The Commissioner Of Income Tax vs Shri Naresh Kumar Aggarwala
2011 Latest Caselaw 703 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                        I.T.A. NO.225 OF 2004

                  Judgment reserved on : 28.01.2011
%                 Judgment delivered on : 07.02.2011


THE COMMISSIONER OF INCOME TAX                         .... APPELLANT

                     Through: Mr.N.P. Sahni, Advocate

                                Versus

SHRI NARESH KUMAR AGGARWALA                          .... RESPONDENT

                     Through: Mr.Sandeep Sapra, Advocate


CORAM:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L.MEHTA

1.    Whether reporters of Local papers be allowed          Yes
      to see the judgment?
2.    To be referred to the reporter or not?                Yes
3.    Whether the judgment should be reported in            Yes
      the Digest?


M.L. MEHTA, J.

1. This is an appeal under Section 260A of the Income Tax Act,

1961 (hereinafter referred to as ―the Act‖) against the order of

the Income Tax Appellate Tribunal (hereinafter referred to as

―the Tribunal‖) dated 25th July, 2002. By the impugned order,

the Tribunal set aside the order of the Commissioner of

Income Tax (Appellate) [hereinafter, referred to as ―CIT(A)] to

the extent of addition of Rs.8,84,750/- made by the Assessing

Officer (hereinafter, referred to as ―the AO‖).

2. The respondent-assessee is a Stock Broker and also involved

in carrying on the broking business in his individual capacity.

Apart from this, the assessee is also having other sources of

income. A survey action was taken on 16th October, 1992 and

search operation was conducted on 23rd October, 1992

resulting into recovery and seizure of some documents. One

of such documents was a fax messaged dated 24th February,

1992. The assessee filed return of the assessment year 1992-

93 on 6th February, 1993. During the assessment

proceedings, it was found from the books maintained by the

assessee that he had made payment of Rs.13,40,630/- during

the period 1990-91 and 1991-92 for the purchase of property

at ―Spencer Plaza‖ at Madras. However, since as per the

details mentioned in the aforesaid fax message, the total area

of the property, that was purchased by the assessee, was

1327 square feet at the rate of Rs.1,700/- per square feet, the

AO calculated the cost of this property at this rate to be

Rs.22,55,900/- as against the declared payment of

Rs.13,40,630/-. Consequently, he took the difference of

Rs.8,84,750/- as unaccounted investment made by the

assessee in this property. The assessee was given

opportunity to explain, but the AO being not satisfied made an

addition of this amount on account of ―undisclosed investment

in the property‖. For arriving at this conclusion, the AO in his

order recorded as under:-

―14. ............. The assessee was confronted on this point vide this office letter dated 27-9-94. In reply dated 28.12.94 the assessee said as under:

― ... that the above investment is duly reflected in the assessee's account books. As regards fax message of page 19 of the seized annexure B-45 the same has to be read with letter dated 25.2.92 copy enclosed at page 15, as received from the same person, viz Mr.R. Balajee who has issued the fax as referred at page 19 of annexure B-45. From this letter dated 25.2.92, it is clear that he had wrongly mentioned the prices earlier without verifying the facts. It is also pertinent to point out that same fax message, as seized, is quoting the prevailing market price at Rs.1,200/- per square feet in the same building i.e. ―Spencer Plaza‖ We hereby, specifically deny to have made any investment in the space at ―Spencer Plaza‖ over and above, what is recorded in the accounts books.........‖

(14.2) From the reply it is seen that the assessee is relying upon the letter, alleged to have been issued on 25.2.92, a copy of which was enclosed. It is surprising that such paper was not found at the time of search when all other papers were seized. This letter is nothing but an after thought and the veracity of this letter cannot be relied upon. A statement of the assessee was recorded on this point also and the assessee during the course of the statement on 4.1.95 replied as under:-

―..... the fax message is from a very junior member of staff who had recently been recruited for general liaison at Madras. The property was infact purchased before the said person joined our company. He, therefore, had no means of knowing the exact purchase consideration paid by us and as you appreciate such matters are highly confidential and access to the same would not be given to junior member of the staff. He was, therefore, mistaken about the purchase cost and the figures mentioned by him in fax, is pure guess work and conjecture on his

part. I would also point out here that in the same fax, the person also mentions that fresh space in the same building was available at that time at Rs.1,200/- per sq.ft. This would prove that he was either mistaken about the cost of the property or had made an error in drafting the fax.....‖

