M.A.Moheyiddin, Paravur V. DCIT, Ernakulam

ITA 287/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64992 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 25-04-2011
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: C B M WARRIER
• Keywords: Gift; Income from undisclosed sources; Search and seizure; Opportunity of being heard; Principle of natural justice; Deemed to accrue or arise in india; Additional evidence; Deemed dividend
• Section: 143(3); 153A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A NOS. 281-287/COCH/2011 ASSESSMENT YEARS : 2002-03-2008-09 M.A. MUHEYIDDIN, HAFIL, JUMA MASJID ROAD, PANAYI KULAM (P.O.), PARAVOOR-683511. [PAN: AELPM 5364A] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI C.B.M. WARRIER, CA REVENUE BY MS. A.S. BINDHU, SR. DR DATE OF HEARING 17/09/2012 DATE OF PRONOUNCEMENT 16/11/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE APPEALS, FILED BY THE ASSESSEE, ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-I, KOCHI AND THEY RELATE TO THE ASSESSMEN T YEARS 2002-03 TO 2008-09. AS THESE APPEALS WERE HEARD TOGETHER, WE FIND IT CONVE NIENT TO DISPOSE THEM OFF BY THIS COMMON ORDER. 2. THE ASSESSEE IS DIRECTOR IN THE FOLLOWING CO MPANIES:- (A) M/S HUNTERS REALTORS LTD. (B) M/S AVENUTURA REALTORS (C) M/S NAKHEEL PROPERTIES PVT LTD (D) M/S DAMAC HOLDINGS PVT LTD THE DEPARTMENT CARRIED OUT SEARCH AND SEIZURE OPERA TIONS IN THE HANDS OF THE ASSESSEE ON 26.03.2008. CONSEQUENTLY, THE ASSESSMENTS WERE COMPLETED IN HIS HANDS U/S 153A R.W.S. 143(3) OF THE ACT, BY MAKING VARIOUS ADDITIO NS. THE ASSESSEE CHALLENGED THE I.T.A. NOS. 281-287/COCH/2011 2 VARIOUS ADDITIONS BEFORE LD CIT(A), BUT COULD GET O NLY PARTIAL RELIEF. HENCE THE ASSESSEE HAS FILED THESE APPEALS BEFORE US SEEKING FURTHER R ELIEF. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED FOR THE ASSESSMENT YEAR 2002-03, WHEREIN THE FOLLOWING ISSUES ARE URGED:- (A) PARTIAL DISALLOWANCE OF OPENING CASH BALANCE CLAIMED. (B) ASSESSMENT OF CLAIM OF RECEIPT OF GIFTS RECEI VED FROM RELATIVES OUT OF THE SALE PROCEEDS REALISED ON SALE OF SHARES. (C) ASSESSMENT OF GIFT RECEIVED FROM BROTHER. (D) ASSESSMENT OF AGRICULTURAL INCOME AS INCOME F ROM OTHER SOURCES. (E) MISTAKE IN THE CALCULATION OF INTEREST U/S 23 4B OF THE ACT. 4. THE FIRST ISSUE RELATES TO THE PARTIAL DISAL LOWANCE OF OPENING CASH BALANCE CLAIMED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT P ROCEEDING, THE ASSESSEE FILED A CASH FLOW STATEMENT FOR THE PERIOD FROM 1.4.2001 TO 31.3.2002 RELEVANT FOR THE ASSESSMENT YEAR 2002-03, WHEREIN THE OPENING BALANC E WAS SHOWN AT RS.2,50,000/-. THE AO RESTRICTED THE OPENING CASH BALANCE TO RS.25 ,000/- BY HOLDING THAT THE ASSESSEE DID NOT EXPLAIN AS TO HOW THE SAID CASH BALANCE WAS KEPT AND ACCORDINGLY ADDED THE REMAINING AMOUNT AS INCOME OF THE ASSESSEE. THE LD CIT(A) ENHANCED THE AMOUNT OF OPENING BALANCE TO RS.75,000/- AND SUSTAINED THE AD DITION OF REMAINING AMOUNT. 4.1 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE AND HIS WIFE ARE INCOME TAX ASSESSEES. THE ASSESSEE IS ASSESSED TO INCOME TAX FROM ASST. YEAR 1997-98 ONWARDS AND HIS WIFE IS ASSESSED TO TAX FROM ASST. YEAR 1999-2000 ONWARDS. SINCE THE ASSESSEE DID NOT MAINTAIN REGULAR BOOKS OF ACCOUNT, THE ASSESSEE ARRIVED AT THE OPENING BALANCE AS ON 1.4.2001, BY DULY CONSIDERING THE INC OME DECLARED IN THE EARLIER YEARS AND ALSO THE OUTGOINGS BY WAY OF DRAWINGS AND INVES TMENTS DURING THAT PERIOD. THOUGH THE ASSESSEE ARRIVED AT AN AMOUNT OF RS.5,47 ,460/- AS SURPLUS CASH BALANCE, YET THE ASSESSEE PREFERRED TO RESTRICT THE CLAIM OF AVAILABILITY OF CASH BALANCE TO RS.2,50,000/-. ACCORDINGLY, HE SUBMITTED THAT THE OPENING BALANCE CLAIMED BY THE I.T.A. NOS. 281-287/COCH/2011 3 ASSESSEE MAY BE ALLOWED, SINCE THE DEPARTMENT HAS N OT BROUGHT ANY MATERIAL TO DISPROVE THE SAID CLAIM. 4.2 ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE DID NOT MAINTAIN REGULAR BOOKS OF ACCOUNT AND FURTHER THE CLAIM OF THE ASSES SEE THAT THE OPENING BALANCE REPRESENTS ACCUMULATED BALANCES OF EARLIER YEARS I NCOME IS NOT SUPPORTED BY ANY EVIDENCE. ACCORDINGLY, THE LD D.R SUBMITTED THAT T HE ORDER OF LD CIT(A) ON THIS ISSUE SHOULD BE SUSTAINED. 4.3 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE NOTICE THAT THE ASSESSEE HAS EXPLAINED THE AVAILABILITY OF OPENING BALANCE A S ON 1.4.2001 UNDER:- A. RECEIPTS:- NET INCOME AS PER THE INCOME TAX RETURNS OF ASSESSEE 8,60,557 ASSESSEES WIFE 3,60,485 ----------------- 12,21,042 B. LESS:- INVESTMENTS NET OF LOANS 2,98, 582 DRAWINGS 3,75,000 ------------- 6,73,582 ----------------- BALANCE AVAILABLE 5,47,460 ========== AS AGAINST THE AVAILABLE CASH BALANCE OF RS.5,47,46 0/-, THE ASSESSEE HAS CLAIMED AN OPENING BALANCE OF RS.2,50,000/-. WE NOTICE THAT B OTH THE TAX AUTHORITIES HAVE REJECTED THE CLAIM ON THE REASONING THAT THERE WAS NO LIKELIHOOD OF MAINTAINING HUGE CASH BALANCE IN HAND. HOWEVER, THE FACT REMAINS TH AT THE ASSESSEE AND HIS WIFE HAVE FILED RETURN OF INCOME DISCLOSING CERTAIN INCOME FO R THE ASSESSMENT YEARS MENTIONED EARLIER AND THE SAME HAVE BEEN ACCEPTED BY THE DEPA RTMENT. HENCE THE EXISTENCE OF AGGREGATE INCOME TO THE TUNE OF RS.12.21 LAKHS, AS EVIDENCED BY THE RETURNS OF INCOME, CANNOT BE DISCOUNTED WITH, AS THE SAID RETURNS HAVE ALREADY BEEN FILED LONG BACK. THE ASSESSEE HAS TAKEN THE INCOME AS DISCLOSED IN THOSE RETURNS ONLY AND HE DID NOT CONSIDER SAVINGS, IF ANY, OUT OF INCOME FROM THE Y EARS PRECEDING TO THE YEARS FOR WHICH RETURNS OF INCOME WERE FILED. THE ASSESSEE HAS DED UCTED THE INVESTMENTS AND I.T.A. NOS. 281-287/COCH/2011 4 DRAWINGS MADE DURING THE PERIODS COVERED BY THE RET URNS OF INCOME, WHICH AGGREGATED TO RS.6.73 LAKHS. THE SAID COMPUTATION HAS RESULTE D IN A SURPLUS OF RS.5.47 LAKHS. AS AGAINST THE SAID SURPLUS, THE ASSESSEE HAS SHOWN A BALANCE OF RS.2.50 LAKHS ONLY IN THE CASH FLOW STATEMENT, LEAVING FURTHER A BALANCE OF A BOUT RS.3.00 LAKHS FOR ANY PROBABLE OMISSION. THUS, IN OUR VIEW, THE ASSESSEE HAS MADE A METICULOUS ATTEMPT TO ARRIVE AT THE PROBABLE CASH BALANCE AS ON 1.4.2001 ON THE BAS IS OF THE AVAILABLE DOCUMENTS WITH REGARD TO THE INCOME AND INVESTMENTS. THE ONLY ITE M WHICH COULD NOT BE CORROBORATED WAS THE AMOUNT SHOWN AS DRAWINGS AND EVEN IN THAT CASE, THE OMISSION, IF ANY, SHALL BE TAKEN CARE OF BY THE AMOUNT OF RS.3.00 LAKHS, WH ICH WAS NOT CONSIDERED BY THE ASSESSEE. WE NOTICE THAT THE TAX AUTHORITIES HAVE SIMPLY REJECTED THE CLAIM WITHOUT CARRYING OUT ANY OBJECTIVE EXAMINATION OF THE COMPU TATIONS MADE BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CLAIM OF OPENING BALANCE OF RS.2.50 LAKHS MADE BY THE ASSESSEE APPEARS TO BE QU ITE REASONABLE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, WE SET ASI DE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF OPENING BALANCE. 