Chimanlal Zaverchand & Co, Mumbai vs Assessee

M/s. Chimanlal Zaverchand & The Income Tax Officer Co., (OSD)-15(1), Room No.68, 2nd Floor, Matrumandir, Vs. Suja Mansion, 324/330, Grant Road, Maulana Azad Road, Mumbai - 400 036 Mumbai - 400 004 PAN: AWBPS 9403N (Appellant) (Respondent)

Assessee by : Shri S.S. Phadkar, A.R. Revenue by : Shri Narendra Kumar Chand, D.R.

Date of Hearing : 11.12.2014 Date of Pronouncement : 04.03.2015

ORDER

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 18.10.2011 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 1983-84.

2. The assessee has taken the following grounds of appeal:

"i) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in confirming the addition on account of hundi loans of Rs.3,19,000/- & interest of Rs.31,900/- thereon as unexplained investment after confirming the finding of the Assessing Officer and by rejecting the appellant's contention that the loans on hundies were not given by the appellant and the hundies did not belong to the appellant.

ii) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in confirming the order of the Assessing Officer holding that the loans of Rs.2000/- and Rs.9,000/- respectively in the 2 ITA No.477/M/2012 M/s. Chimanlal Zaverchand & Co.

name of Shri Vinodkumar Gulabchand and Shri Shivprasad Mahadev as unexplained cash credit U/s. 68 of the Income Tax Act, 1961 and is assessable in the hands of the appellant.

iii) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in confirming the findings of the Assessing Officer that the peak of cash credit of Rs.52,018/- as per diary "A-16"

seized in the action U/s. 132(1) is assessable in the hands of the appellant.

iv) The appellant craves leave to add, alter, amend or delete any ground(s) of appeal either before or during the course of hearing of the appeal."

3. The brief facts of the case as coming out from the impugned order of the Ld. CIT(A) are that a search and seizure action was carried out on the premises of the assessee on 25.3.1983. The original assessment in this case was made on 31.01.1986 but in further appeal, the assessment order was set aside vide order dated 17.3.1988 of Ld. CIT(A). Again in the set aside assessment proceedings, order was passed u/s.144 on 23.3.1990, which was again set aside by the Ld. CIT(A) on the ground that the directions of the Ld. CIT(A) contained in earlier appeal order were not followed. But once again the assessment order was passed u/s. 144 on 22.3.1993. This time the assessee's appeal against the said order dated 22.3.1993 was dismissed by the CIT(A) vide order dated 17.01.1996. However, vide order dated 21.12.2004, the ITAT restored the matter for fresh assessment to the file of the Assessing Officer (hereinafter referred to as the AO). The present round of litigation is with regard to the assessment order framed by the AO in compliance of the order of the Tribunal dated 21.12.2004.

4. Before proceeding further, we deem it proper to mention here that in the impugned order, before proceeding to decide the appeal on merits, the Ld. CIT(A) (in para 3.1 of the order) has made the following observations:

3 ITA No.477/M/2012 M/s. Chimanlal Zaverchand & Co.

"3.1 From the perusal of the records, it transpires that this matter is lingering during almost last 25 years among various authorities i.e. AOs, CsIT(A) and Hon'ble ITAT. The appellate authorities have set aside the matter time and again but particularly due to non-compliance and non-availability of all records with the appellant as well as the casual approach of the AO, this matter has not been taken to any logical end and in all set aside assessments, the findings g i ve n i n o r i g i n al a sse ss m e n t ha s b e en re p e a t e d a s s u c h i n sp i t e o f cl e a r directions of the CsIT(A) and Hon'ble ITAT for making fresh assessment by conducting proper enquiries on the various issues involved. This office has also made sincere effo rts in examining the vario us documents available on the record as well as by remanding the matter to the AO for specific enquiries. Vide letter dated 30.6.2008 and reminder dated 07.1.2008, my predecessor directed the AO to submit a detailed remand report along with copies of appraisal report and khokha hundi along with assessment records. But, vide letter dated 16.01.2009, the AO submitted a very cryptic report and that too without the desired documents/assessment records. Vide letter dated 16.5.2011, the AO was once again directed to send the desired documents and assessment records so that the final view can be taken on various issues in the light of material collected by the department at the time of search/in various assessment proceedings during the last 25 years. But inspite of this letter followed by two reminders dated 13.7.2011 and 05.8.2011 (marked as final reminder) the AO has not provided even the assessment records, what to say of other documents. It appears that the assessment records or other search related documents are not readily available with the AO. Accordingly, the matter is being disposed of on the basis of material available and details submitted by the appellant."

5. A perusal of the above observations reveal that the Ld. CIT(A) himself was not sure and satisfied about the correctness of the order he was going to pass for want of proper record relating to the case in hand. He therefore disposed off the matter on the basis of material whatever was available to him. Now coming to the grounds of appeal:

Ground No.1

6. The ground No.1 is in relation to the addition on account of hundi loans of Rs.3,19,000/- as unexplained investment. At the outset, the Ld. A.R. of the assessee has brought our attention to the order dated 17.03.88 4 ITA No.477/M/2012 M/s. Chimanlal Zaverchand & Co.

which was passed by the Ld. CIT(A) in appeal against the first assessment order made by the Assessing Officer (hereinafter referred to as the AO) under section 143(3) of the Income Tax Act (hereinafter referred to as the Act). The assessee, in that appeal, had agitated the above addition and had denied the ownership of the alleged hundies found during the search action. One of the contentions of the assessee was that after the search, the ADI had taken depositions from the three parties whose name were reflected in the hundies and it was claimed that the said parties had denied in their depositions that these transactions had ever taken place. The Ld. CIT(A), had therefore, directed the AO to get hold of the papers lying with the ADI in this connection and find out if there were other material than what have already been brought on record and decide the issue afresh. Consequence to the said direction, the assessment was reframed on this issue. The Assessing Officer, however, in the reframed assessment did not comply with the direction of getting the record from ADI. The assessee again preferred appeal before the Ld. CIT(A).

7. In the second appeal before the Ld. CIT(A), the issue was again set aside to AO observing that there was an express direction in the appeal order dated 17.03.88 that the AO should obtain the papers lying with the ADI and examine them. The matter was again set aside to the file of the AO. Thereafter, the assessment was reframed. However, the papers were not brought from the record of ADI by the AO while framing the said assessment. The assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the addition. Assessee again preferred appeal before the Tribunal. The Tribunal again restored the matter to the file of the AO for making a fresh assessment. In the fourth round of assessment proceedings pertaining to the same issue, the AO again did not comply 5 ITA No.477/M/2012 M/s. Chimanlal Zaverchand & Co.

the direction of obtaining the papers from ADI and made the addition. In the impugned order, the Ld. CIT(A) has confirmed the additions made by the AO.

8. In our view, the additions on this issue have been made by the AO in the 4th round on the basis of that very material which was available to the AO at the time of first assessment and even without complying the express direction of the Ld. CIT(A), given not only in the first appeal but also in appeal to the second assessment order, that the AO should obtain the record from ADI. The said directions have not been set aside by any higher appellate authority and as such were in very much existence and the AO was required to comply with the said directions. Without compliance of the said directions, the additions made by the AO time and again on the basis of the same material is nothing but the abuse of process of law. Any such additions despite lingering of the matter for about 25 years and in disregard to the directions of the higher authority are not sustained in the eyes of law and the same are hereby set aside. The ground No.1 of the appeal is therefore allowed.

Ground No.2

9. In ground No.2, the assessee has agitated the confirmation of additions relating to the loans of Rs.2000/- and Rs.9000/- respectively in the name of Shri Vinodkumar Gulabchand and Shri Shivprasad Mahadev and as unexplained cash credit, under section 68 of the Act.

10. The Ld. CIT(A) has confirmed the addition in the impugned appellate order observing that the onus was on the assessee to substantiate the genuineness of the loans by any documentary evidence which the assessee had failed to discharge.

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11. We find that in the first appellate order of the Ld. CIT(A) dated 17.03.88, it has been mentioned that the assessee had stated that the confirmations relating to the said loan amount were available with the assessee and could be produced as and when called for. It was also stated that the concerned parties also could be produced, if summoned. During the four rounds of assessment proceedings on the issue, the assessee had not produced any confirmations in this respect. We therefore do not find any infirmity in the order of the Ld. CIT(A) on this issue and the additions on this issue are therefore upheld.

Ground No.3

12. Ground No.3 is in relation to confirmation of the order of the AO to the effect that the peak of cash credit of Rs.52,018/- be taken as per diary 'A-16' seized in the search action. In the first appellate order dated 17.03.88, it has been mentioned that the assessee had denied ownership of the diary and claimed that it had not been established at any time that the diary was written in the handwriting of any of the partners. The matter was restored by the Ld. CIT(A) to the file of the AO to look into this point. In the impugned order, the Ld. CIT(A) has observed that simply denying that the diary did not belong to the assessee does not absolve the assessee from its primary responsibility to properly explain that if the diary does not pertain to it then to whom it pertains. He therefore held that since the assessee has failed to prove that this diary pertains to some other person relating to their group or some outsider then it is a normal presumption that the same pertains to the assessee. He therefore has made the addition on the basis of the seized diary.

The Ld. A.R., on the other hand, has contended that Shri Zaverchand Laxmichand has been the partner in the firm of M/s. Shah Chimanlal Zaverchand & Co. who was also carrying on hundi loan business. The 7 ITA No.477/M/2012 M/s. Chimanlal Zaverchand & Co.

assessee and the firm of M/s. Shah Chimanlal Zaverchand & Co. had their offices in the same premises. Under such circumstances, it cannot be held that the diary belongs to the assessee firm. The assessee firm had denied that the diary belongs to it. It was also pointed out that all three partners of the assessee firm and the partners of M/s. Shah Chimanlal Zaverchand & Co. stayed together. Shri Zaverchand Laxmichand used to write the accounts of the firm as well as books of accounts of M/s. Shah Chimanlal Zaverchand & Co. The partners of both the firms were staying together and in the search, the books of accounts of M/s. Shah Chimanlal Zaverchand & Co. were also seized. It has, therefore, been submitted that the fact relating to the ownership of the diary has never been examined by the AO.

13. At this stage, we may point out to the initial paras of this order wherein we have recorded the observations of the Ld. CIT(A) that the record produced before him was not proper and that since the passing of 25 years in this respect, the matter has not been taken to any logical end and the findings given in the original assessment have been repeated time and again despite clear directions of the higher authorities to make inquiries in respect of the matter. It has also been pointed out specifically in the above observations by the Ld. CIT(A) that it appears that the assessment records or other search related documents are not readily available with the AO. The Ld. CIT(A) has also written several letters to the AO to send the desired documents and assessment records so that the final view can be taken on the various issues in the light of material collected by the department at the time of search and in various assessment proceedings during the last 25 years. However, the Ld. CIT(A) has confirmed the addition on this issue without considering the submissions of the assessee and due to his inability to enquire and look 8 ITA No.477/M/2012 M/s. Chimanlal Zaverchand & Co.

into the contention of the assessee that the diary did not belong to it and that the partners of the other firm were also residing in the said premises. In the absence of any evidence and despite remanding the matter on this issue for at least 4 times to the AO, the lower authorities have failed to make proper enquiries and give findings in this respect. Under such circumstances, the additions by way of repeating the original assessment order on the basis of mere suspicion cannot be allowed to be sustained. The benefit of doubt must go to the assessee especially when no proper records are available and a specific finding has been recorded by the Ld. CIT(A) in this respect. This ground is accordingly allowed in favour of the assessee.

14. Ground No.4 is general in nature and does not require any adjudication.

15. In the light of above observations, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 04.03.2015.

Sd/- Sd/- (R.C. Sharma) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 04.03. 2015. * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench 9 ITA No.477/M/2012 M/s. Chimanlal Zaverchand & Co.

//True Copy// [

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.