SHRI. BAKUL KUNVERJI RAJAL, MUMBAI V. ASST CIT CC 3(3), MUMBAI

ITA 7627/MUM/2019

AI Insights

The case involves Shri Bakul Kunverji Rajal, who appealed against the orders of the lower tax authorities concerning the reassessment of his income for the assessment years 1991-92 to 1994-95. The reassessment followed a search operation under Section 132 of the Income Tax Act, 1961, which revealed unaccounted income and duplicate sets of books maintained by the assessee's group. The primary contention was whether the income assessed from M/s Bakul Enterprises, a fictitious entity used to record unaccounted transactions, constituted double taxation since it had already been assessed in the hands of other entities within the same group. The Tribunal examined the submissions and evidence, including the orders of the Settlement Commission, and found merit in the assessee's claim of double addition for certain years while confirming the additions for others based on the legal provisions applicable at the time.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299507 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 03-01-2023
• Assessment Year: 1994-1995
• Appeal Filed On: 10-12-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Income from undisclosed sources; Loose papers
• Section: 147; 132; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI OM PRAKASH KANT, AM आयकर अपील सं/ I.T.A. No.7624/Mum/2019 (निर्धारण वर्ा / Assessment Year: 1991-92) & आयकर अपील सं/ I.T.A. No.7625/Mum/2019 (निर्धारण वर्ा / Assessment Year: 1992-93) & आयकर अपील सं/ I.T.A. No.7626/Mum/2019 (निर्धारण वर्ा / Assessment Year: 1993-94) & आयकर अपील सं/ I.T.A. No.7627/Mum/2019 (निर्धारण वर्ा / Assessment Year: 1994-95) Shri Bakul Kunverji Rajal 116, Mulji Devsi Building, Ground Floor, New Chinch Bunder Road, Mumbai- 400009. बिधम/ Vs. ACIT, CC-3(3) Aayakar Bhavan, Room No. 401, M. K. Road, Mumbai-400020. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AABPR4005M (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 04/01/2023 घोषणा की तारीख /Date of Pronouncement: 28/02/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: The assessee had preferred the aforesaid captioned appeals against the order of the Ld. CIT(A)-51, Mumbai dated 13.09.2019 for AY. 1991-92 to AY. 1994-95. Since the issues involved in these appeals are common, they are being taken up together. 2. The grounds raised in the above appeals and the issues therein are identical and therefore, with the consent of both parties, we take up the appeal for AY 1991-92 in ITA No. 7624/Mum/2019 as the lead Assessee by: Shri Haresh Shah Revenue by: Smt. Madhumalti Ghosh (DR) ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 2 case, result of which shall mutatis mutandis apply to AYs 1992-93 & 1993-94. 3. The first ground of the appeal has not been pressed. Accordingly Ground No.1 of the appeals for AYs 1991-92 to 1994-95 is dismissed. 4. The next two grounds of appeal in all the four (4) appeals are against the addition/s made by the AO in the assessment orders impugned before us, which are summarized below: - (in Rs.) Particular / Issue AY 91-92 AY 92-93 AY 93-94 AY 94-95 Addition in relation M/s Bakul Enterprises 53,50,955 49,71,880 56,94,859 25,96,302 Share of profit from M/s Kunverji Vishram & Co offered in settlement application 1,71,743 2,84,800 - - Adhoc addition offered in Settlement Application - - 10,000 10,000 5. Brief facts as noted by the AO is that, the assessee who is an individual was engaged in the business of trading in cattle feeds on whole-sale basis. It was noted to be a family business which were mainly carried out through three (3) partnership firms/concerns namely (i) M/s Kunverji Vishram & Co., (ii) M/s Hemant Kumar Chaturbhuj co., (iii) M/s Naresh Trading Co. and a Proprietary Concern of Shri Naresh K. Rajal namely M/s Shobhana Enterprise. The assessee procured cattle feed from various States and it was supplied in and around Mumbai to farmers who reared cattle. The entire business was jointly operated by the common family members. Apart from income from trading activities, the assessee also derived income by way of commission on sale of cattle feeds stock. ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 3 6. Search operation was carried out against this Group on 05.09.1994; and during the search action u/s 132 of the Income Tax Act, 1961 (hereinafter “the Act”) statements of various family members and accountant of the group concerns were recorded. Also, books of accounts and several documents which included loose papers were impounded by the Investigating authorities. 7. As a consequence of the search action, the income-tax assessments of the assessee for AY. 1991-92 to AY. 1994-95 was reopened u/s 147 of the Act. For AY 1991-92, the assessee filed return of income declaring the same income of Rs.36,730/- which was declared in the original return of income. (Similarly for AY. 1992-93 – Rs.42,330/-; AY. 1993-94 – Rs.55,391/-; AY. 1994-95 – Rs.78,400/-). It is noted that, during the pendency of reassessment, the assessee along with other persons of the Group filed applications before the Settlement Commission u/s 245C(1) of the Act on different dates in the years 1998, 1999 and 2001. The Ld. AR invited our attention to Page no. 2 of the assessment order, wherein the AO has set out a chart of fifteen (15) different assesses belonging to the Group who all had approached Settlement Commission u/s 245D(1) of the Act, pursuant to the search. It is noted that, the orders could not be passed by the Settlement Commission on or before 01.06.2007 and therefore, (due to amendment of relevant law) it was necessary to verify the position of payment of taxes and interest prior to 31.07.2007. Upon verification it was revealed that eight (8) assesses including the appellant, had short-paid their taxes and interest. ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 4 Hence, citing the non-compliance with the provisions of Section 245D(2D) of the Act, the Settlement Commission declared vide order dated 19.03.2014 that those eight (8) applicants cases got abated as per the provisions of Section 245HA(1)(ii) of the Act. Therefore, the reassessment proceedings stood revived before the AO w.e.f. 19.03.2014 and thereafter continued by issuance of statutory notices u/s 148 of the Act. The assessee objected to the validity of the reopening of assessment but the same is noted to have been rejected by the AO vide letter dated 16.02.2015. 8. In the course of reassessment, upon analysis of the seized material and the statements of the partners of the above named firms which were recorded u/s 132(4) of the Act, the AO observed that assessee had employed various methods to evade taxes on a large scale which inter alia included, to facilitate the unaccounted business and inflation of expenses, the assessee group has been maintaining duplicate sets of books of accounts for all their declared concerns. Over and above the duplicate books of accounts of various concerns, the group maintains completely unaccounted cash books in the name of M/s Bakul Enterprises or cash books with marking 'BE'. After analysing the cash book of M/s Bakul Enterprises seized in the course of search, it was noted that the entity was fictitious and the entries found in its books were completely unaccounted for. According to AO, the entity M/s Bakul Enterprises was fully managed by the assessee and therefore the receipts (as tabulated above) were added by way of unaccounted income of the appellant. The AO further added ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 5 the share of profit in M/s. Kunverji Vishram & Co. (hereinafter “M/s. K.V. & Co.”) offered by the appellant in the abated Settlement Application in AYs 1992-93 & 1993-94. Similarly, the AO also added ad hoc sum of Rs.10,000/- which was offered by the appellant in the abated Settlement Application in AYs 1993-94 & 1994-95. Aggrieved by this action of the AO, the assessee preferred appeal before the Ld. CIT(A) who was pleased to confirm the action of the AO. Being aggrieved, the assessee is now in appeal before us. 9. Assailing the action of Ld. CIT(A), the Ld. AR for the assessee painstakingly took us through the order of Settlement Commission dated 28-08-2014 and showed us that the receipts found in the books of M/s Bakul Enterprises/BE had already been considered and brought to tax by the Settlement Commission in the hands of the group entities & individuals, which were in total seven (7) applicants in the proportion of the ratio of the turnover. He therefore submitted that the action of the lower authorities in again adding the entries found in the books of M/s Bakul Enterprises in the hands of the assessee amounted to double addition and therefore urged that the same be deleted. Per contra, the Ld. DR appearing on behalf of the Revenue supported the order of the lower authorities. 10. We have heard both the parties and perused the material placed before us. It is noted that the assessee belonged to the Rajal Group upon which search action u/s 132 of the Act was conducted on 05.09.1994. In the course of search, several books of accounts and loose papers were found & seized which inter alia included accounts ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 6 of one entity by the name of M/s Bakul Enterprises for the period FY 1988-89 to 1993-94. In the statement recorded u/s 132(4) of the Act, it was explained that this entity was fictitious and the entries made in this concern pertained to the transactions conducted with one Mr. Haresh Thakkar, all of which were unaccounted outside the books of accounts. The Ld. AR pointed out that, since M/s Bakul Enterprises was a fictitious entity which was formed only to account for the suppressed sales, the unaccounted income found in the books of M/s Bakul Enterprises was accordingly offered to tax amongst the by three (3) firms viz., M/s. K.V. & Co., M/s. Naresh Trading Co. (hereinafter “M/s. N.T. & Co.”) and then M/s. Hemant Kumar Chaturbhuj Co. (hereinafter “M/s. H.K.C & Co.”) as well as proprietorship firm M/s. Shobhana Enterprises before the Settlement Commission in the proportion of their turnover. 11. The Ld. AR first brought to our notice a sample Settlement Application of M/s Kunverji Vishram & Co., placed at Pages 1 to 69 of the paper book, to show that the unaccounted entries found in the books of M/s Bakul Enterprises had been worked out and appropriately offered to tax before the Settlement Commission. The statement giving the original working of the unaccounted entries of M/s Bakul Enterprises are found at Pages 22-25 of the Paper Book. Thereafter, when certain discrepancies were noted by the Revenue authorities, a revised working was furnished by M/s Kunverji Vishram & Co. which is also available at Pages 71 to 75 of paper book. The Ld. AR explained that likewise, similar working was prepared and ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 7 proportionate share in unaccounted income of M/s Bakul Enterprises was offered by other applicants of the Group as well. 12. On co-joint reading of the above documents along with the order of Settlement Commission lends credence to the contention of the assessee that the entire unaccounted income recorded in the books of the fictitious entity M/s. Bakul Enterprises has been worked out and offered to tax. It is first relevant to take note of the seven (7) applicants which were taken note of by the Settlement Commission, in the following manner: “The main person looking after the business of the group is Mr. Naresh Rajal and the various entities in which the business are carried out and the nature of business are as detailed below: Name of person Partner/ Proprietor Nature of business Kunverji Vishram & Co- Partnership Firm Chatrabhuj Vishram Kunverji Vishram Bakul Kunverji Consignment sales, commission agents and trading activity in cotton seed oil cakes. Naresh Trading Company Partnership Firm Naresh Kunverji Rajal Ratanben Kunverji Rajal Mahalaxmi Chatrabhuj Trading activity in Chuni Hemantkumar Chatrabhuj & Co- Partnership Firm Chatrabhuj Vishram Kunverji Vishram Sonbai Vishram Trading Activity in Chuni Naresh K Rajal Shobhana Enterprise Proprietary concern-period from Financial year 1992-93 to 1994- 95 Trading activity in Chuni Neeta Naresh Thakkar Neeta Enterprise Proprietary Concern-period from 1992-93 & 1993-94 Trading activity in Chuni Bakul Enterprise Fictitious Entity Rough cash book maintained Trading activity carried out wherein sales/purchases and other income are kept outside the book of account. ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 8 13. It is noted that, the Settlement Commission had taken due cognizance of the accounts of M/s Bakul Enterprises at Para 4.1 of their order, wherein they observed as under:- “4.1 The search and seizure actions under Section 132 of the Income Tax Act were carried out against the persons of the group on 05.09.1994. During the course of the search, cash of Rs.26,59,900/- and jewellery worth Rs.7,28,162/- were found for the entire group. Several records along with the books of accounts were found and seized. It is pertinent to note here certain relevant facts which emerged from the search proceedings. It was found that the business entities of the group maintained parallel cash books i.e. rough cash books as well as main cash books. The entries are initially made in the rough cash books and thereafter the same are entered in the regular cash books. The difference between the main cash book and the rough cash book was on account of recording of collections from the debtors on different dates and debit of certain bogus expenses in the main cash book, which were not recorded in the rough cash book. It was also found that the group had maintained accounts in the name of 'Bakul Enterprise' which were entirely undisclosed and reflected the transactions in cash. 