Shri. Bharat D Nikude, Pune V. Jt.. CIT [ OSD ] Cen Pune, Pune

ITA 575/PUN/2012

• Counselvise Citation: 57524514 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 1999-2000
• Appeal Filed On: 16-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH VERMA
• Keywords: Business income; Search and seizure; Loose papers; Document seized; Peak credit; Question of law; Bad and doubtful debts; Documents seized; Reassessment proceedings
• Section: 143(3); 153A; 133(6); 147; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K.PANDA, ACCOUNTANT MEMBER. ITA.NO.575 TO 581/PN/2012 (ASSTT. YEAR : 1999-00 TO 2005-06) SHRI BHARAT D.NIKUDE, AT POST JEJURI, TAL. PURANDAR, DIST. PUNE. AND ITA.NO.561 TO 567/PN/2012 (ASSTT. YEAR : 1999-00 TO 2005-06) SHRI JAYWANT D.NIKUDE, AT POST JEJURI, TAL. PURANDAR, DIST. PUNE. AND ITA.NO.568 TO 574/PN/2012 (ASSTT. YEAR : 1999-00 TO 2005-06) SHRI MACCHINDRA D.NIKUDE, AT POST JEJURI, TAL. PURANDAR, DIST. PUNE. .. APPELLANTS VS. JT.CIT (OSD), CENTRAL, PUNE. .. RESPONDENT ASSESSEE BY : SHRI M.K.KULKARNI DEPARTMENT BY : SHRI MUKESH VERMA DATE OF HEARING : 17.04.2013 DATE OF PRONOUNCEMENT : 29.04.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM : ALL THESE APPEALS PERTAIN TO SAME GROUP, SO THEY A RE BEING DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVE NIENCE. 2 ITA.NO.580/PN/2012 A.Y. 2004-05 2. THIS APPEAL HAS BEEN FILED AGAINST THE ORDER OF THE CIT(A) ON FOLLOWING GROUNDS: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. C.I.T. (A) WAS NOT JUSTIFIED IN CONFIRMING THE ESTIMATED ADDITION OF 2,20,991/- MADE IN ASSESSMENT UNDER S. 153-A OF THE ACT ON ACCOUNT OF MONEY-LENDING INTEREST AS BUSINESS INCOME THOUGH ASSESSEE WAS PREVENTED DUE TO POLICE INTERVENTION TO CARRY ON THE BUSINESS OF MONEY LEND ING AND THEREFORE NO INCOME REACHED TO THE ASSESSEE WHICH W AS EFFECTIVELY DIVERTED AT SOURCE AND WAS A TOTAL BUSI NESS LOSS/BAD DEBT. THE LD. C.I.T. (A) OUGHT TO HAVE APP RECIATED THIS POSITION AND ALLOWED THE CLAIM OF THE ASSESSEE . 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T. (A) WAS NOT JUSTIFIED IN REJECTING THE A DDITIONAL GROUND OF APPEAL RAISING SUBSTANTIAL QUESTION OF LA W THAT DUE TO POLICE RAIDS ON THE ASSESSEE AND POLICE AUTHORIT IES PREVENTING THE ASSESSEE TO DO AND CONTINUE THE MONE Y- LENDING BUSINESS AND RESULTANTLY BORROWERS TOOK ADV ANTAGE OF THIS GRIM POSITION OF THE ASSESSEE. THE INCOME O F INTEREST DID NOT ACCRUE TO THE APPELLANT-ASSESSEE. THE ADDIT ION ON ACCOUNT OF BUSINESS INCOME AND LOSS OF CAPITAL BE A LLOWED TO THE ASSESSEE. 3) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. C.I.T. (A) WAS CORRECT IN HIS DECISION NOT TO ADMIT THE ADDITIONAL GROUND OF APPEAL INVOLVING THE SUBST ANTIAL QUESTION OF LAW THAT THE ASSESSMENT WAS VITIATED IN LAW FOR NON ISSUE AND NON-SERVICE OF MANDATORY NOTICE U/S. 143 (2) OF THE ACT HOLDING THAT SUCH OBJECTION WAS NOT RAIS ED BEFORE A.O. ? 4) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. C.I.T. (A) WAS CORRECT IN HIS DECISION NOT TO ADMIT THE ADDITIONAL GROUND OF APPEAL INVOLVING THE SUBST ANTIAL QUESTION OF LAW THAT THE ASSESSMENT WAS VITIATED IN LAW FOR NON-ISSUE AND NON-SERVICE OF MANDATORY NOTICE U/S. 143 (2) OF THE ACT ON THE PARITY OF REASONING THAT NO SUCH GRO UND OF APPEAL WAS RAISED IN ORIGINAL APPEAL MEMO FILED IN F. NO. 35 AND THEREFORE, THE ADDITIONAL GROUND OF APPEAL DESE RVED TO BE REJECTED AND ULTIMATELY NOT ADMITTED FOR ADJUDICATI ON ? 3 5) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T. (A) WAS CORRECT IN HIS DE CISION TO HOLD THAT S. 292-BB WAS NOT PROSPECTIVE IN NATURE A PPLICABLE WEF. 01-04-2008 BUT ALSO APPLIED TO ALL PENDING APP EALS ? 6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE ASSESSEE DENIES HIS LIABILITY TO PAY INTEREST U/S. 234-A, 234-B AND 234-C OF THE ACT AND THE SAME BE DELETED. 3. THE ASSESSEE GROUP DERIVES INTEREST INCOME FROM MONEY LENDING ACTIVITY. THEY ALSO DERIVE INCOME FROM AGRI CULTURAL ACTIVITIES. IN THE CASE OF SHRI BHARAT D.NIKUDE, THE MONEY LEND ING ACTIVITY WAS CARRIED OUT BY THE APPELLANT WITH HIS BROTHERS JOIN TLY. SEARCH AND SEIZURE ACTION U/S.132 OF THE ACT WAS CONDUCTED AT THE PREMISES BELONGING TO ASSESSEE GROUP ON 15.06.2004. SUBSEQU ENTLY, NOTICE U/S.153A OF THE ACT WAS ISSUED TO THE ASSESSEE. AS SESSMENT WAS FINALISED AT RS.4,15,000/- AGAINST RETURNED INCOME OF RS.1,94,005/-. THE ASSESSEE GROUP CONSISTS OF SIX BROTHERS, NAMELY: (A) SHRI MACCHINDRA DATTATRAY NIKUDE (B) SHRI BHARAT DATTATRAY NIKUDE (C) SHRI JAYWANT DATATRAY NIKUDE (D) SHRI SHARAD DATTATRAY NIKUDE (E) SHRI GIRIDHAR D. NIKUDE (F) SHRI DNYANESHWAR D NIKUDE 4. THE BROTHERS MENTIONED AT SR. NO. (A) TO (E) LIV E IN A JOINT FAMILY. ACCORDING TO THE ASSESSING OFFICER, THE BROTHERS NA MED AT SR. NO. (A) TO (C) ARE ACTIVE AND INVOLVED IN MONEY LENDING BUSINE SS. A COMMON WARRANT WAS ISSUED IN THE NAMES OF SHRI MACHINDRA D .NIKUDE, SHRI BHARAT D. NIKUDE AND SHRI JAYWANT D.NIKUDE. NOTICE U/S.153A WAS ISSUED IN THE CASE OF SHRI MACHHINDRA D.NIKUDE, SHR I BHARAT D.NIKUDE AND SHRI JAYWANT D.NIKUDE. 5. THE ASSESSEE GROUP JOINTLY OWNS ANCESTRAL AGRICU LTURAL LAND AT DIFFERENT PLACES IN PUNE DISTRICT TOTALING TO 11 H 87 R. AS PER THE 7/12 EXTRACT, THE ASSESSEE GROUP RAISED CROPS LIKE RICE, JOWAR, WHEAT, SUGARCANE, POMEGRANATE AND ONIONS ETC. ACCORDING TO THE ASSESSING OFFICER, ABOVE MENTIONED THREE BROTHERS, SHRI BHARA T, SHRI 4 MACCHINDRA AND SHRI JAYWANT ADVANCED LOANS TO THE P EOPLE BELONGING TO DHANGAR COMMUNITY (SHEPHERDS). THE PEO PLE OF DHANGAR COMMUNITY ARE VERY POOR AND ILLITERATE. THE Y GRAZE THEIR CATTLE FOR 8 TO 9 MONTHS IN THE YEAR IN DIFFERENT P ARTS OF THE STATE AND RETURN HOME DURING RAINY SEASON FOR 3-4 MONTHS. EVE RY FAMILY OWNS NUMBER OF SHEEP OR GOATS AND EARN THEIR LIVELI HOOD FROM SHEEP REARING. ACCORDING TO THE ASSESSING OFFICER, APPEL LANTS EXPLOIT THEIR SIMPLICITY AND IGNORANCE. THE APPELLANTS LEND THEM MONEY THROUGHOUT THE YEAR RANGING FROM RS. 25,000/- TO RS . 3,00,000/- TO EACH FAMILY AND CHARGE INTEREST HEAVILY AND COLLECT SIGNATURES ON BLANK STAMP PAPERS FROM THE BORROWERS AS SECURITY. THE NIKUDES GROUP ALSO HAVE SEPARATE BUSINESSES I.E. HOTEL SAI, HOTEL YATRIK, STATIONERY/CUTLERY SHOP, COUNTRY LIQUOR SHOP AND MU TTON SHOP IN THE NAMES OF THEIR SONS. 6. NONE OF THE NIKUDE GROUP FILED THE RETURNS OF IN COME SINCE LAST MANY YEARS AND THEY DO NOT EVEN HAVE PAN NUMBERS. DURING THE COURSE OF SEARCH, LOOSE PAPERS WERE SEIZED AS PER A NNEXURE-A AND A-L OF PANCHANAMA DATED 15.06.2004. THERE WERE NOTINGS REL ATED TO MONEY LENDING BUSINESS IN THE SAID LOOSE PAPERS. THERE AR E REPETITIONS AND DUPLICATION OF LOOSE PAPERS. NO DATE WAS MENTIONED IN ANY OF THE LOOSE PAPERS EXCEPT ON PAGE NO. 6 OF BUNDLE NO. 1 OF ANNE XURE AL. NO BOOKS OF ACCOUNT WERE MAINTAINED BY THE ASSESSEE GROUP. T HERE IS NO MENTION OF INITIAL INVESTMENT OR RATE OF INTEREST C HARGED AND TOTAL CAPITAL IN THE MARKET IN THE SEIZED MATERIAL. 7. ON VERIFICATION OF THE SEIZED MATERIAL, IT WAS N OTICED THAT THE ASSESSEE GROUP HAS PURCHASED TWO PROPERTIES, AGRICU LTURAL LAND GAT NO. 609, AT DHALEWADI, AREA 5 ACRE 96R IN THE NAME OF S HRI MACCHINDRA AND SHRI JAYWANT D. NIKUDE FOR CONSIDERATION OF RS. 20,00,000/- OUT OF WHICH RS.9,00,000/- CASH WAS PAID BY THEM. THE REMA INING AMOUNT WAS NOT PAID AS THE ISSUE OF OWNERSHIP OF THE PROPE RTY WAS IN LITIGATION. ACCORDINGLY, SALE DEED COULD NOT BE EXE CUTED. A SHOP AT DHANAKWADI, PUNE, WAS PURCHASED ON 09.11.2000 FOR R S.1,22,660/- INCLUDING STAMP DUTY AND REGISTRATION FEES BY ALL F IVE BROTHERS. THE 5 AGREEMENT TO SELL THE SAME SHOP WAS EXECUTED FOR RS .1,36,000/-. OUT OF THIS AMOUNT, RS.86,000/- WAS RECEIVED AS ADVANCE ON 25.05.2004 FROM SHRI S. D. DHANAWADE. THE REMAINING BALANCE WA S NOT RECEIVED AND HENCE SALE DEED COULD NOT BE EXECUTED. IN THIS BACKGROUND, THE ASSESSING OFFICER CRYSTALLIZED THE CORE ISSUES IN T HESE CASES AS UNDER: A. WORKING OF PEAK CREDIT FOR INVESTMENTS MADE IN M ONEY LENDING. B. ESTIMATING RATE OF INTEREST CHARGED. C. WORKING OF INTEREST INCOME, PRINCIPLE AND INIT IAL INVESTMENT, D. WHETHER THE INTEREST INCOME EARNED IS TO BE DIS TRIBUTED AMONG THREE BROTHERS OR ALL FIVE BROTHERS. E. ESTIMATING AGRICULTURAL INCOME. F. ESTIMATING HOUSEHOLD EXPENSES. A. WORKING OF PEAK CREDIT : 8. EACH AND EVERY LOOSE PAPER, NOTE BOOKS WERE CONF RONTED WITH THE ASSESSEE BY WAY OF ISSUING QUESTIONNAIRE. THE ASSESSING OFFICER NOTED THAT NOWHERE EITHER THE DATE OR YEAR WAS MENT IONED IN ANY OF THE LOOSE PAPER WHICH PERTAINS TO MONEY LENDING BUS INESS EXCEPT ON PAGE NO. 6 OF BUNDLE NO. 2 OF ANNEXURE-AL. NOWHERE THE QUANTUM OF PRINCIPLE AND INTEREST WAS MENTIONED SEPARATELY. ON LY THE AMOUNT WAS MENTIONED. THESE AMOUNTS COULD EITHER BE CAPITA L BEING IN CIRCULATION IN THE MARKET OR TOTAL AMOUNTS RECEIVAB LE WHICH INCLUDES BOTH THE PRINCIPLE AND INTEREST. NOWHERE R ATE OF INTEREST CHARGED WAS MENTIONED. THERE WAS REPETITION OF NAME S AND AMOUNTS IN ALL THE LOOSE PAPERS. FROM STUDY OF EAC H AND EVERY PAPER, THE ASSESSING OFFICER NOTICED THAT MOST OF T HE PAPERS ARE THE XEROX OF THE OTHER PAGES WHEREIN IDENTICAL NAMES AN D AMOUNTS HAVE BEEN MENTIONED. IN SOME PAGES, SOME NAMES ARE DELETED, IN SOME PAGES SOME NAMES ARE ADDED. PAGE NO. 6 OF BUN DLE NO. 1 OF ANNEXURE A-L WAS IMPORTANT PAPER ACCORDING TO THE A SSESSING OFFICER. IT WAS A LIST OF PERSONS SHOWING AMOUNT AD VANCED AGAINST EACH NAME. THE NOTINGS ON THIS PAGE ARE REPRODUCED AS UNDER: 6 6,00,000 4,00,000 VITTHAL MARUTI PADALKAR 6,00,000 4,00,000 BALU MARUTI PADALKAR 1,50,000 1,00,000 SAKHARAM MARUTI PADALKA R (BALU JAMIN) 3,00,000 2,00,000 BABAN MARUTI PADALKAR 5,25,000 3,50,000 KERU BIRU PADALKAR 5,10,000 3,40,000 SANTU BIRU KARE 4,87,500 3,25,000 DADA LIMBA HAKKE 7,50,000 5,00,000 PANDURANG RAMA MAHANAWAR (BHIKASATHI) 4,50,000 3,00,0 00 BHIKA KRISHNA MAHANAWAR (SWATAHA) 1,50,000 1,00,000 ANNA MARUTI MOTE (SWATAHA) 1,50,000 1,00,000 GULA RAGHU MOTE (ANNA) 3,90,000 2,60,000 MAHADU BABA DAGADE (DHANU + NARAYAN) 2,25,000 1,50,000 ANNA DHONDIBA GALADE (LAXMAN GALADE) 3,75 ,000 2,50,000 DAGADU DHONDIBA GALADE 2,25,000 1,50,000 SOMA LIMBA MADANE (RAMA BICHKULE) 1,65,000 1,10,000 TUKARAM DAGADE (BUA DAUNDAS) 1,50,000 1,00,000 MOHAN JANU SABALE 1,80,000 1,20,000 KALU CHIKANE 60,000 40,000 KHUDE SIR 22,50 0 15,000 GANGADHAR BHIKU THOMBRE (KHANDU MAHANWAR) 30,000 20,000 SALU APPA LAKADE 30,000 20,000 YESU KESU DEVKATE BLANK 3,30,000 SHEKHAR GIRIDHAR BLANK 2,00,000 JE. JO. COMPANY 15,000 10,000 SIDDHI RAMBHAU KOKATE (ABA MOTE) 1,10,000 1,00,000 SHANKAR MARUTI PADALKAR 26/11/03 DT. 26/01/04 ROJI PARAT 9. AT THE END OF THE PAGE, THERE IS ONE DATE MENTIONED I.E. 26.11.2003 AGAINST THE NAME OF SHANKAR MARUTI PADALK AR TO WHOM AN AMOUNT OF RS.1,00,000/- WAS GIVEN AS ADVANCE. DURI NG THE COURSE OF POST SEARCH INVESTIGATIONS WHILE EXPLAINING PAGE NO.6, THE ASSESSEE STATED THAT THE AMOUNTS ARE THE OUTSTANDIN G BALANCES AGAINST THE NAMES MENTIONED THERE AS ON 26.11.2003. THERE IS ONE MORE COLUMN IN THE SAID PAPER ON LEFT SIDE SHOWING THE TOTAL OF RS.66,50,000/-. THE COLUMN ON THE RIGHT SIDE SHOWS TOT AL OF RS. 49,90,000/- . ON CAREFUL STUDY OF THIS PAPER, THE ASSESSING OFFI CER NOTICED THAT THE AMOUNTS MENTIONED IN LEFT COLUMN IS 1 AND TIMES GREATER THAN THE AMOUNTS MENTIONED IN RIGHT COLUMN WHICH SUGGESTS THAT THE AMOUNTS MENTIONED IN LEFT COLUMN IS INCLUS IVE OF INTEREST AND PRINCIPAL. THIS OBSERVATION OF THE ASSESSING OF FICER WAS STRENGTHENED BY A NOTING MENTIONED IN PAGE NO. 8 OF T HE SAME BUNDLE WHEREIN THE PRINCIPAL IS MENTIONED OF RS.46, 70,000/- AND INTEREST OF RS.23,35,000/-. THE FIGURE OF INTEREST MENTIONED WORKS OUT TO 7 50% OF THE PRINCIPAL AMOUNT. THUS HE CONCLUDED FROM THESE TWO PAGES THAT ASSESSEE WAS CHARGING INTEREST @ 50% FOR F.Y. 2003-04. NOTINGS ON THE PAGE NO. 8 ARE REPRODUCED AS UNDER: 1,00,000 SHANTARAM NIKUDE RECEIVABLES 55,000 SHRINATH BANK 7,000 SALU APPA LAKADE 1,35,000 FOR CONSTRUCTION 30,000 JAGU MOTE (SHIVA MOTE) 10,000 GANESH FUND (BHISHI) 6,000 MARUTI MOTE BHAU DAGADE 30,000 MILIND NASIK 43,000 2,50,000 ASHOK BARBH AI 31,000 KERA PADALKAR 40,000 KALU CHIKANE 12,25,000 TOTAL RECEIVED 30,000 BARAMATI SARAF 1,00,000 SUREKHA 6,81,000 ALREADY GIVEN AMOUNT 13,45,000 PADALKAR (BUDIT) CURRENT DISTRIBUTION 10,05,000 BHIKA MHANWAR (BUDIT) 55,40,000 PADALKAR 6 ,12,000 GALADE COMPANY 12,30,000 BHIKA DHANGAR 85,000 MARUTI MORE 12,27,000 GENERAL 8,48,000 GENERAL SWATAHA 7,00,000 GALADE 46,70,000 PRINCIPLE 50,000 SATU KARE 23,35,000 INTEREST 2,500 DADA HAKKE (BHAU) 70,05,000 TOTAL PRINCIPLE + INTEREST 47,49,500 TOTAL DISTRIBUTION 33,000 KERA PADALKAR PENALTY 15,000 TUKARAM DAGADE PENALTY 15,000 BHIKA MHANWAR PENALTY 15,000 MHATAS MOTE PENALTY 5,000 VARGANI JAMA 71,03,000 TOTAL 10. IN ABSENCE OF RETURNS OF INCOME FOR EARLIER YEARS AND ANY OTHER EVIDENCE WHICH LEAD TO THE WORKING OF THE INITIAL INVE STMENT IN MONEY LENDING BUSINESS, THERE WAS NO OPTION EXCEPT TO W ORK OUT THE 8 PEAK CREDIT. THE TOTAL OF EACH PAGE IS WORKED OUT. THE TOTAL OF AMOUNTS AS APPEARING IN THE DIFFERENT PAGES OF BUNDL E NO.1 OF ANNEXURE AI WAS WORKED OUT AS UNDER: PAGE NO. NO. OF BORROWERS TOTAL AMOUNT (RS.) 05 26 49,00,000 REVERSE PAGE OF PAGE NO.5 22 48,10,000 06 (RIGHT SIDE) 26 49,90,000 06 (LEFT SIDE) 24 66,50,000 REVERSE PAGE OF PAGE NO.6 2 48,10,000 07 26 49,90,000 REVERSE PAGE OF PAGE NO.7 24 48,10,000 08 24 71,03,000 10 (AMT. WRITTEN ON REVERSE PAGE) 29 46,90,000 11 31 46,97,000 12 11 49,19,000 (HIGHEST FIGURE TAKEN) REVERSE OF PAGE NO.12 - 33,05,000 11. FROM THE ABOVE CHART IT WAS OBSERVED BY THE ASS ESSING OFFICER THAT THE HIGHEST AMOUNT RECORDED IN THE SEIZED DOCUM ENTS IS RS.71,03,000/-. THIS AMOUNT, HOWEVER, CANNOT BE CONS IDERED AS PEAK AMOUNT OF INVESTMENT BECAUSE INTEREST AMOUNT OF RS. 2 3,35,000/- AND PENALTY OF RS.83,000/- WAS INCLUDED IN THIS AMO UNT. THE NEXT HIGHER AMOUNT AS APPEARING IN LOOSE PAPERS IS RS.66 ,50,000/-. THIS AMOUNT COULD BE TAKEN AS PEAK CREDIT AS INTEREST OF R S.16,60,000/- WAS INCLUDED IN IT. THE NEXT HIGHER AMOUNT WAS RS.4 9,90,000/-. THIS AMOUNT REQUIRES TO BE TREATED AS PEAK CREDIT I N THE F.Y. 2003-04. B. ESTIMATING RATE OF INTEREST CHARGED: 12. AS STATED ABOVE, THERE IS NO MENTION OF INTERES T CHARGED IN THE SEIZED MATERIAL EXCEPT ON PAGE NO. 1 TO 21 OF BUNDLE N O. 8 OF ANNEXURE A WHICH BELONGS TO SHRI MACCHINDRA. IN THESE PAGES, DATE, AMOUNTS OF ADVANCE GIVEN, RATE OF INTEREST CHAR GED WERE MENTIONED. THESE ADVANCES WERE GIVEN FROM 10.09.2002 TO 08.05.2003 AT THE RATE OF 18%. THE TOTAL OF THE ADV ANCES GIVEN IS OF RS.98,000/-. THE AMOUNTS ADVANCED AT THE RATE OF 18% FOR PART OF 9 THE F.Y. 2002-03 I.E. FOR SIX MONTHS WAS VERY LESS COM PARED TO THE TOTAL AMOUNTS ADVANCED OF RS.49,90,000/- WHICH CONSTITU TED ONLY 1.96%. HENCE, THE SAME RATE OF INTEREST COULD NOT BE APPLIED TO THE WHOLE AMOUNT OF ADVANCE. TO ASCERTAIN THE INTEREST RAT ES CHARGED BY SCHEDULED BANKS FROM F.Y. 1998-99 TO 2004-05, ACCOR DINGLY THE INFORMATION U/S 133(6) IS CALLED FOR FROM STATE BAN K OF INDIA, PUNE. STATE BANK OF INDIA, TILAK ROAD, PUNE IN THEIR LETTE R DATED 24.11.2006 HAS GIVEN THAT INTEREST RATES FOR CLEAN LOANS OFFERED BY SCHEDULED BANKS HAVE VARIED FROM APRIL, 1998 TO TIL L DATE AS FOLLOWS: DATE RATE OF INTEREST (%) PER ANNUM 02/04/1998 17.34 01/05/1998 16.83 01/03/1999 17.09 01/04/2000 16.00 12/08/2000 16.75 05/03/2001 16.25 01/02/2002 15.50 01/04/2002 15.00 01/07/2002 14.85 01/11/2002 14.60 05/05/2003 14.35 01/07/2003 14.50 01/01/2004 14.25 01/05/2006 14.75 02/08/2006 15.00 13. THE INTEREST CHARGED BY THE MONEY LENDER IS NORMA LLY HIGHER THAN THE INTEREST CHARGED BY THE SCHEDULED BANKS. ACCORDING TO THE ASSESSING OFFICER, THIS FACT WAS EVIDENT FROM THE NOT ING ON THE PAGE NO. 8, BUNDLE NO. 1 AS DISCUSSED ABOVE. CONSIDERING THE INTEREST CHARGED BY SCHEDULED BANKS AND MONEY LENDERS, IT WAS PROPOSED TO CHARGE INTEREST AT THE RATE OF 24% FROM F.Y. 1998-99 TO 2000-01 AND 30% FOR F.Y. 2001-02 AND 2002-03. ACCORDING TO THE ASSESSING OFFICER, THERE WAS EVIDENCE OF CHARGING 50% INTERES T FOR F.Y. 2003-04 AS DISCUSSED ABOVE. THE ASSESSEE WAS ASKED VIDE LETT ER DATED 24.11.2006 AS TO WHY THE INTEREST RATES SHOULD NOT BE ADOPTED AT 24% FOR F.Y. 1998-99 TO 2000-01, 30% FOR F.Y. 2001-0 2 & 2002-03 AND 50% FOR F.Y. 2003-04 AS IT WAS EVIDENT FROM THE PAGE NO. 6 OF BUNDLE NO. 1 OF ANNEXURE AL AND IN ABSENCE OF BOOKS OF ACCOUNTS MAINTAINED ON BEHALF OF THE ASSESSEES. IN RESPONSE TO THE LETTER OF 10 THE ASSESSING OFFICER DATED 24.11.2006, THE ASSESSE E FILED HIS LETTER DATED 01.12.2006 WHICH IS REPRODUCED AS UNDER: 'A. OUR LENDING OF THE AMOUNT IS TO THE FAMILY OF S HEPHERDS TO WHOM WE KNOW PERSONALLY AND HAVING SOCIAL RELATIONS WITH EACH OTHER SINCE LONG IN OUR DAY TO DAY LIFE. WHERE AS THE BANKING PARLANCE THE LENDING OF MONEY IS MADE IN TH E PERSONS WITH STRONG FINANCIAL POSITION ON PAPERS WI THOUT ANY PERSONAL KNOWLEDGE. B. WE ARE LENDING THE AMOUNT WITH MINIMUM RATE OF I NTEREST AND HAVING CENT PERCENT RECOVERY IN ALL EARLIER YEAR AN D THERE WERE NO BAD DEBTS. WHEREAS IN CASE OF BANK HERE ARE HUGE BAD DEBTS AND BANK HAD TO FILE NUMBER OF SUITS AND ULTIMATELY RENDERED ITSELF IN FINANCIAL DIFFICULTIES. IN THE YEAR 04-05 WHEN WE HAVE DECIDED TO INCREASE THE RATE OF INTEREST UP TO AT 50% AS WORKED OUT IN THE SEIZE D PAPERS WITH INTENTION TO ALLOW 25% COMMISSION TO AGENTS WE HAVE LOST EVERYTHING. C THE ADVANCING OF LOANS BY US IS A OLD ARRANGEMENT T O HELP THE FAMILIES OF SHEPHERDS BECAUSE BY MAINTAINING GOOD RE LATION AND HELPING THEM AND IN TURN THEY ARE HELPING US IN OUR BUSINESS OF TRADING IN SHEEP & GOATS WHICH IS THE GREATEST BEN EFITS TO OUR FAMILY AND HENCE LOW INTEREST WAS CHARGED TO THEM. IN CASE OF PERSONS MENTIONED IN YOUR LETTER THERE IS NO SUCH B ENEFITS COMING FROM THEM AND HENCE THEY HAVE TO CHARGE INTE REST AT THE MARKET RATE. D. IN CASE OF BANK THEY HAVE COSTLY ESTABLISHMENT A ND ADMINISTRATIVE CHARGES WHEREAS IN OUR CASE SUCH EXPENSES ARE NEGLIGIBLE OR MINIMUM EXCEPT THAT OF COMMISSION THAT IS PAID BY US TO THE BROKERS. THE CHARGING OF MINIMUM RATE OF INT EREST DEPENDS ON MANY FACTS SUCH AS I) EASY RECOVERY, WHICH WAS THE CASE TILL 03-04, IN OUR CASE. II)NO LITIGATION, THE COURT CASES HAVE BEEN FILED B Y NUMBER OF PRIVATE MONEY LENDERS AND BANK IN CITIES TAKING REC OURSE TO THE PROVISION OF SEC. 138 OF THE NEGOTIABLE ACT. AGAINS T THE BORROWERS WHEREAS THERE ARE ALMOST NIL CASES OF LITIGATION IN OUR CASE HENCE OUR LEGAL EXPENSES ARE VERY MINIMAL UNLIKE IN THE CA SES OF BANK AND OTHER PRIVATE MONEY LENDERS. (III) PERSONAL RELATION: THIS IS MOST IMPORTANT FAC TOR WITH THE BORROWER AND BECAUSE OF WHICH WE HAD EARNED THE AMO UNT WHICH HAS BEEN SHOWN BY US IN THE RETURNS OF INCOME. IN THE ABOVE CIRCUMSTANCES COMPARING OF RATE OF INTERE ST AND COMPUTATION OF THE INCOME ON THE BASIS MENTIONED IN YOUR LETTER WILL BE TOTAL INJUSTICE IN OUR CASES AND WILL NOT BE THE RE ALISTIC AND WE STRONGLY OBJECT FOR THE PROPOSED ESTIMATE OF INCOME . 4. WE HAVE IN OUR LETTERS DULY FILLED IN YOUR OFFICE AND THE VARIOUS STATEMENT RECORDED HAVE DULY CLARIFIED THAT WE HAVE IN THE PECULIAR CIRCUMSTANCES STARTED HELPING THE POOR PEOPLE IN OU R AREA WHO WERE BASICALLY THE SHEPHERDS. IT WAS OUR PRACTICE TO AD VANCE THEM THE AMOUNT WITH THE RATE OF INTEREST @ 12% AND SUBSEQUE NTLY IT HAS GRADUALLY INCREASED IN THOSE DAYS. WHEN WE WERE CHA RGING MINIMUM RATES, THE AMOUNTS ADVANCED TO THE BORROWER S WERE 11 SECURED AND THOSE DEBTS WERE GIVEN WITH THE GUARANT EE OF LIVE ANIMALS AND PERSONAL KNOWLEDGE. 5. IT IS AGAIN REITERATED THAT THE ARRANGEMENT OF A DVANCING THE LOANS WAS TO HELP EACH OTHER AND LIVE PEACEFULLY BY EARNI NG OUR BREAD AND BUTTER AND HELPS OTHERS. THERE WAS NO ELEMENT OF EA RNING ANY HUGE AMOUNTS FROM THE BORROWERS. IN THE YEAR 2004-05 DUE TO OUR BAD LUCK, WE HAVE FAILED TO REALIZE THE SITUATION AND CAM E INTO THE CLINCHES OF BAD SOCIAL ELEMENT LIKE BROKERS FROM TH E COMMUNITY OF SHEPHERDS AND WE THOUGHT TO ALLOW CERTAIN COMMISSION TO THE BROKERS BY INCREASING THE RATE UPTO 50%. AT THIS J UNCTURE WE HAVE MADE THE GREATEST MISTAKE IN OUR LIFE AND LOST ENTIR E AMOUNT OF PRINCIPLE AS WELL AS THE INTEREST NOTED IN THE PAGE NO. 6 AND 8 OF BUNDLE NO. 8 OF ANNEXURE A1 SEIZED AS PER PANCHANAMA DATED 15.06.2004. THE NOTING ON THESE PAPERS WERE ONLY THE SIMPLE WORKING MADE BY ONE OF OUR BROTHER AND THERE WAS NO SIGNATURE OF ANY PERSON ON THIS WORKING. THIS WAS ONLY A PROJECT ION OF FUTURE TRANSACTIONS AND HENCE NO MORE STRETCH BE GIVEN ON SUCH NOTINGS WHICH IS AGAINST THE PRINCIPLES OF LAW. THE ACCUMUL ATION OF AMOUNT AND ADVANCE GIVEN BY US IS SHOWN BY US IN OUR RETUR N AND THERE IS NO SUPPRESSION OF FACT, IN THE ADVANCES AND ACCUMUL ATION NOTED IN THE PAPER. THE FACT HAS ALSO BEEN CLARIFIED BY ALL T HE FIVE BROTHERS IN OUR STATEMENTS RECORDED IN YOUR OFFICE. IN OUR STATEMENT RECORDED BY THE INVESTIGATION DEPARTMENT AND BY YOUR HONOR WE HA VE ALREADY CLARIFIED THE PROCEDURE AND RATE OF INTEREST CHARGED IN THE YEARS UNDER CONSIDERATION. IT ALSO EVIDENT FROM THE RECOR D THAT DUE TO OUR INCREASED EXPECTATIONS FROM THE BORROWERS FOR INCRE ASING THE RATES THERE WERE COMPLAINTS TO THE POLICE AUTHORITIES AND ALS O TO THE INCOME TAX DEPARTMENT WHICH IS THE MAIN CAUSE OF ACT ION TAKEN AGAINST OUR FAMILY AND LOST EVERYTHING IN THE FORM OF M ONEY AND CREDIT AND MADE OUR LIFE MISERABLE. IT SHOULD ALSO BE NOTED THAT THERE ARE NO SIGNIFICANT A SSETS FOUND DURING THE SEARCH ACTION OR ON THE BOOKS OF ACCOUNT WHICH REFLECT GAIN OF INTEREST AT 50% AS PROPOSED IN YOUR OFFICE LETTER. 6. IN YOUR ABOVE REFERRED LETTER YOU HAVE MENTIONED VARIOUS RATES OF INTEREST CHARGES BY THE RESERVE BANK AND ALSO MENTI ONED THAT PREVAILING RATE OF INTEREST WAS MINIMUM OF 24-505 BY THE PRIVATE LENDERS. EVEN THOUGH WE DO NOT KNOW THE EXACT INFORMAT ION, HOWEVER IT IS RESPECTFULLY SUBMITTED THAT WE HAVE N EITHER CARRIED OUT ANY BANKING BUSINESS LIKE RESERVE BANK OF INDIA AND ALSO NOT LIKE THE MONEY LENDERS WHO ARE CHARGING EXORBITANT RATE OF INTER EST BY OBTAINING A SECURITY AS POST DATED CHEQUES ETC. IT MIGHT BE THE CASES THAT THE PRIVATE MONEY LENDERS WHO HAVE CHARGED THE RATE OF INTEREST AS MENTIONED IN YOUR LETTER HAVE LAUNCHED VARIOUS C OURT CASES U/S. 138 UNDER NEGOTIABLE INSTRUMENT ACT AND FACING LOT OF PROBLEMS FOR MAKING THE LIFE OF THE BORROWERS MISERABLE BY FACIN G VARIOUS JUDICIAL PROBLEMS. IN OUR CASES DUE TO GOOD FAITH THE THINGS WERE SMOOTH TILL 2003-04 WHEREIN THE RECOVERY OF THE DUES WAS NOT TH E PROBLEM AND NO COURT CASES. IN OUR CASE THE RATE OF INTEREST WAS INCREASING GRADUALLY AT THE SAME TIME WHEN WE HAVE CHARGED INTEREST RATE AT 30% AND ABOVE WE HAVE PAID COMMISSION TO THE BROKER AND SO THE UL TIMATE RATE OF INTEREST TO US WAS NOT MORE THAN 25%. THIS FACT HA S CLEARLY BEEN STARTED BY ALL OUR BROTHERS IN THE STATEMENT RECORD ED IN YOUR OFFICE. 7. IN RESPECT OF RATE OF INTEREST A REFERENCE BE MA DE TO PAGES. NO. 1 TO 21 SEIZED IN BUNDLE NO. 8 OF ANNEXURE A1 WHEREIN THE R ATE OF INTEREST UNDER MONEY LENDING ACT IS MENTIONED AND WAS CHARGE D AT 18% P.A, 12 DURING THE PERIOD 10.09.2002 WHICH IS SUFFICIENT EV IDENCE TO SHOW THE RATE OF INTEREST CHARGED BY US. IN YOUR OFFICE LETT ER THIS FACT HAS ALSO BEEN CONSIDERED. IN SPITE OF THESE FACT AND CONCRET E EVIDENCE CHARGING OF RATE OF INTEREST AS MENTIONED IN THE LETTER AND AS PROPOSED ON ESTIMATE BASIS IS UNJUSTIFIED AND WE STRONGLY OBJEC T TO IT. IT IS FURTHERS SUBMITTED THAT THERE ARE NO COMPENSATING ASSETS TO REFLECT CHARGING OF INTEREST AS PROPOSED IN THE LETTER. ' 14. THE ASSESSING OFFICER HAVING CONSIDERED THE EXP LANATION ON BEHALF OF THE ASSESSEE CONCENTRATED ON THE ISSUE OF RATE OF INTEREST CHARGED BY THE ASSESSEE. ACCORDING TO THE ASSESSI NG OFFICER, RESERVE BANK OF INDIA AND SCHEDULED BANKS HAVE IN MIND THE INTEREST OF THE INVESTORS, TO ENCOURAGE INDUSTRIES, WELFARE OF THE PUBLIC AT LARGE WHILE DECIDING THE RATE OF INTEREST, WHEREAS INDIVIDUAL MO NEY LENDERS HAVE ONLY BUSINESS INTEREST. AS THE ASSESSEE GROUP ITSEL F ADMITTED THAT THEY CONDUCT MONEY LENDING BUSINESS AND HENCE THEY SHOULD BE TREATED AS MONEY LENDERS. THOUGH THEY WERE CONDUCTI NG THIS BUSINESS SINCE LAST 10 YEARS, ONLY SHRI MACCHINDRA A ND SHRI JAYWANT HAVE OBTAINED LICENSE ONLY IN THE YEAR 2002-03 (I.E. ON 28.08.2002). THIS SHOWS THAT THE ASSESSEE WAS CONDU CTING ILLEGAL MONEY LENDING BUSINESS PRIOR TO THIS. VARIOUS COMPLAINS WERE FILED WITH THE CONCERNED POLICE OFFICERS AGAINST SHRI MAC CHINDRA AND SHRI JAYWANT FOR CHARGING HEAVY INTEREST. ALL THESE FACT S ESTABLISH THAT ASSESSEES WERE NOT LAW-ABIDING AND NOT INTERESTED I N HELPING THE POOR AS CLAIMED BY THEM. THE ASSESSEE IS TAKING THE POSITIO N THAT THE NOTINGS ON THE PAGE NO. 6 AND 8 OF BUNDLE NO.1 OF ANNEXURE AL SEIZED IS ONLY ROUGH WORKING MADE BY ONE OF THEIR BROTHERS AND THE RE IS NO SIGNATURE OF ANY PERSON ON THIS WORKING. THOUGH THERE IS NO S IGNATURE ON THIS PAGE, THE ASSESSEE'S BROTHER SHRI JAYWANT HAS ADMIT TED IN HIS STATEMENT THAT HE HAD MADE NOTING ON THESE PAGES IN HIS OWN HANDWRITING. BASED ON THE NOTINGS ON THESE TWO PAGES, THE ASSESSEE HAS WORKED OUT PEAK CREDIT AND FILED THE RETURNS OF T HE INCOME. HENCE, THE ASSESSEE'S ARGUMENT THAT THE ABOVE SAID PAGES ARE NOT SIGNED IS OF NO RELEVANCE BY THE ASSESSING OFFICER. 15. REGARDING RATE OF INTEREST MENTIONED ON PAGES 1 TO 21 OF BUNDLE NO. 8 OF ANNEXURE AL COULD NOT BE ADOPTED AS T HESE ADVANCES WERE GIVEN FROM 10.09.2002 TO 08.05.2003 AT THE RAT E OF 18%. THE AMOUNT OF ADVANCES GIVEN AT THE RATE OF 18% IS OF RS .98,000/- ONLY, 13 THAT TOO FOR THE PART OF THE F.Y. 2002-03 I.E. FOR SIX MONTHS. IT IS VERY LESS COMPARED TO THE TOTAL AMOUNT ADVANCED OF RS.49 ,90,000/- WHICH CONSTITUTES ONLY 1.96%. HENCE, THE SAME RATE OF INT EREST COULD NOT BE APPLIED TO THE WHOLE AMOUNT OF ADVANCE. THUS THE ASSE SSEE'S CONTENTION WAS NOT FOUND ACCEPTABLE AND THE ASSESSING O FFICER PROPOSED TO ESTIMATE INTEREST INCOME AS DISCUSSED IN THE FOLLOWING PARAGRAPHS. C. WORKING OF INTEREST INCOME, PRINCIPAL, INITIAL I NVESTMENT : 16. TAKING THE AMOUNT OF RS.49,90,000/- AS PEAK CREDI T FOR F.Y. 2003-04, INVESTMENT AND INTEREST INCOME WAS WORKED OUT BACKWARDS FROM F.Y. 2003-04 TO F.Y. 1998-99 AS GIVEN UNDER. FINANCIAL YEAR TOTAL AMOUNT (RS.) RATE OF INTEREST CHARGED INTEREST (RS.) PRINCIP AL (RS.) 2003 - 04 66,50,000 50% 16,60,000 49,90,000 2002 - 03 49,90,000 30% 11,51,538 38,38,461 2001 - 02 38,38,461 30% 8,85,799 29,52,622 2000 - 01 29,52,800 24% 5,71,483 23,81,179 1999 - 00 23,81,179 24% 4,60,874 19,20,305 1998 - 99 19,20,305 24% 3,71,672 15,4 8,633 17. IN THE F.Y. 2003-04, THE ASSESSEE HAS GIVEN ADV ANCES OF RS.49,90,000/- TO DIFFERENT PEOPLE AS MENTIONED IN TH E PAGE NO, 6 OF BUNDLE NO. 1 OF ANNEXURE AL. OUT OF THIS AMOUNT, R S. 3,30,000/- WAS GIVEN TO SHRI SHEKHAR GIRIDHAR AND RS.2,00,000/ - WAS GIVEN TO JE. JO. COMPANY TO WHOM INTEREST WAS NOT CHARGED AN D RS.1,00,000/- WAS GIVEN TO SHRI SHANKAR MARUTI PADA LKAR ON 26.11.2003 AND INTEREST OF RS.10,000/- WAS CHARGED FOR TWO MONTHS FROM 26.11.2003 TO 26.01.2004. THUS, ACTUAL INTERES T CHARGED IS OF RS.16,60,000/-. 18. FOR F.Y. 2004-05, THE TOTAL AMOUNT IN THE MARKE T WAS RS.66,50,0007- AS MENTIONED IN THE PAGE NO. 6 OF BU NDLE NO. 1 OF ANNEXURE AL. THE ASSESSEE WAS CHARGING 50% INTEREST FROM F.Y. 2003-04 AS DISCUSSED ABOVE. HENCE, THE SAME RATE OF INTEREST WAS APPLIED FOR TRANSACTIONS F.Y. 2004-05 AS WELL. THUS , THE INTEREST INCOME WORKS OUT TO RS. 33,25,000/-. AS COMPLAINTS WE RE FILED WITH 14 THE CONCERNED POLICE DEPARTMENT AGAINST SHRI MACCHIN DRA AND SHRI JAYWANT, THERE WAS A POSSIBILITY OF BUSINESS BE ING AFFECTED. HOWEVER, NO EVIDENCE WAS PROVIDED BY THE ASSESSEE T O ESTABLISH THAT THEY COULD NOT REALIZE ANY INTEREST INCOME FOR F.Y. 20 04-05. HENCE THE ASSESSEE'S CLAIM WAS NOT ACCEPTED BY THE ASSESS ING OFFICER. ACCORDINGLY, HE ESTIMATED THE INTEREST INCOME FOR F .Y. 2004-05 AT RS.20,00,000/-. D. WHETHER THE INTEREST INCOME EARNED IS TO BE DISTR IBUTED AMONG THREE BROTHERS OR ALL FIVE BROTHERS: 19. THE ASSESSEE CLAIMED THAT THE MONEY LENDING BUS INESS WAS CONDUCTED BY ALL FIVE BROTHERS AND THE INTEREST INCOM E SHOULD BE DISTRIBUTED EQUALLY AMONG ALL FIVE BROTHERS. THE CLA IM OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER BECAUSE T HE THREE BROTHERS NAMELY, SHRI BHARAT, SHRI JAYWANT AND SHRI MACCHIND RA ARE ACTIVELY INVOLVED IN MONEY LENDING BUSINESS AND A COMMON WAR RANT WAS ALSO ISSUED IN THEIR NAMES ONLY AFTER SEARCH INVESTIGATI ONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, STATEMENTS OF OTHER TWO BROTHERS NAMELY, SHRI SHARAD D. NIKUDE PATIL AND SHRI GIRIDH AR D. NIKUDE PATIL WERE RECORDED ON OATH ON 06.11.2006. THEY WERE ASK ED TO EXPLAIN HOW DO THEY CONDUCT THE BUSINESS, RATE OF INTEREST C HARGED BY THEM, THE AMOUNT ADVANCED TO EACH PARTY AND TO WHOM THEY WE RE ADVANCING THE FUNDS. IN RESPONSE TO THESE QUERIES, ABOVE TWO BROTHERS STATED IN THEIR STATEMENT THAT THEY DID NOT KNOW THE RATE OF INTEREST CHARGED, AMOUNT ADVANCED TO EACH PARTY AND NAMES OF THE PERSONS TO WHOM THE AMOUNTS WERE ADVANCED AND THEY FU RTHER STATED THAT THESE DETAILS CAN BE EXPLAINED BY HIS B ROTHERS SHRI MACCHINDRA, SHRI JAYWANT AND SHRI BHARAT. THESE TWO BROTHERS ALSO STATED THAT THEY GO TO THE VILLAGES TO ENQUIRE WHETH ER THE PERSON TO WHOM THE FUNDS WERE TO BE ADVANCED HAD SUFFICIENT S HEEP AS SECURITY AND HAD CAPACITY TO REPAY THE ADVANCES. THEY ALSO S TATED THAT THE FINANCIAL TRANSACTIONS RELATED TO MONEY LENDING BUS INESS WERE LOOKED AFTER BY SHRI MACCHINDRA, SHRI JAYWANT AND SHRI BHA RAT. THEY WERE ASKED WHETHER THEY KNEW THAT SEARCH ACTION WAS CONDU CTED IN THEIR RESIDENTIAL PREMISES AND BUSINESS PREMISES AND THE AMOUNT OF 15 UNDISCLOSED INCOME DECLARED. IN RESPONSE TO THIS, THEY STATED THAT THEY DID NOT HAVE ANY IDEA ABOUT IT. THEY WERE ASKED TO IDENTIFY WHO HAS MADE NOTINGS REGARDING MONEY LENDING BUSINESS IN THE SEIZED MATERIAL. THEY STATED THAT THEY DO NOT KNOW WHOSE H AND WRITING WAS IT IN THE SEIZED MATERIAL. 20. FROM THE DISCUSSION THE ASSESSING OFFICER CONCLUDE D THAT SHRI GIRIDHAR NIKUDE AND SHRI SHARAD NIKUDE WERE NOT ACTI VELY INVOLVED IN MONEY LENDING BUSINESS. THEY NEITHER HAVE CONTROL O VER THE BUSINESS NOR KNOWLEDGE ABOUT THE BUSINESS. THEY SIMP LY ASSIST OTHER THREE BROTHERS BY MAKING ENQUIRIES ABOUT THE SE CURITY AND REPAYMENT CAPACITY OF THE PERSONS WHO TAKE LOANS. THEY WERE IGNORANT OF THE FINANCIAL TRANSACTIONS OF MONEY LENDI NG BUSINESS. HENCE, THE INTEREST INCOME AS CLAIMED BY ASSESSEE C OULD NOT BE DISTRIBUTED EQUALLY AMONG ALL THE FIVE BROTHERS. A CCORDING TO THE ASSESSING OFFICER AT THE MOST 25 % OF THE TOTAL INTER EST EARNED COULD BE CONSIDERED AS THEIR (SHRI SHARAD AND SHRI GIRIDHA R) SHARE OF INTEREST INCOME FOR THE SERVICES RENDERED BY THEM. 21. THE INITIAL INVESTMENT IN THE F.Y. 1998-99 WAS WORKED OUT AT RS.15,48,633/-. AS THIS BUSINESS WAS CONDUCTED BY TH REE BROTHERS NAMELY SHRI BHARAT, SHRI MACCHINDRA, SHRI JAYWANT ON WHOSE NAME COMMON WARRANT WAS ISSUED, THE INITIAL INVESTMEN T WAS DIVIDED EQUALLY IN THE HANDS OF THREE BROTHERS. THUS, THE INITIAL INVESTMENT IN THE HANDS OF THE ASSESSEE, SHRI BHARAT D. NIKUDE PATIL, WAS OF RS.5,16,211/-. 22. THE INTEREST INCOME OF THE ASSESSEE FROM F.Y. 1 998-99 TO F.Y. 2004-05 WAS WORKED OUT AS GIVEN BELOW. FINANCIAL YEAR ASSESSME NT YEAR PRINCIPLE (RS.) RATE OF INTEREST CHARGED INTEREST (RS.) TOTAL AMOUNT (RS.) 1998 - 99 1999 - 00 5,16,211 24% 1,23,891 6,40,102 1999 - 00 2000 - 01 6,40,102 24% 1,53,632 7,93,734 2000 - 01 2001 - 02 7,93,734 24% 1,90,503 9,84,237 2001 - 02 2002 - 03 9,84,237 30% 2,95,280 12,79,517 2002 - 03 2003 - 04 12,79,51 30% 3,83,864 16,63,381 2003 - 04 2004 - 05 16,63,38 50% 5,53,33 22,16,714 2004 - 05 2005 - 06 22,16,71 50% 6,66,66 28,8 3,381 16 23. IN THE F.Y. 2003-04, THE ASSESSEE HAD GIVEN ADV ANCES OF RS.49,90,000/- TO DIFFERENT PEOPLE AS MENTIONED IN TH E PAGE NO. 6 OF BUNDLE NO.1 OF ANNEXURE AL. OUT OF THIS AMOUNT, RS. 3,30,000/- WAS GIVEN TO SHRI SHEKHAR GIRIDHAR NIKUDE AND RS.2,0 0,000/- WAS GIVEN TO JE. JO. COMPANY TO WHOM INTEREST WAS NOT C HARGED AND RS.1,00,000/- WAS GIVEN TO SHRI. SHANKAR MARUTI PAD ALKAR ON 26.11.2003 AND INTEREST OF RS.10,000/- WAS CHARGED F OR TWO MONTHS FROM 26.11.2003 TO 26.01.2004. THUS, ACTUAL IN TEREST CHARGED WAS OF RS.16,60,000/-. THIS INTEREST ACTUAL LY CHARGED WAS DISTRIBUTED AMONG THREE BROTHERS EQUALLY OF RS.5,53 ,333/- AGAINST ESTIMATED INTEREST OF RS.8,31,690/- BEING 50% OF RS.1 6,63,381/-. 24. THE INTEREST INCOME AT THE RATE OF 50% ON CAPIT AL OF RS.66,50,000/- FOR F.Y. 2004-05 WORKED OUT TO RS.33 ,25,000/-. BUT THE INTEREST INCOME FOR THIS FINANCIAL YEAR WAS EST IMATED AT RS.20,00,000/- AS DISCUSSED ABOVE. THIS AMOUNT IS E QUALLY DISTRIBUTED AMONG THREE BROTHERS. 25. THE SHARES OF SHRI SHARAD AND SHRI GIRIDHAR OUT OF TOTAL INTEREST RECEIVED IS AS UNDER: F.Y. A.Y. TOTAL INTEREST IN RS. 25% OF TOTAL INTEREST IN RS. SHARE OF SHRI SHARAD IN RS. SHARE OF SHRI GIRIDHAR 1998 - 99 1999 - 00 3,71,672 92,918 46,459 46,459 1999 - 00 2000 - 01 4,60,874 1,15,219 57,609 57,609 2000 - 01 2001 - 02 5,71,483 1,42,871 71,435 71,435 2001 - 02 2002 - 03 8,85,799 2,21,450 1,10,725 1,10,725 2002 - 03 2003 - 04 11,51,538 2,87,885 1,43,942 1,43,942 2003 - 04 2004 - 05 16,60,000 4,15,000 2,07,500 2,07,500 2004 - 05 2005 - 06 20,00,000 5,00,000 2,50,000 2,50,000 25% SHARE OF SHRI SHARAD AND SHRI GIRIDHAR OF TOTAL INTEREST RECEIVED WAS EQUALLY DEDUCTED FROM THE SHARE OF SHRI BHARAT, SHRI MACCHINDRA AND SHRI JAYWANT. 26. THE INTEREST INCOME OF THE ASSESSEE AFTER DEDUC TING THE SHARE OF SHRI SHARAD AND SHRI GIRIDHAR, IS AS UNDER: A : [(TOTAL INTEREST * 3) = SHARE OF THE ASS ESSEE] B : [(25% OF TOTAL INTEREST) - 3 = SHARE OF SHRI SHARAD & SHRI GIRIDHAR TO BE DEDUCTED FROM THE SHARE OF THE ASSESSEE] 17 A-B : INTEREST INCOME ASSESSED IN THE HANDS OF TH E ASSESSEEE. A.Y. SHARE OF INTEREST INCOME OF ASSESSEE IN RS. SHARE OF INTEREST INCOME OF SHRI SHARAD & SHRI GIRIDHAR IN RS. INTEREST INCOME ASSESSED IN THE HANDS OF ASSESSEE IN RS. (A) (B) (A - B) 1999 - 00 1,23,891 30,973 92,918 2000 - 01 1,53,632 38,407 1,15,225 2001 - 02 1,90,503 47,624 1,42,879 2002 - 03 2,95,280 73,817 2,21,463 2003 - 04 3,83,864 95,962 2,87,902 2004 - 05 5,53,333 1,38,333 4,15,000 2005 - 06 6,66,667 1,66,667 5,00,0 00 27. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY, WHEREIN VARIOUS GROUNDS WERE TAKEN WITHOUT PREJUDICE T O ONE ANOTHER, WHICH ARE REPRODUCED AS UNDER: 'IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN HOLD ING THAT DURING THE PERIOD, THE INCOME DERIVED BY THE APPELL ANT IS HAVING L/3RD SHARE INSTEAD OF 1/5 TH SHARE AND IN ASSESSING THE INCOME OF YOUR APPELLANT WITHOUT CONSIDERING THE REAL FACT TH AT THE INCOME GENERATED AND NOTED IN THE SEIZED PAPERS IS RELATED TO FIVE BROTHERS AND NOT OF THE THREE PERSONS AND IN DETERMINING THE IN COME OF RS. 4,15, OOO/- AS AGAINST THE RETURNED INCOME OFRS . 1,94,005/-. YOUR APPELLANT DISPUTES WRONGFUL FINDINGS ON PRESUM PTIONS BEING ERRONEOUS, FACTUALLY INCORRECT AND ARBITRARY ON FOL LOWING REASONS AND SUBMITS THAT HIS RETURNED INCOME BE ACCEPTED AS CORRECT AND EXCESSIVE ADDITION MADE BY THE ASSESSING OFFICER BE DELETED. 2. I) THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF MONEY LENDI NG ALONGWITH HIS FOUR BROTHERS AND DERIVES HIS L/5TH SHARE IN IN TEREST INCOME BY CONTRIBUTING EQUAL SHARE OF CAPITAL. II) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN COMPARING THE INTEREST RATES OF STATE BANK OF INDIA DISREGARD ING THE REAL FACTS OF THE CASE IN ADVANCING THE AMOUNT AS EXPLAINED BY THE APPELLANT IN HIS LETTER DATED 01.12.2006 AND AS EVI DENCED BY THE SEIZED PAPER NO. 1 TO 21 OF BUNDLE NO. 8. III) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRE D IN DETERMINING THE PRINCIPAL AMOUNT OF RS. AS DETAILED BELOW AS AP PELLANTS INVESTMENT BY DOING BACKWARD WORKING BY APPLYING TH E EXCESSIVE RATE OF INTEREST FROM 03-04 TO 99-00. IV) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED I N DISBELIEVING STATEMENT ON OATH GIVEN BY ALL THE FIV E BROTHERS AND UNDER ESTIMATING THE NATURE OF DUTIES PERFORMED BY MR. GIRIDHAR 18 NIKUDE AND SHARAD NIKUDE WHILE ESTIMATING 25% THEIR SHARE IN THE INTEREST INCOME FOR THEIR SERVICES. V) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN ARRIVING AT THE CAPITAL OFRS. 16,63,381/- BY DIVIDING THE AMOUN T OF RS. 49,90,000/-AMONGST THREE BROTHERS AND FAILED TO APP RECIATE THE SHARE OF FIVE BROTHERS AND IN CALCULATING THE INTER EST INCOME BY EXCESSIVE RATE OF INTEREST VI) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN REACHING THE CONCLUSION AND ESTIMATING HIGHER INTEREST INCOM E BY SUBTRACTING THE SHARE OF INTEREST INCOME OF MR. GIR IDHAR NIKUDE AND SHARAD NIKUDE BY MAKING INCORRECT ARITHMETICAL CALCULATIONS. SINCE SUCH RATE OF INTEREST HAS NEVER BEEN CHARGED AND SUCH WORKING IS BASED BY DISBELIEVING THE EQUAL CONTRIBUTION OF CAPITAL AND INCOME THEREON. 3. THE APPELLANT SUBMITS THAT FOR VARIOUS OTHER FACTUAL REASONS ALL THE ABOVE FINDINGS CANNOT HOLD THE FIELD AND THEREF ORE THE LEARNED A.O, HAS ERRED IN DETERMINING INTEREST INCO ME AT RS.4,15,000/- AS AGAINST THE RETURNED INCOME MADE B Y THE LEARNED ASSESSING OFFICER ON ALLEGED HIGHER RATE OF INTEREST AND CONTRIBUTIONS OF CAPITAL WHICH REQUIRES TO BE CANCE LLED. 4. THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRE D IN APPRECIATING THE NATURE OF AGRICULTURAL INCOME DERIVED BY THE APPELL ANT AND THE PROCEDURE OF RURAL AGRICULTURAL ACTIVITIES WHILE DE TERMINING THE INCOME THEIR FROM. 5. IN THE FACTS AND IN THE CIRCUMSTANCES THE LEAR NED A. O. ERRED IN ESTIMATING THE AGRICULTURAL INCOME AND APPLICATION T HEREOF TO HOUSE HOLD EXPENSES BY DISREGARDING THE FINANCIAL STA TEMENTS FILED BY THE APPELLANT ALONGWITH RETURN OF INCOME. THE ASSESSEE ALSO TOOK ADDITION GROUNDS AS UNDER: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW AND IN VIEW OF THE SUBSEQUENT DEVELOPMENTS VIZ. THE FILING OF POLICE COMPLAINTS AGAINST THE ASSESSEE THAT EXORBIT ANT RATES OF INTEREST IN THE MONEY-LENDING BUSINESS -WERE BEING CHARGED THE ASSESSEE HAS SUFFERED TOTAL LOSS AND LOST THE CAPIT AL IN THE BUSINESS WHICH HAS BECOME TOTALLY IRRECOVERABLE. TH E PRINCIPAL AMOUNT BE ALLOWED AS BAD DEBTS IN VIEW OF THE PROVI SIONS OF S.36(L)(VII) OF THE ACT. NO QUESTION WOULD ARISE AB OUT THE ACTUAL WRITE OFF IN THE BOOKS OF ACCOUNTS AS NO BOOKS OF A CCOUNTS HAVE BEEN MAINTAINED. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW AND IN VIEW OF THE SUBSEQUENT DEVELOPMENTS VIZ. THE FILING OF POLICE COMPLAINTS AGAINST THE ASSESSEE THAT EXORBIT ANT RATES OF INTEREST IN THE MONEY-LENDING BUSINESS WERE BEING C HARGED THE ASSESSEE HAS SUFFERED TOTAL LOSS AND LOST THE INTER EST INCOME WHICH HAS BECOME TOTALLY IRRECOVERABLE. 19 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW AND SPECIFICALLY NOTING THE FACT THAT THE ASSESSMEN T HAS BEEN COMPLETED U/S.143(3) THE FACTS SHOW THAT NO MANDATO RY NOTICE REQUIRED BY S. 143(3) READ WITH PROVISO TO THAT SEC TION WAS EVER ISSUED AND SERVED. THIS FACT GOES TO THE ROOT OF T HE MATTER GIVING RISE TO SUBSTANTIAL QUESTION OF LAW. BECAUSE OF NO T FOLLOWING THE MANDATORY PROCEDURE THE ASSESSMENT VITIATES IN LAW. SINCE THE ASSESSMENT IS VITIATED IN LAW IT BE CANCELLED. 28. REGARDING THE ADDITIONAL GROUND OF BAD DEBTS, THE CIT(A) OBSERVED THAT ASSESSEE NEVER CLAIMED WRITE OFF OF BAD DEBTS OR ANY DEDUCTION ON ACCOUNT OF IRRECOVERABLE INTEREST NOR HE HAS BROUGHT ANYTHING ON RECORD TO ESTABLISH THE ALLOWABILITY OF TH ESE DEDUCTIONS IN VIEW OF PROVISIONS OF THE INCOME TAX ACT. AS SUCH AS SESSEE DID NOT ESTABLISH ANYTHING REGARDING ADMISSIBILITY OF THI S CLAIM, SO SAME WAS DISMISSED. 29. REGARDING NEXT ISSUE RAISED BY WAY OF ADDITIONAL GROUND WAS THAT THE ASSESSING OFFICER DID NOT ASSUME JURISDICTI ON TO ASSESS THE ASSESSEE U/S.143(3) AS HE DID NOT ISSUE NOTICE U/S.14 3(2) OF THE ACT. THIS GROUND HAS BEEN RAISED IN A.YS. 2004-05 AND 20 05-06. ONE GROUND OF APPEAL WAS PERTAINING TO NON-ISSUE AND NON-SER VICE OF MANDATORY NOTICE REQUIRED TO BE SERVED UNDER PROVISO TO S ECTION 143(2) OF THE ACT. THE ASSESSEES GROUND RAISED BEFOR E THE CIT(A) READS AS UNDER: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW AND SPECIFICALLY NOTING THE FACT THAT THE ASSESS MENT HAS BEEN COMPLETED U/S.143(3) THE FACTS SHOW THAT NO MA NDATORY NOTICE REQUIRED BY S.143(2) READ WITH PROVISO TO THAT S ECTION WAS EVER ISSUED AND SERVED. THIS FACT GOES TO THE ROOT OF THE MATTER GIVING RISE TO SUBSTANTIAL QUESTION OF LAW. BE CAUSE OF NOT FOLLOWING THE MANDATORY PROCEDURE THE ASSESSMENT VI TIATES IN LAW. SINCE THE ASSESSMENT IS VITIATED IN LAW IT BE CANCELLED. 29.1. ACCORDING TO THE ASSESSEE, THE ASSESSMENT U/S. 143(3) IN THE CASE OF ASSESSEE VITIATES AS MANDATORY PROCEDURE H AS NOT BEEN FOLLOWED. NO NOTICE WAS SERVED IN THE CASE OF SHRI MAC CHINDRA, SHRI JAYWANT AND SHRI BHARAT FOR A.YS. 2004-05 AND 2005-0 6. THE ASSESSEE ALSO ARGUED THAT THE PROVISIONS OF SECTION 292B B AS ASSESSEE WAS ENTITLED TO RAISE OBJECTION STATING THAT IN ABSENCE OF 20 VALID SERVICE OF NOTICE U/S.143(2) THE ENTIRE SUBSEQU ENT ASSESSMENT PROCEEDINGS BECOME WITHOUT JURISDICTION AND BAD IN LA W. FOR THIS PURPOSE ASSESSEE RELIED ON THE DECISION OF ITAT, DELHI SPECIAL BENCH IN THE CASE OF KUBER TOBACCO PRODUCTS (P) LTD. V S. DCIT (2009) 117 ITD 273. THE RELEVANT PORTION OF THE SAME IS REPRODUCED AS UNDER: IN VIEW OF THE ABOVE LEGAL POSITION THE ASSESSEE/APPEL LANT HEREIN ARE ENTITLED TO RAISE OBJECTION SAYING THAT IN THE ABSENCE OF VALID SERVICE OF NOTICE U/S.143(2) THE ENT IRE SUBSEQUENT ASSESSMENT PROCEEDINGS BECOME WITHOUT JURISDICTION AND THEREFORE, BAD IN LAW AND ARE REQUIR ED TO BE STRUCK DOWN. 29.2. THE CIT(A) AFTER ASKING FOR COMMENTS FROM THE A SSESSING OFFICER IN RESPECT OF ADMISSIBILITY OF ADDITIONAL GROU ND AND REJOINDER THEREOF HELD THAT CONTENTION OF THE ASSESSEE IN RESPECT OF VITIATE OF ASSESSMENT U/S.143(3) IS NOT CORRECT. THE ASSESSEES RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACIT AND OTHERS VS. HOTEL BLUE MOON (2010) 229 CTR 219, WAS FO UND MISPLACED BY THE CIT(A). THE ASSESSEE DID NOT TAKE THIS GROUND BEFORE THE ASSESSING OFFICER. THEREFORE, THIS GROUND WAS DISMISSED. WITHOUT PREJUDICE TO ABOVE, THE ADDITIONAL CONTENTION WA S NOT FOUND TENABLE AS ASSESSMENT WAS MADE U/S.153A OF THE ACT IN PURSUANCE TO NOTICE U/S.153A(1)(A) OF THE ACT DOES NOT SPECIFICALLY PROVIDE THAT ASSESSMENT MADE U/S.153A(1)(B) WILL BE AFTER ISSUE OF NOTICE U/S.143(2) OF THE ACT. THE ASSESSING OFFICER HAD THE BASIC JURISDICTION TO ASSESS THE INCOME IN TERMS OF SECTION 1 53A(1)(D) AS A SEARCH U/S.132 OF THE ACT WAS INITIATED IN THE CASE OF THE ASSESSEE. THE SERVICE OF NOTICE U/S.143(2) IS NOT MANDATORY FOR P ROCEEDINGS U/S.153A. EVEN IF NOTICE U/S.143(2) IS NOT SERVED, A SSESSMENT U/S.143(3)/147 WOULD STILL BE VALID UNLIKE IN BLOCK A SSESSMENT PROCEEDINGS UNDER CHAPTER XIV-B WHERE SPECIFIC MENTI ON HAS BEEN MADE THAT NOTICE U/S.143(2) MUST BE ISSUED WITHIN TH E STIPULATED TIME, NO MENTION HAS BEEN MADE IN PRESENT PROCEDURE OF SEARCH ASSESSMENT. THIS VIEW IS SUPPORTED BY THE DECISION OF HONBLE 21 DELHI HIGH COURT IN THE CASE OF SHRI ASHOK CHADDA VS. ITO DATED 27.07.2011 IN ITA.NO.271/2011 REPORTED AT 2011-TIOL-4 54-HC- DEL-IT. RELEVANT EXTRACT OF THE DECISION OF THE HONB LE DELHI HIGH IS REPRODUCED AS UNDER: IT IS ALSO TO BE NOTED THAT SECTION 153A PROVIDES FOR TH E PROCEDURE FOR ASSESSMENT, IN CASE OF SEARCH OR REQUISIT ION. SUB SECTION (1) STARTS WITH NON-OBSTANTE CLAUSE STATI NG THAT IT WAS NOTWITHSTANDING ANYTHING CONTAINED IN SECTIONS 1 47, 148, 149 ETC., THEREOF PROVIDES FOR ISSUANCE OF NOTICE TO THE PERSON SEARCHED UNDER SECTION 132 OR WHERE DOCUMENTS E TC. ARE REQUISITIONED UNDER SECTION 132(A), TO FURNISH A R ETURN OF INCOME. THIS CLAUSE NOWHERE PRESCRIBES FOR ISSUANCE OF NOTICE UNDER SECTION 143(2). 29.3. NOTICE U/S.143(2) IS MANDATORY IN CASES WHERE ASSESSMENT IS TO BE COMPLETED U/S.143(3) OF THE ACT. ASSESSMENT IN THE CASE OF ASSESSEE HAS NOT BEEN MADE U/S.143(3) OF THE ACT. THE PROVISIONS OF SECTION 153A ARE SUBSTANTIVELY IDENTI CAL WITH THE PROVISIONS OF SECTION 147 OF THE ACT AS THE WORDINGS OF RE LEVANT SUBSTANTIVE PROVISIONS ARE SAME. IN CASE OF SECTION 14 7, IT HAS BEEN PROVIDED THAT BEFORE MAKING ASSESSMENT IN THIS SECTION, THE ASSESSING OFFICER SHALL SERVE ON THE ASSESSEE A NOTIC E REQUIRING HIM TO FURNISH A RETURN OF INCOME. PROVISIONS OF INCOME TAX ACT SO FAR AS MAY BE APPLIED AS IF IT WERE A RETURN REQUIRED T O BE FURNISHED U/S.139 OF THE ACT. RELEVANT PORTION OF SECTION 148 IS REPRODUCED BELOW: 148. BEFORE MAKING THE ASSESSMENT, RE-ASSESSMENT OR RE-COMPUTATION UNDER SECTION 147, THE ASSESSING OFFIC ER SHALL SERVE ON THE ASSESSEE A NOTICE REQUIRING HIM TO FURNIS H WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, A RE TURN OF HIS INCOME OR THE INCOME OF ANY OTHER PERSON IN RESPECT OF WHI CH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR CORRESPONDING TO THE RELEVANT ASSESSMENT YEAR, IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNE R AND SETTING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCR IBED; AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, A PPLY ACCORDINGLY AS IF SUCH RETURN WERE A RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139. 29.4. IDENTICAL PROVISIONS ARE THERE FOR ASSESSMENT TO BE MADE U/S.153A(1)(B). ACCORDING TO THE PROVISIONS OF SECTION 1 53A(1)(A), 22 THE ASSESSING OFFICER IN THE CASES WHERE SEARCH IS INITIATED U/S.132, WILL ISSUE NOTICE TO THE RELEVANT PERSONS TO F URNISH HIS RETURN OF INCOME OF THE RELEVANT ASSESSMENT YEAR. PROV ISIONS OF THE INCOME TAX ACT SO FAR AS MAY BE APPLIED AS IF IT WER E A RETURN REQUIRED TO BE FURNISHED U/S.139. THE RELEVANT PORT ION OF SECTION 153A IS REPRODUCED BELOW: 153A. (1) NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 139, SECTION 147, SECTION 148, SECTION 149, SECTION 151 AND SECTION 153, IN THE CASE OF A PERSON WHERE A SEARCH IS INITIATED U NDER SECTION 132 OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS ARE REQUISITIONED UNDER SECTION 132A AFTER THE 31ST DAY OF MAY, 2003, THE ASSESSING OFFICER SHALL ( A ) ISSUE NOTICE TO SUCH PERSON REQUIRING HIM TO FURNIS H WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, THE RETURN OF INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WIT HIN SIX ASSESSMENT YEARS REFERRED TO IN CLAUSE ( B ), IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETTI NG FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN WERE A RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139; ( B ) ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED OR RE QUISITION IS MADE. 29.5. IN THE CASE OF SECTION 147 IT HAS BEEN HELD TH AT THERE IS NO SPECIFIC PROVISION TO ISSUE NOTICE U/S.143(2) TO MAKE ASSESSMENT/REASSESSMENT U/S.147. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MADHYA BHARAT ENERGY CORPORATION LT D. REPORTED IN 62 DTR 37, HAS HELD AS UNDER: 12. IT IS NOTED THAT THE IMPUGNED ASSESSMENT IS IN RESPONSE TO NOTICE U/S.148 OF THE ACT AND THE ACT DOES NOT SPECI FICALLY PROVIDE THAT THE ASSESSMENT MADE U/S.147 OF THE ACT W ILL BE AFTER ISSUE OF THE NOTICE U/S.143(2) OF THE ACT. IN F ACT, AO HAS THE BASIC JURISDICTION TO ASSESS THE INCOME IN TERMS OF S.147 AND S.148 OF THE ACT WHERE HE HAS REASONS TO BELIEVE T HAT THE INCOME HAS ESCAPED ASSESSMENT. ON THE SUBMISSIONS OF NON- ISSUANCE OF NOTICE U/S.143(2) OF THE ACT, WE ARE OF TH E VIEW THAT THE FINDINGS OF THE TRIBUNAL IN THIS REGARD ARE NOT AS PER THE SCHEME OF THE PROVISIONS OF SECTION 147 AND 148 OF T HE ACT. 23 13. THOUGH NO SPECIFIC NOTICE WAS REQUIRED U/S.143(2) OF THE ACT, AS NOTED ABOVE, THE QUESTIONNAIRE DT. 11 TH NOV. 2003 AND 21 ST JAN. 2004 PROVIDED THE ASSESSEE SPECIFIC OPPORTUNITY TO SUPPORT HIS RETURN BY SEEKING DOCUMENTARY EVIDENCE AN D DETAILS IN REGARD TO THE FOLLOWING QUERY: AS PER RETURN, INTEREST OF RS.93,81,222/- WAS RECEI VED BY YOU DURING THE YEAR, WHICH IS ADJUSTED AGAINST P RE OPERATIVE EXPENSES. THE INTEREST INCOME SHOULD BE CHARGED. 29.6. SIMILARLY, IN THE CASE OF CIT, HISAR VS. ADAR SH KUMAR GOEL, ACTG. CJ AND AJAY KUMAR MITTAL, J. 814 OF 201 0, HON'BLE PUNJAB AND HARYANA HIGH COURT UPHELD THE PRINCIPLE LAID DOWN BY HON'BLE KERALA HIGH COURT IN THE CASE OF K.J. THOMAS V S.CIT (2008) 301 ITR 301 TO THE EFFECT THAT THE PURPOSE OF SECTION 1 43(2) IS TO ENSURE THAT ADVERSE ORDER IS ISSUED ONLY AFTER PROPER OPPORTUNITY IS GIVEN TO THE ASSESSEE. THUS, IN THE CASES WHERE PROPE R OPPORTUNITY HAS BEEN GIVEN TO THE ASSESSEE OTHERWISE, NOT BY ISSU ING NOTICE U/S.143(2) OF THE ACT, ASSESSMENT/REASSESSMENT IS VA LID. IT WAS ALSO HELD THAT PROVISIONS OF SECTION 292BB WILL BE APP LICABLE IN THE APPELLATE PROCEEDINGS PENDING BEFORE 01.04.2008 AND, ACCORDINGLY, IN CASE THE ASSESSEE DID NOT OBJECT TO THE ISSUE AND SERVICE OF A PARTICULAR NOTICE IN THE ASSESSMENT PROCEEDINGS, HE C ANNOT TAKE OBJECTION IN THIS RESPECT IN THE APPELLATE PROCEEDINGS WHICH ARE PENDING AFTER 01.04.2008. THE RELEVANT PORTION OF THI S DECISION IS REPRODUCED AS UNDER: 9. LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT N OTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO THE ASSESSE E WHICH WAS DULY SERVED. IN PURSUANCE TO THE SAID NOTICE, THE ASSESSEE APPEARED BEFORE THE ASSESSING AUTHORITY AND PARTICIPA TED IN THE REASSESSMENT PROCEEDINGS ON 30-11-2007, 6-12-2007 , 12- 12-2007, 13-12-2007, 18-22-2007, 24-12-2007, 27-12- 2007, 28-12-2007 AND 31-12-2007 AND ALSO CROSS-EXAMINED THE WITNESSES WHO WERE SUMMONED AND THEIR STATEMENTS WERE RECORDED. THE COUNSEL DREW SUPPORT FROM A JUDGMENT OF T HE KERALA HIGH COURT IN KJ. THOMAS V. CIT [2008] 301 IT R 301 TO SUBMIT THAT NON-SERVICE OF NOTICE UNDER SECTION 143(2) OF THE ACT WAS NOT FATAL TO RE-ASSESSMENT PROCEEDINGS. REFERE NCE WAS MADE TO SECTION 292BB OF THE ACT AND ACCORDING TO THE CO UNSEL THE SAID PROVISIONS WERE APPLICABLE TO ALL PENDING PR OCEEDINGS. RELIANCE WAS ALSO PLACED ON A JUDGMENT OF THIS COURT I N CIT V. 24 PANCHVATI MOTORS (P.) LTD. [2011] 200 TAXMAN 136/12 TAXMANN.COM 111. 10. WE FIND CONSIDERABLE FORCE IN THE SUBMISSION OF TH E LEARNED COUNSEL. THE KERALA HIGH COURT IN KJ. THOMAS 'S CASE (SUPRA), WHILE CONSIDERING SIMILAR ISSUE, HAD HELD A S UNDER: 'THE PROCEDURE UNDER SECTION 143(2) OF THE ACT IS TO ENSURE THAT AN ADVERSE ORDER IS ISSUED ONLY AFTER PROP ER OPPORTUNITY IS GIVEN TO THE ASSESSEE. IN THIS CASE, IT IS CONCEDED THAT THE ASSESSEE GOT OPPORTUNITY TO FILE REP LY AND DETAILED REPLY WAS IN FAD FILED AND REASSESSMEN T NOTICE AND FINAL ORDER WERE ALSO ISSUED WITHIN THE TIM E- LIMIT PRESCRIBED UNDER THE ACT.' 11. FURTHER, THIS COURT IN PANCHWATI MOTOR (P.) LTD.' S CASE (SUPRA) WHILE EXAMINING THE SCOPE OF SECTION 292BB OF T HE ACT AND ITS APPLICABILITY HAD NOTED AS UNDER: SECTION 292BB OF THE ACT WAS INSERTED BY FINANCE ACT, 2008 WITH EFFECT FROM 1-4-2008. IT READS THUS: '292BB. WHERE AN ASSESSEE HAS APPEARED IN ANY PROCEEDING OR CO-OPERATED IN ANY INQUIRY RELATING TO A N ASSESSMENT OR REASSESSMENT, IT SHALL BE DEEMED THAT ANY NOTICE UNDER ANY PROVISION OF THE ACT, WHICH IS REQUIR ED TO BE SERVED UPON HIM, HAS BEEN DULY SERVED UPON HIM I N TIME IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT AND SUCH ASSESSEE SHALL BE PRECLUDED FROM TAKING ANY OBJECTION IN ANY PROCEEDING OR INQUIRY UNDER THIS ACT T HAT THE NOTICE WAS (A)NOT SERVED UPON HIM; OR (B)NOT SERVED UPON HIM IN TIME; OR (C)SERVED UPON HIM IN AN IMPROPER MANNER: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY WHERE THE ASSESSEE HAS RAISED SUCH OBJECTION BEFORE THE COMPLETION OF SUCH ASSESSMENT OR REASSESSMENT.' A PRESUMPTION HAS BEEN RAISED UNDER THE SAID PROVISIO N RELATING TO SERVICE OF NOTICE UPON THE ASSESSEE IN RESP ECT OF ASSESSMENT OR REASSESSMENT PROCEEDINGS. ACCORDING TO T HIS PROVISION, WHERE AN ASSESSEE APPEARS IN ANY PROCEEDIN GS OR COOPERATES IN ANY ENQUIRY RELATING TO ASSESSMENT OR REASSESSMENT PROCEEDINGS, IT SHALL BE PRESUMED THAT THE ASSESSEE HAS BEEN VALIDLY SERVED AND IT SHALL NOT B E OPEN TO THE ASSESSEE TO OBJECT THAT THE NOTICE WAS NOT SERVED U PON HIM OR WAS NOT SERVED IN TIME OR WAS SERVED UPON HIM IN AN IMPROPER MANNER. HOWEVER, AN EXCEPTION TO THE AFORESAID PRES UMPTION HAS BEEN MADE IN A CASE WHERE SUCH OBJECTION HAS BE EN RAISED 25 BEFORE COMPLETION OF ASSESSMENT OR REASSESSMENT. TH E PROVISION HAS BEEN MADE EFFECTIVE FROM 1-4-2008 AND THEREFORE , SHALL APPLY TO ALL PENDING PROCEEDINGS. THE CENTRAL BOARD OF DIRECT TAXES ISSUED CIRCULAR NO. 1 OF 2009, DATED 27-3-200 9 (2009) 310 ITR (ST.) 42 GIVING EXPLANATORY NOTES ON THE PR OVISIONS RELATING TO DIRECT TAXES CONTAINED IN FINANCE ACT, 2008. CLAUSE 42.7 (AT PAGE 86 OF THE REPORT) IS RELEVANT WHICH R ELATES TO APPLICABILITY OF THIS PROVISION AND READS THUS: '42.7 APPLICABILITY.THIS AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1ST APRIL, 2008. THIS M EANS THAT THE PROVISION OF NEW-SECTION 292BB SHALL APPLY IN ALL PROCEEDINGS WHICH ARE PENDING ON 1ST APRIL, 2008.' 12. IT IS NOT DISPUTED THAT THE ASSESSEE HAD APPEAR ED BEFORE THE ASSESSING OFFICER ON VARIOUS DATES AND PARTICIPATED IN THE REASSESSMENT PROCEEDINGS BEFORE THE FINALIZATION AN D NO OBJECTION REGARDING ISSUANCE AND SERVICE OF NOTICE UNDER SECTION 143(2) OF THE ACT WAS RAISED BEFORE THE ASSESSING O FFICER. THE CIT(A) AND THE TRIBUNAL WERE, THUS, IN ERROR IN NUL LIFYING THE REASSESSMENT PROCEEDINGS AND DECLARING THE REASSESS MENT ORDER TO BE INVALID. 13. IN VIEW OF THE ABOVE, THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE A SSESSEE. CONSEQUENTLY, THE MATTER IS REMANDED TO THE TRIBUNA L FOR DECISION AFRESH ON MERITS IN ACCORDANCE WITH LAW. 29.7. THE RATIO LAID DOWN IN THE ABOVE CASES IS DI RECTLY APPLICABLE TO THE ASSESSEE. IT IS ON RECORD THAT PROP ER OPPORTUNITY WAS GIVEN TO THE APPELLANT DURING ASSESSMENT PROCEED INGS DESPITE THE FACT THAT HE DID NOT CO-OPERATE IN THE ASSESSMEN T PROCEEDINGS. THIS CAN BE INFERRED BY GOING THROUGH THE SEQUENCE OF EVENTS DURING ASSESSMENT PROCEEDINGS WHICH HAVE BEEN NARRATED IN THE ASSESSMENT ORDER. 29.8. DESPITE UN-COOPERATIVE ATTITUDE OF THE ASSESS EE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER GAVE SPECIFIC NOTICES/QUARRIES IN RESPECT OF VARIOUS ISSUE S AND THE ASSESSEE FILED HIS EXPLANATION ON THESE NOTICES/QUARRI ES. THE NOTICES/QUERIES INCLUDE NOTICE/QUERY DATED 30.10.2006 . THE REPLY/ EXPLANATION OF THE ASSESSEE INCLUDE REPLY/EXPLANATION OF THE ASSESSEE DATED 02.11.2006 AND 01.12.2006. THESE QUA RRIES/ NOTICES/REPLIES/EXPLANATIONS HAVE BEEN DISCUSSED IN T HE 26 ASSESSMENT ORDER. THEREFORE, IN VIEW OF THE RATIO OF TH E HON'BLE DELHI HIGH COURT IN THE CASE OF MADHYA BHARAT ENERGY CORPORATION LTD. (SUPRA) AND HONBLE PUNJAB AND HARYANA HIGH COU RT DECISION IN THE CASE OF ADARSH KUMAR GOEL (SUPRA), THE CONTENT ION OF THE ASSESSEE THAT THE ASSESSMENT ORDER U/S.153A STOOD VI TIATED IN THE ABSENCE OF ISSUANCE OF NOTICE U/S.143(2) OF THE ACT WAS NOT CORRECT BY CIT(A). ACCORDINGLY, ADDITIONAL GROUND WAS RIGHTLY DISMISSED BY CIT(A). 29.9. IN VIEW OF THE DECISION OF HON'BLE PUNJAB AND HA RYANA HIGH COURT IN THE CASE OF RAMNARAIN BANSAL (SUPRA), THE ASSESSEE'S CONTENTION IN RESPECT OF NON-APPLICABILITY OF PROVISIONS OF SECTION 292BB IN VIEW OF DECISION OF ITAT SPECIAL BENCH DELHI IN THE CASE OF KUBER TOBACCO PRODUCTS (P) LTD. (SUPRA) AS THE ASSESS MENT WAS FINALIZED BEFORE 01.4.2008 CANNOT BE UPHELD. 29.10. REGARDING RELIANCE OF THE ASSESSEE ON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF HOTEL BLUE MOON (SUP RA), THE SAID DECISION WAS GIVEN IN THE CASE OF ASSESSMENT OF U NDISCLOSED INCOME U/S.158BC WHERE SPECIFIC PROVISION FOR NOTICE U/S .143(2) HAS BEEN MADE BY LEGISLATURE. THE RELEVANT PORTION OF THE SAID DECISION IS REPRODUCED AS UNDER: 15. THIS SECTION EVEN SPEAKS OF SUB-SECTIONS WHICH ARE TO BE FOLLOWED BY THE AO. HAD THE INTENTION OF THE LEGIS LATURE WAS TO EXCLUDE THE PROVISIONS OF CHAPTER XIV OF THE ACT, THE LEGISLATURE WOULD HAVE OR COULD HAVE INDICATED THAT ALSO. A READING OF THE PROVISION WOULD CLEARLY INDICATE, IN OUR OPINION, IF THE AO, IF FOR ANY REASON, REPUDIATES THE RETURN F ILED BY THE ASSESSEE IN RESPONSE TO NOTICE U/S.158BC(A), THE AO MU ST NECESSARILY ISSUE NOTICE U/S.143(2) OF THE ACT WITHIN THE TIME PRESCRIBED IN THE PROVISO TO S.143(2) OF THE ACT. WHER E THE LEGISLATURE INTENDED TO EXCLUDE CERTAIN PROVISIONS FR OM THE AMBIT OF S.158BC(B) IT HAS DONE SO SPECIFICALLY. 29.11. THEREFORE THE RATIO OF HONBLE SUPREME COURT IN THE CASE OF HOTEL BLUE MOON (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE. IN VIEW OF ABOVE, THE ADDITIONAL GROUNDS WE RE RIGHTLY DISMISSED BY CIT(A). WE UPHOLD THE REASONED FINDING OF CIT(A) ON THE PRELIMINARY ISSUE. 27 30. COMING TO THE ORIGINAL GROUNDS ON MERIT, THE ORIGINA L GROUNDS OF APPEAL RELATES TO ASSESSING OFFICERS ACTION IN TRE ATING MAJOR INCOME IN THE HANDS OF THREE BROTHERS NAMELY SHRI MACC HINDRA, SHRI BHARAT AND SHRI JAYWANT, INCORRECT HIGHER WORKIN G OF INVESTMENT IN MONEY LENDING BUSINESS AND WRONG ESTIMA TION OF INTEREST INCOME. 30.1. REGARDING INCORRECT SHARE OF ASSESSEE IN THE B USINESS, STAND OF THE ASSESSEE HAS BEEN THAT HIS SHARE IN THE BUSINESS WAS 1/5 TH . HOWEVER, THE ASSESSING OFFICER TOOK THIS SHARE AS 1/3 RD . THE ASSESSING OFFICER ON THE BASIS OF STATEMENT GIVEN BY TWO BROTHERS NAMELY, SHRI GIRIDHAR NIKUDE AND SHRI SHARAD NIKUDE , CAME TO CONCLUSION THAT THEY DID NOT HAVE CONTROL OVER THE BUSINE SS. THEY ALSO DID NOT HAVE KNOWLEDGE ABOUT BUSINESS. THEY SIM PLY ASSIST OTHER THREE BROTHERS BY MAKING ENQUIRIES ABOUT SECURI TY AND REPAYMENT CAPACITY OF PERSON WHO TAKE LOAN. ON THIS BA SIS, THE ASSESSING OFFICER ALLOCATED 25% OF THE TOTAL INTEREST AMOUNT TO THESE TWO BROTHERS AS DISCUSSED ABOVE. 30.2. THE CIT(A) AFTER DETAILED ANALYSIS OF THE STA TEMENTS GIVEN BY TWO BROTHERS, NAMELY, SHRI GIRIDHAR NIKUDE AND SHR I SHARAD NIKUDE, FOUND THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT FAIR SHARE OF THE INCOME TO THESE PERSONS COULD BE 25%. THE ASSESSEES HAVE CLEARLY STATED THAT SHARE SHOULD HAV E BEEN EQUALLY DIVIDED AMONG FIVE BROTHERS. THE ASSESSEE COULD NOT B RING ON RECORD ANY MATERIAL TO SUGGEST THAT IN FACT EQUAL SHA RE IN THE INTEREST WAS EITHER AGREED UPON OR WAS EQUALLY DISTR IBUTED. UNDER THE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER S ALLOCATION OF SHARE OF INCOME WAS FOUND REASONABLE AND ACCEPTABLE BY THE CIT(A). SAME HAS BEEN OPPOSED BEFORE US. IT IS NOT IN DISPUTE THAT APPELLANTS ARE FIVE BROTHERS. THEY ARE ENGAGED IN MON EY LENDING BUSINESS STATING THAT THEY HAVE EQUAL SHARE. THEY MAY HAVE EQUAL SHARE INSPITE OF FACT THAT THEY HAVE DIFFERENT ALLOCA TION OF WORK. THE SHARING OF PROFIT IS THEIR INTERNAL MATTER AND REVENU E IS NOT 28 SUPPOSED TO DISTURB THE SAME UNLESS THERE IS SOMETHING CONTRARY ON RECORD. IN THESE CIRCUMSTANCES WE HOLD THAT ALL FI VE BROTHERS HAVE EQUAL SHARE IN BUSINESS AS ASSERTED BY THEM. WE HOLD SO. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. INCORRECT WORKING OF INCOME FROM BUSINESS : 31. THE STAND OF THE ASSESSEE WAS THAT THE ASSESSING OFFICER HAS ERRED IN TAKING EXORBITANT RATE OF INTEREST. THE REL EVANT GROUNDS RAISED BEFORE THE CIT(A) ARE REPRODUCED HEREUNDER FOR THE SAKE OF CONVENIENCE: 2 II) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN COMPARING THE INTEREST RATES OF STATE BANK OF INDIA DISREGARD ING THE REAL FACTS OF THE CASE IN ADVANCING THE AMOUNT AS EXPLAINED BY THE APPELLANT IN HIS LETTER DATED 01.12.2006 AND AS EVIDENCED BY THE SEIZED PAPER NO. 1 TO 21 OF BUNDLE NO. 8. III) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRE D IN DETERMINING THE PRINCIPAL AMOUNT OF RS. AS DETAILED BELOW AS APPELLANTS INVESTMENT BY DOING BACKWARD WORKING BY APPLYING THE EXCESSIVE RATE OF INTEREST FROM 03-04 TO 99-00. VI) THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN REACHING THE CONCLUSION AND ESTIMATING HIGHER INTEREST INCOM E BY SUBTRACTING THE SHARE OF INTEREST INCOME OF MR.GIRI DHAR NIKUDE AND SHARAD NIKUDE BY MAKING INCORRECT ARITHMETICAL CALCULATIONS. SINCE SUCH RATE OF INTEREST HAS NEVER BEEN CHARGED AND SUCH WORKING IS BASED BY DISBELIEVING THE EQUAL CON TRIBUTION OF CAPITAL AND INCOME THEREON. 3. THE APPELLANT SUBMITS THAT FOR VARIOUS OTHER FAC TUAL REASONS ALL THE ABOVE FINDINGS CANNOT HOLD THE FIELD AND TH EREFORE THE LEARNED A. O. HAS ERRED IN DETERMINING INTEREST INCOME AT R S. 4,15,000/- AS AGAINST THE RETURNED INCOME BY THE LEARNED ASSESSIN G OFFICER ON ALLEGED HIGHER RATE OF INTEREST AND CONTRIBUTIONS O F CAPITAL WHICH REQUIRES TO BE CANCELLED. 31.1. THE ASSESSING OFFICER ON THE BASIS OF THE DETA ILED ANALYSIS OF THE SEIZED DOCUMENTS AND OTHER MATERIAL AVAILABLE ON RECORD WORKED OUT THE FIGURES OF PRINCIPAL AMOUNT ADVANCED I N VARIOUS YEARS AND THE AMOUNT OF INTEREST EARNED FROM THE BUSI NESS OF MONEY-LENDING. AFTER ASCERTAINING THE AMOUNT OF INTE REST FROM THE BUSINESS, IT WAS ALLOCATED TO ALL BROTHERS AS DISCUSS ED ABOVE. 29 31.2. THE ASSESSEE OBJECTED TO THE FIGURES OF PRINCI PAL AMOUNT AS WELL AS INTEREST EARNED IN DIFFERENT YEARS. APP ELLANTS MAIN CONTENTION IS THAT THE ASSESSING OFFICER DID NOT CONSI DER THE BUDIT ADVANCE WHILE WORKING OUT THE FIGURE OF INTEREST FOR A .Y. 2004-05. THE RELEVANT PORTION OF THE SUBMISSION OF THE ASSESSEE B EFORE THE CIT(A) IS REPRODUCED AS UNDER: 47. FROM THE PAGE NO.8 WHICH HAS BEEN REPRODUCED BY T HE LD. A.O. IN THE ASSESSMENT ORDER THE LD. A.O. DID NOT NOTI CE THE FOLLOWING FACTS: (1) THE PAGE NO.8 IS GIVING THE SUM TOTAL OF ALL THE FIGU RES OF THE MONEY-LENDING BUSINESS CARRIED ON BY FIVE BROTHERS I FOR A NUMBER OF YEARS. THE PAGE NO.8 SHOWS THE REVIEW OF THE FIGURES AS ON 26.11.03 IN A NUTSHELL IT IS A BALANCE -SHEET OF THE ENTIRE BUSINESS OF MONEY-LENDING AND DRAWN ON 26.11.2003. (2) THIS IS FURTHER PROVED BY THE FACTS NOTED ON THE SAME PAPER WHICH DEMONSTRATE AS UNDER: 13,45,000/- PADALKAR (BUDIT) 10,05,000/- BHIKA MHANWAR (BUDIT) THE WORD BUDIT IS INDICATE OF THE FACT THAT THEY AR E IRRECOVERABLE. IN OTHER WORDS THEY WERE BAD DEBTS AS ON 26.11.03. (3) THEY HAVE BECOME BAD ADVANCES BECAUSE THIS IS A C ARRIED FORWARD BALANCE OF NUMBER OF YEARS FROM THE ACTUAL DATE OF ADVANCE. (4) IF THE THEORY APPLIED BY THE LD. A.O. THAT BECAUSE C OLUMN ON THE LEFT SIDE IS 1 AND Y2 TIMES GREATER THAN THE AMOUNTS MENTIONED IN RIGHT COLUMN WHICH SUGGESTS THAT AMOUNTS MENTIONED IN THE LEFT COLUMN ARE INCLUSIVE OF INTEREST AND PRINCIPAL THEN THE INTEREST CHARGES IS @ 50%. WITH THE SAME THEORY THE BUDIT AMOUNTS (BAD DEBIT AMOUNTS) WI LL HAVE TO BE TAKEN OUT AS UNDER: 1) PADALKAR (BUDIT) PRINCIPAL 13,45,000 2) BHIKA MHANWAR (BUDIT) PRINCIPAL 10,05,000 ------------- 23,50,000 3) INTEREST @ 50% 11,75,000 ------------- 35,25,000 LESS: PRINCIPAL AMOUNT AS APPEARING ON PAGE 8 OF THE SEIZED PAPERS (ANN. A1) 46,70,000 ------------ 11,45,000 30 (5) THE BUDIT ADVANCES OF RS.35,25,000/- (INCLUSIVE OF INTEREST AND PRINCIPAL AMOUNT) SHOULD NOT BE CONSIDERE D ONCE THEY HAVE SEIZED TO BE INTEREST BEARING FUNDS LONG BACK. (6) THE LD. A.O. HAS PREPARED A CHART TAKING THE AMOUN T AS PEAK CREDIT OF RS.49,00,000/- FOR F.Y. 2003-04 RELEVA NT TO A.Y. 2004-05 SO WORKED OUT BACKWARDS FROM F.Y. 2003- 04 (A.Y. 2004-05) TO F.Y. 1998-99 (A.Y. 1999-00) AS UND ER: S.NO. F.Y. TOTAL AMOUNT RATE OF INTEREST INTEREST PRINCIPAL 1 2003 - 04 6650000 50% 1660000 4990000 2 2002 - 03 4990000 30% 1151538 3838461 3 2001 - 02 3838461 30% 885799 295622 4 2000 - 01 2952800 24% 571483 238179 5 1999 - 00 2381179 24% 460874 19203 05 6 1998 - 99 1920305 24% 371672 1548633 THE FIGURE OF RS.49,90,000/- HAS BEEN TAKEN AS PEAK CREDIT FOR WORKING OF THE INTEREST. THE PRESUMPTION IS ALL FU ND- BALANCES ARE INTEREST BEARING FUNDS. FROM THE SEI ZED PAPER IT IS NOTICED THAT THE AMOUNT OF RS.35,25,000/- HAS SEIZED TO BE INTEREST BEARING FUND. THEN THE TABL E AS PREPARED BY THE LD. A.O. GIVEN ABOVE SHOULD APPEAR A S UNDER: (WITHOUT ADMITTING THAT THE INTEREST WAS EVER CHARGES @ 50%). S.NO. F.Y. A.Y. TOTAL AMOUNT RATE OF INTEREST INTEREST PRINCIPAL 1 2003-04 2004-05 3125000 50% 1562500 1563000 2 2002-03 2003-04 1563000 30% 468900 1094100 3 2001-02 2002-03 1094100 30% 328200 765900 4 2000-01 2001-02 765900 24% 183800 582100 5 1999-00 2000-01 582100 24% 139700 442400 6 1998-99 1999-00 442400 24% 106170 336230 . 10. WHILE ESTIMATING THE INTEREST EARNING FOR F.Y. 2004-05 (A.Y. 2005-06) OF RS.20,00,000/- THE LD. A.O. OBSER VED AS UNDER: (PAGE 13). FOR F.Y. 2004-05 (A.Y. 2005-06) THE TOTAL AMOUNT IN THE MARKET WAS RS.66,50,000/- AS MENTIONED IN THE PAGE NO.6 OF BUNDLE NO.1 OF ANN. A1. THE ASSESSEE WAS CHARGING INTEREST @ 50% FROM F.Y. 2003-04 (A.Y. 2004 - 05) AS DISCUSSED SUPRA. HENCE, THE SAME RATE OF INTE REST IS APPLIED FOR F.Y. 2004-05 ALSO. THUS, THE INTEREST INCOME WORKS OUT TO RS.33,25,000/-. AS THE COMPLAINT WAS FILED WITH THE POLICE DEPARTMENT AGAINST THE ASS ESSEE AND SHRI JAYWANT, THERE IS A POSSIBILITY OF BUSINESS BEING AFFECTED. THERE IS NO EVIDENCE PROVIDED BY THE ASSES SEE TO PROVE THAT THEY COULD NOT REALIZE ANY INTEREST INC OME 31 FOR F.Y. 2004-05. HENCE THE ASSESSEES CLAIM CANNOT BE ACCEPTABLE. THEREFORE, I REASONABLY ESTIMATE THE INT EREST INCOME FOR F.Y. 2004-05 OF RS.20,00,000/-. 11. FIRST OF ALL THE FINDING OF THE LD. A.O. THAT TH ERE IS NO EVIDENCE PROVIDED BY THE ASSESSEE TO PROVE THAT THEY C OULD NOT REALIZE ANY INTEREST INCOME FOR F.Y. 2004-05. THIS FINDING AMOUNTS TO BEREFT OF TRUTH. THE LD.A.O. RELIED HEA VILY UPON THE PAGE NO.6 OF BUNDLE NO.1 OF ANN.1 AND THE FIGURE MENTIONED THEREIN AND SUPPORTED HER FINDING THAT INTE REST WAS BEING CHARGED @ 50% ON THE BASIS OF NOTINGS RECORDED ON PAGE 8 (PAGE 8 IS REPRODUCED ON P.6) THEN THE LD. A.O. WAS DUTY BOUND TO RELY ON THE SAID PAGE 8 OF BUNDLE NO.1 AND ANN .A1 AS A WHOLE AND ON ITS ENTIRETY BECAUSE THE SAME S EIZED PAPER SHOWED THE FOLLOWING TWO ENTRIES A BUDIT AMOU NTS: 13,45,000/- PADALKAR (BUDIT) 10,05,000/- BHIKA MHANWAR (BUDIT) --------------- 23,50,000/- 11,75,000/- INTEREST THEREON --------------- 35,25,000/- TOTAL BUDIT --------------- THE LD. A.O. COMPUTED THE INTEREST FOR F.Y. 2004-05 (A.Y. 2005-06) AT RS.33,25,000/- AND CONSIDERING THE IMPAC T OF POLICE COMPLAINT REDUCED THE SAME BY 60% (APPROX.) TO ARRIVE AT THE FIGURE OF RS.20,00,000/-. BY THE SAME ANALOGY AND CONSIDERING THE TOTAL BUDIT AMOUNT THE INTEREST WOUL D WORK OUT AS UNDER. F.Y. 2004-05 : A.Y. 2005-06 TOTAL FUNDS IN THE MARKET AS PER LD. A.O. 66,50,000 LESS: BUDIT 35,25,000 ------------- NET INTEREST BEARING FUNDS IN THE MARKET 31,25,000 THE INTEREST THEREON @ 50% AS PER LD. A.O. 15,62,000 60% OF THIS 9,37,500 THIS IS WITHOUT PREJUDICE TO THE CLAIM OF THE ASSESSE E BY WAY OF ADDITIONAL GROUND OF APPEAL THAT ENTIRE BUSINESS IS L OST RESULTING INTO TOTAL LOSS TO THE ASSESSEE. 32 12. THE CHART WOULD THEN APPEAR AS UNDER: S.NO. F.Y. A.Y. TOTAL INTEREST AS AGAINST ESTIMATED BY LD. A.O. 1/5 TH SHARE EACH 1 1998-99 1999-00 106170 371672 21234 2 1999-00 2000-01 139700 460874 27940 3 2000-01 2001-02 183800 571483 36760 4 2001-02 2002-03 328200 885799 65640 5 2002-03 2003-04 468900 1151538 93780 6 2003-04 2004-05 1562500 1660000 312500 7 2004-05 2005-06 937500 2000000 187500 THE ASSESSEE CAN BE ASSESSED THUS, AS FAR AS INTERE ST INCOME IS CONCERNED AS INDICATED ABOVE. 32. THE CIT(A) HAVING GONE THROUGH THE RELEVANT PORTION OF THE ASSESSMENT ORDER DEALING WITH ASCERTAINMENT OF INTERE ST INCOME, ASSESSEES SUBMISSIONS THEREON AND OTHER MATERIAL, OBSE RVED THAT ASSESSEES MAIN OBJECTION TO THE ASCERTAIN OF THE INTE REST INCOME ARE THAT THE ASSESSING OFFICER DID NOT CONSIDER IRRECOVERA BLE (BUDIT) AMOUNTS AND HE APPLIED EXORBITANT RATE OF INTEREST. THE LENDING BUSINESS CARRIED ON BY THE ASSESSEE WAS MAINLY TO THE PERSONS WHOM THE GROUP KNEW PERSONALLY AND WITH WHOM THEY HAD SOCIAL RELATIONSHIP. UNDER THE CIRCUMSTANCES, THE CHANCES THAT CERTAIN AMOUNTS BECAME IRRECOVERABLE WERE REMOTE. THE ASSES SEE IN HIS LETTER DATED 01.12.2006 HAS STATED THAT LENDING OF M ONEY IS MADE TO THE PERSONS KNOWN TO THEM. THEY WERE LENDING THE AMO UNT WITH MINIMUM RATE OF INTEREST AND WERE HAVING CENT PERCEN T RECOVERY IN ALL EARLIER YEARS AND THERE WERE NO BAD DEBTS. THI S STATEMENT WAS GIVEN ON 01.12.2006, AS DISCUSSED ABOVE. UNDER THE CI RCUMSTANCES, ASSESSEES CONTENTION THAT CERTAIN AMOUNTS BECAME IRRE COVERABLE AND INTEREST WAS NOT EARNED ON THEM WAS NOT FOUND CORRE CT BY THE CIT(A). THIS REASONED FINDING OF THE CIT(A) IN VIEW OF CATEGORICAL STATEMENT ON BEHALF OF THE ASSESSEE, IS JUSTIFIED THA T THERE WERE NO CHANCES OF BAD DEBTS. IN RESPECT OF RATE OF INTEREST, THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN DETAIL AND HAS APPLIED RESPECTIVE RATE AFTER DETAILED ANALYSIS AS DISCUSSED ABOVE. TH EREFORE, AMOUNT OF INTEREST EARNED FROM MONEY LENDING BUSINESS IN DIFF ERENT YEARS NEED NO INTERFERENCE DUE TO ASSESSEES OWN STAND ON TH E POINT. 33 SAME IS UPHELD IN ALL THE YEARS SUBJECT TO ALLOCATION OF SAME EQUALLY AMONG ALL FIVE BROTHERS AS DISCUSSED. 33. IN THE RESULT, THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF APRIL, 2013. SD/- SD/- ( R.K.PANDA ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 29 TH APRIL, 2013 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE JT.CIT(OSD), CENTRAL, PUNE. 3. THE CIT(A)-CENTRAL, PUNE. 4. THE CIT, CENTRAL, PUNE. 5. THE DR A BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.