2004 (11) TMI 297 - AT - Income Tax

Computation Of Undisclosed Income - Addition on account of cash, seized during search - burden of proof - difference of opinion between the Judicial Member and Accountant Member - Third Member Order - Whether on the basis of transaction of two days as reflected from the documents seized, income of entire block period can be estimated at Rs. 16,87,500 instead of Rs. 2,40,841 (Rs. 12,62,000 - Rs. 10,21,159) which remained unexplained in view of the documents and cash seized? HELD THAT - learned judicial Member gave credit of amount of Rs. 10,21,151 which according to him was the trust money lying with the assessee as belonging to his customers, and therefore was available to explain the cash found to the extent. He has treated/assumed the balance of Rs. 2,40,841 as income from Hawala business and confirmed the addition to that extent and no separate addition for business was held to be maintainable because of this addition. The learned Accountant member, however, gave no benefit of any cash available either on account of customers' money as according to him the onus was on assessee and it was for the assessee to bring the material on record to bring evidence for such availability. He determined income on the said transaction of Rs. 16,87,500 taking the transactions as of whole period i.e. 480 days (18 months) based on two days transaction, found recorded in the loose papers. He also did not give any credit against the cash seized. It is true that an estimate of the transaction can be measured by sample found during the course of search provided the same is representative of the same state of affairs throughout. The transaction noted from loose paper of two days are taken as a base for 18 months, but that 18 months period was stated to be for the partnership and not individual business carried on by the assessee. One should also not forget the fact that it was not case of the assessee that he was carrying on this business of Hawala. His case was that he was doing courier business in the name of a partnership firm in which he was a partner and it was that partnership firm was carrying on business for 18 months. That theory of courier business of the assessee was not accepted. Department held that two papers related to the money transactions (Hawala business) carried on by the assessee. Third Member Order - On the basis of two days' transactions what can at best be said is that the assessee was doing this business but not that it was for 18 months or a lesser or higher period. In my opinion, therefore, it would not be safe to hold that the income from this source could be Rs. 16,87,500. It would be Rs. 12.62 lakhs or it could be Rs. 2,40,841 as taken by the learned Judicial Member and that amount could be the source of cash seized at that time. I do not find any merit in reducing the addition of Rs. 2,40,841 by holding that the balance money was trust money lying with the assessee's client, for which no evidence was on record. The assessee has not brought any material on record in this behalf. Merely because, part of the money is transferred to other transactions, it cannot be assumed that the balance amount of Rs. 10,21,159 was the trust money having recorded in the loose papers was the client's money. There has to be some evidences on record to establish it, which onus is not discharged by the assessee. The benefit of set off Rs. 10,21,159 cannot therefore be given to the assessee in the absence of material on record corroborating it to be trust money. I, therefore, hold that the addition of Rs. 12.62 lakhs is required to be upheld being cash income from Hawala business of Rs. 2,40,841 not disclosed by the assessee and cash found remained unexplained to the extent of Rs. 10,21,159.1, therefore, hold that on both the grounds, the aggregate addition, that is to be added, be taken as Rs. 12.62 lakhs. (Rs. 10,21,159 as unexplained cash plus Rs. 2,40,841, as income from Hawala business of money transfer. In the result, the appeal is to be partly allowed.

Issues Involved:
1. Validity of search operation u/s 132.
2. Conversion of survey into action u/s 132.
3. Validity of notice u/s 158BC instead of u/s 158BD.
4. Retraction of surrender made by the appellant.
5. Grounds of facts for retraction of surrender.
6. Ex parte order by the Assessing Officer.
7. Engagement in money transfer business.
8. Seized cash of Rs. 12.62 lakhs as income from undisclosed sources.
9. Estimated commission income of Rs. 55 lakhs.

Summary:

Issue 1 & 2:
The appellant did not press these grounds; hence, they were dismissed.

Issue 3:
The appellant argued that the notice u/s 158BC should have been issued in the name of M/s. Kamlesh Kumar Kantilal & Co. The Tribunal found no force in this contention as the appellant failed to establish that the concern was a partnership firm. The ground was rejected.

Issue 4 & 5:
The appellant contended that the surrender of Rs. 12.62 lakhs was made under pressure and duress. The Tribunal noted that a surrender cannot be the sole basis for assessment unless corroborated by evidence. The CBDT circular advising against obtaining confessions during search was considered. The Tribunal found merit in the appellant's submission and decided in favor of the appellant, stating that the surrender could not be the sole basis for assessment.

Issue 6:
The appellant argued that the ex parte order was due to the earthquake in Gujarat, which disrupted communication. The Tribunal acknowledged the earthquake but noted that the appellant had ample opportunity to present the case before the first appellate authority. The ground was rejected.

Issue 7 & 8:
The appellant claimed the seized cash was agricultural income. The Tribunal found no evidence supporting this claim and concluded that the appellant was involved in money transfer (hawala) business. The Tribunal decided that Rs. 10,21,159 was trust money from clients, and Rs. 2,40,841 was the appellant's income from commission. The addition of Rs. 10,21,159 was deleted, and Rs. 2,40,841 was upheld.

Issue 9:
The Tribunal found that the estimation of Rs. 55 lakhs as commission income was not justified. The basis for the estimate was a visiting card and loose papers, which did not conclusively prove the appellant's income from other branches. The addition was deleted.

Separate Judgment by Accountant Member:
The Accountant Member disagreed with the findings on issues 4, 5, and 7 to 9. He upheld the addition of Rs. 12.62 lakhs as undisclosed income and estimated the income from hawala business at Rs. 16,87,500 based on two days' transactions.

Third Member Order:
The Third Member upheld the addition of Rs. 12.62 lakhs, combining Rs. 10,21,159 as unexplained cash and Rs. 2,40,841 as income from hawala business. The appeal was partly allowed.

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