5. THE NEXT ISSUE RELATES TO THE CLAIM OF RECEI PT OF RS.6,65,000/- SHOWN IN THE CASH FLOW STATEMENT UNDER THE HEAD SHARE VALUE RECEIVED FROM NAZ RICE AND FOODS NENAMANI AGRO MILLS PVT. LTD. IT WAS STATED BY TH E ASSESSEE THAT THE RELATIVES OF THE ASSESSEE, AS DETAILED BELOW, HAVE SOLD THE SHARES H ELD BY THEM IN THE COMPANY M/S NAZ RICE AND FOODS PRIVATE LIMITED TO A PERSON NAMED SH RI M.M. MOIDUNNI, MG. DIRECTOR, M/S FALEON FOOD STUFF, UAE, DUBAI (PAN AEBPM5010P). S. NO. NAME OF PERSON NO. OF SHARES AMOUNT 1. SELIL MOIDEEN 1100 1,10, 000 2. SHAMMY MUHEYIDDIN 1055 1,05,500 3. M.A.MUHDYIDDIN 475 47,500 4. NAFIRA ISMAIL 475 47,500 5. M.ABDUL KAREEM 2000 2,00,000 6. M.A.ABDUL SALAM 1000 1,00,000 -------------- 6,10,500 ======== THE ASSESSEE CLAIMED THAT THE RELATIVES HAVE GIFTED THE ENTIRE AMOUNT OF SALE PROCEEDS RECEIVED BY THEM ON SALE OF SHARES TO HIM. INITIAL LY, THE ASSESSEE CLAIMED THAT THE SALE I.T.A. NOS. 281-287/COCH/2011 5 PROCEEDS WERE RECEIVED FROM ABROAD, BUT LATER EXPLA INED THAT THE BUYER HAS PAID MONEY IN INDIAN CURRENCY.. IN COCHIN. THE ASSESSEE ALSO FILED A CONFIRMATION LETTER OBTAINED FROM SHRI M.M. MOIDUNNI, THE PURCHASER OF SHARES. THE AO DID NOT BELIEVE THE EXPLANATIONS FURNISHED BY THE ASSESSEE AND ACCORDINGLY TREATED THE AMOUNT OF RS.6,10,500/- AS THE INCOME OF THE ASSESSEE. BEFORE LD CIT(A), THE ASSESSEE FURNI SHED GIFT CONFIRMATION LETTERS, BUT THE LD CIT(A) REFUSED TO ADMIT THEM AS ADDITIONAL E VIDENCES. THE LD CIT(A) NOTICED THAT THE TRANSACTIONS PERTAINING TO PURCHASE AND SA LE OF SHARES WERE NOT ROUTED THROUGH THE BANKING CHANNELS AND FURTHER THE BUYER DID NOT EXPLAIN HIS SOURCES FOR MAKING INVESTMENTS IN THE SHARES AND HENCE HE ALSO CONFIRM ED THE ASSESSMENT OF RS.6,10,500/- . 5.1 THE LD A.R SUBMITTED THAT THE ASSESSEE HAS FILED THE CONFIRMATION LETTER OBTAINED FROM THE BUYER OF THE SHARES BEFORE THE AO. HE ALS O FILED THE CONFIRMATION LETTERS OBTAINED FROM THE DONORS, BUT THE LD CIT(A) HAS REF USED TO ADMIT THEM AS ADDITIONAL EVIDENCES, WHICH IS AGAINST THE PRINCIPLE OF NATURA L JUSTICE. HE SUBMITTED THAT THE ASSESSEE HAS DISCHARGED THE PRIMARY RESPONSIBILITY PLACED UPON HIM AND HENCE CONTENDED THAT THE IMPUGNED ASSESSMENT SHOULD BE CA NCELLED. ON THE OTHER HAND, THE LD D.R STOOD BY THE ORDER OF LD CIT(A). 5.2 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THE FACT REMAINS THAT THE LD CIT(A) DID NOT ACCEPT THE CONFIRMATION LETTERS OBTA INED FROM THE DONORS. BEFORE THE AO, THE ASSESSEE HAS CLAIMED THAT THE SHARES WERE S OLD TO A PERSON RESIDING IN ABROAD AND THE AMOUNTS REALISED ON SUCH SALES HAVE BEEN CR EDITED IN THE CASH FLOW STATEMENT. THE ASSESSEE HAS FILED A CONFIRMATION LETTER OBTAIN ED FROM THE BUYER OF SHARES. HOWEVER, THESE EXPLANATIONS HAVE BEEN REJECTED BY T HE TAX AUTHORITIES ON THE FACE OF IT, WITHOUT EXAMINING THE VERACITY OF THE CLAIM WITH RE FERENCE TO THE DOCUMENTS FILED BY THE ASSESSEE. IN OUR VIEW, THE TAX AUTHORITIES SHO ULD HAVE EXAMINED THE DOCUMENTS FILED BY THE ASSESSEE AND THEREAFTER THEY SHOULD HA VE COME TO A CONCLUSION IN ACCORDANCE WITH THE LAW. ACCORDINGLY, IN THE INTER EST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES RE-EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET I.T.A. NOS. 281-287/COCH/2011 6 ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND REST ORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH BY D ULY CONSIDERING THE DOCUMENTS FILED OR THAT MAY BE FILED BY THE ASSESSEE AND TAKE APPRO PRIATE DECISION IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. THE NEXT ISSUE RELATES TO THE ADDITION OF RS .3.00 LAKHS, BEING THE GIFT RECEIVED FROM THE BROTHER OF THE ASSESSEE. THE AO ASSESSED THE GIFT AMOUNT OF RS.3.00 LAKHS ON THE GROUND THAT THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCE FOR THE TRANSFER OF FUNDS FROM ABROAD. BEFORE LD CIT(A), THE ASSESSEE PRODUC ED A COPY OF NRE ACCOUNT MAINTAINED BY HIS BROTHER AND ALSO FURNISHED THE DE TAILS OF AMOUNT WITHDRAWN FROM THE SAID BANK ACCOUNT, WHICH WAS AS GIVEN BELOW:- 13.2.2002 50,000 13.2.2002 50,000 26.2.2002 1,00,000 16.7.2002 1,00,000 ------------- 3,00,000 ======= THUS, IT WAS NOTICED THAT A SUM OF RS.2.00 LAKHS WA S ONLY RECEIVED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03 AND THE REM AINING AMOUNT OF RS.1.00 LAKH WAS RECEIVED IN THE SUCCEEDING YEAR. THE CONFIRMAT ION LETTER ISSUED BY THE DONOR, HOWEVER, STATED THAT THE GIFT OF RS.3.00 LAKHS WAS GIVEN TO THE ASSESSEE BY THE YEAR ENDED 31.3.2002. THUS THERE WAS CONTRADICTION BETW EEN THE CLAIM MADE BY THE ASSESSEE AND EVIDENCE FURNISHED AND HENCE THE LD CI T(A) CONFIRMED THE ASSESSMENT OF RS.3.00 LAKHS. 6.1 THE LD A.R SUBMITTED THAT THE ASSESSEE HAS PR OVED THE RECEIPT OF GIFT OF RS.3.00 LAKHS FROM HIS BROTHER. HOWEVER, THE ASSESSEE HAS, BY INADVERTENCE, INCLUDED THE ENTIRE AMOUNT OF RS.3.00 LAKHS IN THE CASH FLOW STA TEMENT PERTAINING TO THE ASSESSMENT YEAR 2002-03, WHERE AS HE HAS RECEIVED A SUM OF RS. 2.00 LAKHS ONLY IN THAT YEAR AND THE REMAINING AMOUNT OF RS.1.00 LAKH WAS RECEIVED I N THE SUCCEEDING YEAR. ACCORDINGLY HE SUBMITTED THAT THE INADVERTENT MISTAKE COMMITTED WHILE PREPARING THE CASH FLOW STATEMENT ONLY REQUIRES A CORRECTION. HE SUBMITTED THAT THE ASSESSEE HAS DISCHARGED I.T.A. NOS. 281-287/COCH/2011 7 THE RESPONSIBILITY OF PROVING THE RECEIPT OF GIFT. ON THE CONTRARY, THE LD D.R STRONGLY SUPPORTED THE ORDER OF LD CIT(A). 6.2 WE NOTICE THAT THE ASSESSEE HAS CLAIMED THA T HE HAS RECEIVED THE GIFT FROM HIS BROTHER, WHO IS WORKING ABROAD. HENCE, THE TAX AUT HORITIES HAVE PROCEEDED TO EXAMINE THE MATTER ON THE BELIEF THAT THE IMPUGNED GIFT SHO ULD HAVE BEEN RECEIVED FROM ABROAD. HOWEVER, IT IS THE CONTENTION OF THE ASSESSEE THAT HE HAS RECEIVED THE GIFT OUT OF THE AMOUNT WITHDRAWN FROM THE NRE ACCOUNT OF THE DONOR. THUS, THE CLAIM OF THE ASSESSEE IS THAT THE GIFT AMOUNT HAS BEEN RECEIVED IN THE IN DIAN CURRENCY. IT IS A FACT THAT THE ASSESSEE HAS COMMITTED A MISTAKE IN SHOWING THE ENT IRE AMOUNT OF RS.3.00 LAKHS IN THE CASH FLOW STATEMENT PERTAINING TO THE ASSESSMENT YE AR 2002-03. SINCE IT IS A MISTAKE, IT NEEDS ONLY CORRECTION OF THE CASH FLOW STATEMENT, I F THE TAX AUTHORITIES ARE OTHERWISE SATISFIED WITH THE GENUINENESS OF THE GIFT. THE RE CEIPT OF GIFT, IN OUR VIEW, CANNOT BE TERMED AS NOT-GENUINE, SIMPLY FOR THE REASON THAT T HE ASSESSEE HAS COMMITTED A MISTAKE WHILE PREPARING THE CASH FLOW STATEMENT. A CCORDINGLY, IN OUR VIEW, THIS ISSUE REQUIRES RE-EXAMINATION AT THE END OF THE AO. ACCO RDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE AO WITH THE DIRECTION TO EXAMINE THE SAME AFRESH IN ACCORDANCE WITH THE LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. THE NEXT GROUND RELATES TO THE ASSESSMENT OF AGRICULTURAL INCOME OF RS.25,000/- DECLARED BY THE ASSESSEE AS INCOME FROM UNDISCLOSED SOURCES. THE AO TREATED THE AGRICULTURAL INCOME OF RS.25,000/- DECLARED BY THE ASSESSEE AS INCOME FROM UNDISCLOSED SOURCES ON THE REASONING THAT THE ASSESSEE HAS FAIL ED TO FURNISH ANY EVIDENCE ABOUT THE AVAILABILITY OF AGRICULTURAL INCOME. BEFORE LD CIT (A), THE ASSESSEE SUBMITTED THAT HE HAS GOT 82 CENTS OF LAND ADJACENT TO HIS RESIDENTIA L BUILDING, ON WHICH HE HAS UNDERTAKEN CULTIVATION OF COCONUT, ARECA NUT, PLANT AINS ETC. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS SHOWN THE SAME AGRICULTURAL INCOME IN HIS ORIGINAL RETURN OF INCOME FILED PRIOR TO THE DATE OF SEARCH. HOWEVER, THE LD CIT(A) WAS NOT CONVINCED WITH THE SAID EXPLANATIONS AND ACCORDINGLY CONFIRMED THE ASS ESSMENT OF THE SAME. I.T.A. NOS. 281-287/COCH/2011 8 7.1 WE HAVE HEARD THE RIVAL SUBMISSIONS ON THIS ISSUE. THE FACT REMAINS THAT THE ASSESSEE HAS DECLARED THE AGRICULTURAL INCOME OF RS .25,000/- IN HIS ORIGINAL RETURN OF INCOME FILED PRIOR TO THE DATE OF SEARCH. THE VERY SAME INCOME WAS ALSO DECLARED IN THE RETURN OF INCOME FILED U/S 153A OF THE ACT, CON SEQUENT TO THE SEARCH. IT IS NOT THE CASE OF THE AO THAT THE DEPARTMENT DID UNEARTH ANY MATERIAL DURING THE COURSE OF SEARCH TO DISBELIEVE THE AVAILABILITY OF AGRICULTUR AL INCOME. THE ASSESSEE HAS BEEN REGULARLY DECLARING THE AGRICULTURAL INCOME AND IT IS IN THE KNOWLEDGE OF EVERY BODY THAT THE PEOPLE RESIDING IN KERALA HAVE THE HABIT OF UND ERTAKING CULTIVATION ON THE LAND APPURTENANT TO THE HOUSE. IT IS ALSO PERTINENT TO NOTE THAT THE TIME LIMIT FOR ISSUING NOTICE U/S 143(2) TO EXAMINE THE ORIGINAL RETURN OF INCOME HAS ALSO EXPIRED BEFORE THE DATE OF SEARCH. UNDER THESE CIRCUMSTANCES, IN THE A BSENCE OF ANY OTHER MATERIAL, WE FIND NO REASON TO DISBELIEVE THE AVAILABILITY OF TH E AGRICULTURAL INCOME OF RS.25,000/- DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 200 2-03. ACCORDINGLY, WE SET ASIDE THE ORDERS OF TAX AUTHORITIES ON THIS ISSUE. 8. THE LAST ISSUE RELATES TO THE COMPUTATION OF INTEREST U/S 234B OF THE ACT. ACCORDING TO LD A.R, THE INTEREST U/S 234B SHOULD H AVE BEEN COMPUTED AS PER SUB SEC. (3) OF SEC. 234, AS THE PRESENT ASSESSMENT IS AN AS SESSMENT MADE U/S 153A OF THE ACT. IN THIS CONNECTION, THE LD A.R PLACED RELIANCE ON T HE ORDER DATED 20-06-2011 PASSED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F M/S LAXMI HOSPITAL IN ITA NOS. 559 TO 564/COCH/2009. HOWEVER, WE DO NOT FIND ANY DISC USSION ON THIS ISSUE IN THE ORDER OF LD CIT(A). IN ANY CASE, IT IS A MATTER TO BE RECTI FIED AT THE END OF THE AO. HENCE, WE ARE OF THE VIEW THAT THIS ISSUE MAY ALSO BE EXAMINE D BY THE AO. ACCORDINGLY, WE DIRECT THE AO TO CONSIDER THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO CHARGING OF INTEREST U/S 234B OF THE ACT. 9. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04. THE ONLY ISSUE URGED IN THIS APPEAL RELAT ES TO THE ASSESSMENT OF AGRICULTURAL INCOME OF RS.15,000/- AS INCOME FROM UNDISCLOSED SO URCES. IN THIS YEAR ALSO, THE ASSESSEE HAD DECLARED THE AGRICULTURAL INCOME IN TH E ORIGINAL RETURN OF INCOME FILED PRIOR TO THE SEARCH AND THE DEPARTMENT DID NOT UNEARTH AN Y MATERIAL DURING THE COURSE OF I.T.A. NOS. 281-287/COCH/2011 9 SEARCH TO DISPROVE THE SAID CLAIM. HENCE, FOR THE REASONS STATED IN PARA 7.1 SUPRA, WE DO NOT FIND ANY REASON TO DISBELIEVE THE AVAILABILI TY OF AGRICULTURAL INCOME OF RS.15,000/- DURING THIS YEAR AND ACCORDINGLY, SET ASIDE THE ORD ERS OF TAX AUTHORITIES. 10. WE SHALL NOW TAKE UP THE APPEAL FILED BY TH E ASSESSEE FOR THE ASSESSMENT YEAR 2003-04. FOLLOWING ISSUES ARE URGED IN THIS APPEAL :- (A) ASSESSMENT OF AGRICULTURAL INCOME AS INCOME F ROM OTHER SOURCES. (B) ASSESSMENT OF GIFT RECEIVED FROM BROTHER AS I NCOME. (C) MISTAKE IN CALCULATION OF INTEREST U/S 234B OF THE ACT. 11. THE FIRST ISSUE RELATES TO THE ASSESSMENT O F AGRICULTURAL INCOME OF RS.25,000/- AS INCOME FROM UNDISCLOSED SOURCES. IN THIS YEAR ALSO , THE ASSESSEE HAD DECLARED THE AGRICULTURAL INCOME IN THE ORIGINAL RETURN OF INCOM E FILED PRIOR TO THE SEARCH AND THE DEPARTMENT DID NOT UNEARTH ANY MATERIAL DURING THE COURSE OF SEARCH TO DISPROVE THE SAID CLAIM. HENCE, FOR THE REASONS STATED IN PARAG RAPH 7.1 (SUPRA), WE DO NOT FIND ANY REASON TO DISBELIEVE THE AVAILABILITY OF AGRICULTUR AL INCOME OF RS.25,000/- DURING THIS YEAR AND ACCORDINGLY, SET ASIDE THE ORDERS OF TAX A UTHORITIES. 12. THE SECOND ISSUE RELATES TO THE ASSESSMENT OF RECEIPT OF GIFT AMOUNT OF RS.1.00 LAKHS FROM THE BROTHER OF THE ASSESSEE. AN IDENTIC AL ISSUE WAS SET ASIDE TO THE FILE OF THE AO FOR CARRYING OUT FRESH EXAMINATION IN THE AP PEAL RELATING TO THE ASSESSMENT YEAR 2002-03. FOR THE REASONS STATED IN THAT YEAR, WE A RE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE AO. A CCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR CARRYING OUT FRESH EXAMINATION OF THE SAME IN ACCORDANCE WITH LAW AFTE R AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 13. THE LAST ISSUE PERTAINS TO THE CLAIM OF MIST AKE MADE IN THE COMPUTATION OF INTEREST U/S 234B OF THE ACT. FOR THE REASONS STAT ED IN PARAGRAPH 8 (SUPRA), WE RESTORE THIS MATTER TO THE FILE OF AO WITH THE DIRECTION TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. I.T.A. NOS. 281-287/COCH/2011 10 14. WE SHALL NOW TAKE UP THE APPEAL FILED BY TH E ASSESSEE FOR THE ASSESSMENT YEAR 2005-06. FOLLOWING ISSUES ARE URGED IN THIS APPEAL . (A) ASSESSMENT OF AGRICULTURAL INCOME AS INCOME F ROM OTHER SOURCES. (B) MISTAKE IN THE CALCULATION OF INTEREST U/S 23 4B OF THE ACT. (C) ASSESSMENT OF UNDISCLOSED INCOME OF RS.16,23, 680/- AS SERVICE CHARGES RECEIVED BY THE ASSESSEE. 15. THE FIRST ISSUE RELATES TO THE ASSESSMENT O F AGRICULTURAL INCOME OF RS.25,000/- AS INCOME FROM UNDISCLOSED SOURCES. IN THIS YEAR ALSO , THE ASSESSEE HAD DECLARED THE AGRICULTURAL INCOME IN THE ORIGINAL RETURN OF INCOM E FILED PRIOR TO THE SEARCH AND THE DEPARTMENT DID NOT UNEARTH ANY MATERIAL DURING THE COURSE OF SEARCH TO DISPROVE THE SAID CLAIM. HENCE, FOR THE REASONS STATED IN PARAG RAPH 7.1 (SUPRA), WE DO NOT FIND ANY REASON TO DISBELIEVE THE AVAILABILITY OF AGRICULTUR AL INCOME OF RS.25,000/- DURING THIS YEAR AND ACCORDINGLY, SET ASIDE THE ORDERS OF TAX A UTHORITIES. 16. THE SECOND ISSUE PERTAINS TO THE CLAIM OF M ISTAKE MADE IN THE COMPUTATION OF INTEREST U/S 234B OF THE ACT. FOR THE REASONS STAT ED IN PARAGRAPH 8 (SUPRA), WE RESTORE THIS MATTER TO THE FILE OF AO WITH THE DIRECTION TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 17. THE LAST ISSUE RELATES TO THE ASSESSMENT OF RS.16,23,680/- AS SERVICE CHARGES RECEIVED BY THE ASSESSEE. THE FACTS RELATING THERE TO ARE STATED IN BRIEF. DURING THE COURSE OF SEARCH PROCEEDINGS, THE SEARCH OFFICIALS SEIZED AN AGREEMENT DATED 23.11.2004 ENTERED BETWEEN THE ASSESSEE AND HIS FAT HER IN LAW NAMED SHRI P.M. MOHAMMAD ALI, WHO WAS RESIDING IN DUBAI. IT WAS NO TICED THAT SHRI P.M. MOHAMMAD ALI PARTICIPATED IN AN AUCTION PUT UP BY THE GOVERN MENT OF KERALA TO SELL THE ASSETS OF THE COMPANY NAMED M/S PREMIER CABLES COMPANY. IT A PPEARS THAT THE BID WAS SUBMITTED IN THE NAME OF SRI SIDDIQUE MOHAMMED ALI, PROPRIETOR OF M/S SIDDIQUE & CO., WHO WAS THE SON OF SHRI P.M. MOHAMMED ALI. THE ASS ESSEE HEREIN ACTED AS THE POWER OF ATTORNEY HOLDER OF SRI SIDDIQUE MOHAMMED ALI. I N CONNECTION WITH THE ABOVE SAID I.T.A. NOS. 281-287/COCH/2011 11 TRANSACTIONS, THE AGREEMENT DATED 23.11.2004 (REFER RED SUPRA) WAS ENTERED INTO BETWEEN SHRI P.M. MOHAMMADALI (FIRST PARTY) AND THE ASSESSEE HEREIN (SECOND PARTY). THE SAID AGREEMENT READS AS UNDER:- WHEREAS THE SON OF THE FIRST PARTY AND THE BROTHER IN LAW OF THE SECOND PARTY, SRI SIDDIQUE MOHAMMED ALI BID IN COURT AUCTION, IN CP NO. 2/1996 ON THE FILE OF THE HONBLE HIGH COURT OF KERALA, THE ASSETS OF M/S PREMIER CABLE CO. LTD, KARUKATTY THROUGH THE SECOND PARTY AS THE POWER OF ATTORNEY HOLDER OF THE SAID SRI SIDDIQUE MOHAMMED ALI; AND WHEREAS THE SECOND PARTY HAS CARRIED OUT THE ENT IRE DEALINGS AND AFFAIRS FOR THE PURCHASE OF THE ASSETS AND SALE OF CERTAIN ASSETS FOR AND ON BEHALF OF SRI SIDDIQUE MOHAMMED ALI, AS HIS POWER OF ATTORNEY HOL DER; AND WHEREAS THE FIRST PARTY, AT WHOSE INSTANCE AND W ITH WHOSE FUND THE SAID SRI SIDDIQUE MOHAMMED ALI HAS PARTICIPATED AND BID THE AUCTION THE ASSETS, HAS DECIDED, WITH CONSENT, PERMISSION AND KNOWLEDGE OF THE SAID SRI SIDDIQUE MOHAMMED ALI, TO GET THE SALE DEED EXECUTED IN RESP ECT OF THE BALANCE EXTENT OF THE PROPERTY IN FAVOUR OF THE FIRST PARTY OR IN FAV OUR OF HIS NOMINEE(S) AND A REQUEST FOR THE SAME HAS ALREADY BEEN GIVEN BY THE SAID SIDDIQUE MOHAMMED ALI TO THE OFFICIAL LIQUIDATOR; AND WHEREAS IT HAS BECOME NECESSARY TO SETTLE THE A CCOUNT OF THE ABOVE TRANSACTIONS BETWEEN THE PARTIES. NOW THEREFORE IT IS MUTUALLY AGREED BETWEEN THE FIRST AND SECOND PARTIES THAT 1) IN FULL, COMPLETE AND FINAL SETTLEMENT OF ALL T HE DUES TO THE SECOND PARTY IN THE ABOVE DEAL, THE FIRST PARTY HAS AGREED TO GIVE AND THE SECOND PARTY HAS AGREED TO RECEIVE A SUM OF RS.75,00,000/- (RUPEES S EVENTY FIVE LAKHS ONLY) INCLUDING THE SUM OF RS.10,00,000/- (RUPEES TEN LAK HS ONLY) ALREADY RECEIVED BY THE SECOND PARTY BY WAY OF MAIL TRANSFER ON 18/11/2 004 THROUGH HIS ACCOUNT NO.50564 MAINTAINED WITH STATE BANK OF TRAVANCORE, ALUVA FROM SRI SIDDIQUE MOHAMMED ALI. 2) ACCORDINGLY, AS THE BALANCE AMOUNT DUE TO THE S ECOND PARTY FROM THE FIRST PARTY, THE FIRST PARTY HAS ISSUED CHEQUES AS HEREUN DER AND THE SECOND PARTY HAS ACCEPTED THE SAME TOWARDS FULL AND FINAL SETTLEMENT :- CHEQUE NO. DATE AMOUNT (RS.) BANK 403629 30.11.2004 7,50,000 THE SOU TH INDIAN BANK LTD AZHIKODE BRANCH, KODUNGALUR 403630 28/02/05 17,50,000 - DO I.T.A. NOS. 281-287/COCH/2011 12 0234584 30/08/05 40,00,000/- THE SOUTH INDIAN BANK LTD., KODUNGALLUR BRANCH. 3) THE SECOND PARTY HEREBY FURTHER AGREES THAT HE SHAL L SETTLE THE ACCOUNT WITH M/S KAYEM EXPORTS, CHENNAI IN RESPECT OF SALE OF LOT NO.1-3 AND THE FIRST PARTY OR SRI SIDDIQUE MOHAMMED ALI SHALL NOT BE LIA BLE FOR THE DUES, IF ANY, TO M/S KAYEM EXPORTS, CHENNAI IN THE SAID DEAL. 4) THE SECOND PARTY HAS INFORMED THE FIRST PARTY AND S RI SIDDIQUE MOHAMMED ALI THAT 4% SALES TAX AGAINST THE SALE OF LOT NO. 1 -3. HOWEVER, THE PAYMENT OF BALANCE SALES TAX DUES, IF ANY, IS AGREED TO BE DECIDED AND SETTLED BETWEEN THE SECOND PARTY AND SRI SIDDIQUE MOHAMMED ALI. 5) THE SECOND PARTY SHALL DO ALL NECESSARY THINGS AND DEEDS FOR FACILITATING THE EXECUTION AND REGISTRATION OF SALE DEED IN FAVOUR O F THE FIRST PARTY OR HIS NOMINEE IN RESPECT OF THE BALANCE EXTENT OF LAND AV AILABLE IN THE DEAL. 6) THE SECOND PARTY SHALL CONTINUE TO REPRESENT THE BI DDER SRI SIDDIQUE MOHAMMED ALI IN ALL PROCEEDINGS PENDING BEFORE THE SALES TAX AUTHORITIES WITH RESPECT TO THE DEAL. 7) THE SECOND PARTY HAS SOLEMNLY AFFIRMED AND HAS INFO RMED THE FIRST PARTY THAT THERE ARE NO OTHER CLAIMS OF WHATSOEVER NATURE FROM ANY BROKER, AGENT, COUNSEL OR ANY OTHER PARTIES IN RELATION TO THE ABO VE DEAL APART FROM THE STATUTORY AUTHORITIES. 18. THE AO HAS PRESUMED THAT THE SUM OF RS.75.0 0 LAKHS WAS PAID BY SHRI P.M. MOHAMMAD ALI TO THE ASSESSEE HEREIN FOR THE SERVICE S RENDERED BY THE ASSESSEE, AS THE POWER OF ATTORNEY HOLDER, IN PARTICIPATING IN THE A UCTION PROCESS AND IN COMPLETING THE PROCESS OF ACQUISITION OF ASSETS OF M/S PREMIER CAB LE CO. LTD. THE AO CALCULATED THE TAXABLE INCOME OUT OF RS.75.00 LAKHS AS UNDER:- AMOUNT DUE TO BE PAID TO THE ASSESSEE 75,00, 000 LESS:- AMOUNT PAYABLE TO M/S KAYEM EXPORTS ON 23.11.2004 3,92,000 SALES TAX LIABILITY ON SALE OF SCRAP 14,84,320 --------------- 18,76,320 --------------- 56,23,680 ======== THE AO ASSESSED A SUM OF RS.16,23,680/- IN THE ASSE SSMENT YEAR 2005-06 AND RS.40,00,000/- IN THE ASSESSMENT YEAR 2006-07, BY R EJECTING THE FOLLOWING EXPLANATIONS OFFERED BY THE ASSESSEE. I.T.A. NOS. 281-287/COCH/2011 13 (A) RS.40,00,000/- MENTIONED IN THE AGREEMENT WAS NOT A T ALL RECEIVED, AS THERE WAS NO NECESSITY TO RECEIVE THE SAID AMOUNT. (B) THE AMOUNT OF RS.35,00,000/- WAS RECEIVED BY THE AS SESSEE, IN HIS CAPACITY AS THE POWER OF ATTORNEY HOLDER AND THE SAME HAS BE EN USED FOR MAKING PAYMENT ON BEHALF OF SRI SIDDIQUE MOHAMMED ALI AS U NDER:- PAID TO M/S KAYEM EXPORTS RS.25,00,000/- SALES TAX PAYMENT:- A.Y. 2004-05 RS. 6,80,000/- A.Y. 2005-06 RS.10,00,000 /- IT APPEARS THAT THE ASSESSING OFFICER DID NOT VERIF Y THE LEDGER ACCOUNT COPY OBTAINED FROM M/S KAYEM EXPORTS, WHICH WAS SUBMITTED BY THE A SSESSEE IN SUPPORT OF HIS CONTENTIONS. THE LD CIT(A) ALSO CONFIRMED THE ASSE SSMENT OF RS.16,23,680/- IN THE ASSESSMENT YEAR 2005-06 AND RS.40,00,000/- IN THE A SSESSMENT YEAR 2006-07. 19. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE HAVE ALSO GONE THROUGH THE VARIOUS CLAUSES OF THE AGREEMENT DATED 23.11.20 04, WHICH ARE EXTRACTED ABOVE. THE SAID AGREEMENT IS THE BASIS FOR ASSESSMENT OF A GGREGATE AMOUNT OF RS.56,23,680/- IN THE HANDS OF THE ASSESSEE IN TWO ASSESSMENT YEAR S. ON A CAREFUL PERUSAL OF THE SAID AGREEMENT, WE NOTICE THAT THE AGREEMENT NO WHERE ST ATES THAT THE AMOUNT OF RS.75.00 LAKHS WAS PAID TO THE ASSESSEE AS SERVICE CHARGES AS ASSUMED BY THE TAX AUTHORITIES. THUS, IN OUR VIEW, THERE IS NO BASIS ON THE PRESUMP TION ENTERTAINED BY THE TAX AUTHORITIES THAT THE SUM OF RS.75.00 LAKHS REPRESEN TS SERVICE CHARGES, WHICH IS TAXABLE AS THE INCOME OF THE ASSESSEE. ON THE CONTRARY, IT IS CLEARLY MENTIONED IN THE SAID AGREEMENT THAT THE SAID AGREEMENT WAS ENTERED IN OR DER TO SETTLE THE ACCOUNT RELATING TO THE TRANSACTIONS OF PURCHASE OF ASSETS OF M/S PR EMIER CABLE CO. LTD. 20. THE TAX AUTHORITIES HAVE REJECTED THE CLAI M OF NON-RECEIPT OF RS.40.00 LAKHS IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07. HOWEVER, WE NOTICE THAT THE ASSESSEE HAS PLACED ON RECORD, AT PAGE 9 OF THE PAP ER BOOK RELATING TO THE ASSESSMENT YEAR 2005-06, A CERTIFICATE OBTAINED FROM SRI P.M. MOHAMMAD ALI TO THE EFFECT THAT THE SUM OF RS.40.00 LAKHS WAS NOT PAID BY HIM, SINCE TH E SETTLEMENT OF ACCOUNT DID NOT I.T.A. NOS. 281-287/COCH/2011 14 REQUIRE THAT PAYMENT. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE TAX AUTHORITIES IN ARRIVING AT THE CONCLUSION THAT THE ASSESSEE HAS ACTUALLY RECEIVED THE SAID SUM OF RS.40.00 LAKHS, T HAT TOO, ON HIS PERSONAL ACCOUNT, WITHOUT DISPROVING THE CLAIM MADE BY THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE TAX AUTHORITIES HAVE NOT BROUGHT ON RECORD ANY MATERIAL TO SUPPORT THEIR CONCLUSIONS. 21. WITH REGARD TO THE AMOUNT OF RS.35.00 LAKHS, THE ASSESSEE HAS STATED THAT THE SAME WAS UTILISED FOR MAKING PAYMENT TO M/S KAYEM EX PORTS AND ALSO FOR SETTLING THE SALES TAX DUES. IN SUPPORT OF THE SAID CONTENTION, THE ASSESSEE HAS PLACED COPY OF LEDGER ACCOUNT OF M/S SIDDIQUE & CO (PROPRIETARY CO NCERN OF SHRI MOHAMMED SIDDIQUE ALI) FOR THE PERIOD FROM 1.4.2002 TO 01.3.2007 AS A VAILABLE IN THE BOOKS OF M/S KAYEM EXPORTS IN PAGES 12 TO 14 OF THE PAPER BOOK FILED BY THE ASSESSEE. FROM THE ASSESSMENT ORDER AND APPELLATE ORDER, WE NOTICE THA T THE ASSESSEE HAS EXPLAINED THE REASONS OR CIRCUMSTANCES, WHICH COMPELLED THE ASSES SEE TO MAKE PAYMENT TO M/S KAYEM EXPORTS. WE NOTICE THAT THE TAX AUTHORITIES H AVE REJECTED THE SAID CLAIM WITHOUT EXAMINING THE EVIDENCES FILED BY THE ASSESSEE. WE NOTICE THAT THE ASSESSEE HAS SUBSTANTIATED HIS CLAIM BY FILING THE ACCOUNT COPY OBTAINED FROM M/S KAYEM EXPORTS. ACCORDINGLY, IN OUR VIEW, THE TAX AUTHORITIES ARE N OT RIGHT IN LAW IN REJECTING THE EXPLANATIONS OF THE ASSESSEE ON THE FACE OF IT, WIT HOUT EXAMINING THE EVIDENCES FILED. ACCORDINGLY, THERE IS NO JUSTIFICATION IN MAKING TH E ADDITION OF RS.16,23,680/- DURING THIS YEAR. HOWEVER, AS NOTICED EARLIER, THE TAX AUTHORI TIES DID NOT EXAMINE THE CLAIM OF THE ASSESSEE AND HENCE IT REQUIRES VERIFICATION AT THE END OF AO. ACCORDINGLY, WE SET THE ASIDE THE ORDER OF LD CIT(A) ON THE ISSUE OF ASSESS MENT OF RS.16,23,680/- AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION T O VERIFY THE EVIDENCES FILED IN SUPPORT OF HIS CONTENTIONS AND TAKE APPROPRIATE DECISION I N TERMS OF DISCUSSIONS MADE SUPRA. THE ASSESSEE SHOULD BE GIVEN NECESSARY OPPORTUNITY OF BEING HEARD. 22. WE SHALL NOW TAKE UP THE APPEAL FILED BY TH E ASSESSEE FOR THE ASSESSMENT YEAR 2006-07. FOLLOWING ISSUES ARE CONTESTED IN THIS AP PEAL:- (A) ASSESSMENT OF RS.40.00 LAKHS, WHICH WAS DISCU SSED IN THE PRECEDING PARAGRAPHS, AS THE INCOME OF THE ASSESSEE. I.T.A. NOS. 281-287/COCH/2011 15 (B) ASSESSMENT OF AGRICULTURAL INCOME OF RS.45,00 0/- AS INCOME FROM OTHER SOURCES. (C) MISTAKES IN THE COMPUTATION OF INTEREST U/S 234B OF THE ACT. 23. THE FIRST ISSUE RELATES TO THE ASSESSMENT O F RS.40.00 LAKHS AS THE INCOME OF THE ASSESSEE BY TREATING THE SAME AS SERVICE CHARGES. THE FACTS RELATING TO THE SAID AMOUNT WERE DISCUSSED BY US IN PARAGRAPHS 17 TO 20 (SUPRA). WE HAVE ALREADY NOTICED THAT THE TAX AUTHORITIES HAVE REJECTED THE CLAIM OF NON-RECEIPT OF RS.40.00 LAKHS WITHOUT CARRYING OUT ANY EXAMINATION. THE ASSESSEE HAS FIL ED AN ADDITIONAL EVIDENCE IN THE FORM OF A CERTIFICATE OBTAINED FROM THE CONCERNED B ANK TO THE EFFECT THAT THE CHEQUE MENTIONED IN THE AGREEMENT WAS NOT ENCASHED. HENCE , IN OUR VIEW, THERE IS NO JUSTIFICATION IN MAKING THE ADDITION OF RS.40.00 LA KHS IN THE HANDS OF THE ASSESSEE, AS IT HAS BEEN SHOWN TO US THAT THE SAID AMOUNT HAS NOT B EEN RECEIVED AT ALL. HOWEVER, SINCE THE TAX AUTHORITIES HAVE NOT EXAMINED THE DOC UMENTS FILED BY THE ASSESSEE IN SUPPORT OF HIS CLAIM AND FURTHER, SINCE THE ADDITIO NAL EVIDENCE FILED BEFORE US REQUIRES VERIFICATION AT THE END OF THE AO, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIR ECTION TO VERIFY THE VARIOUS DOCUMENTS FILED/THAT MAY BE FILED AND TAKE APPROPRIATE DECISI ON IN TERMS OF DISCUSSION MADE SUPRA. THE ASSESSEE SHOULD BE GIVEN NECESSARY OPPORTUNITY OF BEING HEARD. 24. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF AGRICULTURAL INCOME OF RS.45,000/- AS INCOME FROM UNDISCLOSED SOURCES. IN THIS YEAR ALSO , THE ASSESSEE HAD DECLARED THE AGRICULTURAL INCOME IN THE ORIGINAL RETURN OF INCOM E FILED PRIOR TO THE SEARCH AND THE DEPARTMENT DID NOT UNEARTH ANY MATERIAL DURING THE COURSE OF SEARCH TO DISPROVE THE SAID CLAIM. HENCE, FOR THE REASONS STATED IN PARAG RAPH 7.1 (SUPRA), WE DO NOT FIND ANY REASON TO DISBELIEVE THE AVAILABILITY OF AGRICULTUR AL INCOME OF RS.45,000/- DURING THIS YEAR AND ACCORDINGLY, SET ASIDE THE ORDERS OF TAX A UTHORITIES. 25. THE LAST ISSUE PERTAINS TO THE CLAIM OF MIS TAKE MADE IN THE COMPUTATION OF INTEREST U/S 234B OF THE ACT. FOR THE REASONS STAT ED IN PARAGRAPH 8 (SUPRA), WE RESTORE I.T.A. NOS. 281-287/COCH/2011 16 THIS MATTER TO THE FILE OF AO WITH THE DIRECTION TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 26. WE SHALL NOW TAKE UP THE APPEAL FILED FOR T HE ASSESSMENT YEAR 2007-08. FOLLOWING ISSUES ARE URGED IN THIS APPEAL. (A) ASSESSMENT OF AGRICULTURAL INCOME OF RS.60,00 0/- AS INCOME FROM OTHER SOURCES. (B) VALIDITY OF DIRECTION GIVEN BY LD CIT(A) TO ASSESS THE SUM OF RS.25.00 LAKHS AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 27. THE FIRST ISSUE RELATES TO THE ASSESSMENT O F AGRICULTURAL INCOME OF RS.60,000/- DECLARED BY THE ASSESSEE AS INCOME FROM OTHER SOURC ES. WE HAVE ALREADY NOTICED THAT THE ASSESSEE WAS CONSISTENTLY DECLARING AGRICULTURA L INCOME IN ALL THE YEARS. IT HAS BEEN EXPLAINED THAT HE HAS CARRIED OUT AGRICULTURAL OPER ATIONS ON THE 82 CENTS OF LAND APPURTENANT TO HIS HOUSE. THE ASSESSEE HAS FILED H IS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 14.12.2007 AND THE SEARC H HAS TAKEN PLACE ON 26.3.2008. HENCE THE TIME PERIOD FOR ISSUING NOTICE U/S 143(2) HAS NOT EXPIRED BY THE DATE OF SEARCH AND HENCE THE DECISION TAKEN BY US IN THE EA RLIER YEARS CANNOT BE APPLIED IN THE INSTANT YEAR. WE NOTICE THAT THE ASSESSEE HAS NOT FILED THE DETAILS RELATING TO THE RECEIPT OF AGRICULTURAL INCOME BEFORE THE TAX AUTHO RITIES. AT THE SAME TIME, IT MAY NOT BE PROPER TO DISBELIEVE THE CLAIM OF AVAILABILITY O F AGRICULTURAL INCOME ALTOGETHER, SINCE THE ASSESSEE HAS BEEN OFFERING THE SAME SINCE PAST SEVERAL YEARS. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ISSUE WO ULD MEET THE ENDS OF JUSTICE IF THE AGRICULTURAL INCOME IS DETERMINED AT RS.45,000/-, B EING THE AMOUNT OFFERED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR . WE ORDER ACCORDINGLY. THE ORDER OF LD CIT(A) ON THIS ISSUE STANDS MODIFIED AND THE AO IS DIRECTED TO MODIFY THE ADDITION ACCORDINGLY. 28. THE NEXT ISSUE RELATES TO THE DIRECTION GIV EN BY LD CIT(A) TO THE AO TO ASSESS THE SUM OF RS.25.00 LAKHS AS DEEMED DIVIDEND. THE FACT S RELATING TO THE SAME ARE STATED IN I.T.A. NOS. 281-287/COCH/2011 17 BRIEF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2008-09 (SUCCEEDING ASSESSMENT YEAR), THE AO NOTICE D THAT THE SPOUSE OF THE ASSESSEE HAS RECEIVED A SUM OF RS.47.90 LAKHS FROM A COMPANY NAMED M/S DAMAC HOLDINGS PVT LTD, IN WHICH THE ASSESSEE HAD SUBSTANTIAL INTEREST . HENCE THE AO ASSESSED THE SUM OF RS.47.90 LAKHS AS DEEMED DIVIDEND IN ASSESSMENT YEA R 2008-09. BEFORE LD CIT(A), IT WAS SUBMITTED THAT THE SPOUSE OF THE ASSESSEE RECEI VED A SUM OF RS.22.90 LAKHS ONLY DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 200 8-09 AND THE BALANCE AMOUNT OF RS.25.00 LAKHS WAS RECEIVED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08. BASED ON THIS SUBMISSION, THE LD CIT(A) GRANTED REL IEF OF RS.25.00 LAKHS IN THE ASSESSMENT YEAR 2008-09. HOWEVER, THE LD CIT(A), W HILE DISPOSING THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08, DIRE CTED THE AO TO ASSESS THE ABOVE SAID SUM OF RS.25.00 LAKHS AS DEEMED DIVIDEND IN TH AT YEAR AND ACCORDINGLY ENHANCED THE INCOME OF THE ASSESSEE. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE IS IN APPEAL BEFORE US. 29. BEFORE US, THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS ENHANCED THE INCOME OF THE ASSESSEE WITHOUT GIVING A REASONABLE OPPORTUNIT Y TO THE ASSESSEE AS PRESCRIBED UNDER SUB. SEC. 2 OF SEC. 251 OF THE ACT AND HENCE THE SAID ENHANCEMENT IS LIABLE TO BE QUASHED. HE FURTHER SUBMITTED THAT THE SAID AMOUN T WAS GIVEN AS ADVANCE FOR PURCHASE OF PROPERTY BELONGING TO THE SPOUSE OF THE ASSESSEE AND HENCE THE SAID PAYMENT, BEING MADE IN THE COURSE OF BUSINESS, THE PROVISIONS OF SEC. 2(22)(E) SHALL NOT APPLY. IN THE ALTERNATIVE, THE LD A.R SUBMITTED TH AT THE COMPANY M/S DAMAC HOLDINGS PVT LTD DID NOT HAVE ACCUMULATED BALANCE AS ON 31.3 .2007 OR AT THE TIME THE ADVANCE AMOUNT OF RS.25.00 LAKHS WAS GIVEN TO THE ASSESSEE AND HENCE THE PROVISIONS OF SEC. 2(22)(E) SHALL NOT APPLY TO THE ASSESSEE. ON THE C ONTRARY, THE LD D.R STRONGLY SUPPORTED THE ORDER OF LD CIT(A). 30. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. THE LD A.R HAS CONTENDED THAT THE LD CIT(A) HAS ENHANCE D THE ASSESSMENT WITHOUT PROVIDING OPPORTUNITY TO THE ASSESSEE. FROM THE OR DER OF LD CIT(A), IT IS NOT CLEAR AS TO WHETHER THE LD CIT(A) HAS GIVEN THE OPPORTUNITY TO THE ASSESSEE AS PROVIDED U/S I.T.A. NOS. 281-287/COCH/2011 18 251(2) OF THE ACT OR NOT. ON THE CONTRARY, THE LD CIT(A) HAS DIRECTED THE AO TO PROVIDE OPPORTUNITY TO THE ASSESSEE TO VERIFY THE FACTUAL C ORRECTNESS OF THE CLAIM. IN OUR VIEW, IF THE LD CIT(A) HAS NOT PROVIDED OPPORTUNITY TO TH E ASSESSEE AS PROVIDED U/S 251(2) OF THE ACT, THE ORDER OF ENHANCEMENT IS LIABLE TO BE Q UASHED. 31. WITH REGARD TO THE CLAIM OF THE ASSESSEE TH AT THE ADVANCE WAS GIVEN BY M/S DAMAC HOLDINGS (P) LTD TO THE SPOUSE OF THE ASSESSE E IN ORDER TO PURCHASE A PROPERTY BELONGING TO HER, WE NOTICE THAT THE ASSESSEE HAS F URNISHED AN AGREEMENT FOR SALE ENTERED BETWEEN THE ABOVE SAID COMPANY AND THE SPOU SE OF THE ASSESSEE. HOWEVER, IT IS NOT BORNE OUT OF RECORD AS TO WHETHER THE SAID A GREEMENT WAS GIVEN EFFECT TO OR NOT. UNDER THESE CIRCUMSTANCES, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE SAID ADVANCE GIVEN FOR THE PURPOSE OF BUSINESS. 32. HOWEVER, WE FIND MERIT IN THE ALTERNATIVE C ONTENTION OF THE ASSESSEE. UNDER SEC. 2(22)(E) OF THE ACT, ANY PAYMENT COVERED BY THE SA ID PROVISIONS SHALL BE TREATED AS DEEMED DIVIDEND ONLY TO THE EXTENT TO WHICH THE COM PANY POSSESSES ACCUMULATED PROFITS, MEANING THEREBY, IF THE COMPANY DOES NOT P OSSESS ANY ACCUMULATED PROFIT, NOTHING CAN BE ASSESSED AS DEEMED DIVIDEND, EVEN IF THE COMPANY MAKES PAYMENT TO THE INTERESTED PERSONS. THE ASSESSEE HAS FILED COP IES OF THE ANNUAL ACCOUNTS PERTAINING TO M/S DAMAC HOLDINGS (P) LTD IN THE PAPER BOOK FIL ED FOR THE ASSESSMENT YEAR 2008-09. ON A PERUSAL OF THE SAID ACCOUNTS, WE NOTICE THAT T HE RESERVE AND SURPLUS WAS A NEGATIVE FIGURE AS ON 31.3.2007, I.E., THE PROFIT A ND LOSS ACCOUNT SHOWED A DEBIT BALANCE OF RS.18.44 LAKHS AS ON THAT DATE. IN THE ABSENCE OF ACCUMULATED PROFIT, NO AMOUNT IS TAXABLE U/S 2(22)(E) OF THE ACT. HOWEVER , THESE FACTUAL ASPECTS NEED VERIFICATION AT THE END OF THE AO. ACCORDINGLY, WE SET SIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR CONSIDERING THIS ISSUE IN TERMS OF DISCUSSION MADE SUPRA. ON VERIFICATION OF THE A NNUAL ACCOUNTS OF THE ABOVE SAID COMPANY, IF THE ASSESSING OFFICER IS SATISFIED THAT THE COMPANY DOES NOT POSSESS ACCUMULATED PROFITS, THEN THE ABOVE SAID SUM OF RS. 25.00 LAKHS SHALL NOT BE ASSESSABLE AS DEEMED DIVIDEND. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. I.T.A. NOS. 281-287/COCH/2011 19 33. WE SHALL NOW TAKE UP THE APPEAL RELATING TO T HE ASSESSMENT YEAR 2008-09. FOLLOWING ISSUES ARE URGED IN THIS APPEAL. (A) ASSESSMENT OF RS.23.00 LAKHS AS UNEXPLAINED P AYMENTS IN PURCHASE OF PROPERTY. (B) ASSESSMENT OF RS.47.90 LAKHS (OUT OF WHICH RS .22.90 LAKHS CONFIRMED BY LD CIT(A)) AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. (C) MISTAKE IN COMPUTATION OF INTEREST U/S 234B O F THE ACT. 34. THE FIRST ISSUE RELATES TO THE ASSESSMENT OF RS.23.00 LAKHS AS UNEXPLAINED CASH PAYMENT IN THE PURCHASE OF A PROPERTY LOCATED AT A PLACE CALLED KAKKATHURUTHU. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. DU RING THE COURSE OF SEARCH PROCEEDING, THE DEPARTMENT STUMBLED UPON A LOOSE PAPER EVIDENCI NG UNACCOUNTED PAYMENT OF RS.23.00 LAKHS WAS NOTICED. THE PROPERTY WAS PROPO SED TO BE PURCHASED FOR A SUM OF RS.81,48,681/- AND THE PAYMENTS WERE PROPOSED TO BE PAID BY WAY OF CHEQUE TO THE TUNE OF RS.44,95,824/- (DOCUMENT VALUE) AND BY WAY OF CASH TO THE TUNE OF RS.36,52,857/-. IT WAS ALSO NOTICED THAT A SUM OF RS.40,00,000/- WAS PAID BY CHEQUE AND A SUM OF RS.23,00,000/- WAS PAID BY WAY OF CASH . WHEN CONFRONTED, THE COMPANY M/S DAMAC HOLDINGS PVT LTD, IN WHICH THE ASSESSEE I S A DIRECTOR, AGREED TO OFFER THE SUM OF RS.23.00 LAKHS AS ITS INCOME. LATER ON THE SAID COMPANY RETRACTED FROM THE SAME AND ACCORDINGLY DID NOT OFFER THE SAID AMOUNT OF RS.23.00 LAKHS AS ITS INCOME. HENCE, THE AO PROPOSED TO ASSESS THE SAME IN THE HA NDS OF THE ASSESSEE. THE ASSESSEE AGREED THAT HE HAS PAID THE SAID AMOUNT OF RS.23.00 LAKHS, BUT HE CLAIMED THAT HE HAD SUFFICIENT SOURCES TO MAKE THE SAID PAY MENT. IN SUPPORT OF THE SAID CONTENTIONS, THE ASSESSEE FILED A CASH FLOW STATEME NT DURING THE ASSESSMENT PROCEEDINGS, WHEREIN HE DISCLOSED THE PAYMENT OF RS .23.00 LAKHS AS AN OUTGOING. THE AO WAS NOT CONVINCED WITH THE SAID EXPLANATIONS, AS HE WAS OF THE VIEW THAT THE ASSESSEE HAS NOT COME CLEAN WITH ALL THE NECESSARY PARTICULARS. THE LD CIT(A) ALSO CONFIRMED THE ADDITION BY OBSERVING THAT THE ASSESS EE HAS NOT FURNISHED THE DAY TO DAY PARTICULARS OF BANK/CASH TRANSACTIONS. I.T.A. NOS. 281-287/COCH/2011 20 35. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE NOTICE THAT THE ASSESSEE HAS FILED CASH FLOW STATEMENT FOR ALL THE YEARS UND ER CONSIDERATION. WE NOTICE THAT THE AO HAS CONSIDERED THE SAID CASH FLOW STATEMENT IN T HE EARLIER YEARS AND EVEN ASSESSED THE OPENING CASH BALANCE OF RS.2.50 LAKHS SHOWN BY THE ASSESSEE IN THE ASSESSMENT YEAR. HAVING CONSIDERED THE CASH FLOW STATEMENTS I N THE EARLIER YEARS, IN OUR VIEW, IT WOULD NOT BE PROPER ON THE PART OF THE TAX AUTHORIT IES TO REJECT THE SAME IN THE INSTANT ASSESSMENT YEAR. WE NOTICE THAT THE ASSESSEE HAS A CCEPTED THE FACT OF MAKING EXCESS PAYMENT OF RS.23.00 LAKHS. HOWEVER, THE CASE OF TH E ASSESSEE IS THAT HE WAS HAVING ENOUGH SOURCES FOR MAKING THE SAID PAYMENT. THE AD DITION U/S 69B OF THE ACT IS CONTEMPLATED ONLY IF THE ASSESSEE OFFERS NO EXPLANA TION OR THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT SATISFACTORY TO THE AO. WE NO TICE THAT THE TAX AUTHORITIES HAVE FOUND FAULT WITH THE CASH FLOW STATEMENT OF THE INS TANT YEAR, THOUGH THE ASSESSEE HAD PREPARED THE SAME IN IDENTICAL MANNER IN VARIOUS YE ARS. WHAT IS REQUIRED TO BE EXAMINED IN THE CASH FLOW STATEMENT IS - WHETHER TH E RECEIPTS OF CASH SHOWN IN THE CASH FLOW STATEMENT IS DULY SUPPORTED BY CREDIBLE D OCUMENTS OR NOT AND IF CREDIBLE EVIDENCES ARE AVAILABLE, THEN THERE SHOULD NOT BE A NY REASON TO SUSPECT THE SOURCES FOR THE INVESTMENTS SHOWN IN THE PAYMENT SIDE OF THE CA SH FLOW STATEMENT. HOWEVER, SUCH KIND OF OBJECTIVE ANALYSIS HAS NOT BEEN MADE BY THE AO WITH REGARD TO THIS ISSUE AND HE HAS REJECTED THE CLAIM OF AVAILABILITY OF CASH BALA NCE WITH SOME OBSERVATIONS, WHICH IN OUR VIEW, IS NOT SUFFICIENT ENOUGH TO REJECT THE CA SH FLOW STATEMENT. THE LD CIT(A) HAS ALSO ADOPTED THE VERY SAME APPROACH IN REJECTING TH E SAID STATEMENT. THE LD A.R SUBMITTED BEFORE US THAT THE MAJOR RECEIPTS SHOWN I N THE CASH FLOW STATEMENT PERTAINS TO WITHDRAWALS MADE FROM VARIOUS BANK ACCOUNTS. HE FURTHER SUBMITTED THAT THE AO HAS CONDUCTED ENQUIRIES IN RESPECT OF DEPOSITS (MAJ OR AMOUNT) MADE IN THE SAID BANK ACCOUNTS. ACCORDINGLY, THE LD A.R CONTENDED THAT T HERE IS NO REASON TO SUSPECT THE RECEIPTS SHOWN IN THE CASH FLOW STATEMENT. WE FIND FORCE IN THE SAID CONTENTIONS. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQ UIRES EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT( A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EX AMINE THE CASH FLOW STATEMENT, PARTICULARLY WITH REGARD TO THE RECEIPTS OF CASH SH OWN IN THE CASH FLOW STATEMENT AND I.T.A. NOS. 281-287/COCH/2011 21 TAKE DECISION IN TERMS OF THE DISCUSSION MADE SUPRA . THE ASSESSEE SHOULD BE GIVEN NECESSARY OPPORTUNITY OF BEING HEARD. 36. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF RS.47.90 LAKHS AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT, OUT OF WHICH A SUM OF RS.2 2.90 LAKHS WAS CONFIRMED BY LD CIT(A). THE FACTS RELATING TO THIS ISSUE WAS DISCU SSED BY US IN PARAGRAPH 28 (SUPRA). THE AO HAS OBSERVED THAT THE COMPANY M/S DAMAC HOLD INGS (P) LTD HAD ACCUMULATED PROFIT OF RS.1,24,36,174/- AND ACCORDINGLY ASSESSED THE SUM OF RS.47.90 LAKHS, BEING THE AMOUNT PAID THE SPOUSE OF THE ASSESSEE, AS DEEM ED DIVIDEND U/S 2(22)(E) OF THE ACT. THE LD CIT(A) HAS CONFIRMED THE ASSESSMENT TO THE TUNE OF RS.22.90 LAKHS AND DIRECTED THE AO TO ASSESS THE BALANCE AMOUNT OF RS. 25.00 LAKHS IN ASSESSMENT YEAR 2007-08. 37. WE HAVE ALREADY REJECTED THE CONTENTIONS OF THE ASSESSEE THAT THE IMPUGNED PAYMENT WAS MADE IN THE COURSE OF BUSINESS OF THE C OMPANY FOR THE REASONS STATED IN PARAGRAPH 31(SUPRA). IN THE ASSESSMENT YEAR 2007-0 8, WE HAVE NOTICED THAT M/S DAMAC HOLDINGS PVT LTD DID NOT HAVE ACCUMULATED PRO FITS AS ON 31.3.2007. ON A PERUSAL OF THE ANNUAL ACCOUNTS OF THE SAID COMPANY, WHICH IS PLACED IN PAGES 7 TO 15 OF THE PAPER BOOK FILED BY THE ASSESSEE, WE NOTICE THE FOLLOWING POSITION WITH REGARD TO THE ACCUMULATED PROFITS. PROFIT AND LOSS ACCOUNT:- OPENING BALANCE AS ON 1.4.2007 (18,44,034.84) ADD:- CURRENT YEARS PROFIT 83,18,231. 80 ------------------- CLOSING BALANCE AS ON 31.3.2008 64,74,196.96 ========== AS AGAINST THE ABOVE FACTS, THE AO HAS OBSERVED THA T THE ABOVE SAID COMPANY HAD ACCUMULATED PROFIT TO THE TUNE OF RS.1,24,36,174/-. THUS, THERE IS CONTRADICTION BETWEEN THE OBSERVATIONS MADE BY THE AO AND THE ANN UAL ACCOUNTS OF THE COMPANY FILED BY THE ASSESSEE, WHICH REQUIRES VERIFICATION. 38. THE ADVANCE GIVEN TO THE SPOUSE OF THE ASSES SEE IS SHOWN AS SHAMMY MUHEYIDDIN FLAT ADVANCE IN THE BOOKS OF THE M/S DA MAC HOLDINGS PVT LTD. THE I.T.A. NOS. 281-287/COCH/2011 22 ASSESSEE HAS FURNISHED AN ACCOUNT COPY OF THE SAID ACCOUNT AS AVAILABLE IN THE BOOKS OF M/S DAMAC HOLDINGS PVT LTD IN PAGE 16 OF THE PAPER BOOK. FROM THE SAID ACCOUNT COPY, WE NOTICE THE COMPANY HAS GIVEN ADVANCE TO THE TUNE OF RS.22.90 LAKHS TO THE SPOUSE OF THE ASSESSEE AS DETAILED BELOW:- ON 25.06.2007 3,90,000 ON 24.07.2007 12,00,000 ON 25.09.2007 5,00,000 ON 12.03.2008 2,00,000 ----------------- 22,90,000 ========= IT IS A WELL SETTLED PROPOSITION OF LAW THAT THE P ROFITS OF BUSINESS ACCRUES AS ON THE LAST DATE OF THE FINANCIAL YEAR. HENCE THE ACCUMULATED PROFITS SHALL NOT INCLUDE THE CURRENT YEARS BUSINESS PROFIT. IN THIS REGARD, IT IS APP OSITE HERE TO REFER TO THE DECISION RENDERED BY THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF M.B.STOCK HOLDING (P) LTD VS. ACIT (2003)(84 ITD 542). THE AHMEDABAD BENCH O F TRIBUNAL NOTICED THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ASOKBH AI CHIMANBHAI (1965)(56 ITR 42) HAS HELD THAT THE PROFITS DO NOT ACCRUE FROM DAY TO DAY OR EVEN FROM MONTH TO MONTH AND HAVE TO BE ASCERTAINED BY A COMPARISON OF ASSET S AT TWO STATED POINTS. IT WAS FURTHER HELD THAT UNLESS THE RIGHT TO PROFITS COMES INTO EXISTENCE THERE IS NO ACCRUAL OF PROFITS AND THE DESTINATION OF PROFITS MUST BE DETE RMINED BY THE TITLE THERETO ON THE DAY ON WHICH THEY ARISE. THEN THE TRIBUNAL WENT ON TO EXPLAIN THE PURPOSE OF EXPLANATION 2 TO SEC. 2(22)(E) AS UNDER IN PARA 24 OF THE ORDER:- KEEPING IN VIEW THE ABOVE INTERPRETATION OF LAW, I T CANNOT BE SAID THAT EXPLN.2 TO SEC. 2(22)(E) IS REDUNDANT. IT IS BOUND TO BE F OR A SPECIFIC PURPOSE. THE QUESTION FOR DETERMINATION IS AS TO WHAT IS THE PUR POSE FOR WHICH THIS EXPLANATION HAS BEEN INCORPORATED WHEN THE HONBLE S UPREME COURT IN THE CASE OF CIT VS. ASHOKBHAI CHIMANBHAI (SUPRA) HAVE HELD T HAT THE PROFITS OF BUSINESS DO NOT ACCRUE FROM DAY TO DAY OR EVEN FROM MONTH TO MONTH. IN OUR CONSIDERED VIEW, THE LEGISLATURE HAS TAKEN INTO ACC OUNT THE FACT THAT WHERE AS THE PROFITS FROM BUSINESS FOR THE CURRENT YEAR MAY NOT BE DETERMINABLE IN THE MIDDLE OF THE YEAR, THERE ARE CERTAIN SOURCES OF IN COME, THE INCOME FROM WHICH IS CAPABLE OF DETERMINATION WHICH, ACCORDING TO THE LEGISLATIVE INTENT, SHOULD ALSO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE AC CUMULATED PROFITS ON THE DAY OF ADVANCING THE LOAN. THE COMPANY IS A PERSON . IT MAY CARRY ON BUSINESS AND MAY ALSO DERIVE INCOME FROM VARIOUS OTHER SOURC ES. FOR EXAMPLE, THE COMPANY MAY SELL AN ASSET FROM WHICH CAPITAL GAINS ARE DERIVED. IF THE CAPITAL I.T.A. NOS. 281-287/COCH/2011 23 GAIN IS DERIVED BEFORE THE DATE OF ADVANCEMENT OF T HE LOAN THAT PROFIT SHALL HAVE TO BE TAKEN IN ACCOUNT IN DETERMINING THE ACCUMULAT ED PROFITS NOTWITHSTANDING THE FACT THAT SUCH AN EVENT HAS TAKEN PLACE IN THE MIDDLE OF THE YEAR. IT IS SO THE DETERMINATION OF CAPITAL GAINS IS NOT TO WAIT F OR THE END OF THE PREVIOUS YEAR. SIMILARLY, THERE CAN BE INCOME FROM OTHER SO URCES ALSO SUCH AS RECEIPT OF DIVIDEND INCOME OR INTEREST WHICH MAY NOT HAVE TO W AIT FOR DETERMINATION AT THE END OF THE YEAR. SIMILARLY, SOME SUBSIDY MAY BE RE CEIVED FROM THE GOVERNMENT WHICH MAY BE TAXABLE ON RECEIPT BASIS. SUCH INCOME SHALL ALSO HAVE TO BE TAKEN INTO ACCOUNT IN DETERMINING THE ACCUMULATED PROFITS AS IT HAS NOT TO WAIT FOR DETERMINATION OF INCOME AT THE CLOSE OF THE YEAR. THE HONBLE TRIBUNAL HAS EXPRESSED THE ABOVE SAID V IEW, WHEN IT WAS POINTED OUT TO IT BY THE COUNSEL FOR THE ASSESSEE THAT THE HONBLE SU PREME COURT IN THE CASE OF CIT VS. V.DAMODARAN (1980)(121 ITR 572) HAS HELD THAT THE A CCUMULATED PROFITS SHALL NOT INCLUDE CURRENT YEARS PROFIT. FINALLY THE TRIBUN AL SUMMARIZED THE PRINCIPLES OF SEC. 2(22)(E) AS UNDER:- (I) THAT FOR PURPOSES OF S. 2(22)(E), THE ACCUMULATED P ROFITS ARE TO BE WORKED OUT UPTO THE DATE OF EACH PAYMENT/ADVANCEMENT OF LOAN. (II) THAT THERE IS A DISTINCTION BETWEEN THE ACCUMULATE D PROFITS OF BUSINESS AND THE CURRENT YEARS PROFITS OF BUSINESS. (III) THAT PROFITS OF BUSINESS ACCRUE AT THE END OF THE P REVIOUS YEAR. (IV) THAT LOAN OR ADVANCE TREATED AS DEEMED INCOME UP TO THE DATE OF FRESH LOAN IS TO BE REDUCED FROM ACCUMULATED PROFITS. (V) THAT THE REPAYMENT OF LOAN DURING THE SAME YEAR IS NOT TO BE DEDUCTED FROM THE ACCUMULATED PROFITS. THUS, IT HAS BEEN HELD BY THE AHMEDABAD BENCH OF TH E TRIBUNAL THAT THE ACCUMULATED PROFITS DO NOT INCLUDE CURRENT YEARS BUSINESS PROF IT, SINCE IT ACCRUES ONLY AT THE END OF THE YEAR. 39. IN THE INSTANT CASE, WE HAVE NOTICED THAT, AS PER THE ANNUAL ACCOUNTS OF THE COMPANY, WHICH IS PLACED IN THE PAPER BOOK, THE AC CUMULATED PROFITS IN THE HANDS OF M/S DAMAC HOLDINGS PVT LTD WAS NEGATIVE FIGURE AT T HE POINT OF TIME WHEN THE IMPUGNED ADVANCES WERE GIVEN TO THE SPOUSE OF THE A SSESSEE. WE HAVE ALREADY STATED THAT THE PAYMENTS COVERED BY SEC. 2(22)(E) SHALL NO T BE TREATED AS DEEMED DIVIDEND, I.T.A. NOS. 281-287/COCH/2011 24 WHEN THERE IS NO ACCUMULATED PROFIT. ACCORDINGLY, NOTHING SHOULD BE ASSESSABLE IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND. HOWEVER, SINCE THERE IS A CONTRADICTION BETWEEN THE OBSERVATIONS MADE BY THE AO AND THE ANN UAL ACCOUNTS, THE MATTER RELATING TO THE ACCUMULATED PROFIT NEEDS VERIFICATION AT T HE END OF THE AO. IN VIEW OF THE LEGAL POSITION DISCUSSED ABOVE, IN OUR VIEW, THIS ISSUE R EQUIRES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE TH E ANNUAL ACCOUNTS OF M/S DAMAC HOLDINGS PVT LTD TO ASCERTAIN THE AVAILABILITY OF A CCUMULATED PROFITS, IF ANY, IN ACCORDANCE WITH THE DISCUSSIONS MADE ABOVE AND THEN DETERMINE THE AMOUNT OF DEEMED DIVIDEND, IF ANY, AS PER THE DISCUSSIONS MAD E IN THE PRECEDING PARAGRAPHS. WE MAKE IT CLEAR THAT, IF THE SAID COMPANY DOES NOT HA VE ANY ACCUMULATED PROFIT AT THE POINT OF TIME WHEN THE PAYMENTS WERE MADE TO THE SP OUSE OF THE ASSESSEE, THEN SAID PAYMENTS SHALL NOT GIVE RISE TO ANY DEEMED DIVIDEND IN TERMS OF SEC. 2(22)(E) OF THE ACT. NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE G IVEN NECESSARY OPPORTUNITY OF BEING HEARD. 40. THE LAST ISSUE PERTAINS TO THE CLAIM OF MIS TAKE MADE IN THE COMPUTATION OF INTEREST U/S 234B OF THE ACT. FOR THE REASONS STAT ED IN PARAGRAPH 8 (SUPRA), WE RESTORE THIS MATTER TO THE FILE OF AO WITH THE DIRECTION TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 41. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE FOR THE ASSESSMENT YEAR 2003-04 IS ALLOWED. THE APPEAL RELATING TO THE ASSESSMENT YEA R 2007-08 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ALL OTHER APPEAL S ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 20-11-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 20TH NOVEMBER, 2012 I.T.A. NOS. 281-287/COCH/2011 25 GJ COPY TO: 1. M.A. MUHEYIDDIN, HAFIL, JUMA MASJID ROAD, PANAYI KULAM (P.O.), PARAVOOR-683511. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE-1, ERNAKULAM 3.THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN