Delhi High Court

Jt. Cit vs Budh Kishore on 23 September, 2003

Equivalent citations: (2004) 87 TTJ Del 140

ORDER

M.V Mayar, A.M.

The department is in appeal against the order of Commissioner (Appeals), Rohtak, in Appeal No. 129/BWN/1997-98, dated 3-9-1998.

2. The assessed is conducting business in the name and style of M/s. Ram Swaroop Dass Radha Kishan at Bhiwani. The concern acts as a commission agent and also retails washing soaps and oil, etc. In addition, the assessed has shown income from investment made in shares. The assessed had taken loans/deposits from various persons at interest rates varying between 12 per cent to 15 per cent had also advanced amounts at 12 per cent to 18 per cent interest to various family members and others which included employees of the assessed as well as sister- concerns. A search was conducted on 20-10-1994, at the business and residential premises of this group. During the year, the assessed had been making investments in share applications of various new issues and for this purposes he had obtained FDRs from Bank s, source thereto explained as being out of withdrawals from M/s. Ram Swaroop Dass Radha Kishan and cash in hand. The assessed had opened stock invest account with the bank s and stock invest certificates were being used while applying for the shares in his name or when required by other family members or friends or known persons. It has been the assessed's stand that stock invests certificates were given to such persons for purpose of applying for shares and on allotment, the payments used to be made by those persons. To generate funds for investment, loans were taken by the assessed and these were credited in the books of M/s. Ram Swaroop Dass Radha Kishan. Confirmations of the loans taken and loans advanced along with interest thereon were filed during the course of assessment proceedings.

3. The first ground of appeal is against the action of Commissioner (Appeals) in deleting the addition of Rs. 2,36,274 made on account of amount receivable from M/s. Ashok & Co. against sale of shares.

4. Shri A.P. Agarwal, Departmental Representative, appeared for the department. He relied on the order of the assessing officer.

5. Shri N.K. Jain, advocate, appeared for the assessed. The learned authorised representative has explained that the assessed had invested Rs. 2,08,250 in 11,900 shares of CRB Capital on 24-12-1993, against stock invest and the total investment was debited in the books of M/s. Ram Swaroop Dass Radha Kishan at ledger folio No. 3 and Jama Nakal Panna No. 19. These shares were sold to M/s. Ashok & Co. for Rs. 2,26,100 on 28-12-1993, on 'if allotted' basis. Thereafter, a sum of Rs. 10, 174 was debited on account of interest. Up to 31-3-1994, thus, the total amount payable by M/s. Ashok & Co. was of Rs. 2,36,274 which appeared as liability in the balance sheet of the assessed. The learned authorised representative has urged that the addition of this amount as income of the assessed from undisclosed sources is wholly misconceived. It is explained that at the relevant time, there was a practice prevalent among persons making investment in shares, that the shares applied for used to be sold in advance at a settled rate on 'if allotted' basis. In this type of transaction, the persons applying for the shares used to agree that if the allotment did fructify then the shares will the supplied to the persons who agreed to purchase them at a settled rate, irrespective of the market rate prevailing at the time when the shares were actually received on allotment. The investment in such transactions was made by the assessed himself and the purchaser would pay only if the allotment was received. Otherwise, the agreement was considered as cancelled. In fact, explained the learned authorised representative, the share application used to contain particulars of the investor-applicant who would hand over the same to the intended purchaser at the rate settled earlier.

6. We have considered the rival submissions and facts on record. The addition made by the assessing officer is not sustainable because source for investment in the shares and income from short-term capital gain on sale thereof to M/s. Ashok & Co. as Well as by way of interest charged has not been disputed in the order of assessment. We, therefore, confirm the order of Commissioner (Appeals) in deleted the impugned addition of Rs. 2,36,274. The appeal of the department is dismissed on the first ground.

7. The second ground of the department's appeal is against the action of Commissioner (Appeals) in deleting an addition of Rs. 4,24,000 made by the assessing officer on account of its investment in bank FDRs when the books of account did not contain any mention of these FDRs.

8. The assessed filed a lists of fixed deposits purchased during the relevant accounting period during the course of assessment proceedings. The following fixed deposits were claimed by the assessed. in his reply to have been purchased out of funds of M/s. Ram, Swaroop Dass Radha Kishan

(1) State Bank of Patiala

Rs. 1,50,000

28-8-1993

(not recorded in balance sheet)

(2) Bank of India

Rs. 1,50,000

27-7-1993

(no withdrawal in books on this date) -

(3) Bank of India

Rs, 1, 00, 000

22-10-1993

(no withdrawal in books on this date)

(4) Bank of India

Rs. 40,000

24-2-1994

(Not recorded in books)

Rs. 4,24,000

9. The assessing officer pointed out that the books of account of M/s. Ram Swaroop Radha Kishan did not contain any mention of these FDs nor were any of these amounts debited to the account of the assessed in any other account. According to him these FDs had been purchased out of unaccounted money. He added back the investment to the income of the assessed as investment out of undisclosed income. The Departmental Representative relied on the assessing officer's order.

10. The arguments by the authorised representative in respect of each FDR are as under :

(i) It is submitted that the FDR of Rs. 1,50,000 was purchased on 26-8-1993, from the State Bank of India, Bhiwani, and not the State Bank of Patiala as wrongly mentioned in the assessment order. The investment in this FDR is debited in the books of M/s. Ram Swaroop Dass Radha Kishan at Rokar Panna 47 and ledger folio 33. This FDR matured on 16-2-1994, and the amount of Rs. 1,55,005 was credited to the saving's bank account in State Bank of India, Bhiwani, which is duly entered at ledger folio No. 33. Since this FDR had matured prior to 31-3-1994, it did not appear in the balance sheet drawn as on that date.

(ii) It is submitted that the investment in FDR of Rs. 1,50,000 purchased from Bank of India on 27-7-1993, is duly debited in the books of M/s. Ram Swaroop Dass Radha Kishan and entered at Rokar Panna No. 37 and Khata Panna 32. Thus, the premise adopted in the impugned order that there is no withdrawal in respect of this FDR is factually incorrect.

(iii) It is further submitted that the investment in FDR of Rs. 1,00,000 purchased from Bank of India on 22-12-1993, is duly debited in the books of M/s. Ram Swaroop Dass Radha Kishan and entered at Rokar Panna No. 70 and Khata Panna No. 32. Thus, the premise adopted in the impugned order that there is no withdrawal in respect of this FDR is factually incorrect.

(iv) It is submitted that the investment in the FDR of Rs. 24,000 purchased from the Bank of India on 24-2-1994, had been made after taking loan of Rs. 14,000 on 20-2-1994, from Shri Gauri Shankar who is being assessed since 1985-86 with PAN No. 25-040-PQ-0239. The confirmation from the said Shri. Gauri Shankar was furnished at the time of assessment proceedings. In addition, an amount of Rs. 11,243 was available in home chest as cash-on-hand assessed for the assessment year 1993-94, Thus, the total available cash was of Rs. 25,243 out of which Rs. 24,000 was invested in the aforesaid FDR. The learned authorised representative has urged that the onus regarding loan transactions has been discharged by the assessed in view of the clear principles exposited by the jurisdictional High Court in the case of CIT v. R.N. Goel (1997) 224 ITR 180 (P&H).

11. We have examined the rival submissions. To our mind the impugned addition has been made without appreciating the correct facts as reflected in the books of account. It is now settled that source of origin need not to be proved. The Explanation with respect to availability of cash-on-hand would also have to be accepted in view of the ratio laid down in S.R. Venkata Ratanam v. CIT (1981) 127 ITR 807 (Kar). The impugned addition of Rs. 4,24,000 is deleted. The order of Commissioner (Appeals) is confirmed and the department's appeal is dismissed on the second ground.

12. The third ground of the department's appeal is against the action of Commissioner (Appeals) in deleting the addition of Rs. 29,880 on account of commission on consignment sold.

13. The assessed had shown consignment sale of Rs. 1,12,94,264 during the relevant accounting period. The sale had been effected by the assessed in respect to various raw material used in manufacture of soap. As per details of commission received, commission had been earned from several concerns spread all over the country. According to the assessing officer most of the sales was to the sister-concem only. The assessed had not maintained any account in respect to consignment transactions. No books of account or consignment agreement for the relevant period had been found from any of the concerns during the course of search. According to the assessing officer it was not possible to verify the commission income, which was claimed by the revenue to be at Rs. 100 to Rs. 120 per tonne of item sold. Commission income at 1 per cent of total sales worked out to Rs. 1, 12,943. Since no books of account pertaining to the consignment business had been seized during the course of search, the assessing officer worked out income from this business which led to an addition of Rs. 29,880 in income from that returned by the assessed. The Departmental Representative relied on the assessing officer's order.

14. The learned authorised representative submitted that the assessed has been effecting sales as commission agent for various parties and the that account is duly shown at Rs. 83,063.91. The accounts of principals exist in the books of M/s. Ram Swaroop Dass Radha Kishan where respective receipts are credited and expenses have been debited to them. It was explained that dhat is not paid on percentage basis but on Kilo basis. It is urged that such sales and expenses are very much verifiable from the books seized during search. The learned authorised representative has argued that the assessing officer has been misled by the erroneous presumption that no books pertaining to consignment business had been seized during the search. In fact, the entries regarding consignment sales are available in that Khata at pages numbered 15 to 17 and 21, etc., in the books of M/s. Ram Swaroop Dass Radha Kishan. The Adhat sales account are available at pages numbered 131 to 138 in the Khata Bahi and likewise, the parties accounts are also available at Khata pages numbered 139, 143, 144 to 146, 173 and other pages of the same Bahi.

15. We have examined the rival submissions. We are in agreement with the order of Commissioner (Appeals) who considered the facts and find that the impugned addition made by the assessing officer has been made by the assessing officer on the assumption that no books pertaining to consignment business has been maintained was against the facts. Accordingly, we confirm the action of Commissioner (Appeals) in deleting the addition of Rs. 29,880. The appeal of the department is dismissed on the third ground.

16. The fourth ground of the department's appeal is against the action of Commissioner (Appeals) in deleting the addition of Rs. 1,20,000 on account of household expenses.

17. According to the assessing officer, the assessed had not disclosed any household withdrawals in the return of income. The relevant columns for household expenses in the net wealth statement had also been left blank. Keeping in view the size of the family and standard of living, monthly expenditure of the family was worked out at Rs. 10,000 per month, totalling Rs. 1,20,000 for the entire year. This was added to the income of the assessed. The Departmental Representative relied on the order of the assessing officer.

18. The learned authorised representative has explained that the wife of the assessed had withdrawn Rs. 33,600 for household expenses out of her capital which is duly reflected in her return of income. The assessed was not incurring any expenditure towards rent, since teetotaller; he was residing in his own house. It is submitted that the family is pure vegetarian and teetotaller having the ordinary standard of living with orthodox ideas. None of the children is school or college going. The learned authorised representative has drawn attention to the fact that no costly household items were found during the search. According to the learned authorised representative the assessing officer had no evidence before him to estimate the household expenses at an exorbitant figure of Rs. 10,000 per month. The learned authorised representative places reliance on the principles enunciated in Asstt. CIT v. G.S. Bhatia (1997) 59 TTJ (Mum) 91 and CIT v. Madras Rubber Factory Ltd. (2000) 241 ITR 170 (Mad).

18A. We have examined the rival submission. We are of the view that the figure of household withdrawals arrived at by the assessing officer of Rs. 1,20,000 is reasonable looking to the size of the assessed's family and his status. However, the assessing officer is directed to give a deduction of Rs. 33,600 withdrawn by the assessed's wife. The net addition would make out to Rs. 1,20,000 - Rs. 33,600, i.e., Rs. 96,400 to the assessed's income on account of low withdrawals. The appeal of the department is partly allowed on the fourth ground.

19. The fifth ground of the department's appeal is against the action of the Commissioner (Appeals) in deleting an addition of Rs. 6,47,147 by treating the capital of various persons as income of the assessed.

20. The relevant part of the assessing officer's order is reproduced as given below :

"During the course of search at various premises of assessed-group several documents showing accounts of unrelated individuals were found. In some cases their balance sheet, list of shares, etc., were also found. It is seen that most of these persons are connected with assessed in one way or the other. Shares have been applied for in their names through stock invest a/c of the assessed and other members of assessed-group. Their account also appear in books of accounts of M/s. Ram Swaroop Dass Radha Kishan. The assessed was confronted with these findings and asked to explain his relationship with these persons as also nature of their accounts maintained in his books. It is explanation of the assessed that these people used to apply for shares using loan taken from assessed. To monitor these loans assessed was maintaining their accounts in his books. This explanation of assessed was examined vis-a-vis the seized documents. On basis of investigation conducted during assessment proceedings a close relationship is observed between these persons and assessed. This finding is based on following facts :

(a) Their bank accounts have been maintained in various bank s where they have been introduced by assessed and address of account-holder is mentioned as that of assessed.

