2017 (12) TMI 1470 - AT - Income Tax

Additions on account of unexplained investment in money lending business - Held that - We are of considered view that no addition can be made in the hands of assessee in absence of any corroborative evidence to link some suspicious entries found in the books of third party. As has been pointed earlier that mere recording of names closely resembling to the name of assessee in the books of Soni group does not give rise to presumption that the said names are pseudonym/coded names of assessee unless live connection is drawn by way of supporting evidence. Here, we would like to mention that before absolving the assessee completely from the additions made on basis of alleged cash transactions, we direct the Assessing Officer to re-examine the seized material. If the Assessing Officer finds that any transaction in cash is recorded in the name of assessee i.e. Nanchand B Shah or Nanchand Bhogilal Shah, the Assessing Officer may make addition of the same, in accordance with law. Before making any addition, if circumstances so arise, the Assessing Officer shall grant opportunity of hearing to the assessee, in accordance with law. Hence, the impugned order is set aside and appeals of assessee are allowed in principle, subject to the aforesaid directions. Alternate plea of allowing benefit of telescopy - In case the Assessing Officer during re-examination of seized material comes across any cash transaction recorded in the name of assessee, as has been specified above, the issue of telescopy may arise. In that eventuality, the alternate plea of the assessee would not be tenable as the date on which cash ₹ 40 Lacs is seized is subsequent in time vis-a-vis the time of investment. Moreover, the assessee has already offered ₹ 40 lacs cash seized in the names of his various concerns, now adjusting the same against cash transactions with Soni Group, if any, would not arise.

Summary

Issues Involved:
1. Delay in filing of appeals for assessment years 2003-04 and 2004-05.
2. Addition on account of unaccounted interest income.
3. Addition on account of unexplained investment in money lending business.
4. Link between the assessee and the Soni group based on seized documents.
5. Benefit of telescoping.

Detailed Analysis:

1. Delay in Filing of Appeals:
The assessee filed appeals for assessment years 2003-04 and 2004-05 with a delay of 46 days. The delay was attributed to confusion and miscommunication between the assessee and his Authorized Representative. The Tribunal, after reviewing the affidavit, found the delay to be bona fide and not intentional, thereby condoning the delay and admitting the appeals for hearing on merits.

2. Addition on Account of Unaccounted Interest Income:
The Assessing Officer made additions on account of unaccounted interest income for all impugned assessment years. The First Appellate Authority confirmed these additions. The Tribunal observed that the Department relied on entries in the books of Soni group, which were in names resembling the assessee but not conclusively proving the identity of the assessee. The Tribunal noted that no promissory notes, blank cheques, or corroborative documents were found linking the assessee to these entries. The Tribunal cited previous cases where similar additions were deleted due to lack of corroborative evidence and held that mere suspicion, however strong, cannot replace proof. Consequently, the Tribunal directed the Assessing Officer to re-examine the seized material and make additions only if any cash transactions are found explicitly in the name of the assessee.

3. Addition on Account of Unexplained Investment in Money Lending Business:
For assessment years 2000-01 to 2002-03, the Assessing Officer made additions for unexplained investments in the money lending business. The Tribunal observed that the Department's reliance on entries in the books of Soni group and the statement of Mr. Ratnakar, Accountant, was not sufficient to establish a direct link to the assessee. The Tribunal reiterated that additions cannot be made based on suspicion and directed the Assessing Officer to re-examine the seized material for any explicit cash transactions in the name of the assessee.

4. Link Between the Assessee and the Soni Group:
The Department argued that entries in the books of Soni group under names like "Nanchandani," "Namchandani," and "Nanchandbhai" referred to the assessee. The Tribunal noted that the assessee denied any business transactions with Shriram H. Soni but admitted cheque transactions with Jugalkishore Soni. The Tribunal found no corroborative evidence linking the assessee to the alleged cash transactions in the books of Soni group. The Tribunal emphasized that additions cannot be based on suspicion alone and directed the Assessing Officer to make additions only if explicit cash transactions in the name of the assessee are found.

5. Benefit of Telescoping:
The assessee requested the benefit of telescoping, arguing that the unaccounted income should be adjusted against subsequent investments. The Tribunal found this plea academic since the main appeals were allowed in principle. The Tribunal noted that if any cash transactions are found during re-examination, the issue of telescoping would not be tenable as the cash seized was already offered to tax in the names of various concerns of the assessee.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the Assessing Officer to re-examine the seized material and make additions only if explicit cash transactions in the name of the assessee are found. The plea for telescoping was rendered academic in light of the Tribunal's primary decision.