The ACIT, Central Circle-1, Surat V. Shri Mahendra B.Kataria, SILVASSA

ITA 269/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67962 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 29-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Assessee Lawyers: S N SOPARKAR
• Keywords: Income from undisclosed sources; Search and seizure; Retraction
• Section: 144

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BENCH, AHMEDABAD .., ! ! ! ! ' #$, BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER !./ I.T.A. NO.269/AHD/2010 ( & '& & '& & '& & '& / / / / ASSESSMENT YEAR : 2007-08) THE ACIT CENTRAL CIRCLE-1 SURAT / VS. SHRI MAHENDRA B.KATARIA PITRUKRUPA BUNGALOW OPP.CANARA BANK TOKARKHADA SILVASA ( !./)* !./ PAN/GIR NO. : ACPPK 1787 M ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : SHRI J.P.JHANGID SR.D.R. ,-(+ / . / RESPONDENT BY : SHRI S.N.SOPARKAR ' 0 / $1 / / / / DATE OF HEARING : 28/10/2013 23' / $1 / DATE OF PRONOUNCEMENT : 22/11/2013 4 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVNUE IS DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-II, AHMEDABA D (CIT(A) FOR SHORT) DATED 13/11/2009 PERTAINING TO ASSESSMENT Y EAR (AY) 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS AND IN LAW IN RESTRICTING THE INCOME OF RS.40,00,810/- AND DELETI NG THE ADDITION OF RS.35,00,000/- MADE ON ACCOUNT OF VOLUNTARY DISCLOS URE OF UNACCOUNTED INCOME BY THE ASSESSEE DURING THE COURS E OF SEARCH AND SEIZURE. ITA NO.269/AHD/ 2010 ACIT VS.SHRI MAHENDRA B.KATARIA ASST.YEAR 2007-08 - 2 - 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS AND IN LAW IN HOLDING THAT ONLY ON THE BASIS OF STATEMENT, WITHOUT CONSID ERING THE EVIDENCE FOUND IN THE SEARCH, THE INCOME ASSESSED AT PAR WIT H THE DISCLOSURE IS NOT JUSTIFIED, IGNORING THAT THE ASSESSEE HAS NEITH ER FILED ANY RETRACTION NOTE NOR FILED ANY DOCUMENTARY EVIDENCE REBUTTING THE ACTION OF THE ASSESSING OFFICER INSPITE OF SEVERAL OPPORTUNITIES GIVEN IN THE SHOW CAUSE NOTICE DATED 24.11.2008. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS AND IN LAW IN NOT APPRECIATING THE RATIO LAID DOWN IN THE JUDGMENT OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF V.KUNHAMBU & SO NS (1996) 219 ITR 235, WHEREIN THE HONBLE HIGH COURT HAS HELD TH AT VOLUNTARY STATEMENT MADE BY THE ASSESSEE, UNDER 132(4) WITH R EFERENCE TO THE SEARCH AND SEIZURE, THERE IS NO REASON WHY THE ASSE SSING OFFICER SHOULD NOT MAKE USE OF IT, IF IT IS NOT OBTAINED BY COERCION OR INTIMIDATION. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A) BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO THE ABOVE EXTENT. 2. BRIEFLY STATED FACTS ARE THAT THE SEARCH ACTION U/S.132 AS WELL AS SURVEY ACTION U/S.133A OF THE INCOME-TAX ACT, 1961 WAS CARRIED OUT AT THE BUSINESS AS WELL AS RESIDENTIAL PREMISES OF MAH ENDRA KATARIA GROUP AT SILVASSA ON 27.12.2006. DURING THE COURSE OF SE ARCH AT THE RESIDENCE OF THE ASSESSEE, CASH AND JEWELLERY WERE FOUND AND DURING THE COURSE OF SEARCH, THE ASSESSEE DISCLOSED TOTAL UNACCOUNTED IN COME OF RS.1,37,00,000/-. SUBSEQUENTLY, THE ASSESSEE FURN ISHED RETURN OF INCOME FOR THE AY 2007-08 DECLARING INCOME OF RS.40,00,807 /- THAT INCLUDED RS.40,00,000/- AS UNDISCLOSED INCOME ADMITTED BY TH E ASSESSEE. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND THE ASSESS MENT U/S.143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS FRAMED, THEREBY THE ASSESSING OFFICER(AO) MADE ADDITION OF RS.35 LACS ON ACCOUNT OF UNACCOUNTED INCOME. THE ASSESSEE CARRIE D THE MATTER BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, ITA NO.269/AHD/ 2010 ACIT VS.SHRI MAHENDRA B.KATARIA ASST.YEAR 2007-08 - 3 - DIRECTED THE AO TO DELETE THE ADDITION OF RS.35 LAC S. NOW, THE REVENUE IS IN APPEAL BEFORE US. THE ONLY EFFECTIVE GROUND IS AGAINST THE DELETION OF ADDITION OF RS.35 LACS. 3. THE LD.SR.DR SHRI J.P.JHANGID STRONGLY SUPPORTED THE ORDER OF THE AO. HE SUBMITTED THAT THE LD.CIT(A) ERRED IN MAKIN G THE DELETION OF RS.35 LACS. ON THE CONTRARY, LD.SR.COUNSEL FOR THE ASSESSEE SHRI S.N.SOPARKAR SUPPORTED THE ORDER OF THE LD.CIT(A) A ND SUBMITTED THAT THERE IS NO ERROR IN THE ORDER OF THE LD.CIT(A). H E SUBMITTED THAT MERELY MAKING A DISCLOSURE DURING THE SEARCH ACTION U/SD.1 32(4) OF THE ACT CANNOT BE TAKEN THAT SUCH DISCLOSURE HAS BECOME FIN ALITY, IF THE ASSESSEE IS ABLE TO DEMONSTRATE THAT THE ENTIRE AMOUNT DISCL OSED DOES NOT FORM PART OF THE UNACCOUNTED INCOME. THE INCOME WHICH IS AC COUNTED FOR CAN BE EXCLUDED FROM THE DISCLOSED AMOUNT. HE SUBMITTED T HAT BEFORE THE LD.CIT(A), IT WAS DEMONSTRATED THAT OUT OF THE DECL ARATION OF RS.1.37 CRORES, DECLARATION OF RS.50 LAKHS PERTAINS TO PART NERSHIP FIRM, SHREE PADAMAWATI DEVELOPERS AND REST OF THE DISCLOSURE OF RS.87 LAKHS WAS TOWARDS ASSESSEE-INDIVIDUAL IE.. SHRI MAHENDRA B.KA TARIA. ASSESSEE DISCLOSED RS.50 LAKHS IN THE CASE OF THE PARTNERSHI P-FIRM NAMELY SHREE PADAMAWATI DEVELOPERS IN THE RETURN OF INCOME FILE D AFTER SEARCH AND ALSO DISCLOSED RS.12 LAKHS FOR AY 2005-06 AND RS.40 LAKHS FOR AY 2007- 08 IN THE INDIVIDUAL RETURN OF INCOME OF SHRI MAHEN DRA B.KARARIA MAKING TOTAL DISCLOSURE OF RS.102 LAKHS. HE SUBMITTED THA T BEFORE THE CONCLUSION OF THE SEARCH ASSESSEE HAS GIVEN LETTER ON 19.02.20 07 TO AUTHORIZED OFFICER GIVING THE BIFURCATION OF THE DISCLOSURE OF RS.1.37 CRORES. IN THAT LETTER, IT WAS CLARIFIED THAT INCOME DISCLOSED WAS SUBJECT TO VARIATION, RECTIFICATION ITA NO.269/AHD/ 2010 ACIT VS.SHRI MAHENDRA B.KATARIA ASST.YEAR 2007-08 - 4 - ON HIGHER/LOWER SIDE ON ACTUAL VERIFICATION OF SEIZ ED PAPERS/DOCUMENTS AND STATEMENTS AND COMPUTATION OF INCOME AT THE TIM E OF FILING OF RETURN OF INCOME. IT WAS ALSO SPECIFICALLY STATED IN THE SAID LETTER THAT THE INCOME DISCLOSED AND RECEIVED IN CASH MAY BE TREATE D AS APPLIED FOR OTHER INVESTMENTS AND INCOME FOUND OR NOTIFIED DURING THE PROCEEDINGS. HE SUBMITTED THAT IT WAS STATED IN REPLY TO QUESTION N O.3 OF THE SATTMENT RECORDED ON 20.02.2007 THAT OUT OF RS.50 LACS RECEI VED ON ACCOUNT OF FLAT BOOKING, RS.17 LAKHS ARE RECEIVABLES AND RS.15 LAKH S HAVE BEEN INVESTED IN FILM PRODUCTION. CASH FOUND IS INCLUDED