2008 (8) TMI 914 - AT - Benami Property

Benamidar and commission income in bogus billing - introducer/facilitator for bogus billing and the owners of the primary and secondary concerns were not benamidars - search and seizure operations - statements recorded of the benamidars u/s 131 - trading additions - books of account not produced for verification of the results shown in the final accounts - Unexplained investment and commission earned in share transactions - Addition made by the AO on account of Jewellery - Unexplained cash - Advertisement expenses. HELD THAT - We find that the learned CIT(A) has made elaborate findings in his order for asst. yr. 1998-99 after discussing and considering all the facts of the case and statements of alleged benamidar recorded during the course of search and after the search statements recorded by the customs authorities returns filed by alleged benamidars assets owned by the alleged benamidars operations in bank account/demat account by the alleged benamidar before and after the search and filing of the returns before and after the search by alleged benamidar and various case laws and we fully agree with these and uphold the findings of learned CIT(A) that the contemporary evidence which are in the form of statement recorded by search party u/s 132(4)/131 and statements recorded under the customs authorities clearly speak that the alleged benamidars were acting for themselves. No corroborative evidence was brought on record to prove that the business concerns belonging to these alleged benamidars were funded managed and controlled by the assessee or his associates and they are the beneficial owner of these concerns. Thus we are of the view that there was no sufficient material or evidence before the AO to come to the conclusion that Shri Umesh Saboo Shri O.P. Ghiya Shri Mahesh Sharma Shri Mohan Prakash Sharma Naman Gems (P) Ltd. Shri Gauri Shanker Pareek Shri Mahesh Khandelwal and Shri Raghuvar Dayal Pareek were benamidar of the assessee and his partners Manmohan Krishna Bagla and Shri Ramesh Chand Maheshwari and the assessee and his partners cannot be held as involved in any manner in the business of these persons. Therefore the AO was not justified in making addition on account of commission from issue of bogus purchase bills by holding that the above named persons/concerns were benamidar of assessee and his partners. We thus while setting aside adverse findings of the lower authorities in this regard direct the AO to delete the addition of Rs. 51, 649 in asst. yr. 1998-99 Rs. 86, 832 in asst. yr. 1999-2000 Rs. 1, 98, 377 in asst. yr. 2000-01 Rs. 2, 40, 710 in asst. yr. 2001-02 Rs. 2, 75, 081 in asst. yr. 2002-03 Rs. 5, 41, 152 in asst. yr. 2003-04 and Rs. 2, 15, 807 in asst. yr. 2004-05 sustained by learned CIT(A) because there is no material to hold that the assessee and his partners Shri Manmohan Krishna Bagla and Shri Ramesh Chand Maheshwari might have acted as introducer/facilitator for bogus billing. In the result ground Nos. 1 to 5 of the appeal filed by the Revenue are dismissed and ground No. 2 of the appeal filed by assessee is allowed. Trading addition - AO rejected the books of account and applied the provisions of s. 145(3) and estimated the profit - We find substance in the contention of the learned Authorised Representative. We find that the Department has carried out search operations and no material was found to show that the assessee has suppressed the profit or sales. The AO estimated the profit without having any material. The AO has not cited any comparable case. Even if the books of account are rejected the estimation of profit should be made on some basis. Therefore in the circumstances and facts of the case the AO is not justified in making trading addition. The learned CIT(A) under these circumstances in our view has rightly deleted the addition of Rs. 67, 353 in asst. yr. 1998-99 Rs. 20, 000 in asst. yr. 1999-2000 Rs. 1, 57, 704 in asst. yr. 2000-01 R Rs. 49, 874 in asst. yr. 2001-02 and Rs. 2, 82, 533 in asst. yr. 2002-03 and we uphold the findings made by learned CIT(A) in this regard. In the result ground No. 6 of the appeal filed by the Revenue is dismissed. Unexplained investment and commission earned in share transactions - We agree with and uphold the findings of learned CIT(A) that the share transactions in the shares of Gaytri Shakti Papers Boards Ltd. is an accommodation entry and the real beneficiary in the share transactions is Agarwal family. We uphold the findings of learned CIT(A) that S/Shri Rakesh R. Purohit Manmohan Krishna Bagla and Ramesh Maheshwari neither control the acquirer of the shares nor they are their agents because the Revenue has no any positive evidence to show that money received against the sale of share was transferred or given to S/Shri Rakesh R. Purohit Manmohan Krishna Bagla and Ramesh Maheshwari and there is nothing on record to suggest that money relating to these share transaction have flowed from S/Shri Rakesh R. Purohit Manmohan Krishna Bagla and Ramesh Maheshwari or the shares of these companies were transferred to the above named persons or any benefit has been accrued to these person. In the result ground No. 6 of the appeal filed by the Revenue is dismissed. Addition made by the AO on account of Jewellery - whether the jewellery found at the time of search is explained or not - AO has not led any iota of evidence to prove that Smt. Ram Janki might have given her jewellery to someone else. The AO merely disbelieved the explanation given by the assessee. Hon ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee vs. CIT 1963 (3) TMI 47 - SUPREME COURT observed that the IT Department cannot by merely rejecting unreasonably a good explanation convert good proof into no proof . Further overall jewellery declared in the WT return should be taken into account while deciding whether the jewellery found at the time of search is explained or not. We are of the view that the jewellery disclosed in past cannot be lost sight in view of non-availability of item-wise tally. Further the claim of the assessee for 4, 000 gms. silver items as ancestral is very reasonable. Therefore the AO was not justified in making addition on account of the jewellery and silver articles explained by the assessee as belonging to his late mother Smt. Ram Janki and learned CIT(A) has rightly deleted the addition. Jewellery of 502.160 gms. and 498.400 gms - It is undisputed fact that the jewellery weighing 335.504 gms. (net) was found from the bedroom of Smt. Sweta Purohit and jewellery of 382.00 gms. (net) was found from the locker of Smt. Sweta Purohit and the jewellery of 414.032 (net) gms. was found from the possession of Smt. Mandakani Purohit. Thus the search party found jewellery weighing 1131.536 gms. from the possession of these two ladies. We also agree with the learned Authorised Representative that jewellery to the extent of 500 gms. should be treated as reasonable holding in the case of each married lady. Therefore in the circumstances and facts of the case the AO was not justified in making addition on account of the jewellery explained by the assessee as belonging to his daughters-in-law Smt. Mandakani Purohit and Smt. Sweta Purohit and learned CIT(A) has rightly deleted the addition. In the result ground No. 9 of the appeal filed by the Revenue is dismissed. Unexplained cash - AO has not rejected the books of account including the cash book hence the balance shown in the cash book have been rightly treated by the learned CIT(A) as correct. Therefore the AO was not justified in making addition on account of unexplained cash and learned CIT(A) has rightly deleted the addition. Ground No. 10 of the appeal filed by the Revenue is thus dismissed. Advertisement expenses - The explanation of the assessee that due to slump in the market the assessee could not obtain the orders the business of the assessee was not closed but he could not obtain the profit making orders and the assessee remained busy in attending the office of Dy. Director of IT and other authorities due to search during the year and the business of the assessee remained unattended and the clients shifted to other parties cannot be brushed aside without giving any adverse material against the assessee. For other expenses like car petrol car insurance interest on car loan depreciation on car we find the disallowance is at higher side. We thus while setting aside orders of the lower authorities in this regard direct the AO to restrict the disallowance upto 10 per cent of the total expenses as against the disallowance under these heads made by the AO. In the result ground No. 3 of the appeal filed by the assessee and ground Nos. 6 7 and 8 of the appeal filed by the Revenue are dismissed.

Summary

Issues Involved:
1. Determination of commission income and expenses in bogus billing.
2. Assessment of benami transactions and the evidentiary value of statements under section 131 of the IT Act.
3. Validity of assessment proceedings based on returns filed in Form No. 2D.
4. Disallowance of various expenses including petrol, depreciation on car, and telephone expenses.
5. Addition of unexplained jewellery and cash.
6. Addition of unexplained investment and commission earned in share transactions.

Detailed Analysis:

1. Determination of Commission Income and Expenses in Bogus Billing:
The Revenue challenged the CIT(A)'s decision to allow relief of Rs. 5,20,820 by determining the commission income at Rs. 86,832, applying a rate of 1/3 of only 10 paise per hundred rupees of turnover. The AO had applied a rate of 100 paise per hundred rupees turnover, allowing 50 paise per hundred turnover as expenses. The Tribunal upheld the CIT(A)'s findings, agreeing that the onus of proving the benami nature of transactions was not discharged by the Revenue. The CIT(A) found no corroborative evidence to suggest that the business concerns were funded, managed, or controlled by the assessee or his associates.

2. Assessment of Benami Transactions and Evidentiary Value of Statements:
The Revenue argued that the CIT(A) erred in holding that the statements recorded under section 131 of the IT Act had no evidentiary value. The Tribunal upheld the CIT(A)'s decision, noting that the statements were self-serving and lacked corroborative evidence. The Tribunal emphasized that the onus of proving benami transactions lies with the person alleging it, which the Revenue failed to discharge. The Tribunal also noted that the assessee's address on bank account applications was insufficient to prove benami transactions.

3. Validity of Assessment Proceedings Based on Returns Filed in Form No. 2D:
The assessee contended that the assessment proceedings were void ab initio as they were based on returns filed in Form No. 2D, which they claimed were invalid. The Tribunal dismissed this ground as not pressed by the assessee during the appeal.

4. Disallowance of Various Expenses:
The AO disallowed various expenses, including petrol, depreciation on car, and telephone expenses, on the grounds of personal use. The CIT(A) provided partial relief, and the Tribunal further reduced the disallowance to 10% of the total expenses, finding the AO's disallowance excessive and not supported by evidence from the search operations.

5. Addition of Unexplained Jewellery and Cash:
The AO made additions for unexplained jewellery and cash found during the search. The CIT(A) deleted these additions, accepting the assessee's explanations and supporting affidavits. The Tribunal upheld the CIT(A)'s decision, noting that the jewellery declared in past wealth tax returns and the cash balance as per the cash book were reasonable and supported by evidence.

6. Addition of Unexplained Investment and Commission Earned in Share Transactions:
The AO added Rs. 1,05,08,334 for unexplained investment and commission in share transactions. The CIT(A) deleted this addition, and the Tribunal upheld the CIT(A)'s findings, agreeing that there was no evidence to show that the assessee or his partners were the real beneficiaries of the share transactions. The Tribunal noted that the share transactions were accommodation entries, and the real beneficiary was identified as the Agarwal family, not the assessee.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and partly allowed the appeals filed by the assessee, providing relief on several grounds, including the determination of commission income, assessment of benami transactions, and disallowance of various expenses. The Tribunal emphasized the need for concrete evidence to support allegations of benami transactions and found the explanations for jewellery and cash reasonable and supported by evidence.