2017 (6) TMI 955 - HC - Income Tax

Addition on account of alleged premium on alleged cash sales - presumptions u/s 132(4A) - Held that - The entire issue was based on appreciation of evidence on record. Though the Assessing Officer had proceeded on the basis of certain statements made by Shri Balkrishna Devidayal who had not appeared for cross-examination the Tribunal noted that subsequently cross-examination was offered and carried out but no contrary evidence came on record. This is therefore not a case where the additions are made on the basis of mere loose papers seized during search. It is a case where the documents seized during search contained entries made by the partner of the firm admittedly in his own handwriting and contained reference to the cash receipts. His explanation was simply either non-existent or not acceptable. With respect to M/s.Jhaveri Polymers however the case stands on a slightly different footing. The primary reason for adding such sales for computation of premium was that in case of M/s.Jhaveri Polymers also the sales were not reflected in the accounts of the said firm. The Tribunal however noted that such sales were later on reconciled. If that be so in our opinion there was no other basis for the Tribunal to confirm the premium on such sales. We may recall that M/s.Jhaveri Polymers was not one of the firms who was mentioned in the documents seized by the revenue on which Shri J.L.Mehta had made his remarks. In the result the question is answered partly in favour of the assessee and partly in favour of the revenue. Insofar as the sale of 11.61 Lacs made to M/s.Jhaveri Polymers is concerned premium paid at the rate of 27.5% would be deleted from the additions made by the Assessing Officer and confirmed by the Tribunal. Remaining additions are confirmed.

Summary

Issues Involved:
1. Legality of additions based on alleged premium on cash sales.
2. Validity of evidence from loose papers and handwritten notes.
3. Examination of specific transactions with M/s. Devidayal Plastics and M/s. Jhaveri Polymers.

Issue-wise Detailed Analysis:

1. Legality of Additions Based on Alleged Premium on Cash Sales:
The main issue was whether the Tribunal was correct in restoring the addition of ?31,69,259/- on account of alleged premium on alleged cash sales. The assessee's premises were searched, and several documents were seized, including handwritten notes by a partner, Mr. J.L. Mehta. The Assessing Officer (AO) concluded that the total of ?6.65 Lacs against the total sale of ?26.75 Lacs was to be received in cash as premium. The Tribunal upheld this view, noting that the uniform rate of "interest" computed by Mr. Mehta suggested a premium component. The Tribunal found no convincing explanation from the assessee for these entries.

2. Validity of Evidence from Loose Papers and Handwritten Notes:
The assessee argued that additions could not be made based on loose papers and that no reliance should be placed on retracted statements. The Tribunal, however, noted that the loose papers contained entries made by the partner in his own handwriting, which he confirmed. The Tribunal emphasized that the notings suggested cash receipts and that the assessee failed to provide a satisfactory explanation. The Tribunal also observed that the documents seized during the search were not merely loose papers but contained substantial entries indicative of unaccounted cash transactions.

3. Examination of Specific Transactions with M/s. Devidayal Plastics and M/s. Jhaveri Polymers:
- M/s. Devidayal Plastics: The AO found that pay-in-slips of the bank account of M/s. Devidayal Plastics were found in the office of the assessee firm, with cash deposits made by an employee of the assessee. The Tribunal confirmed the AO's findings, noting that the sales were not reflected in the books of M/s. Devidayal Plastics and thus inferred a premium component.
- M/s. Jhaveri Polymers: The AO added a premium on sales of ?11.61 Lacs to M/s. Jhaveri Polymers, as these sales were not initially reflected in their books. However, the Tribunal noted that these sales were later reconciled. Consequently, the High Court held that there was no basis for confirming the premium on such sales, as M/s. Jhaveri Polymers was not mentioned in the seized documents with Mr. Mehta's remarks.

Conclusion:
The High Court concluded that the Tribunal did not err in confirming the additions based on the evidence on record for most transactions. However, for the sales to M/s. Jhaveri Polymers, the premium was to be deleted, as the sales were reconciled later, and there was no basis for the addition. The question was answered partly in favor of the assessee and partly in favor of the revenue. The tax appeal was allowed in part and disposed of accordingly.