Prem Chand Dhandania, Kolkata V. DCIT, CC-1(2), Kolkata, Kolkata

CO 16/KOL/2022

AI Insights

The case involves appeals by the revenue against the orders of the CIT(A) which had deleted additions made by the AO on account of unexplained investments and income from penny stocks for the assessment years 2012-13 and 2013-14. The AO had made these additions based on documents seized during a search operation under section 132(1) of the Income Tax Act, 1961, which were alleged to contain details of unaccounted cash loans and transactions. The CIT(A) found that the explanations provided by the assessee regarding the seized documents were logical and supported by other evidence, leading to the deletion of the additions. The Tribunal, after reviewing the materials and arguments presented, concurred with the CIT(A)'s decision and dismissed the revenue's appeals.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127318 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Assessee
• Order Result: DismissedAllowed
• Bench Allotted: C
• Next Hearing Date: 12-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 25-09-2022
• Other Referred Cases: CIT vs. Kabul Chawla
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Loose papers; Document seized; Corroborative evidences; Penny stocks; Documents seized
• Section: 68; 153A; 69A; 64

Judgement Text

आयकर अपील य अ धकरण, कोलकाता पीठ ‘‘बी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA ी राजेश क ु मार, लेखा सद य एवं ी संजय शमा , या यक सद य के सम [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.(SS).A. Nos. 64 & 65/Kol/2022 Assessment Years: 2012-13& 2013-14 DCIT, Central Circle-1(2), Kolkata Vs. Prem Chand Dhandhania (PAN: ADLPD 9814 D) Appellant / (अपीलाथ ) Respondent / ( यथ ) C.O. Nos. 15 & 16/Kol/2022 (Arising out of I.T.(SS).A. Nos. 64 & 65/Kol/2022) Assessment Years: 2012-13 & 2013-14 Prem Chand Dhandhania (PAN: ADLPD 9814 D) Vs. DCIT, Central Circle-1(2), Kolkata Appellant / (अपीलाथ ) Respondent / ( यथ ) Date of Hearing / स ु नवाई क" त$थ 13.02.2023 Date of Pronouncement/ आदेश उ'घोषणा क" त$थ 31.03.2023 For the Appellant/ नधा -रती क" ओर से Shri Akkal Dudhwewala, FCA For the Respondent/ राज व क" ओरसे Shri G. Hukugha Sema, CIT 2 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania ORDER / आदेश Per Rajesh Kumar, AM: These are the appeals preferred by the revenue and cross objections by the assessee against the separate orders of the Ld. Commissioner of Income Tax (Appeals)-20, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 27.06.2022 for the AY 2012-13& 2013-14. 2. First we shall adjudicate in IT(SS)A No. 64/Kol/2022 in AY 2012-13. The only issue raised by the revenue has challenged the deletion of addition by the Ld. CIT(A) of Rs. 2,37,40,652/-as made by the AO on account of unexplained investment u/s 69A of the Act. 3. Facts in brief are that the assessee filed return of income on 20.07.2012 disclosing total income of Rs. 9,35,510/- A search action u/s 132(1) of the Act was conducted on 19.11.2015 in case of Dhandhania Group and assessee was also covered under the said search. A notice u/s 153A of the Act was issued on 19.01.2017 and duly served on the assessee which was complied with by filing return of income on 22.02.2017 declaring total income of Rs. 9,35,510/- . The AO upon perusal some incriminating material having ID PCD/04 found during the course of search on 19.11.2015 came to the conclusion that the assessee was involved in providing cash loans to some parties which were not recorded in the books of accounts. The said documents was extracted by the AO on page no. 2 and 3 of the assessment order which showed that the assessee has provided cash loans to M/s Raj Kumar Agarwal of M/s Sri Jagadamba Ginning and Pressing Pvt. Ltd. The said document contained the details as to date and distribution of loans to various parties and in the second last column “ to others” amounting to Rs. 16,39,62,000/- as on 30.11.2014. Accordingly AO issued show cause notice to the assessee stating therein that some loans transactions to M/s Sri Jagadamba Ginning and Pressing Pvt. Ltd. qua which complaint has been made to the Director General of Police, Telengana vide letter dated 25.10.2014 and called upon the assesse to explain the said transactions failing 3 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania which would be resulting into treating the same as undisclosed income in the hands of the assessee based on the seized material which was replied by the assessee by submitting that i) compliant was never filed before the Director General of Police, Telengana and documents seized were only a draft unsigned copy of the compliant and ii) only receivables as on 31.10.2014 from Lincoln Industries Ltd. and Original Commotrade Pvt. Ltd. were Rs. 1,70,27,701/- and Rs. 8,98,60,949/- respectively which was out of banking channels duly undisclosed in the respective books of accounts. The assessee further replied on the seized documents PCD/4 page no. 46 which contained breakup of the money receivable from Lincoln Industries Ltd., Original Commotrade Pvt. Ltd., P & P Highrise Pvt. Ltd. and Others aggregating to Rs. 16,00,00,000/- and submitted that the parties mentioned in this seized documents were on group entities where the above money is duly recorded. So the controversy only arose with regard to a sum of Rs. 7.85 crores which was mentioned across “orgwea”. According to assessee, as per seized document PCD/3 copy of which is filed at page no. 65 of PB, this amount related to farmers and not to the assessee. According to said seized paper, the details were available in respect of farmers to the tune of Rs. 3,10,00,000/- and the same was also given at page 4 of assessment order. The AO examined and analyzed the said documents and accepted the fact that the loans given to group companies were duly reflected to the books of accounts of the assesse while treating the amount to the tune of Rs. 4.75 crores as unexplained by giving a reasoning that out of total amount of Rs. 7.85 crores as stated in front of “to others” only the amount of Rs. 3.10 crores were explained by seized documents PCD/3 on which ten farmers were mentioned and held that the balance amount was funded out of undisclosed income in cash. The AO made addition in two years as per calculation given at page 5 of assessment order Rs. 2,37,40,652/- in AY 2012-13 and Rs. 2,37,59,348/- in AY 2013-14 accordingly the same was added to the income of the assessee u/s 69A of the Act. 4. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: 4 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania 3.3 I have carefully considered the facts of the case and submission of the appellant. After going through the explanation furnished by the appellant I am convinced that appellant has provided a logical explanation which is acceptable on facts. Initially, AO had the suspicion that the notings on the seized document, page No.1 of PCD/04 was in respect of cash loans given to M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. out of unaccounted income. However, assessee successfully demonstrated that the amounts shown outstanding in the names of Group companies were already reflected in the books of account. Even, AO has accepted this explanation. Dispute is only regarding the part amount shown in the names 'others’. Even, in this regard, assessee has pointed out to another document seized in the same search which contains the list of 10 persons along with the outstanding amounts. As per assessee’s explanation, these persons along with other individuals suppliers / lenders had also given money to M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. or amounts were recoverable from that company on account of business dealings, as these individuals also happened to be suppliers to that company. AO has accepted the genuineness of the amounts outstanding in the name of these 10 individuals but for the balance amount AO holds that these are cash loans given by the assessee to M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. This presumption on the part of the AO is not supported by any evidence found during search. There is no evidence regarding loans being given in cash to M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. Besides, the exact amount of receivable by the Group companies have been clearly mentioned in that document. If assessee or any other person of Dhandhania Group would have given loan to M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. then it is quite logical that such receivable amount would have been indicated against the name of the concerned person, as has been done for theGroup companies. There is no reason as to why assessee would mix his accounts with other individuals when in the same document he has separately marked the names of the Group concerns to which M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. owed money. Assessee has explained that when M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. defaulted on repayment of loans to Dhandhania Group and other individuals, to put pressure on the defaulting party and ensure recovery a united front was presented to negotiate with the defaulter party. Dhandhania Group being one of the leaders in the trading of cotton and related products, assessee had taken the lead to negotiate for recovery of money of Dhandhania Group as well as other lenders / creditors. The individuals constituting ‘others’ group were individuals/farmers of small means and the outstanding amount was compiled on the basis of information provided by those individuals, without verifying the actual outstanding amount. Even in the cases of 10 individuals whose outstanding amounts have been accepted as genuine, AO has not found any elements of cash loans. Assessee has explained that seized papers contained only partial statement of the individuals who were supposed to receive money from M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. If the entire statement was available, names of other individuals and the outstanding amounts would have been evident. These names were gathered, when assessee and others were contemplating filing a police complaint. These individuals were not connected with assessee group. Whatever details were collected, these partially remained with the loose papers in assessee’s premises. Perusal of the notings on the seized paper, shows that dues of assessee group companies are clearly marked and distinguished from the dues of others. Besides AO himself has accepted the genuineness of money receivable from M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. in the cases of 10 individuals, whose receivable amounts are clubbed in ‘others' category. Assessee has already explained that all these individuals were not known to him. They had come togetherfor a common purpose of recovering their dues from M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd. and at that time filing of police complaint was being contemplated. That time details of outstanding amounts were collected to get an idea of money owed by M/s. Sri Jagdamba Ginning and Pressing Pvt. Ltd., as this would have helped in better negotiation. As police complaint was not filed, the common purpose of coming together was no longer there and assessee had no 5 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania contacts with most of such individuals. In my opinion, assessee has been able to logically explain the contents of the seized document and no adverse inference should be drawn against the assessee for not being able to furnish the details of other individuals. The case laws relied upon by the assessee hold that additions cannot be made on the basis of mere notings on loose papers without any corroborative evidences. In appellant's case, there is no evidence of any cash loan given by the assessee. On the other hand, assessee’s explanation appears logical. Besides, there is no evidence either that Shri Premchand Dhandhania, the assessee, has given any cash loans to M/s Sri Jagadamba Ginning and Pressing Pvt. Ltd. Assessee’s explanation have been partially accepted by the AO but AO has not given any reasons as to why explanation for the entire amount cannot be accepted. As there is no evidence of any cash loans and also the fact that assessee has been able to furnish logical explanation on the basis of other seized documents itself and the fact that AO has not been able to point out any discrepancy in the explanation of assessee, additions made on presumptions are not sustainable. In view of the above discussion, addition of Rs. 2,37,40,650/- is deleted.” 5. We have heard the rival contentions of both the parties and perused the material on recordas placed before us. The revenue has assailed the deletion of addition by ld CIT(A) of Rs. 2,37,40,650/- on the ground that the despite there being sufficient incriminating seized materials marked as PCD/04 titled as “Statement of Dues M/S Sri Jagdamba Ginning and Processing Pvt Ltd.” during search which contained the description of amounts relating various parties and to others The said statement contained the details of amounts mentioned against several parties which were group concerns of the assesse besides in the second last column under the heading “to Others”. The amounts mentioned against the group entities of the assesse were duly accounted for whereas Rs. 7,85,00,000/- stated to be belonging to others who were small farmers/suppliers. There was reference to other seized material also marked as PCB 3 page 3 which summaries 10 parties along with amounts mentioned against each of them which aggregated to Rs. 3,10,00,000/-. The assesse explained before the AO that these are small farmers/ suppliers who have claims/receivables against M/S Sri Jagdamba Ginning and Processing Pvt Ltd. The assessee explained before the AO that he has nothing to do with the said amount of Rs. 7,85,00,000/- and since he being the leader in the cotton industry , the small farmers/suppliers jointed together to take up the issues of recovery of dues from Sri Jagdamba Ginning and Processing Pvt Ltd. The AO accepted the said explanation of 6 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania the assesse as regards Rs.3,10,00,000/- which was mentioned against 10 parties in PCB 3 page 3 and after allowing the credit of this amount a net addition of Rs. 4,75,00,000/- was treated as loans advanced by the assesse out of cash for which the assesse did not offer any explanation whereas the assesse denied the said money belonging to him and stated to be amounts relating to small farmers/suppliers. Thus the AO accepted the explanation of the assesse partly. 6. The Ld. Counsel of the assessee has vehemently stated that the AO has accepted the explanation of the assesse with regard to ten farmers to whom the aggregate amounts of Rs. 3,10,00,000/-pertained however in respect of balance amount of Rs. 4,75,00,000, the AO wrongly held that the assessee gave cash loans to M/s Sri Jagdamba Ginning and Pressing Pvt. Ltd. We note that the Ld. CIT(A) has accepted the plea of the assesse by recording a finding that the action of AO is not supported by any incriminating material or other substantive materialbeing brought on records and is just a presumption of the AO especially when the amounts mentioned in the name of the sister concerns were duly entered and accounted for. The Ld. CIT(A) held that if the loan had been given by the assessee i.e Dhandhania group to M/s Sri Jagdamba Ginning and Pressing Pvt. Ltd. then the amount would have been mentioned as have been done in the case of group companies mentioned in the seized documentPCD/04. The Ld. CIT(A) has accepted the contentions of the assessee that this amount did not relate to the business of the assessee and in fact related to small farmers who were growing cotton and related products and assessee had negotiated the recovery of money of Dhandhania Group as well as these petty farmers/suppliers as he was the leader of the cotton growers association. The Ld. CIT(A) has accepted the contention of the assessee that these farmers were not actually known to the assessee and assessee in the representative capacity was negotiating for the recovery of money of these farmers. As regards the complaint to DG Police, the Ld. CIT(A) noted that the complaint was never filed and therefore held that no adverse inference could be done against the assessee for not furnishing the details of other individuals. The Ld. CIT(A) further noted that no addition could be 7 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania made on the basis of notings and loose papers without any corroborating material as there was no evidence on records. Besides there being no evidence that Premchand Dhandhania had also given loan to M/s Sri Jagdamba Ginning and Pressing Pvt. Ltd. and thus the Ld. CIT(A) rejected the reasoning given by the AO to make addition. We have also examined the seized documents , analyzed them and do not find any reason to deviate from the conclusion as drawn by the Ld. CIT(A) on this issue. In our opinion, the assessee has explained the transactions as contained in loose papers which were duly recorded in the books of account of the group concerns and as regards the other loans in respect of which addition has been deleted by the Ld. CIT(A), we find that the Ld. CIT(A) passed a reasoned and speaking order while deleting the addition. Therefore we do not find any reason to deviate from the findings given by ld CIT(A). Accordingly the order of ld CIT(A) is upheld and grounds raised by the revenue are dismissed. 6. The assessee has also filed cross objection being CO No. 15/KOl/2022 raising the issue that there being no incriminating material qua the addition made by the AO. At the time of hearing the CO was not pressed and is accordingly dismiss. IT(SS)A No. 65/Kol/2022 for AY 2013-14. 7. Issue raised in ground no.1 is similar to one as decided by us in IT(SS)A No. 64/Kol/2022 wherein the appeal of the revenue is dismissed by upholding the order of CIT(A). Our decision in the said appeal would, mutatis mutandis, apply to ground no. 1 in IT(SS) A No. 65/Kol/2022 and accordingly we uphold the order of Ld. CIT(A) by dismissing the ground no. 1. 8. Issue raised in ground no. 2 is against the deletion of addition of Rs. 88,66,494/- by ld CIT(A) as made by the AO on account of sale of penny stocks. 9. Facts in brief are that during the course of assessment proceedings, the AO noticed that the assessee has earned long term capital gain of Rs. 86,16,494/- having sale consideration of Rs. 88,66,494/- from sales of shares of CCL international Ltd. 8 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania The said gain was claimed as exempt u/s 10(38) of the Act. According to AO that particulars share is a penny stock and consequently capital gain realized by the assessee is also bogus as brought out by the Directorate of Investigation, Kolkata. Thereafter the AO without referring to seized material discussed modus operandi adopted by the penny stock companies and added the entire sale consideration of Rs. 88,66,494/- to the income of the assessee as unexplained cash credit u/s 68 of the Act. 10. The Ld. CIT(A) deleted the addition on the ground that the addition cannot be made in unabated assessment year where there is no incriminating material seized during the course of search by relying on the various decisions namely CIT vs. Kabul Chawla in [2015] 61 taxmann.com 412 (Delhi) and various other decisions as stated in para 3.2 of the appellate order. 11. After hearing the rival contentions and perusing the material on record, we find that admittedly the instant assessment year is an unabated assessment year and during the course of search no incriminating material was found with respect to the capital gain earned by the assessee from sale of shares of CCL International Ltd. amounting to Rs. 86,16,494/-. We find that the AO has made addition on the basis of report of the Investigation Wing that the share of CCL is a penny stock and gain has resulted from manipulation and big rocket operating in the stock market without any reference to the seized material. In our considered opinion in case of unabated assessment year, the addition can only be made if there is incriminating searched material. In our opinion the Ld. CIT(A) taken a correct legal view of the issue and has rightly deleted the addition. Accordingly we uphold the order of Ld. CIT(A) by dismissing the ground no. 2 in the appeal of the revenue. 12. The cross objection being CO NO. 16/Kol/2022 is not pressed at the time of hearing and accordingly the same is dismissed as not pressed. 9 I.T.(SS)A. Nos. 64 & 65/Kol/2022 C.O. Nos. 15 & 16/Kol/2022 Assessment Years: 2012-13& 2013-14 Prem Chand Dhandhania 13. In the result, both the appeals of the revenue and both cross objection of the assessee are dismissed. Order is pronounced in the open court on 31 st March, 2023 Sd/- Sd/- (Sonjoy Sarma /संजय शमा ) (Rajesh Kumar/राजेश क ु मार) Judicial Member/ या यक सद य Accountant Member/लेखा सद य Dated: 31 st March, 2023 SB, Sr. PS Copy of the order forwarded to: 1. Appellant- DCIT, Central Circle-1(2), Kolkata 2. Respondent – Prem Chand Dhandhania, 2, Ahirpukur Road, Ballygaung, Kolkata-700019 3. Ld. CIT(A)-20, Kolkata (Sent through e-mail) 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata