THE COMMISSIONER OF INCOME TAX V. AJJE GOWDA

ITA/782/2008

AI Insights

The case revolves around an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal, Bangalore, which had set aside the order of the assessing authority regarding the assessee's undisclosed income and valuation of properties. The Tribunal had accepted the assessee's explanations and reconciliations concerning the advances and property valuations, which were initially disputed by the assessing officer. The main legal issues pertained to the proper consideration of evidence and the interpretation of financial transactions related to property sales and loan advances. The High Court's judgment emphasized the importance of factual accuracy and the proper application of legal standards in tax assessments.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 701712 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 05-08-2014
• Assessment Year: misc
• Other Referred Cases: Vijaya Bank vs. Commissioner of Income-Tax and Another, Commissioner of Income Tax & Another vs. K.Raheja Development Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR AND M LAVA
• Assessee Lawyers: K V ARAVIND
• Keywords: Bad debts; Block assessment; Loan Advances; Perverse finding; Undisclosed income
• Section: 158BC; 36; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 5th DAY OF AUGUST 2014 PRESENT THE HON'BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MRS. JUSTICE RATHNAKALA INCOME TAX APPEAL No.782 OF 2008 BETWEEN: 1.The Commissioner of Income-Tax, C.R.Building, Queens Road, Bangalore. 2.The Dy. Commissioner of Income-Tax, Central Circle-1(3), C.R.Building, Queens Road, Bangalore. ...APPELLANTS (By Sri. K.V. Aravind, Advocate) AND: Ajje Gowda, No.1051, New Street, 2 Yelahanka, Bangalore. ...RESPONDENT (By Sriyuths A.Shankar and M. Lava, Advocates) ***** This ITA is filed under Section 260-A of I.T. Act, 1961 arising out of Order dated 10.3.2008 passed in IT(SS)A.No.35/Bang/2007 for the Block Assessment Period 1991-92 to 2001-02, to formulate the substantial questions of law stated therein and to allow the appeal and set aside the order passed by the ITAT, Bangalore in IT(SS)A.No.35/Bang/2007 dated 10.3.2008 and confirm the order of the Appellate Commissioner confirming the order passed by the Deputy Commissioner of Income Tax, Central circle – 1(3), Bangalore. This appeal coming on for hearing this day, N. KUMAR, J. delivered the following:- JUDGMENT This appeal is by the Revenue against the order passed by the Income Tax Appellate Tribunal, Bangalore. 2. This appeal was admitted on 16.4.2012 to consider the following substantial questions of law: 3 1) Whether the Appellate Authorities were correct in deleting the advances of Rs.9,20,000/- as undisclosed income of the assessee as held by the Assessing Officer based on material detected in the search showing loan amounts advanced by the assessee to various persons on interest basis in cash (these amounts were recorded in diary seized and marked as A/AG/2 in the hand writing of assessee’s wife) and other statement recorded which was not considered in the proper prospective and consequently recorded a perverse finding? 2) Whether the Appellate Authorities were correct in holding that site No.687, Yelahanka Bangalore purchased at Rs.4,82,000/- was not under value by ignoring and not considering the evidence in the proper prospective that the seller’s husband Mr.Bassavaraj, had availed of a loan of Rs.13.5 lakhs from the assessee and in order to discharge the same the site was sold by Smt.Vatsala, W/o Mr.Basavaraj to the assessee’s wife Smt.Gayathri Devi, the 4 agreement to sell seized in search showed that the actual sale consideration was Rs.21 lakhs + registration and stamp duty charge of Rs.97,155/- and as per the statements recorded and consequently recorded a perverse finding? 3) Whether the Appellate Authorities were correct in holding that site No.21, Yelahanka New Town, Bangalore was not under valued by ignoring and not considering in the proper prospective, that Sri.Gurudeep Singh Bajaj and others had purchased this property from Sri.D.R.Subbaraju vide sale deed dated 03.06.1995 for a consideration of Rs.9.45 lakhs and on 12.04.1999 assessee purchased it for Rs.10 lakhs from Mr.Gurudeep Singh and the market value as per the office of the Sub-Registrar showed Rs.14.10 lakhs and on 05.11.1997 an agreement to sell the site was entered into by the assessee with Mr.Lakshmi Narasaiah for a sum of Rs.18,76,500/- + Stamp duty and registration charges of Rs.2,10,370/- and consequently recorded a perverse finding? 5 4) Whether the Appellate Authorities were correct in holding that the loan amount availed of by the assessee being restricted to Rs.25 lakhs out of a claim of Rs.35 lakhs was not justified despite there being no confirmation from all the parties among other statements and consequently recorded a perverse finding? 5) Whether the Appellate Authorities were correct in holding that the bad debts claimed by the assessee of a sum of Rs.69.03.000/- out of Rs.1,43,79,000/- was an allowable deduction as the cheques had been seized by the Department which was found to be incorrect and did not satisfy the conditions stipulated u/s 36 of the Act and consequently recorded a perverse finding? 3. The assessee is a leading money lender in Yelahanka, a suburb of the Bangalore City. A search was conducted in his premises on 21.12.2000 and subsequent dates where incriminating documents were unearthed which revealed numerous undisclosed 6 transactions and undisclosed assets having definite revenue implications of the assessee. A notice under Section 158BC of Income Tax Act (hereinafter referred to as ‘the Act’ for short) was issued to the assessee on 25.4.2001 directing him to furnish his returns for the block period. Notice was duly served. The assessee filed return of income on 23.7.2001 admitting an undisclosed income of Rs.25,47,000/- for the block period. The assessing authority after considering the reply and various submissions of the assessee furnished during the course of assessment proceedings framed an assessment order taking note of the seized documents, the statement of the assessee recorded as on the date of search and the submissions made by the assessee during the course of block assessment proceedings. One of the items is regarding the amount advanced as loan to various persons. The seized dairy discloses that the total amount advanced as per the notings in the said dairy is Rs.1,43,79,000/-. In the statement of 7 assets and liabilities filed by the assessee, he has shown the loans advanced as Rs.1,34,59,000/- and thus he had understated to an extent of Rs.9,20,000/-. The reason given by the assessee was that the said amount was received by the assessee between 11th December and the date of search i.e., on 21.12.2000, which has not been recorded in the relevant dairies. The said explanation was not accepted and the Assessing Authority held that the receivables of the assessee as on the date of the search is taken at Rs.1,43,79,000/-. 4. In the appeal preferred by the assessee against the said finding, the first appellate authority was of the view that the Assessing Authority did not consider the reconciliation done by the assessee towards advances. Therefore, by letter dated 28/4/2004 the assessing authority was asked to decide on merits. The assessee had declared in the statement of affairs that total advances aggregate to Rs.1,34,00,000/-, after giving 8 due credits for the realization between 11.12.2000, upto to the date the dairy had been written and 21.12.2000, on which date the search took place, the figure of Rs.1.46 crores does not represent the aggregate of advances made as per the dairy, but the figure noted is rough abstract made as per the dairy not accurately corresponding to the aggregate advances made. After reconciliation the figure was taken at Rs.1,34,00,000. The reason why the assessing authority rejected the said claim was that the assessee did not offer the explanation which was offered on the date of search. The appellate authority took note of the fact that the assessing authority has adopted certain figures. According to the assessee, the gross figure is not Rs.1.46 crores but Rs.1.53 crores from which an amount of Rs.18,50,000/- had been reduced. Therefore, the figure of Rs.1.46 crores also does not represent the aggregate of advances as per the dairy, but the figure which is noted in the rough extract of the 9 dairy. The appellate authority was of the view that mere rejection of the explanation on the ground that some thing else was stated or not stated during the course of search is not a correct or valid approach. The computation and working of income tax be on the basis of facts and figures arrived at from the material available before the assessing officer and the explanation given by the assessee. As the assessee has rendered adequate explanation for the reconciliation, the assessing authority was directed to give him a relief of Rs.9.20 lakhs on the same. 5. In the appeal filed by the Revenue to the Tribunal, the Tribunal was of the view that the figure of Rs.1.46 crores noted as receivables was not from the seized dairies. When this basic fact is not forthcoming from the diaries seized, it could not be controverted. Therefore, the finding of the first appellate authority was 10 confirmed. It is against the said finding, the present appeal is filed. 6. From the aforesaid facts, it is clear that the assessee in his statement admitted the gross figure as Rs.1,53 crores and claimed deduction to the extent of Rs.18,50,000/-. Thus, he arrived at the figure of Rs.1,34,59,000/- whereas the assessing authority held Rs.1,46 crores as the gross figure which is without any basis. When two fact finding authorities after carefully looking into the material on record have recorded a finding, we do not see any good grounds to interfere with the said finding of fact. 7. During the course of search, it was ascertained that Mrs. Gayathri Devi, wife of assessee had purchased a residential house located at Site No.687, MIG, III Phase, Yelahanka Extension, Bangalore for a registered consideration of Rs.4,82,000/- from Mrs.Vatsala, wife of Mr. Basavaraj. The unsigned agreement seized at the 11 time of search revealed that this property was to be purchased for Rs.21 Lakhs. The background behind this transaction was the fact that Mr. Basavaraj took loans from the assessee at various times, the interest accrued on these amounts, as well as principal amount were not paid on a regular basis. Consequently, a substantial amount was outstanding as payable to the assessee. In order to repay this liability, Mrs.Vatsala, w/o.Basavaraj sold the property to Smt. Gayathri Devi. Smt. Vatsala was examined on Oath on 21.12.2000 and her statement was recorded. She has stated that her husband had taken loan of Rs.3 Lakhs from the assessee for business and the same had accrued to Rs.13.5 Lakhs over a period of time. In order to repay the debt the house was sold and the site and building had been valued over Rs.20 Lakhs. In answer to the said statement, the assessee gave his response. He has stated that he had advanced Rs.14 lakhs to Mr.Basavaraj on various dates. He agreed to sell the 12 said property for a consideration of Rs.21 lakhs, which was registered for Rs.4,50,000/-. However, the settlement was reached where under in respect of dues of Rs.14 Lakhs the said property is to be appropriated and the market value as on the date was Rs.7,50,000/- only. When he wanted to sell his property worth Rs.7,50,000/- for Rs.21 Lakhs, the assessee did not accept the said proposal and that is why he did not sign the agreement. The assessing authority did not accept the said explanation. However, in the appeal, the first appellate authority was of the view that the adjacent property No.685 was purchased for Rs.4.80 lakhs. The assessee’s figure of Rs.7.50 lakhs is almost 70% more than the purchase consideration paid in the case of said adjacent sites. In fact with the permission of the department to discharge the tax liability the assessee sold the said site for a sum of Rs.10 Lakhs on 15.2.2003. In those circumstances, he was of the view that no reliance could be placed on the unsigned 13 agreement which showed the consideration as Rs.21 Lakhs. Therefore, he gave the benefit to the assessee. The Tribunal taking note of the aforesaid facts was of the view that the department has not placed any documents to state that the seller has stated that he has received an amount of Rs.21.97 lakhs for the property. The order of the assessing authority cannot be sustained and accordingly, the appellate authority rightly set aside the same and therefore, did not find any merit in the appeal. 8. From the aforesaid facts, it is clear that the seller did not admit that he had received Rs.21.97 lakhs under the unsigned agreement from the assessee. That was his claim. According to the assessee the property was valued at Rs.7.50 Lakhs, though a sum of Rs.14 Lakhs was due from the seller. The fact that three years after the purchase, with the permission of the Income-tax department, the property was sold at Rs.10 14 Lakhs clearly demonstrates that the consideration mentioned in the unsigned agreement of sale was not the consideration on the date of such agreement. Therefore, in the circumstances, the findings recorded by the two appellate authorities cannot be found fault with. 9. In the search proceedings, the sale deed dated 12.4.1989 was seized which disclosed that assessee and his wife purchased site No.21, HIG, Yelahanka New Town, Bangalore from Sri.Gjurudeep Singh Bajaj for a consideration of Rs.10 Lakhs. The vendor had purchased the said property on 3.6.1995 for a consideration of Rs.9.45 Lakhs. In other words, when he was selling the property four years thereafter, he could get only Rs.55,000/- as additional amount. As per the Sub-Registrar’s rate, the market value of the property was Rs.14,10 Lakhs. If stamp duty and the registration charges are taken into consideration, the 15 seller incurred a loss. When it was pointed out to the assessee, he stated that he had entered into an agreement with one Mr.Laxminarasaiah on 5.11.1997 to purchase the said property for a consideration of Rs.18,76,500/- who acted as a broker for Sri.Gurudeep Singh and others. When the property rates fell all around Bangalore, he requested for payment of Rs.8 Lakhs paid under the agreement. Then the said Laxmi Narasaiah requested him to directly get in touch with the owner. After speaking to the owner, the property was renegotiated for a consideration of Rs.10 Lakhs. Therefore, it was contended that the amount of Rs. 10 Lakhs is the only consideration which is paid. The assessing authority did not accept this explanation. However, the first appellate authority took note of the fact that the assessee with the permission of the department sold the said property on 13.2.2003 for a sum of Rs.14,85,000/- to discharge the tax liability. Therefore, he was of the view that the consideration 16 mentioned in the sale deed as Rs.10 Lakhs was the proper consideration. In the appeal, the Tribunal has confirmed the said finding. 10. From the aforesaid facts, it is clear that though the agreement was entered into with the broker for purchase of the property for a sum of Rs.18,75,000/- and an advance amount of Rs.8 Lakhs was paid, due to fall in the real estate prices, the assessee wanted his money back and at that stage, at the request of the broker the assessee contacted the owner and sought for refund of the amount. Probably as the owner was a resident of Bombay, he wanted to sell this property. The price was renegotiated and it was fixed at Rs.10 Lakhs and that is how the sale transaction is concluded. He had purchased the property by paying Rs.9.45 lakhs and if stamp duty and registration charges are added to the same when he sold it for Rs.10 Lakhs nearly four years thereafter, certainly 17 he had incurred loss. But in Real Estate, when value has come down it is unavoidable. The fact that the assessee has sold the very same property four years thereafter for a sum of Rs.14 lakhs whereas its cost price was Rs.11,55,000/- the appellate authorities were justified in accepting the explanation of the assessee and setting aside the order passed by the assessing authority. In the facts of the case, having regard to the concurrent finding of fact recorded by both the appellate authorities, we do not see any justification to interfere with the said concurrent finding of fact. 11. In the statement of affairs filed by the assessee, he claimed liability of Rs.35 lakhs and gave the names of persons from whom he had borrowed money. In fact on the date of search he made a submission that there is liability of Rs.35 lakhs. He was called upon to furnish the confirmation letters from those persons. He was able to get confirmation letters 18 to an extent of only Rs.24 Lakhs. For not being able to get the confirmation letters, he had stated that the persons who had lent money are not willing to give confirmation letters lest they would be answerable to the department. Therefore, he pleaded his inability to prove the remaining loan creditors as required under law. Therefore, the assessing authority proceeded on the footing that as the burden of proving the said loans is on the assessee he has failed to discharge the said burden. Therefore, he deleted Rs.11 Lakhs from the liabilities. However, the first appellate authority was of the view that in the affidavit filed by the assessee, he had claimed liability of Rs.35 Lakhs. Even before the said claim was made and even on the date of search, he was able to produce confirmation letters from lenders to the extent of Rs.24 Lakhs. Merely because he was unable to give confirmation letters from the lendors he cannot be denied the benefits as his stand was consistent from starting to the end. In appeal, the 19 Tribunal has upheld the said findings. In the facts of this case, we are satisfied that the assessee has claimed Rs.35 lakhs as liability on the date of search, again before the authorities, he has claimed the said amount. He had filed affidavit to that effect and also produced letters of confirmation of the lenders. Merely because he could not get the confirmation letters and that letter of confirmation was produced before the first appellate authority, which is now accepted, we are of the view that the said finding recorded by the two appellate authorities do not call for any interference. 12. The assessee has put forth a claim for Rs.69,03,000/- as bad debts. When he was called upon to give the particulars, he gave the particulars for the bad debts including a sum of Rs.16,39,000/-, which was classified as ‘miscellaneous bad debts’. After the assessee gave complete particulars of the bad debts, it was worked out as 48% of the receivables. Then the 20 assessee was directed to produce the debtors for examination and then he filed a written statement on 12.12.2002. 13. On considering the aforesaid facts, the Assessing Authority was of the view that if the case of the assessee were to be accepted, no money lender could do business and therefore, the Assessing Authority allowed the bad debts to the extent of 15% of the total receivables, which comes to Rs.21,56,850/-. Aggrieved by the said order, the assessee preferred an appeal. The Appellate Commissioner was of the view that when the total debts was taken at Rs.1,03,64,198/- 48% of the same should be taken into consideration and not 48% of Rs.1,43,79,000/-. To that extent, he has reduced the bad debts claimed by the assessee. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal, which has affirmed the said finding. 21 14. The learned Counsel for the Revenue assailing the said finding contended that bad debts cannot be allowed on the basis of percentage especially in a case where money lender states that he is not able to recover the monies given to several persons. The material on record discloses that when the assessee claimed bad debts, he gave the names of the debtors and thereafter he arrived at the figure of Rs.68,93,000/-. He did not claim anything on the basis of percentage. The Assessing Authority after taking note of the said claim was of the view that if the claim of the assessee is accepted, it amounts to 48% of the receivables, which is not permissible according to him. The Appellate Authority was of the view that, 48% is to be worked out not on Rs.1,43,79,000/-, but it should be worked out on Rs.1,34,59,000/-. In fact, the law on the point is well settled. The Apex Court in the case of Vijaya Bank –vs- Commissioner of Income-Tax and Another 22 reported in (2010) 323 ITR 166 (SC) and this Court in the case of Commissioner of Income Tax & Another – vs- K.Raheja Development Corporation reported in (2010) 47 DTR (Kar) 212 have clearly held that the condition precedent for claiming deduction of bad debt is that the assessee should write off the said debt as bad debt. Once the assessee writes off a debt as bad debt in his accounts, he can claim deduction under Section 36(1)(vii) of the Act. Once that condition is fulfilled, the assessee is entitled to the deduction of the amount written off. In view of the same, the assessee when he filed the statements, he has given the particulars of the bad debts as against each debtor and then that amount as a part of said amount was included in the money lent in the ordinary course. Therefore, he is entitled to deduction. We do not see any infirmity in the order passed by the Appellate Authority. 23 15. All the substantial questions of law are answered in favour of the assessee and against the Revenue. For the aforesaid reasons, we do not see any merit in this appeal. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE ALB/KNM/- "