Telangana High Court

Sri K. Madhavachary vs Asst.Commissioner Of Itinv0,Hyd on 26 October, 2022

Bench: Ujjal Bhuyan, C.V. Bhaskar Reddy

          THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
                                             AND
             THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY
                                 I.T.T.A.No. 105 of 2004
JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)

        Heard Mr. A.V.Krishna Koundinya, learned Senior Counsel

for the appellant and Mr. B.Narsimha Sarma, learned Standing

Counsel, Income Tax Department for the respondent.

2. This appeal has been filed under Section 260A of the Income

Tax Act, 1961 (briefly 'the Act' hereinafter) by the assessee as the

appellant against the order dated 31.12.2003 passed by the Income

Tax Appellate Tribunal, Hyderabad Bench 'B', Hyderabad (briefly

'the Tribunal' hereinafter) in I.T.(SS)A.No.239/Hyd/1997 for the

block period 01.04.1986 to 12.09.1996.

3. On 25.04.2005, the appeal was admitted on the following

three substantial questions of law:

1. Whether on the facts and in the circumstances of the case, the provisions relating to unexplained investments is applicable to an assessment made under Chapter XIV of the Act ?

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2. Whether the finding of the ITAT that the silver belongs to the assessee is not perverse as there is no evidence to that effect ?

3. Whether the ITAT without deciding the issue whether 400 kgs silver were purchased for cash or received on consignment basis, is correct in coming to the conclusion that the silver belongs to the assessee ignoring the relevant materials on record ?"

4. To appreciate the questions so framed, it would be apposite

to advert to the relevant facts.

5. Appellant before us is an assessee under the Act having the

status of an individual. Assessee carried on the business of

goldsmith as well as trading in gold and silver.

6. A search and seizure operation under Section 132 of the Act

was carried out in the premises of the appellant on 12.09.1996 on

the basis of information received that the appellant was carrying on

clandestine business of trading in silver bullion. As per the

information, the police task force on 11.09.1996 at

about 9.30 p.m. had intercepted one scooter bearing registration

No.AP 10 7035 at Kalasiguda, Secunderabad and found cash of ::3::

Rs.7 lakhs in the possession of Mr. J.B.Welsey and

Mr. A.Venkateswarlu, riders of the said scooter. On interrogation

by the police, they stated that the seized cash was given to them by

the appellant to hand over the same to one Sri Mahendra Dubey,

who was staying in a hotel in Secunderabad. They further stated

before the police that an amount of Rs.3.88 lakhs and silver

weighing about 30 kgs kept in two gunny bags were in the custody

of the appellant at his residence. Subsequently, the police task

force led by the above two persons went to the residence of the

appellant wherein cash to the extent of the aforesaid amount and

silver were found. Appellant did to produce any bills, documents

or records with regard to possession of such cash and silver.

7. Following the aforesaid search and seizure, appellant was

subjected to assessment for the block period from 01.04.1986

to 12.09.1996 whereafter, assessment order was passed

on 30.09.1997 under Section 158 BC read with Section 143(3) of

the Act. By the aforesaid order, the assessing officer treated the

amount of cash and silver found in the residence of the appellant as ::4::

undisclosed income which was quantified at Rs.37,37,163.00 for the

block period 01.04.1986 to 12.09.1996.

8. Against the aforesaid order of assessment for the block

period 01.04.1986 to 12.09.1996, appellant preferred the related

appeal before the Tribunal. Tribunal vide the order

dated 31.12.2003, dismissed the appeal of the appellant. Aggrieved,

the present appeal has been preferred by the appellant/assessee.

9. According to learned Senior Counsel for the appellant, in

view of the report of the investigation wing of the Income Tax

Department, Ahmedabad, it was a case of further/deeper

investigation by the assessing officer to ascertain genuineness of the

transaction. Instead of further/deeper investigation, assessing

officer passed the order of assessment.

10. Insofar the order of the Tribunal dated 31.12.2003 is

concerned, learned Senior Counsel submits that Tribunal fell in

error in relying upon the presumption under Section 132 (4) of the

Act. He submits that the said proviso does not provide for any ::5::

such presumption that any books of account, documents, money,

bullion, jewellery etc., found in the possession or control of any

person in the course of search may be presumed as belonging to

such person. In fact, such presumption is traceable to sub-section

(4A) of Section 132 of the Act. But the moot point according to

him is that such presumption cannot be drawn in the course of

regular assessment. It operates during search proceedings. In

support of such contention, learned Senior Counsel has placed

reliance on a decision of the Supreme Court in P.R.Metrani v.

CIT1.

11. On the contrary, Mr. B.Narsimha Sarma, learned Standing

Counsel, Income Tax Department submits that it was a clear case

of unexplained investment by the appellant. The modus operandi of

the appellant was clearly set out by the assessing officer. No other

conclusion can be drawn on the basis of the admitted facts. Insofar

drawal of presumption under Section 132(4A) of the Act is

concerned, he submits that the said presumption was not acted

upon in the course of assessment proceedings as the assessing

[2006] 287 ITR 209 (SC) ::6::

officer was clear that it was a case of unexplained investment. The

case law cited by learned Senior Counsel is also distinguishable.

12. In the facts and circumstances of the case, learned Standing

Counsel submits that the questions framed cannot be said to be

substantial questions of law inasmuch as there is no perversity in

the findings recorded by the assessing officer as well as by the

Tribunal. Therefore, the appeal is liable to be dismissed.

13. We have heard learned counsel for the parties and considered

the rival submissions.

14. We may first deal with the order of assessment

dated 30.09.1997 passed by the respondent for the block

period 01.04.1986 to 12.09.1996.

15. The main issue before the assessing officer was the

clandestine operation in silver bars and unexplained investment of

the appellant. Assessing officer found that in addition to

unexplained cash of Rs.10.88 lakhs, there was consignment of silver

to the extent of 400 kgs which was construed to be investment ::7::

from unexplained sources. In this regard, assessing officer

considered the report of the investigation wing of the Income Tax

Department and thereafter recorded as follows:

CLANDESTINE OPERATION IN SILVER BARS AND UNEXPLAINED INVESTMENT IN THIS BUSINESS :

At the outset, it is to be mentioned here that the assessee has never disputed the receipt of 400,152 kgs. of silver from Ahmedabad. The modus operandi of the dispatch, the subsequent delivery at the residence of the assesses has already been discussed in detail in the preceding paras. The point in dispute however is the claim of the assessee that he had received the said silver on consignment basis from the Ahmedabad party for effecting consignment sales locally at Hyderabad. He has claimed to have indulged in such consignment sales roughly for one and half years prior to the date of the search.

In his sworn statement dated 30-9-1996 he maintained that he was earning commission on the clandestine business of silver @ Rs.5 per kg. of silver from both sides i.e., from the purchaser and the seller. He has further stated that (during the course of his deposition on 30-9-1996), he was receiving and disposing 400 kgs. of silver per week on an average, which is roughly 20,800 kgs. or 20 tonnes of silver per annum. Except for stating as above, the assessee has at no point of time been able to furnish any details regarding receipt of silver by him for sale on consignment. Despite being given ample opportunities during the course of search proceedings as well as assessment proceedings, he had not been able to ::8::

furnish single address to whom he has sold sliver on consignment basis. He has no records regarding receipt and sale of silver bars for so-called consignment business. He has not been able to produce a single receipt evidencing receipt of silver by him on consignment basis from any party and similarly no documentary proof could be ever furnished by him regarding his claim of consignment sale. Therefore the claim is rejected.

On the contrary the assessee in unequivocal terms has admitted to have received 400.152 kgs. of silver on 11-9-1996 from M/s. Ghanshyam Silver (Proprietor Mr. Mahesh alias Mr. Ravi), which is also evidenced by the Way Bill and Cash Memo issued by M/s. Ghanshyam Silver for the said transaction.

To verify the claim of the assessee that the receipt of the said silver From M/s.Ghanshyam Silver was on consignment basis, investigations were carried out by the ADI (INV), Ahmedabad. The report of ADI (Inv) after conducting necessary Investigations in the matter, which is reproduced in full as an Annexure to this order, nails the claim of the assessee.

The ADI (Inv) in his report has stated that the closing of stock of silver as per books of account maintained by M/s.Ghanshyam Silver (Proprietor Mahesh P.Patel, alias Mr. Mahesh alias Mr.Ravi) on 9-9-1996 was 576.953 kgs. out of which he had sent 400.152 kgs. of silver to the assessee. The ADI (Inv) has further reported that it was claimed by M/s.Ghanshyan Silver that the said amount of silver was sent to Sri K.Madhavachary on consignment basis and that too on credit, although it was admitted by the Proprietor viz.. Mr. Mahesh Patel that he does not send goods on credit to ::9::

unknown parties. These statements of Mr. Mahesh P.Patel, Proprietor of M/s.Ghanshyam Silver claiming that the impugned silver was sent on credit on consignment to Sri K.Madhavachary are hard to swallow inasmuch as while further examining the Sales Register at Page No.38 it was noticed by the ADI that against bill No.4631 the name of Sri K.Madhavachary was introduced by erasing the name of somebody else. When the fact of erasure was confronted to the assessee eliciting his explanation on the issue vide letter dated 29-8-1997 it was replied by him that what was stated by the Ahmedabad party did not concern him, further adding that the Ahmedabad party has sent the silver to be sold on consignment basis only.

Be that it may, the claim of consignment trading by the assessee has already been rejected in view of detailed discussion made in the preceding paras. Even the claim of the supplier of the said silver i.e., M/s.Ghanshyam Silver by making an erasure in its books and entering the assessee's name just for the sake of indicating sale on consignment in no way gives any credence to the claim of the assessee, inasmuch as, to repeat the assessee has never been able to furnish any details with documentary evidence regarding his purchase and sale of silver bars on consignment basis.

The inevitable conclusion that can be drawn from a perusal of the facts of the case, detailed out above, and in the face of the failure on the part of the assessee to adduce any corroborative evidence regarding his claim of consignment silver transaction, is that the assessee has been clandestinely purchasing and selling silver bars.

Since the assessee has not maintained any stock transaction, it can be reasonably inferred that the investment ::10::

made by the assessee with regard to purchase of the said silver of 400.152 kgs. from the Ahmedabad party was out of his unaccounted sources, the value of which is Rs.29,41,117/- (400.152 kgs. of silver X Rs.7,350/-). Reference may be made to the connected way bill and cash memo (Pages 54 & 55 of Annexure KMC/B/5).

Even the claim of Sri Mahesh P.Patel of M/s. Ghanshyam Silver that the said silver was sent to the assessee on credit basis is unacceptable as the assessee himself has stated several times during the course of his depositions dated 27-8-1997 that such transactions were always conducted by him in cash. Relevant excerpts are reproduced below:

Qn.No.17: What is the mode of payment to the suppliers? Ans: The business is mainly transacted in the form of cash. I have never paid anybody in the form of cheque or D.D.

Qn.No.26: Mr.Dubey, driver of the jeep which brought 400 kgs. of silver from Ahmedabad, has stated in his sworn statement that Trilokchand of Bombay instructed him to get a D.D and not cash for the said silver. What do you have to say about this? Ans: I always paid in cash only. I have never given D.D. to any outstation party. ..........

Qn.No.48: Do you confirm that you have never taken a D.D for your business purposes to be paid to the supplier? Did you always pay your suppliers in cash?

Ans: Yes.

Thus, as per his own admission on oath, his entire clandestine transactions of purchase and sale of silver has been ::11::

through the mode of cash payment only. Added to these sworn averments is also the fact that for the impugned transaction of 400.152 kgs. of silver, the supplier i.e., Mahesh P.Patel, Proprietor M/s. Ghanshyam Silver, Ahmedabad has issued a cash memo in favour of the assessee vide cash memo dated 10-9-1996 (Page 55 of Exhibit KMC/B/5).

It is interesting to note that the said cash memo dated 10-9-96 was faxed to the assessee on 12-9-76 i.e., on the date of the Search. To a related query (the statement of the assessee dated 18-9-96), he has replied as under: Qn. Please state when such copy has been received by you and the number on which fax message has been sent?

Ans: I have received the copy (Fax) around 9 p.m., on 12-9-96. I do not remember the fax number as it has been delivered at my residence by some unknown persons and the same has been handed over to me by my daughter around the mentioned time.

Qn: Do you know any persons belonging/related to the Ahmedabad party stationed at Hyderabad/Sec'bad ? If not, how could you rely upon the Information received/given by unidentified/unknown party.

Ans: I do not know any such party. The Ahmedabad party after enquiring in the market has handed over the bill copy at my residence. Beyond that, I do not have anything to say.

Qn: Please refer to Page Nos. 54 and 55 of annexure KMC/B/5 which are nothing but way bill from Ghanshyam Silver of Ahmedabad dated 9-9-96 ::12::

and the cash memo faxed by M/s.Ghanshyam Silver on 12-9-96 at 1420 Hrs. dated 10-9-96. How do you explain their relation in the light of the post dated reference of cash memo (10-9-96) in a way bill dated 9-9-96.

Ans: I cannot explain all these things. Ahmedabad party will be able to explain this as it was their responsibility......

It may be specifically mentioned here that during the course of post search enquiry conducted by the Investigation Wing at Ahmedabad, it was conclusively proved by them that the said Ahmadabad party had made interpolations in its books of accounts to accommodate the assessee. (Please refer to the discussions made at Para-5.1 above). Coupled with this is the fact that after the receipt of the impugned silver, the assessee has never made the payment for the said silver either through cheque or Demand Draft subsequently. Therefore, the mention of the words "Please send cheque/Draft" on the way bill and mention of the words "Debit on your account" on the cash memo is nothing but a deliberate attempt by the assessee and the said Ahmedabad party to mislead the investigation that the impugned transaction was not colourable but was a normal accounted business transaction. In view of the post dated nature of the faxed cash memo, the date of which contradicts with the date mentioned on the way bill, coupled with the findings of the investigation that the Ahmedabad party had made interpolations to accommodate the assessee, coupled further with the admitted stand of the assessee that his entire transactions of purchase and the sale of silver was always through the mode of cash it is but inevitable to conclude that the assessee had in fact purchased the ::13::

impugned silver from the said Ahmedabad party out of his unaccounted cash.

Keeping in view the discussions made above and evidence on record it is conclusively proved that the assessee had invested an amount of Rs.29,41,117/- towards purchase of silver bars weighing 400.152 kgs. from Mahesh P.Patel, Proprietor M/s.Ghanshyam Silver, Ahmedabad. As the above cash transaction not rooted through any books of account of the assessee the name is treated as unexplained investment and therefore as his undisclosed income for the period from 1-4-1996 to 12-9-1796.

On the date of the Search i.e. on 12-9-1996, the assessee was found to be in possession of only 136.06 kgs. of silver out of 400.152 kgs. of silver purchased by him. On being confronted he has confessed to have sold out the balance of 264.092 kgs of silver to various parties. Local enquiries made during the course of the assessment proceedings indicates that net profit in such a line of business is roughly around 5%. Adopting the same rate the net profit earned by the assessee from sale of 264.092 kgs. of silver is estimated at Rs.97,053/- (5% of 264.092 kgs. X Rs.7,350/-).

It may be mentioned here that the assessee was never able to prove the source of the cash found on the date of the search except for stating that the same was out of sale proceeds of silver.

It is highly improbable that within three hours in the evening of 11-9-96 i.e., from the event of unloading of the impugned silver at the residence of the assessee upto the event of interception by the Police Task Force the assessee could realise cash of Rs.10 lakhs from purchasers particularly when he has not named or identified anyone as his customers.

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Since, however, the entire investment in the impugned silver of 400 kgs. is held to have been made out of his undisclosed income no separate addition is proposed towards the explained cash of Rs.10.08 lakhs."

16. Thus the assessing officer held that the entire transactions

relating to alleged purchase of silver from one Mahesh P.Patel,

proprietor of M/s.Ghanshyam Silver, Ahmedabad were shady,

outside the books of account and remained unexplained. Thus,

those were treated as unexplained investments. Before the

Tribunal, it was argued that assessing officer was not justified in

making the addition of Rs.37,37,163.00 as undisclosed income.

However, Tribunal rejected the contention of the appellant in the

following manner:

Heard both sides. Read all the papers on record and the orders of the authorities below. The entire operation in this case, appear to be dubious and clandestine. The assessee has not earlier conducted transactions with either Mr. Trilokchand Jain or with Ghanshyam Silver, Ahmedabad, as stated by him in reply to Question No. 15, at page-4 of the departmental paper book. The fact that certain drivers of the taxi-stand were engaged by these persons, called Trilokchand Jain as well as Mahesh Pratap Dubey alias Ravi of Ghanshyam Silver for carrying goods worth about Rs.30 lakhs of rupees by road, throws a lot of suspicion as to the type of activity carried on by the assessee. It is claimed that there is a way bill issued by ::15::

Ghanshyam Silver. It is not known whether Mr. Madhavachari has sales tax registration etc. at Hyderabad or whether this Mahesh Pratap Dubey alias Ravi of Ghanshyam Silver has CST Registration of branches at Hyderabad. When Madhavachari is not a dealer under the Sales Tax Act at Hyderabad, we do not see how a way bill can be made out by Ghanshyam Silver in favour of Madhavachari, on the ground that this is a consignment sale. Anyhow, this aspect has not been examined by the revenue authority and thus, we cannot come to any conclusion, though to our mind, this document appears to be colourable. The very fact that lakhs of rupees of goods are being sent by road, through some taxi drivers, who are not regular employees that too, to unknown people, who have admittedly, not transacted or known each other before, and also the fact that the entire sales are made in cash i.e. outside banking channels and also the stated fact that this huge amount of cash is to be handed over to these taxi drivers for being taken back to Ahmedabad and to be handed over to the seller does create serious doubts on the genuineness, openness and they being regular business transactions. Admittedly, Shri Madhavachari, the assessee, never maintained regular books of account reflecting these transactions. No details of the purchasers of these silver are available. No receipts or invoices with valid sales tax numbers are issued either by Ghanshyam Silver or by Madhavachari in favour of the purchases. Under these circumstances, we are not convinced with the argument of the learned counsel for the assessee that these transactions are regular transactions, which cannot be a matter of block assessment.

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18. Tribunal noted that the cash and the silver in question were

found in the possession of the appellant during the course of the

search and seizure. After taking note of the transactions, Tribunal

observed that it was dubious and clandestine. The transactions

were not reflected in the books of account; those were done

through unknown taxi drivers, entire cash being handed over to

them. Therefore, Tribunal rejected the contention of the appellant

that those were regular transactions.

19. Insofar presumption under Section 132(4) of the Act is

concerned, it is true that Section 132(4) of the Act does not refer to

such presumption which is available in sub-section (4A) of

Section 132 of the Act. It is trite that wrong mentioning of a

section would not invalidate an action in law if the power is

traceable to a valid source. Tribunal noted that appellant did not

lead any proper evidence to rebut the presumption that the silver

belonged to him. This was also stated in the report of the

investigation wing. Further, contrary to what is being contended,

reference to Section 132(4) (sic) of the Act was at the stage of ::17::

search and seizure and not during the assessment proceeding.

Thereafter, Tribunal held as follows:

From these reports, it is evident that M/s Ghanshyam Silver tried to accommodate the assessee by altering the books of account. Thus, it is very clear that but for these search operations, these transactions would have escaped and never have been brought to tax.

20.1) It is found by the revenue that the assessee has not maintained any books or vouchers in his business.

2) There is no name board whatsoever on the shop owned by him nor there is any trace of the business being conducted from the shop and that it is strange that for a person having a turnover of Rs.15 crores per annum, business could be carried out in such secretive and clandestine manner.

3) The details of the customers and supplier with full addresses and confirmations were not furnished.

4) Neither the details of purchases nor details of sales are recorded in the regular books and that on the contrary, the entire details of purchases and sales are written down in a small book in a coded form, which is always in the personal control of the assessee.

5) The way bill dt. 9-9-1996 for 400 Kgs of silver brought from Ahmedabad is not numbered and whereas the cash memo No. 4631 is dated 10-9-1996 i.e., one day after the issue of way bill.

6) No sales tax has been paid during the block period on the sale of silver and gold.

Though the statements of the taxi drivers Ramasharan Pal and Mahendra Pratap Dubey as well as the sworn statement of Sri K.Madhavachari point to the fact that the silver was in fact ::18::

handed over by Ganshyam Silver i.e., by Mr. Mahesh Patel alias Ravi at the instance of Shri Trilokchand Jain, Bombay, there is no proof that these assets belong to Ghanshyam Silver nor to Trikchand Jain. Alterations and corrections in the books of Ghanshyam Silver pointed out by the ADIT(Inv), Ahmedabad show that this might have been unaccounted stocks of silver and basing on the presumptions u/s 132(4) of the Act, we hold that the assessing officer was right in making an addition of Rs.29,41,117 in the hands of the assessee. The judgments relied upon by the learned counsel for the assessee i.e. the case of Sunder Agencies supra, has no application to the facts of the case as we have held that this is a clandestine operation being conducted in a secretive manner and as the assessment is based on the material seized during the search. Thus, these grounds of the assessee are dismissed.

20. Tribunal noted that appellant had not maintained any books

or vouchers while carrying on his business which he claims to be

his regular business. The premises from where he stated that he

had carried on his business did not have any name plate or any

indication to show that the business of jewellery was being

conducted from the said premises by the appellant. Details of

customers and suppliers were not available with the appellant. So

also, details of purchases and sales. The way bill dated 09.09.1996

for bringing 400 kgs of silver from Ahmedabad was not found to ::19::

be numbered whereas the cash memo was issued a day after the

issue of way bill. That apart, no sales tax was paid for any of the

purchases made by the appellant during the block