2010 (3) TMI 772 - AT - Income Tax

Survey - Search and seizure - Addition - Issue of validity of notice issued u/s 153C - The assessee ultimately filed return of income under protest - The provisions of sec. 153 were differently worded and as such no such written satisfaction was required to be recorded at the time of issue of the notice - There is nothing on record to suggest that that said Shri Manharanlal Verma was independently running consultancy services on full ledged basis by keeping the concerned staff from complex of Shri Trilok Singh Dhillon - It is undisputed that the acknowledgements of excise licenses application copies of excise licenses and copies of bank statement and register etc- were found and seized from the alleged cabin of Shri Manharanlal Verma which is part and parcel of Shri Trilok Singh Dhillon complex only Regarding protective assessment - This manner of assessment has been upheld by the Hon ble Supreme Court in the case of Lalji Haridas Vs ITO 1961 (7) TMI 8 - SUPREME Court- Examination of the bank account revealed huge cash transactions totaling to lakhs of rupees and in view of the financial status of these three persons the source of these cash transaction became significant - In order to circumvent these hurdles posed by the changed procedure Shri Trilok Singh Dhillon appeared to have devised an innovative modus operandi Regarding relief - In order to hold a person benamidar to be benamidar of another it is necessary that the fruits of the business must flow back directly or indirectly and exclusively to the person whose funds were invested - The principle is that where the property is acquired in the name of one person but purchase price is paid by another a presumption arises that transaction was one for benefit of person providing money - Facts and modus operandi being same so following the same reasoning we hold that all other assessees are also benamidar of Shri Trilok Singh Dhillon - This issue of estimation of net profit has been raised in all the above assessee s. Regarding application money - held different assessee s benamidar of Shri Trilok Singh Dhillon there is no question of allowing the application money amount in the hand of assessee because they were merely puppets in the hands of Shri Trilok Singh Dhillon Regarding unexplained investment/unexplained deposit in banks - The stand of the assessee was that the source of the aforesaid deposit was the past savings and present business activity and it was also contended that the amount of 4, 50, 000/- credited on 30-07-2004 relates to amount transferred from assessee s current account which was ascertainable from the bank account - This issue of unexplained investment/ unexplained deposit in all appeals are disposed of in all appeals as indicated above Regarding cash credits - Fact being similar so following same reasoning deletion of addition in case of Shri Ramashre Prajapati and Harish Chand Mishra needs no interference from our side wherein the CIT(A) has granted relief to the assessee in this regard - These loan are independent of his business involvement in liquor business being benamidar of Shri Trilok Singh Dhillon - In the result all these appeals and cross objections are disposed of

Issues Involved:
1. Whether the appellant is a benamidar of Shri Trilok Singh Dhillon.
2. Validity of proceedings under Section 153C.
3. Estimation of net profit from liquor business.
4. Claim of interest payment to M/s Supreme Traders.
5. Addition on account of application money.
6. Unexplained investment/unexplained deposits in bank accounts.
7. Addition on account of FDR interest.
8. Income from excise consultancy.
9. Addition on account of cash credits.
10. Income from restaurant.
11. Addition of undisclosed income.
12. Disallowance of depreciation on vehicles.
13. Agricultural income.
14. Addition of undisclosed income in the name of Shri Satnam Singh.
15. Addition on account of unexplained expenditure in fuel purchase.
16. Unexplained cash credit.
17. Validity of proceedings under Section 133A converted into Section 132.

Detailed Analysis:

1. Whether the appellant is a benamidar of Shri Trilok Singh Dhillon:
The Tribunal upheld the Assessing Officer's (AO) decision that the appellant was a benamidar of Shri Trilok Singh Dhillon. The Tribunal highlighted the modus operandi devised by Shri Trilok Singh Dhillon to circumvent liquor licensing procedures by using the names of employees and other persons of no means, making them partners in a front firm, M/s Supreme Traders. The Tribunal concluded that the funds were provided by Shri Trilok Singh Dhillon, and the benefits of the business flowed back to him, thus establishing the appellant as a benamidar.

2. Validity of proceedings under Section 153C:
The Tribunal rejected the assessee's objections regarding the validity of the notice issued under Section 153C. It held that the satisfaction for issuing the notice could be inferred from the facts and circumstances, and there was no requirement for a written satisfaction to be recorded. The Tribunal also noted that the provisions of Section 153C were not at par with the erstwhile provisions of Section 158BD, and the AO had enough evidence to issue the notice.

3. Estimation of net profit from liquor business:
The Tribunal found that the sales and expenses recorded in the books of accounts were not reliable. It upheld the AO's decision to estimate the net profit at 3% of sales, which was later reduced to 2% by the CIT(A). The Tribunal directed the AO to estimate the liquor business income in the hands of Shri Trilok Singh Dhillon, following the same reasoning for all similar cases.

4. Claim of interest payment to M/s Supreme Traders:
The Tribunal disallowed the interest payment claimed by the assessee to M/s Supreme Traders, holding that the firm was only an instrument to finance the money of Shri Trilok Singh Dhillon. Since the assessee was held to be a benamidar, the claim of interest was not allowed.

5. Addition on account of application money:
The Tribunal held that since the assessees were benamidars of Shri Trilok Singh Dhillon, there was no question of allowing the application money amount in their hands. The issue was disposed of accordingly.

6. Unexplained investment/unexplained deposits in bank accounts:
The Tribunal directed the AO to verify the nexus of deposits with liquor business. If the deposits were found to be related to the liquor business, the addition should be made in the hands of Shri Trilok Singh Dhillon. If the assessee could establish that the deposits were independent of the liquor business, the addition should be deleted.

7. Addition on account of FDR interest:
The Tribunal held that the FDR interest should be clubbed in the hands of Shri Trilok Singh Dhillon on a substantive basis, as the assessees were held to be benamidars of Shri Trilok Singh Dhillon.

8. Income from excise consultancy:
The Tribunal rejected the claim of Shri Manharanlal Verma being an excise consultant and directed that the income should be clubbed in the hands of Shri Trilok Singh Dhillon.

9. Addition on account of cash credits:
The Tribunal upheld the CIT(A)'s decision to delete the addition of cash credits, as the identity and creditworthiness of the creditors were established, and there was no evidence to suggest that the amounts were related to the liquor business.

10. Income from restaurant:
The Tribunal restored the issue to the AO to decide whether the income from the restaurant should be assessed in the hands of Shri Trilok Singh Dhillon, based on the facts and law.

11. Addition of undisclosed income:
The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for further investigation regarding the source of cash found with the assessee, considering the divergence in statements and the retraction made by the assessee.

12. Disallowance of depreciation on vehicles:
The Tribunal upheld the CIT(A)'s decision to allow depreciation on vehicles used for business purposes, with a disallowance of one-fifth for personal and non-business use.

13. Agricultural income:
The Tribunal upheld the CIT(A)'s decision to treat the income as agricultural income based on the relevant revenue record.

14. Addition of undisclosed income in the name of Shri Satnam Singh:
The Tribunal upheld the CIT(A)'s decision that the amount of undisclosed income shown as agricultural income in the case of Shri Satnam Singh was not assessable in the hands of Shri Trilok Singh Dhillon.

15. Addition on account of unexplained expenditure in fuel purchase:
The Tribunal upheld the CIT(A)'s decision to delete the addition, considering the volume of business and finding the fuel expenses justified.

16. Unexplained cash credit:
The Tribunal upheld the CIT(A)'s decision to confirm the addition of unexplained cash credit, following the same reasoning as in the previous assessment year.

17. Validity of proceedings under Section 133A converted into Section 132:
The Tribunal addressed this issue in para 5 of the order, rejecting the assessee's objections and upholding the validity of the proceedings.

Conclusion:
All appeals and cross objections were disposed of as indicated, with the AO directed to follow the Tribunal's findings and directions for each issue.

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