IN RS.4 0 LAKHS ALREADY DISCLOSED. HE SUBMITTED THAT IT WAS CLARIFIED THAT ON PERUSAL OF THE BIFURCATION BOTH INVESTMENT AND SOURCE OF INCOME BE ING SALE CONSIDERATION OF FLATS WERE PROJECTED. IT IS THERE FORE CLEAR THAT SOURCE OF THE INCOME AND APPLICATION COULD NOT BE TAXED TOGET HER. HIGHER OF THE INVESTMENT AND SOURCE OF THE INCOME SHOULD BE TAXED . HOWEVER, EVEN THAN ASSESSEE MADE SEPARATE DECLARATION OF RS.15 LA KHS IN RESPECT OF INVESTMENT IN FILM PRODUCTION. THE ASSESSEE THEREF ORE CLAIMED TELESCOPING OF CASH FOUND AT RESIDENCE OF THE ASSES SEE OF RS.18 LAKHS AND RECEIVABLES OF PARTNERSHIP-FIRM M/S.SARIKA JEWELLER S OF RS.17 LAKHS AGAINST SOURCE OF INCOME OF SALE CONSIDERATION OF F LAT RECEIVED IN CASH IN CASE OF SHREE PADAMAWATI DEVELOPERS. THEREFORE THE ASSESSEE DID NOT INCLUDE RS.35 LAKHS IN RETURN OF INCOME FILED AFTER SEARCH. THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF CO- SEORDINATE BENCH (ITAT JODHPUR BENCH) RENDERED IN T HE CASE OF ACIT VS. BADRI RAM CHOUDHARY REPORTED AT (2008) 118 TTJ 492 (JD), DATED 25/10/2007. ITA NO.269/AHD/ 2010 ACIT VS.SHRI MAHENDRA B.KATARIA ASST.YEAR 2007-08 - 5 - 3.1. IN THE REJOINDER, SR.DR SUBMITTED THAT THE ASS ESSEE HIMSELF HAS DISCLOSED WITHOUT ANY COERCION THAT THIS AMOUNT OF RS.1.37 CRORES REPRESENTED THE UNACCOUNTED INCOME. NOW THE ASSESS EE CANNOT TAKE A U- TURN FROM ITS STAND AND THE AO IS WITHIN HIS POWER TO MAKE ADDITION ON ACCOUNT OF THE DISCLOSURE MADE BY THE ASSESSEE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD.CIT(A) HAS GIVEN A FINDING ON FACT THAT OUT OF THE DECLARATION OF RS.1.37 CRORES, THE APPELLANT DECLARED RS.50 LACS I N THE CASE OF THE PARTNERSHIP-FIRM, NAMELY SHREE PADAMAWATI DEVELOPER S AND DISCLOSED RS.12 LAKHS FOR AY 2005-06 AND RS.40 LAKHS FOR AY 2 007-08 IN THE INDIVIDUAL RETURN OF INCOME OF THE APPELLANT MAKING TOTAL DISCLOSURE OF RS.102 LAKHS. IN REPLY TO QUESTION NO.3 OF THE STA TEMENT RECORDED ON 20/02/2007, THAT OUT OF RS.50 LAKHS RECEIVED ON AC COUNT OF FLAT BOOKING, RS.17 LAKHS ARE RECEIVABLES AND RS.15 LAKHS HAVE BE EN INVESTED IN FILM PRODUCTION. THEREFORE, APPELLANT CLAIM IS ACCEPTAB LE THAT INCOME RECEIVED RS.50 LAKHS IN THE FORM OF ON-MONEY ON SAL E OF FLATS WAS AVAILABLE AND INVESTED FOR ACQUIRING ASSETS FOUND D URING THE SEARCH. THE APPELLANTS CLAIM OF TELESCOPING OF INCOME AND ASSE TS GENERATED IS ALLOWABLE. WE DO NOT FIND ANY INFIRMITY IN THE C ONTENTION OF THE LD.SR.DR THAT SINCE THE ASSESSEE HIMSELF HAS DISCLO SED AMOUNT OF RS.1.37 CRORES DURING THE SEARCH ACTION, THE CLAIM OF THE A SSESSEE CANNOT BE ALLOWED. IN THE PRESENT CASE, THE ASSESSEE HAS C ATEGORICALLY SUBMITTED THAT AMOUNT DISCLOSED CAN VARY FROM HIGHER TO LOWER SIDE. THIS FACT HAS NOT BEEN CONTROVERTED BY THE REVENUE. MOREOVER, LD .CIT(A) HAS GIVEN A ITA NO.269/AHD/ 2010 ACIT VS.SHRI MAHENDRA B.KATARIA ASST.YEAR 2007-08 - 6 - FINDING ON FACT THAT IN REPLY TO QUESTION NO.3 OF T HE STATEMENT RECORDED ON 20.02.2007, THE ASSESSEE CLEARLY STATED THAT OUT OF RS.50 LAKHS RECEIVED ON ACCOUNT OF FLAT BOOKING, RS.17 LAKHS ARE RECEIVABLE S AND RS.15 LAKHS HAVE BEEN INVESTED IN FILM PRODUCTION. THEREFORE, SOURC E OF INCOME AND APPLICATION OF INCOME COULD NOT BE TAXED TOGETHER. WE FIND THAT SIMILAR ISSUE WAS DECIDED BY THE HONBLE CO-ORDINATE BENCH IN THE CASE OF ACIT VS. BADRI RAM CHOUDHARY(SUPRA) VIDE PARAGRAPH NO.5. 1 OF ITS ORDER BY OBSERVING AS UNDER:- 5.I THE ASSESSEE DECLARED THE UNDISCLOSED INCOME AT RS. 26.94 LAKHS AGAINST WHICH ASSESSMENT WAS COMPLETED AT RS. 13.13 CRORES AND ODD. THE LEARNED CIT(A) REDUCED THE INCOME PARTLY. BOTH THE SIDES HAVE COME UP IN APPEAL BEFORE US ON THEIR RESPECTIVE STA NDS. IT IS OBVIOUS THAT THE ASSESSMENT WAS COMPLETED UNDER S. 144 FOR THE R EASONS DISCUSSED ABOVE. THE LEARNED AUTHORISED REPRESENTATIVE HAS AR GUED THAT THE AO HAD MADE ADDITIONS BOTH ON ACCOUNT OF' INCOME THEOR Y' AS WELL AS 'EXPENDITURE AND INVESTMENT THEORY'. IT IS AUSTERE THAT THERE ARE DIFFERENT MODES FOR COMPUTATION OF UNDISCLOSED INCOME. ONE OF THE RECOGNIZED MODES IS TO DETERMINE THE INCOME ON THE BASIS OF 'I NCOME THEORY' UNDER WHICH THE UNDISCLOSED INCOME IS COMPUTED AS EMANATI NG FROM THE RELEVANT MATERIAL EXHIBITING THE INCOME, WHICH THE ASSESSEE ACTUALLY EARNED BUT DID NOT DISCLOSE TO THE REVENUE. THE SEC OND ALTERNATIVE MODE OF COMPUTING THE UNDISCLOSED INCOME BY 'INVESTMENT AND EXPENDITURE THEORY' COMES INTO PLAY WHEN THE UNDISCLOSED INCOME CANNOT BE COMPUTED BY THE 'INCOME THEORY' DUE TO LACK OF THE AVAILABILITY OF COMPLETE INFORMATION IN THIS REGARD. IN SUCH ALTERN ATIVE MODE THE TOTAL INVESTMENTS MADE AND EXPENDITURE' INCURRED BY THE A SSESSEE OUT OF THE BOOKS ARE CLUBBED AND PRESUMPTION IS MADE THAT THE ASSESSEE MUST HAVE EARNED SO MUCH UNDISCLOSED INCOME WHICH IS REPRESEN TED BY THE UNDISCLOSED INVESTMENT/EXPENDITURE. THE SECOND MODE IS EMPLOYED ONLY WHEN INCOME CANNOT BE COMPUTED AS PER FIRST MODE. H OWEVER, BOTH SUCH MODES CANNOT BE PRESSED INTO SERVICE SIMULTANEOUSLY TO WORK OUT THE UNDISCLOSED INCOME. TO PUT IT SIMPLY, IF THE ASSESS EE HAD EARNED RS. 100 OUT OF UNDISCLOSED SALES OUT OF WHICH RS. 60 IS INV ESTED AND RS. 40 IS EITHER AVAILABLE OR SPENT SOMEWHERE, THE AO CANNOT ADOPT INCOME AT RS. 200. THE INCOME FROM SALES AT RS. 100 WOULD BE TELE SCOPED INTO THE ITA NO.269/AHD/ 2010 ACIT VS.SHRI MAHENDRA B.KATARIA ASST.YEAR 2007-08 - 7 - INVESTMENT MADE OUT OF SUCH UNDISCLOSED INCOME. IN SUCH A SITUATION, ONLY A SUM OF RS. 100 WOULD BE INCLUDED IN THE UNDI SCLOSED INCOME OF THE ASSESSEE. 5. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CI T(A), THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUES APPEAL IS REJ ECTED. 6. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) (' #$) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 22/ 11 /2013 71.., .../ T.C. NAIR, SR. PS 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. !! $ ': / CONCERNED CIT 4. ':() / THE CIT(A)-II, AHMEDABAD 5. 8 #; ,$ , , / DR, ITAT, AHMEDABAD 6. ;<& =0 / GUARD FILE. 4' 4' 4' 4' / BY ORDER, -8$ ,$ //TRUE COPY// > >> >/ // / !) !) !) !) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD