000.00

80000.00

TOTAL

 

477500.00

163000.00

 14500.00

 

300000.00

Opening the arguments for and on behalf of the assessee, it was submitted by the ld. Authorized Representative (AR), its counsel, that though the assessee had all along denied any knowledge or the ownership of the document, it now wishes to take up a legal ground, that is, whether assuming the document to be true, could any addition be at all made on its basis. This is as all it says or speaks, in simplistic terms, is of ‘A’ giving loan to ‘B’. If that be so, no addition in the hands of ‘B’, the recipient, could be made; the document itself explaining the source of the funds as ‘A’. The Revenue could not take or adopt a segmented or disjointed approach, considering the document as true in-so-far as the destination of funds is concerned, i.e., the assessee, and not true with regard to their source, Shri Parvez Ghaswala (‘P’, say), specified in the same document. Section 68 of the Act would not, thus hold, for which reliance was placed by him on the following decisions:

(i)  T.S. Kumarasamy v. ACIT [1998] 65 ITD 188 (Mad)

(ii)  ACIT v. Vatika Greenfield Ltd. [2009] 121 TTJ 208 (Del.)

(iii)  CIT v. Indeo Airways Pvt. Ltd. [2012] 349 ITR 85 (Del) [ITA Nos. 1620, 22/2010]

Even section 69 would not apply in-as-much as no investment has been found by the Revenue, the nature and source of which is to be, or remains to be, explained. On being enquired as to who was Mr. Parvez, the ‘A’ in the assessee’s example, and whether he admits to having lent monies to, among others, the assessee ‘B’ (in the example), it was submitted by the ld. AR, that Mr. Parvez is a partner in the assessee-firm, against whom though, to the best of his knowledge, the Revenue has not proceeded. There was thus no occasion for him to state his case in the matter. However, the income has necessarily to be assesseed in the hands of the right person, and merely because the Revenue has not or not considered it proper to assess the right person, would not entitle it to assess the said income in the hands of another –

the assessee in the instant case. Toward this, he relied on the decisions in the following cases of:

 (i)  ITO v. Ch. Atchaiah [1996] 218 ITR 239 (SC)

(ii)  Pradeep Agencies v. ITO, Delhi [2007] 18 SOT 12 (Del.) (SB)

Further on, the addition, in any case, could not be made for the full amount, as done by the Revenue; the document itself showing that funds only to the extent of Rs. 5.61 lakhs were advanced for use of the assessee. On being further queried that the document cannot be interpreted in terms of ‘A’ giving loan to ‘B’, as nobody would give loan to himself, while the document contains the name of ‘Pervez’ on both the sides, it was explained by him that that was the document projected in essence. It had admittedly been prepared by a third person ‘C’, who had been entrusted with the funds by ‘A’ (Mr. Pervez), for being utilized, for the purpose of others, including ‘A’ himself.

3.2 The ld. Departmental Representative (DR) would, on the other hand, submit that the presumption of section 292C (and which was earlier sought to be pressed into service by resorting to section 132 (4A)), would not operate to discharge the burden of proof u/s. 68 on the assessee, placing reliance on the decisions in the case of Daya Chand v. CIT [2001] 250 ITR 327 (Delhi) and Pushkar Narain Sarraf v. CIT [1990] 183 ITR 388 (All). That is, the assessee would yet have to satisfy the mandate of those sections i.e., ss. 68, 69A, etc. The nature and source of the funds being un-explained, the same could be applied. On being questioned as to whether the document could be construed to be the assessee’s books of account, for section 68 to apply, he would submit that the assessee itself explains Mr. Parvez to be the source of funds, implying of him as being the person who ought to have been proceeded against. The deeming of section 68 would thus apply.

4. We have heard the parties, and perused the material on record, as well as the case laws cited.

4.1 The law in the matter is exquisitely clear, even as both the sides have relied on case laws. What all section 292C provides for is a presumption as to the truth of any document, etc., found during search or survey; of the moneys etc., recovered from him as belonging to the assessee. The same does not contradict; rather, compliments and supports the rule of evidence as enshrined in sections 68, 69, et. al. Where is the question of deeming any money, bullion, jewellery or other valuable article or thing found with the assessee as his un-explained income, unless there is a antecedent presumption as to the same belonging to him? The two therefore have to be read in conjunction and as complimentary, and not as disjunctive or de hors each other. The principle involved, as explained by the apex court in the case of Chuharmal v. CIT [1988] 172 ITR 250 (SC), referring to section 110 of the Indian Evidence Act, 1872, is of common law jurisprudence. All what it means, it goes on to explain, when it is said that the Evidence Act did not apply to the proceedings under the Act, was that the rigour of rules of evidence contained in the Evidence Act were not applicable, but that it did not mean that when the income tax authorities desired to invoke the principles of the Evidence Act in the proceedings before them, they were precluded from doing so. In our view, section 292C further sets at rest any controversy in this regard by incorporating a specific provision in the Act, extending the presumption in respect of any documents, valuables, etc. found with or recovered from the assessee during a search or survey for the purpose of any proceedings under the Act. The presumption, though, is rebuttable, and the onus for the same is on one who contends otherwise, i.e., who challenges the said presumption, which is only toward considering the apparent as real.

4.2 Coming to the facts of the case, the contents of the document set out at para 3.1 above have necessarily to be regarded as true, i.e., unless proven otherwise. Further, the document has to be read as a whole and in consistence with what it would ordinarily be read and understood as, by an uninterested person of normal prudence. From this stand point, we find that it clearly states of money having been received from Parvez (P), a partner in the assessee-firm, for the use of, among others, the assessee, specifying the amounts and the corresponding dates on which the monies were provided. In this view of the matter, the assessee’s first argument is that the source of the moneys/funds being ‘P’, the same cannot be considered as unexplained, irrespective of whether ‘P’ admits to having paid the same or not. In our view, section 292C imparts a statutory presumption as to the document being true and, thus, effectively places the burden of proving otherwise, or to the contrary to what is stated therein, on the assessee. Accordingly, the onus to lead denial by ‘P’, and to prove that no funds in fact emanated from him, its partner, is on the assessee. That having not been done, the statutory presumption shall hold. The next question is that, even so, could any addition be made in the hands of the assessee, the recipient or the beneficiary of these funds; the source having been apparently explained? Sections 68, 69 and 69A oblige the assessee to explain the nature and source of credit (recorded) and money, bullion, jewellery, etc., (not recorded) by the assessee in the books of accounts maintained by him for any source of income, to the satisfaction of the Assessing Officer (AO), lest it may be deemed as its income for the relevant year. Now, the transactions of availing monies from ‘P’ having not been recorded in the assessee’s books of account, section 68 of the Act could not be said to be applicable. However, that would be to no consequence, as the admission of the transaction/s itself implies of the corresponding amount/s in the assessee’s hands in the form of cash on the relevant date/s. Section 68, on one hand, and sections 69, 69A, etc., on the other, are in that sense complimentary, even as explained by the hon’ble Allahabad High Court in the case of CIT v. Jauharimal Goel [2005] 147 Taxman 148 (All.) Where a sum is recorded in the books of account, section 68 is attracted, and the assessee is obliged to explain the same as to its nature and source. Alternatively, where it is not so recorded, that is, kept off the books of account, it is the corresponding amount, in the form of any asset, to explain which, as to the nature and the source of its acquisition, that the assessee’s obligation in law extends to. The present case would be covered by the latter sections. The ld. CIT(A) has toward this relied on the decisions in the case of Sunil K. Malhotra v. CIT [1995] 215 ITR 586 (All.) and Laxmi Narain Gupta v. CIT [1980] 124 ITR 94 (Pat.).

A question, however, may arise as to whether, no valuable/asset having been ‘actually’ found, could the sections apply? We think it would, circumstances admitting, for more than one reason. The document, which is to be, and is being considered as true, admittedly reflects the transaction/s of money being provided by ‘P’ for their use by, among others, the assessee. That is, it shows an effective or constructive receipt of money by or on assessee’s behalf. Where it was used can only be explained by the assessee, and which it has chosen not to. Though the ld. DR would point out that an extensive renovation of the assessee’s hotel premises was on at the relevant time, suggesting of the monies being used therefor, that, to our mind, would be secondary to the transaction/s. No doubt supportive, the implication/s of the user of the monies, which is implicit, and may be relevant, would come into play only once assessee explains its avenue, i.e., as to where and for what purpose the same was used, the onus for which is on it. In other words, the receipt of money by the assessee is manifest per the document, which is, rather, not denied by the assessee. The acquisition of money by the assessee as at the relevant date/s, thus, cannot be and, in any case, is not in question. The same (money, in the form of cash), which is covered by section 69A, being not recorded in the assessee’s books of account, the said provision would apply to the transaction. Consider this: a bank pass book of the assessee, which definitely does not form part of the assessee-bank account holder’s books of account, is found during search/survey, reflecting deposit/s and/or credit/s therein. The amount/s may have been withdrawn subsequently, so that it cannot be said that a deposit/s is ‘found’ as on the date of search, yet it is so found on the relevant date/s (of deposit/s), so that the assessee is obliged to explain the same as to its nature and source, where not reflected in its regular books of account and the date/s fall in the year/s of assessment. In other words, the word ‘found’ occurring in the relevant sections is to be read meaningfully and purposively, in harmony with the scheme, as well as intent and purposes of the Act. The only difference would be, as aforesaid, that the deposit/s could only be, where so, deemed as income of the year of deposit/s. We, thus, find no legal hindrance or barrier to the invocation of the said sections, or s. 69A in the instant case.

4.3 We, next, consider the assessee’s argument that the document itself explains the source of the money with it (as on the relevant dates), so that the mandate of the section is satisfied, and no addition could be made. That is, the Department cannot take a contrary stand, accepting the document as true, yet overlooking the fact that the same itself clearly spells out the source of the money. The argument is valid, for the presumption as to the truth of the document, which would apply uniformly over the entire document, can be impugned – in whole or in part – only on the basis of some materials. So, however, the obligation cast on the assessee is to explain both the nature and source of the money, and not its source alone. The assessee’s explanation is completely silent on the first part. In fact, even the fact that ‘P’ is a partner stood revealed only in response to a query by the Bench; the ld. AR initially denying any connection of the assessee with ‘P’. Be that as it may, the question that would arise is why, and on what basis, did ‘P’ provide money to assessee? What was the consideration? Is the money outstanding for re-payment, with or without interest or accretion thereto in any other manner, as at the year-end, or the liability stands discharged? If so, how, and if not, is it still outstanding for payment? Does it in fact represent a liability? In fact, one of the ‘explanations’, i.e., qua facts, rendered before the authorities below is of it being the assessee’s own money, given to ‘P’ for being utilized as and when required for its purposes. As such, all these questions, and perhaps more, which are only toward the truth of the transaction/s, arise or are imminent from the assessees explanation of ‘P’ being the source of money, i.e., as the document clearly indicates, and to rebut which no evidence has been lead by the assessee. It is only when both the nature and source of the money has been satisfactorily explained, that the assessee’s obligation under the deeming provision stands discharged. And which, thus, cannot be said to be in the facts and circumstances of the present case. The ‘satisfaction’ u/s. 69A, or any other deeming provision of Chapter VI, is essentially a question of fact, to be judicially determined. When the basic facts have been with-held by the assessee, how, we wonder, could the Revenue be faulted with in being not satisfied with the assessee’s explanation, which, as afore-stated, is conspiciously silent as to the nature, and which would include purpose, of the acquisition. The deeming of section 69A would, thus, be clearly applicable, and stand validly applied by the Revenue in the facts and circumstances of the case.

Again, however, the same shall only extend to the ‘money’ with the assessee, and cannot, by any account, extend to the money provided by ‘P’ for persons other than the assessee. Whether the assessee has any connection with them; it clearly with-holding facts, is irrelevant, as in any case they are separate persons, and their income, if so, cannot be assessed in the assessee’s hands merely because a document is recovered from its premises. The Revenue seems to have so done as the presumption of section 292C is available only in respect of the assessee. Be that as it may, the same by itself cannot be a ground or justification for extending the deeming, or the rule of evidence as provided therein, to persons not covered thereby. We have already held that the provision of section 292C and the deeming of provisions of Chapter VI are to be read in unison, being only in codification of the principles of common law jurisprudence. Accordingly, the assessee’s income stands validly assesseed to the extent of Rs. 5,61,000/-, and the balance Rs. 12.83 lacs stands to be deleted. We direct accordingly.

4.4 The issue having been decided by us, thus, on the basis of a finding of fact, i.e., upholding the Revenue’s non-satisfaction with the assessee’s explanation as to the nature and source – qua which the AO is to be satisfied, of the monies with it, we are unable to see; the law in the matter being trite, as to how the case law relied upon by either party is relevant.

Revenue’s Appeal (ITA No. 4738/Mum/2011)

5. The contents of the documents find mentioned at para 6, page 3 of the assessment order, are as under:

Particulars

Amount Rs.

(a) The sheet ‘Botawala’ contains certain cash entries, particularly in lines 224, 229, 237 and 240. They indicate aggregate cash payments of Rs. 33 Lakhs made in May, 2005

33,00,000

(b) The Sheet ‘Upadastra general’ gives cash payment details aggregating to Rs. 82.25 Lakhs in lines 17, 33, 45, 46, 53 and in the same sheet, cash receipt of Rs. 31.85 Lakhs is also noted in line 58.

82,25,000
31,85,000

(c) In ‘sheet 4’ various cash receipts are given in detail. The total cash expenses exceed Rs. 1 Crore.

1,00,00,000

(d) In Sheet ‘total expenses’, line 96, 97 contain cash expense details aggregating to Rs. 23 Lakhs

23,00,000

(e) In the sheet ‘received Ac’ lines 2 to 39 contain various cash entries

NIL The same relates to AY 2007-08

(f) In the Sheet ‘Party Ac’ lines 201 to 276 contains several cash entries. In particular, line 201 has cash entry of Rs. 25 Lakhs, line 211, 212 contain cash entry of Rs. 8 Lakhs, line 256 contains cash entry of Rs. 45 Lakhs and line 275, 276 contains cash entry of Rs. 20 Lakhs.

25,00,000

8,00,000

45,00,000

20,00,000

Total

36810000

The Revenue’s ground is in respect of deletion of addition of Rs. 368.10 lakhs u/s. 69 C of the Act, effected on the basis of print-outs of computer back up file ‘reliable expenses’. The same reflects payments made in respect of two entities, i.e., ‘Maria Developers’ and ‘Reliable Investment & Developers’ toward two properties, being Upadastra Propery and Stamp House (Botawala). The document further states to have been prepared on the basis of information given by ‘Javed Sir’; Mr. Javed Ghaswala (‘J’) and his family members being associated with the said firms. The assessee’s case is that its’ name being reflected neither in the payments nor toward receipt of money, so that the transaction/s does not pertain thereto, the same cannot be applied to it so as to bring the amounts reflected therein to tax in its hands. Even as explained during hearing itself, the presumption u/s. 292C can only result in the document being read as what it would convey to a normal, un-interested person of ordinary prudence. Of course, in a given case, the reading may yield grotesque situations, as where the person/s stated in the document does not exist, or (say) the person/s stated to be providing the material resources is admittedly a man of no means, so that the document could not be considered as a valid piece of information. However, in such a case, the onus to show so would be on the person so alleging. The AO has done no such exercise. The Revenue has also not brought on record any interest of the assessee in the relevant properties. The document, as we see it, has no bearing on the assessee. The document may be true, and the assessee may well be in know of its contents, as it would only have been prepared by or under its supervision and knowledge, and only for some purpose. However, if the assessee doe not choose to divulge the same, it cannot be in consequence applied to it. Under the circumstances, in our view, the ld. CIT(A) had rightly deleted the impugned addition. We decide accordingly.

6. In the result, the assessee’s appeal is partly allowed, and the Revenue’s appeal is dismissed.

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