(b) Numerous shares of various companies have been acquired in their names from stock invest account by assessed. All these shares have been owned up as his own by assessed.

(c) Entries in various seized documents mention their names along with names of family members of assessed. Deposits, withdrawals, receipts from sale of shares are routinely entered by assessed along with similar data of family members.

In view of above findings these persons are treated as Benami of assessed whose names are used by assessed to introduce capital in business. This conclusion is not diluted by finding, that these are regular assessed with Income Tax Officer, Bhiwani. Examination of returns of income and balance sheet indicates that returns are being filed specifically for maintaining an independent status. No tax has been paid by these persons and capital has been gradually built up. Balance sheet of these persons reveals large loans to various members of family of assessed. There are also numerous loans taken but squared up during relevant accounting period which do not find any mention in any book or even in the recur of income. These loans, which would be utterly invisible in financial statement of affairs, have made funds available to assessed or his family members for investment in shares. All these transactions are completely unverifiable since no documentary records have been maintained. Whatever record was available is claimed to have been destroyed from computer of M/s. Mittal Industrial Corpn. "

21. The departmental Representative relied on the order of the assessing officer.

Commissioner (Appeals) deleted the addition against which the department is now in appeal before us.

22. The entire capital of the following persons was treated as the income of the assessed -.

Name of the assessed

Amount (Rs.)

1. Shri Prem Kumar

75,253

2. Shri Shiv Charan

72,000

3. Shri Shukh Dev

87,872

4. Shri Gauri Shankar

1,96,978

5. Shri Ashok Kumar

78,481

6. Shri Om Prakash

1,52,070

7. Shri Paras Ram

4,713

Total

6,47,147

23. The learned authorised representative has argued that all the above said persons were employees of one or the other concerns of this family. These persons have been applying for various new issues from time to time and they had on request availed the stock invest facility of the assessed. It is submitted that the assessed provided this facility because he had not to make any investment till the share allotment was actually received. On allotment the concerned persons used to pay the requisite amount and delivery of allotted shares was handled by them in their own rights. It is urged that the assessed had no concern or connection with such stocks and shares. It is also pointed out that there was debit balance in the accounts of three persons in the books of M/s. Ram Swaroop Dass Ram Kishan and there is no warrant to treat these persons as Benamidars of the assessed and moreso when they are distinct and regular assesseds on the record of the department.

24. We have examined the rival submissions. Merely because the above said persons happened to be the employees of this group and had obtained the facility of stock invest from the revenue (sic-assessed), the entire capital held by them (including opening balance) cannot be treated as the income of the assessed. It is a fact that shares were applied by the respective persons and wherever the refunds were received without the allotment, the same were in the names of the respective investors and were credited by them in their Bank accounts.

25. On the other hand, whenever the shares were allotted the same were delivered to these persons who owned and possessed them and also effected the sales thereto with proceeds being credited to their own accounts. No material has been brought on record to establish that the assessed at any stage had handled or owned the shares in his own account. It is settled law that the apparent is real and the burden is on the person who alleges that the apparent is not the real. The order of Commissioner (Appeals) is confirmed and the appeal of the department is dismissed on the fifth ground.

26. The sixth ground of the department's appeal is against the action of Commissioner (Appeals) in deleting the disallowance of Rs. 13,620 made under section 40A(3) of the Income Tax Act.

27. As per document No. 1, p. 28, seized from M/s. Mittal Industrial Corporation, the assessed had paid an amount of Rs. 13,630 to a transporter in cash for goods -delivered, Backside of p. 29 of this document showed that the assessed had tried to camouflage this payment by splitting it into two parts each below Rs. 10,000. The assessing officer pointed out that it was unrealistic to expect a transporter to collect his payment through a driver on two different dates. The assessing officer held that the entire amount of Rs. 13,620 had been paid by the assessed in cash on one occasion and accordingly disallowed as expenses and added to the income of the assessed.

28. The learned authorised representative submitted that the impugned amount was comprised of two payments on account of freight, Rs. 5,000 paid on 8-3-1994 and Rs. 8,620 on 9-3-1994. It is explained that the first payment was made when the tanker entered the business premises but could not be emptied due to non-availability of labour. The driver tentatively took away the amount of Rs. 5,000 on that date and the balance was paid on the next day when the tanker was emptied. The learned authorised representative has also submitted that presuming without admitting that the payment was made at one time, the fact remains that the payee had no bank account at the place of payment and the payment otherwise then in cash was not acceptable to the payee. Thus, the payment was fully covered by CBDT's Circular No. 220, dated 31-5-1997. The assessed has also placed reliance on the decision in CIT v. Aloo Supply Co. (1980) 121 ITR 680 (Ori).

29. We have examined the rival submissions. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether. it was out of income from undisclosed sources. The terms of section 40(A)(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not fallen out of the scope of the section. We are in agreement with the order of Commissioner (Appeals) on this point when he deleted the addition made by the assessing officer. The appeal of the department is dismissed on the sixth ground.

30. The seventh ground of the appeal of the department is against the action of Commissioner (Appeals) in deleting the addition of Rs. 23,600 on account of deposits in the assessed's bank account.

31. The assessing officer has pointed out in his order that the assessed had deposited Rs. 23,600 in his account in BOL Bhiwani on 19-3-1994. This deposit was stated to be out of repayment of loan. No evidence of loan or availability of funds on the said date was furnished before the assessing officer. In view of the fact that the assessed had failed in his primary onus of establishing a credit in his account this amount was added to the income as a deposit out of undisclosed income.

32. The authorised representative has submitted that the assessed was to receive Rs. 20,000 from Shri Ashok Kumar which was given during the period 1992-93. Further, interest amounting to Rs. 3,600 had become due on this amount up to 18-3-1994, on which date a cheque No. 0048443 for Rs. 23,600 was issued by the person to repay the loan. This loan was repaid after withdrawing the amount credited with M/s. Ram Swaroop Dass Radha Kishan by account-payee cheque No. 1737068. The learned authorised representative has urged that the source of repayment of loan is duly proved and there is no question of treating the same as unexplained income of the assessed.

33. We are in agreement with the order of Commissioner (Appeals) in deleting the impugned addition made by the assessing officer. The department's appeal is dismissed on the seventh ground.

34. The eighth ground of the department's appeal is against the action of the Commissioner (Appeals) in deleting the addition of Rs. 82,060 on account of income from the estate of late Smt. Ralia Devi, deceased mother of the assessed.

35. Before the assessing officer the assessed filed another return of income in his status as legal heir of late Smt. Ralia Devi. A photocopy of the will was filed during assessment proceedings. The assessing officer pointed out that it suffered from the following defects :

(a) Was not on stamped paper and was unregistered.

(b) Did not have attestation of Notary.

(d) No identification of witness was given.

(e) Thumb impression of Smt. Ralia Devi was completely ........

36. He held the will as not genuine and the returned income of Smt. Ralia Devi was cloned to the income of the Budh Kishore individual, the assessed. The Departmental Representative relied on the assessing officer's order.

37. The learned authorised representative has argued that the alleged reasons, viz., that will is not on stamp paper, is un-registered, (by unauthorized) writer, no identification of witnesses is given and it bears thumb impression of Smt. Ralia Devi, are no grounds to treat the will as non-genuine. It is submitted that under law, a will should either be signed or thumb marked by the executant and witnessed by two persons. It is nowhere required that the will should be either on stamp paper or it should be registered or it should be written by authorized writer or bear attestation of Notary. The learned authorised representative has also urged that presuming without admitting, that the will is considered to be not genuine, the entire income of the estate cannot be taxed in the hands of the present assessed, because in the absence of a will the property left by the deceased shall devolve upon all the legal heirs as per provisions of the Hindu Succession Act, 1956.

38. We have examined the rival submissions. The deficiencies pointed out by the assessing officer will not render the will as non-genuine. The will is a document, which is executed to be used only after the death of the executant. In our opinion the will and last testament of Smt. Ralia Devi who was an income-tax payer during her lifetime cannot be held as non-genuine on the basis of conjectures and surmises. We confirm the action of Commissioner (Appeals) in deleting the addition of Rs. 82,060. The department's appeal is dismissed on the eighth ground.

39. In the result, the department's appeal is dismissed on the first, second, third, fifth, sixth, seventh and eighth ground. It is partly allowed on the fourth ground.