(14.3) The reply of the assessee and the statement is not at all convincing. Accordingly, the undisclosed investment of Rs.8,84,750/- in the property mentioned above, is added in the hands of the assessee as income of the assessee from undisclosed sources. Penalty proceedings u/s 271(1)(c) have been initiated separately.‖

3. The assessee preferred an appeal against the order before the

CIT(A). The CIT(A) confirmed the order of the AO in this

regard and while doing so examined the letter dated 25 th

February, 1992 purportedly written by the same person, who

had admittedly sent the fax message to the assessee on 24th

February, 1992. While disbelieving the aforesaid letter dated

25th February, 1992 and confirming the findings of the AO, the

CIT(A) recorded as under:

―... This fax message was found during the course of search operations. The other letter purportedly dated 25.2.92 was later produced in assessment proceedings. If this letter had been written at the relevant time this would have been certainly found and seized at the time of search. Such a vital document could not have escaped the attention of the authorized officers. Secondly the letter itself is tailor made to retrieve the damage caused by the seizure of the earlier fax message. Even if the employee had quoted the wrong rate why should he be so apologetic on the very next day? Why should he give the explanation that he had no knowledge of accounts and documents etc? This letter was concocted to merely corroborate the explanation offered by the appellant. This is certainly not the contemporaneous letter and has been

created at a later date. Under the circumstances, there is absolutely no scope for any doubt in the fact that the appellant paid a consideration of Rs.22,55,900/- (1327 sft x Rs.1700) as against the apparent consideration of Rs.13,40,630/-. The AO has rightly made the addition of Rs.8,84,750/- being unexplained payments in the hands of the appellant. The same is confirmed.‖

4. Against this order, the assessee preferred an appeal before

the Tribunal. The Tribunal relying upon the authenticity of the

aforesaid letter dated 25th February, 1992 recorded findings as

under:

―3.4 We have given our thoughtful consideration to the facts of the case by perusing not only the written arguments as made by the appellant before CIT(A) placed at pages 23-25 of the paper book but also the other documents placed on record. After considering the rival submissions and perusal of the entire material on record, we find that no addition cold be made u/s 69 of the I.T. Act merely on presumption basis because no documentary evidence has been brought on record to show that the appellant had passed some money outside the account books with regard to the purchase of the above flat. Various Benches of the Tribunal have held that without any concrete evidence on the record, no addition could be made on presumptive basis. In our considered opinion, letters dated 24/2/92 and 25/2/92 written by the same person Mr.R. Balaji have to be read together. The mere fact that letter dated 25/2/92 had not been seized during search does not mean that the said letter was merely an afterthought because the AO had not examined Mr.R. Balaji. Further the very flat having been sold for Rs.15,26,150/- during the assessment year 1994-95 and such sale price having been accepted by the Revenue itself lends support to the appellant's case that the flat had been purchased for Rs.13,40,630/- as reflected in the seized account books. On the above facts as found, we delete the addition of Rs.8,84,750/-―

5. It is against this order of the Tribunal that the appeal has been

admitted on the following substantial question of law:

(i) Whether the I.T.A.T. has erred in law in interpreting the provisions of Section 132(4A) by ignoring the relevant facts on record that the FAX message seized during the course of search showed that the investment made in the flat was Rs.22,50,900/- and not Rs.13,40,630/- as shown by the assessee in the regular books of accounts?‖

6. Learned counsel for the respondent-assessee submitted

before us that the Tribunal rightly deleted the addition made

by the AO since no addition could be made under Section 69

of the Act merely on presumption basis. He submitted that no

documentary evidence was brought on record by the

Department to show that the assessee had passed more

money outside the account books with regard to the purchase

of the property in question. He urged that no presumption

could have been drawn under Section 132(4A) of the Act

against the assessee in the absence of any documentary proof

in this regard. He also submitted that the letter dated 25th

February, 1992 was by the same person, viz., Shri R. Balajee,

who had sent the fax message on 24th February, 1992 and

both these are to be read together. He submitted that mere

fact that the letter dated 25th February, 1992 was not seized

during the search does not mean that the said letter was an

afterthought. He also submitted that Shri R. Balajee was a

small-time employee and was not aware of the actual

transaction and that is what had been clarified by him vide

letter dated 25th February, 1992 that in his fax message of 24th

February, 1992 the cost of the property in question was

wrongly mentioned at the rate of Rs.1,700/- per square feet.

He submitted that the same property was sold subsequently

for Rs.15,26,150/- during the assessment year 1994-95 at the

rate of Rs.1,150/- per square feet and the same was accepted

by the Department while passing the order under Section

143(3) of the Act for the assessment year 1994-95. He lastly

submitted that his wife had also purchased a property in

Bombay and similar addition was made by the Assessing

Officer, which was deleted by the Tribunal and had been

confirmed by the High Court.

7. The learned counsel for the assessee has relied upon the case

of P. R. Metrani Vs. CIT, 287 ITR 209 and CIT Vs. Rajpal

Singh Ram Avtar Vs. CIT, 288 ITR 498.

8. On the other hand, the learned counsel appearing for the

Department submitted that the fax message dated 24th

February, 1992 was admittedly sent by an employee of the

assessee and there was a presumption against the assessee

as regards the correctness of the contents of this document

and since the assessee has failed to rebut that presumption,

the said document was admissible under Section 132(4A) of

the Act and also the Evidence Act. He further submitted that

it was upon the assessee to rebut the presumption regarding

the contents of the said fax message. He submitted that the

letter dated 25th February, 1992 was nothing but an

afterthought and tailor-made document. He also submitted

that it was for the assessee to examine his employee, R.Balaji,

if at all he was interested to rebut the presumption and in the

absence of the same, adverse inference was to be drawn

against the assessee. With regard to the contention of the

counsel for the assessee regarding the same property having

been sold for Rs.15,26,150/- during the assessment year

1994-95 and the acceptance of the same by the Department,

it was submitted by the learned counsel that the said

transaction is not reliable and does not have any relevance for

the present reference. Likewise, he also submitted that the

transaction entered into by his wife in respect of property at

Bombay is also of no relevance to the facts and circumstances

of the present case.

9. We have given our considered thought to the submissions of

the learned counsel for the parties. Admittedly, R. Balajee

was an employee of the assessee and had sent a fax message

on 24th February, 1992 to the assessee. The assessee has

been trying to come out of this fax message under the shelter

of letter dated 25th February, 1992 purported to have been

written by R. Balajee. As noted above, both the AO and CIT(A)

have, with cogent reasons, disbelieved the aforesaid letter

dated 25th February, 1992. On the other hand, the Tribunal

was of the view that mere fact that the said letter dated 25th

February, 1992 had not been seized in the search operation

does not mean that the said letter was merely an afterthought

especially when AO had not examined R. Balajee. To arrive at

a correct decision, it would be useful to reproduce the fax

message dated 24th February, 1992 and the purported letter

dated 25th February, 1992, which read as under:

Fax Dated: 24.02.1992

―Respected Sri Nareshji;

When I met Mr.Kalyanaraman of Mangaltirth Estates last week regarding our proposed office premises -------

------.

During your last visit to Madras you had discussed with Mr.Kalyanaraman that we need additional space in Spencer Plaza --------------.

These is 3683 sq. ft. of space available on the 6th floor of Spencer Plaza at Rs.1200 sq. ft. for outright sale. This will cost Rs.44,19,600 (3683 sq. ft. x 1200).

Mr.Kalyana Raman says he can sell our already procured 1327 sq. ft. at Rs.2300/- sft which will fetch Rs.30,52,100/-. This will fetch us Rs.7,96,100/- more. In fact, we have procured 1327 sq. ft. at Rs.1700/- and now the present price is Rs.2300/ sft.

In case we proposed to buy the 6th floor space of 3683 sft we may have to shell out Rs.44,19,600/- and that means we have to pay additional Rs.13,67,500/- (44,19,600-30,52,100). The net effect is that we are buying 2356 sft (3683 ft - 1327) at Rs.13,67,500/- resulting in Rs.580/sft (Rs.12,67,500/ 2356 sft)‖.

Letter Dated: 25.02.1992

―Respected Shri Nareshji,

Please refer to my earlier fax of yesterday, I regret that in para 4 I refer to our original cost of procurement at Rs.1,700/- However, when I was discussing the advantages of switching the property with Mr.Kalyana Rama, he clarified that our procurement price was Rs.1,000/- as against the present market price of Rs.2,300/-. The gain we will be making is Rs.17,25,000/- and not Rs.7,96,200/- as started in my earlier fax. The proposal now looks even more attractive than I had thought and I would strongly recommend its acceptance.

Sir, I regret my mistake in the earlier fax and this is because I was not working for the company when the space was procured and all accounts, documents are held in Delhi and I did not even have a copy of the same.‖

10. Having read the fax message and also the letter, we are of the

view that the AO and CIT(A) rightly came to the conclusion

that the letter dated 25th February, 1992 was nothing but an

afterthought and a created document to come out of the rigor

of the fax message of 24th February, 1992. Reading of the fax

message would clearly demonstrate that it cannot be believed

that R. Balajee was a junior official, newly recruited by the

assessee or that he was not aware of the transaction of the

properties of the assessee. Reading the fax message leaves

no iota of doubt that Mr.Balaji was not only instrumental in the

deal of the property but also was authorised by the assessee

to negotiate and finalise the deal with Mr.Kalyana Raman. He

was also aware of the present market price of the property to

be Rs.2,300/- per square feet and had categorically informed

the assessee about the profit that was to be made by

procuring this property at the rate of Rs.1700/- per square

feet. So much so, he also informed the assessee about the

availability of another space measuring 3683 square feet at

the rate of Rs.1,200/- per square feet on the 6th floor of the

building for outright purchase.

11. When we read the purported letter dated 25th February, 1992,

it would lead one to outrightly disbelieve the version of the

assessee as there could not have been any occasion for R.

Balajee to write such a letter on the very next day to the

assessee. Since R. Balalji was none but the employee of the

assessee, there could not have been any difficulty to procure

such a letter at any time after the search and seizure to

wriggle out of the fax message.

12. Section 132(4A) of the Act reads as under:

"132. (4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed--

(i) that such books of account other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person ;

(ii) that the contents of such books of account and other documents are true ; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested."

13. The Hon'ble Supreme Court in the case of P.R. Metrani

(supra) has elaborated the scheme of Section 132 of the Act

by stating that this Section is a Code in itself. It has its own

procedure for search, seizure, determination of the point in

dispute, the quantum to be retained and also the quantum of

tax etc. Sub Section (4A) was inserted by Taxation Law

(Amendment) Act, 1975, which permitted the presumption to

be raised in the circumstances mentioned therein. Before the

insertion of this sub Section (4A), the onus of proving that the

books of account, other documents, money bullion, jewellery

etc. found in possession or control of a person in the course of

a search belonged to that person was on the Department. This

sub-section enables a searching authority to raise a rebuttable

presumption that such books of account, money, bullion etc.

belonged to such person; that the contents of such books of

account and other documents are true, and, that the

signatures and every other part of such books of account and

other documents are signed by such person or are in the

handwriting of that particular person.

14. In the case of Rajpal Singh Ram Avtar (supra), the

Allahabad High Court observed that a paper was found and

seized from the debris in the shop premises of the assessee.

The AO was of the view that the entries in the paper denoted

a principal sum of Rs.1,35,000/- as advance to some person

during the financial year 1982-83 and on which an interest of

Rs.14,645/- was earned. Accordingly, he added both these

amounts to the income of the assessee. The Tribunal set

aside the addition taking note of the presumption deemed

under Section 132(4A) of the Act and held that the assessee

had rebutted the presumption by giving plausible explanation

that neither the partners nor their employees knew English

and they could not read or write in English and further the

said paper was found from the debris in the shop premises

and might have been left by someone and it did not belong to

them. He further recorded that when the partners and

employees had made a statement that they do not know

English, no attempt was made by the AO to cross-examine the

partners or the employees to extract the truth and, therefore,

the explanation offered by them was to be believed. It was,

in these circumstances that the High Court held that the

approach of the Tribunal was in accordance with law and

could not be interfered with.

15. The facts of the case of Mr. Rajpal Singh Ram Avtar (supra)

are distinguishable from the present case. In the said case,

the assessee was able to rebut the presumption by giving

plausible explanation. However, in the present case, no effort

seems to have been made by the assessee to rebut the

presumption. R.Balajee was none but his own employee and

could have been examined so as to enable the AO to extract

the truth. It was on the mis-conception of interpretation of

Section 132(4A) of the Act that the Tribunal held that the AO

ought to have examined R. Balaji. Once there was a

presumption raised on the seizure of the fax message, it was

upon the assessee to rebut the presumption by offering

plausible explanation. As we have noted above, merely

production of letter dated 25th February, 1992 purported to

have been written by R. Balajee would not be enough to rebut

the presumption. We fail to understand as to how the AO

could have brought evidence to show that the assessee had

passed some money outside the account books with regard to

the purchase of property in question. We are also of the view

that if such a letter dated 25th February, 1992 was in existence

at the time of raid, the same could have also been seized or in

any case been explained by the assessee to the searching

party or the Department at the earliest. It was more than two

years later and that too on being confronted by Assessing

Officer that the assessee vide reply dated 28.12.1994 came

out with this letter of 25th February, 1992 and tried to explain

as noted above in para (2).

16. Learned counsel for the assessee also submitted that the

same property was sold subsequently for Rs.15,26,150/- at the

rate of Rs.1,150/- per square feet during the assessment year

1994-95 and the same was accepted by the Department. It

appears that the Tribunal has not cared to examine this

aspect of the matter minutely. We have seen copies of the

two deeds of assignment dated 18th February, 1994, which

would show that the assessee had entered into an agreement

with the builder on 8th September, 1990 to buy an apartment

F-15B admeasuring 663 square feet and on 28th November,

1990 F-15A admeasuring 664 square feet on the first floor of

the building ―Spencer Plaza‖ and vide these deeds of

assignment, the interest in the said two apartments, which

were under construction, was transferred to the assignee,

Mr.Syed Yassin, at the rate of Rs.1,150/- per square feet on

18th February, 1994. These are the properties which were

agreed to be purchased by the assessee from the builder in

September and November, 1990 and were sought to be

transferred to the assignee on 18th February, 1994. The

property, which finds mentioned in the aforesaid fax message,

was sought to be acquired in February 1992. If that was so,

prima facie, it appears that the properties which were sought

to be transferred by the aforesaid deeds of assignment and

which appeared to be different from the property which was

sought to be acquired in February 1992. In any case, even if

the Department has accepted the transaction entered into by

those deeds of assignment, that is a different matter and not

relevant to the present controversy. The contention of the

learned counsel for assessee that other property was available

in the same building @Rs.1200/- per sq. feet, is untenable in

view of the noted fact from the fax message that it was on the

sixth floor, whereas the property in question is on the first

floor. There cannot be any dispute that the prices on first

floor are certainly more than on higher floors.

17. Similarly, if the wife of the respondent-assessee has acquired

some property in Bombay, and addition made by the AO was

deleted by the Tribunal is also of no relevance to the present

case. That was entirely on different set of facts.

18. At last it was also submitted by the learned counsel for

assessee that in case addition is maintained, the same may be

spread over for assessment year 1991-92 & 1992-93 during

which purchase price had been paid. In this regard, it may

suffice to say on our part that we do not think it appropriate to

comment or go into this aspect in the present appeal

proceedings. The assessee may take this plea, if so advised,

in some other appropriate proceedings before the concerned

authority.

19. In view of the above discussion, we are of the view that the

Tribunal has erred in law in interpreting the provisions of

Section 132(4A). We accordingly answer the question in the

affirmative, in favour of the appellant-Department and against

the respondent-assessee. The appeal is disposed of

accordingly.

                                                       M.L.MEHTA
                                                        (JUDGE)


                                                        A.K. SIKRI
FEBRUARY 07, 2011                                        (JUDGE)
'Dev'