'Bakul Enterprise' is a fictitious name given by the group and is not a real entity. As per the records of Bakul Enterprise, the cash book receipts consist of cash collections made on account of unaccounted direct sales made to the parties, money received on the repayment of entire loans taken by the partnership firms, reimbursement of interest out of the entire loans etc. The ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 9 payments consist of cash paid for any entry loans taken by the partnership firms, payment for unaccounted direct purchases, expenses/ withdrawals etc.” 14. The Settlement Commission also took note of the report under Rule 9 furnished by the CIT which was confronted to the applicants pursuant to which the applicants had furnished the revised working of M/s Bakul Enterprises (discussed at Para 11 above). The Settlement Commission, in this regard, is noted to have observed as follows: “When the proceedings have been re-opened subsequently, the applicants preferred the settlement applications for those years. Further, the applicants have carried out the detailed re- reconciliation of rough books and fair books of all the group concerns and also re-written some of the books specially of M/s Bakul Enterprise to determine the correct quantum of income which was not declared. It may be appreciated that the applicants have prepared the new ledger and the cash book of M/s Bakul Enterprise and various such transactions were cited. The Profit and Loss Accounts and Balance Sheet as per the re- written books of M/s Bakul Enterprise have been prepared and the income of M/s Bakul Enterprise after this exercise has been apportioned in the hands of the group concerns on the basis of turnover ratio of each of these concerns.” 15. The Ld. AR invited our attention in particular to Para 5.3 of the order of the Settlement Commission [Page 84 of paper book] wherein the relevant facts explained by the applicants were noted by the Bench in respect of rough book of M/s. Bakul Enterprises seized from the ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 10 premises of the assessee (which was the main basis on which addition has been saddled in these appeals against the present assessee). The relevant observations are as under: - “In respect of the incomes which were recorded in the account of ‘Bakul Enterprise’, the learned AR stated that the applicants after the search operation have the Ld. AR stated that the applicants after the search operation have drawn the Profit and Loss Account and Balance Sheets in respect of 'Bakul Enterprise' for the period from (30.10.1989 to 31.03.1990), (01.04.1990 to 31.03.1991), (01.04.1991 to 31.03.1992), (01.04.1992 to 31.03.1993) and (01.04.1993 to 03.09.1994) It was explained that the unaccounted income of Bakul Enterprise had been disclosed in the three partnership firms i.e. (1)Kunverji Vishram & Co. (2) Hemantkumar Chaturbuj & Co, and (3) Naresh Trading Co. And in the proprietary concern M/s Shobhana Enterprises, whose proprietor is Mr. Naresh Rajal. in the ratio of the turnover of the respective years. Thus the income arising out of the unaccounted transactions which are recorded in the books of account of "Bakul Enterprise' has been offered for taxation. On the issue of non-genuine loans mentioned in the books of account of 'Bakul Enterprise', it was explained that the same has been admitted as income in the hands of the concerned persons in whose books of account the loans are credited. It was also explained that the interest debited to the Profit and Loss Accounts in respect of the unexplained cash credits had also been offered as income by the respective entities in the respective years. In respect of the unexplained creditors, the learned AR has submitted that the same have been identified and offered as income in the hands of the concerned persons. ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 11 16. The Settlement Commission is thereafter noted to have separately discussed and considered the offer of unaccounted income qua the entries of M/s Bakul Enterprises in the hands of the respective firms and proprietorship concern in the ratio of turnover and accepted the revised working furnished by the applicants. The Ld. AR particularly invited our attention to Paras 6.1 & 6.2 of the order where the proportionate unaccounted income offered by M/s K.V. Co in relation to M/s Bakul Enterprises was noted and accepted by the Settlement Commission. Similarly, at Paras 7.2-7.4, 8.2-8.4, 9.2-9.4, the Settlement Commission is noted to have examined and accepted the addition income offered in relation to M/s Bakul Enterprises by N.T. & Co., H.K.C. & Co. & Shobana Enterprises respectively. 17. The final concluding finding of the Settlement Commission is noted to be at Page no. 72 of the order [Page no. 106 of PB] wherein the Settlement Commission categorically observed “Keeping in view these facts, the total offer of Rs.1,35,19,687/- made by the seven (7) applicants is found to be quite reasonable.” Hence, the Settlement Commission is noted to have examined and considered the seized documents pertaining to M/s Bakul Enterprises and also taxed the unaccounted income found recorded therein in proportion of the turnover in the hands of three (3) firms and one (1) proprietorship concern. 18. Having regard to the facts as discussed in the foregoing, we note that, the unaccounted income in relation to M/s Bakul Enterprises had already been considered and assessed to tax by the Settlement ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 12 Commission in the hands of the applicants viz., three (3) firms and one (1) proprietorship concern. We therefore find merit in the claim of the assessee the lower authorities had erred in adding the same entries of M/s Bakul Enterprises again by way of unaccounted income of the appellant. Clearly, it amounted to double addition which is held to be impermissible in law. 19. It is however noted that, the assessee was a partner (30%) in the firm M/s. K. V. & Co. which had inter alia offered aggregate amount Rs.44,45,604/- by way of additional income before the Settlement Commission across AYs 1991-92 to AY. 1994-95 (including income pertaining to M/s Bakul Enterprises). Accordingly, in our considered view, it was only the share of profit in the partnership firm which was attributable as income in the hands of the appellant. The same is worked out as follows: AY Additional Income offered by K V & Co. Share of appellant (30%) 1991-92 Rs.6,45,960/- Rs.1,93,788/- 1992-93 Rs.15,47,584/- Rs.4,64,275/- 1993-94 Rs.9,71,353/- Rs.2,91,406/- 1994-95 Rs.12,80,707/- Rs.3,84,212/- 20. The Ld. AR has fairly stated that, the provision contained in Section 10(2A) of the Act exempting the share of profit from partnership firm from tax in the hands of the partner came into effect only from AY 1993-94 and onwards. Accordingly, the share of profit ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 13 of K.V. & Co. for the years prior to introduction of Section 10(2A) of the Act viz., Rs. 1,93,788/- & Rs.4,64,275/- for AYs 1991-92 & 1992- 93 respectively was taxable in the hands of the appellant. 21. It is noted by us that, the AO had already taxed share of profit in K&V Co. of Rs.1,87,948/- and Rs.2,84,800/- in AYs 1991-92 & 1992- 93 based on the offer made by the appellant in the original abated application filed before the Settlement Commission. The Ld. AR has not contested these additions at the time of hearing and therefore the same is confirmed. Accordingly, in our considered view therefore, further amount of Rs.5,840/- [1,93,788 – 1,87,948] and Rs.1,79,745/- [4,64,275 – 2,84,800] by way of share of profit in K.V. & Co. is assessable in the hands of the appellant in the AYs 1991-92 & 1992- 93. Accordingly, the appellant gets relief of Rs.53,45,115/- [53,50,955 – 5,840] & Rs.47,92,135/- [49,71,880 – 1,79,745] in AYs 1991-92 & 1992-93 respectively. 22. As far as the share of profit from M/s K.V. & Co. for AYs 1993- 94 & 1994-95 is concerned, we note that the same is exempt from tax in the hands of the appellant-partner by virtue of provisions of Section 10(2A) of the Act. Accordingly, no further sum is assessable to tax in the hands of the appellant in these years. The appellant accordingly gets relief in respect of the entire addition of Rs.56,94,859/- & Rs.25,96,302/- made in relation to M/s Bakul Enterprises in AYs 1993-94 & 1994-95. ITA Nos. 7624 to 7627 A.Ys. 1991-92 to 1994-95 M/s. Bakul K. Rajal 14 23. Coming to the ad hoc addition of Rs.10,000/- made in AYs 1993-94 & 1994-95 is concerned, the Ld. AR did not seriously contest the same and therefore the same is confirmed. 24. Accordingly, Ground Nos. 2 & 3 of all the four (4) appeals stands partly allowed as discussed (supra). 25. In the result, all the appeals of the assessee are partly allowed. Order pronounced in the open court on this 28/02/2023. Sd/- Sd/- (OM PRAKASH KANT) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 28/02/2023. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai