Transaction of loan between two independent parties cannot be taxed in the hands of Broker to transaction

Shiv Prakash Bajaj Vs DCIT (ITAT Jaipur)

It is not in dispute that the assessee surrendered a sum of Rs. 30.00 lass on account of incriminating material found during the search, therefore, the transaction of loan between two independent parties even if through the service of the assessee being broker cannot be thrust upon the assessee for want of taxing the same in the hands of the actual parties to the transaction.

The reasoning of the A.O. and the Id. CIT(A) for making the addition is that if it is not assessed in the hands of the assessee then it would be a revenue loss as the complete particulars of Shri Naresh Kumar Maheshwari were not furnished by the assessee and therefore, the assessee is responsible for the loss of the revenue and liable to pay tax. There is no provision in the Act to deem such income which is otherwise  not an income of the assessee. The documents in question clearly manifest the nature of the transaction and the parties to the transaction. Particulars of one of the parties were already available on the seized material and the revenue has already attempted to tax the said income in the hands of Shri Roshal Lal Sancheti but the Id. CIT(A) has deleted the said addition on the ground that a loan cannot be assessed to tax except it is unexplained credit U/s 68 of the Act. Therefore, the assessee being a broker cannot be held liable to pay tax on an income which does not arise or belong to the assessee. At the most, the income for providing the service as a broker can be taxed in the hands of the assessee for the transaction of loan which the assessee has already offered to tax as part of the surrendered income. Since the revenue failed to assess the said amount in the hands of the parties to the transaction, therefore, it was attempted to tax in the hands of the assessee on the basis of presumptive provisions of Section 292C of the Act. Once the seized documents are free from any ambiguity and the transaction is between the two independent parties then in such a situation, the said document reveals the transaction of loan cannot be presumed to be the document belongs to the assessee for the purpose of assessing the income being unexplained loan. Hence, in the facts and circumstances of the case, the addition made by the A.O. and sustained by the Id. CIT(A) is not justified and the same is deleted.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal by the assessee is directed against the order dated 12/01/2018 of Id. CIT(A)-2, Udaipur for the A.Y. 2013-14. The assessee has raised following grounds of appeal:

“1. That on the facts and in the circumstances of the case, the Id. Lower authorities grossly erred in making addition of Rs. 20,00,000/ on account of unexplained advance on the basis of page No. 13 and 14 of seized Annexure-A (Exihibit-5).

2. The appellant craves leave to add, alter, modify or amend any ground on or before the dote of hearing.”

2. The assessee is an individual and engaged in the business of finance broker and property broker. The assessee has not filed his return of income for the year under consideration Ws 139(1) of the Income Tax Act, 1961 (in short, the Act). There was a search and seizure action U/s 132 of the Act on 26/09/2012 at the residential premises of the assessee and survey U/s 133A of the Act at the business premises of the assessee. During the course of search and seizure action, cash of Rs. 6.00 lacs as well as other incriminating material were found. Incriminating material found during the search was marked as Annexure-A (Exihibit-1 to 8). In the statement recorded during the post search investigation on 17/10/2012, the assessee surrendered income of Rs. 30.00 lacs for six years from the A.Y. 2007-08 to 2013-14 as under:

The assessee filed his return of income on 15/5/2013 declaring total income of Rs. 9,67,236/- including surrendered income of Rs. 8,50,000/-for the year under consideration. During the assessment proceedings, the A.O. asked the assessee to explain the seized document Exihibit-5, page 13 to 14 of Annexure-A. The assessee replied that these are photo copies left by some clients for refinancing purpose and therefore, he is not aware about the contents and the parties of the said documents. The A.O. did not accept the reply of the assessee and made the addition of Rs. 20.00 lacs in the hands of the assessee on the ground that it would be a revenue loss if it is not taxed in the hands of the assessee. The A.O. also made addition of Rs. 20,000/- being brokerage/commission charges @ 1% of the said transaction. The assessee challenged the action of the A.O. before the Id. CIT(A) but could not succeed as the Id. CIT(A) has confirmed the addition made by the A.O. of Rs. 20.00 lacs. However, the Id. CIT(A) has deleted the addition made by the A.O. on account of brokerage/ commission charges of Rs. 20,000/-.

3. Before the Tribunal, the Id counsel for the assessee has referred the statements of the assessee and submitted that the assessee explained the nature of his business being broker in finance and property dealings. The A.O. has also not disputed the business of the assessee. He has also explained the documents found as Exihibit-5 page 13-14 of Annexure-A during his statement recorded. Thus, the Id counsel has submitted that part from question No. 18, no further query was raised by the department at the time of search or post search inquiries. The assessee made surrender of Rs. 30.00 lacs covering all the transactions recorded in the seized material including the transaction in question and therefore, the said disclosure made by the assessee also covers the brokerage/commission income on the alleged transaction. He has referred to page No. 13 and 14 of Exihibit-5 and submitted that these are loose paper and only photo copy of an unnamed cheque of Rs. 20.00 lacs issued by one Shri Roshan Lal Sancheti alongwith a letter/acknowledgement of loan of Rs. 20.00 lacs from Shri Naresh Kumar Maheshwari. These facts are also not disputed by the A.O. that the seized documents are in respect of transactions between two independent parties and the assessee is not a party to the said transaction. Once the loan is given by Shri Naresh Kumar Maheshwari to Shri Roshan Lal Sancheti then the same cannot be taxed as income of the assessee. Even otherwise, the assessee is only a broker and the income if any, would be the brokerage/commission income which was already offered to tax by the assessee being surrender income. The Id AR has further contended that the A.O. has misstated the facts while making the addition but accepted that the said letter was on the letter head of Bheru Lal Roshan Lal Sancheti on which complete address and contact details etc. of the person are duly printed and therefore the presumption U/s 292C of the Act is not applicable. The Id counsel has thus contended that when the document is clearly identifiable and there is no ambiguity about the transaction between the parties then the provisions of Section 292C of the Act cannot be invoked. The A.O. has, on one hand, accepted that the document is written on 29/6/2012 by Shri Roshan Lal Sancheti to Shri Naresh Kumar Maheshwari and gives the details of both the parties. On the other hand, the A.O. has invoked the provisions of Section 292C of the Act and presumed the document of the assessee. Thus, the Id counsel has submitted that once the parties to the transactions are not in dispute then the income, if any, on account of the said transaction cannot be assessed in the hands of the assessee except the commission/brokerage income. The assessee is neither lender nor the borrower and engaged in the capacity of finance broker on commission basis, therefore, the addition made by the A.O. by invoking the provisions of Section 292C of the Act is not sustainable in law and liable to be deleted. The Id. Counsel has further contended that even the presumption Ws 292C of the Act is rebuttable and once the assessee has given his explanation with regard to specific seized document, it is for the A.O. to prove otherwise if he wants to use the seized document against the assessee. Thus, the addition is not sustainable in law and liable to be deleted.

4. On the other hand, the Id. CIT-DR has submitted that the onus is on the assessee to explain the document found and seized from the possession of the assessee. Presumption U/s 292C of the Act casts onus on the assessee to explain the books of account/document seized from his premises. He has relied upon the orders of the authorities below and submitted that the A.O. as well as the Id. CIT(A) has discussed the issue elaborately and given a finding that the assessee has suppressed the correct facts of the transaction and therefore, the addition was rightly made in the hands of the assessee.

5. I have considered the rival submissions as well as relevant material on record. The A.O. has made the addition in the hands of the assessee on the basis of the seized document which are photo copy of one cheque without any name of the payee and a letter dated 29/06/2012 written by one Shri Roshan Lal Sancheti and addressed to one Shri Naresh Kumar Maheshwari. The said letter is written on the letter head of firm of Shri Sancheti and contains all the details and address of Shri Roshan Lal Sancheti. The details of the documents at page 13 and 14 of Exihibit-5 of Annexure-A are as under:

From perusal of these documents, it is manifest that these are prepared in respect of loan transaction of Rs. 20.00 lac^y by one Shri Roshal Lal Sancheti from Shri Naresh Kumar Maheshwari. This fact is also accepted by the A.O. in the assessment order. Even the assessee explained these documents and nature of transaction in his statement recorded by the department in the post search enquiries and the relevant part of the statement is in question No. 18 is as under:

It is not in dispute that the assessee surrendered a sum of Rs. 30.00 lass on account of incriminating material found during the search, therefore, the transaction of loan between two independent parties even if through the service of the assessee being broker cannot be thrust upon the assessee for want of taxing the same in the hands of the actual parties to the transaction. The reasoning of the A.O. and the Id. CIT(A) for making the addition is that if it is not assessed in the hands of the assessee then it would be a revenue loss as the complete particulars of Shri Naresh Kumar Maheshwari were not furnished by the assessee and therefore, the assessee is responsible for the loss of the revenue and liable to pay tax. There is no provision in the Act to deem such income which is otherwise  not an income of the assessee. The documents in question clearly manifest the nature of the transaction and the parties to the transaction. Particulars of one of the parties were already available on the seized material and the revenue has already attempted to tax the said income in the hands of Shri Roshal Lal Sancheti but the Id. CIT(A) has deleted the said addition on the ground that a loan cannot be assessed to tax except it is unexplained credit U/s 68 of the Act. Therefore, the assessee being a broker cannot be held liable to pay tax on an income which does not arise or belong to the assessee. At the most, the income for providing the service as a broker can be taxed in the hands of the assessee for the transaction of loan which the assessee has already offered to tax as part of the surrendered income. Since the revenue failed to assess the said amount in the hands of the parties to the transaction, therefore, it was attempted to tax in the hands of the assessee on the basis of presumptive provisions of Section 292C of the Act. Once the seized documents are free from any ambiguity and the transaction is between the two independent parties then in such a situation, the said document reveals the transaction of loan cannot be presumed to be the document belongs to the assessee for the purpose of assessing the income being unexplained loan. Hence, in the facts and circumstances of the case, the addition made by the A.O. and sustained by the Id. CIT(A) is not justified and the same is deleted.

6. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 24^th September, 2019