2024 (11) TMI 496 - AT - Income Tax

Unaccounted transaction of the assessee s investment in film financing business - Diary seized during the course of search - seized documents were confronted to the assessee and a statement on oath was recorded u/s 132(4) of the Act, and called upon the assessee to explain the contents of the promissory notes and other seized documents - HELD THAT - In the present case, the appellant at the time of search very clearly explained that he arrange finance through lenders and given to film producers and the purpose of keeping the pro-notes in his possession is that, at the time of discussion with the producers, the lenders was not known and because of this reason in few pro notes the name of the lender is absent. Argument of the assessee that he is acting as a middlemen/agent between financiers and borrowers appears to be bonafide and acceptable. AO and the CIT (A) rejected the explanation of the assessee on the presumption that no borrower would execute pro-note in advance without mentioning any details. However, fact remains that in many cases, business is carried out on the basis of mutual trust and respect. Especially in the field of financing, more particularly in the field of film financing, it is mostly unorganized sector and transaction happens through mutual trust and belief and going by the place of business where the appellant operates, it is very famous for film financing and thus, in our considered view, the arguments advanced by assessee in light of various evidences including the statement recorded from the assessee during the course of search that the assessee is only a middlemen and arrange finance to film producers through associates/lenders is bonafide and needs to be accepted. How to quantify the income of the appellant? - Considering the nature of the business of the assessee and also amount of business carried out by the assessee for all these years, in our considered view, a reasonable amount of expenditure needs to be estimated. The assessee has earned 6% margin on total loans given to film producers. Against this for various expenditure, the assessee must have incurred 1% income generated from his finance business. Therefore, considering the totality of the facts and circumstances of the case and also the nature of the business, we are of the considered view that out of 6% margin claimed to have been earned by the assessee, a deduction of 1% towards expenditure needs to be allowed. If we deduct 1% towards the expenditure, then the net income earned by the assessee from the film finance business is 5% on total loans given to film producers and production houses. Therefore, we are of the considered view that 5% net profit on total amount of loans given by the appellant as quantified by the Assessing Officer appears to be reasonable. Addition towards gift received from brother-in-law - assessee could not establish relationship with donor and also creditworthiness of the donor - It was the argument of the assessee that, he has filed confirmation letter from the donor along with the ledger extracts and assessee further contended that the gift has been received through proper banking channels - HELD THAT - Although, the assessee claims to have received gift through cheque, but the Assessing Officer recorded clear findings that the assessee has received gift in cash. Further, except confirmation letter and ledger account, no other details has been filed including relationship with the donor and creditworthiness of the donor. Therefore, we are of the considered view that there is no error in the order of the learned CIT (A) to sustain the addition made by the Assessing Officer towards gift received from brother-in-law. Decided against assessee. Gift claims to have been received from brother-in-law - Addition on the ground that except filing confirmation letter and ledger account, the assessee could not furnish any other evidence and also failed to establish relationship of the said person with the assessee and the creditworthiness of the donor - AY 2011-12 - HELD THAT - The assessee has furnished all evidences including confirmation and relevant bank account statement of the donor and the assessee. The Assessing Officer ignored the evidences filed by the assessee and made addition u/s 56(2)(vii) of the Act, as income from other sources. We do not subscribe to the reasons given by the Assessing Officer for the simple reason that first of all, the assessee is able to establish identity of the donor and also proved genuineness of the transaction by filing confirmation letter from the donor. Secondly, assuming for a moment, the assessee is not able to prove the gift with relevant evidences, but the amount received from Shri B Girish cannot be treated as unexplained credit or income from other sources u/s 56(2)(vii) for the subject A.Y for the simple reason that the amount has been received in financial years 2007-08 and 2008-09. If at all, the addition is required to be made, then the same can be made for the A.Ys 2008-09 and 2009-10 but not for the A.Y 2011- 12. Therefore, we are of the considered view that the Assessing Officer is erred in making addition towards gifts claims to have been received from brother-in-law. The learned CIT (A) without considering the relevant facts simply sustained the addition made by the Assessing Officer - Decided in favour of assessee. Unexplained cash found during the course of search - HELD THAT - It is an admitted fact that the cash book maintained by the assessee was not updated as on the date of search. Since the date of search was in between the financial year and there is a time for appellant to update the cash book, the explanation offered by the assessee with regard to the availability of cash balance as on 30/04/2011 as per updated cash book needs to be accepted. If we accept the source of cash found during the course of search to the extent of Rs. 5 lakhs, but still there is unexplained cash found at the time of search at Rs. 24,43,250/- and the assessee could not explain the source for the same. Therefore, we are of the considered view that out of total cash found during the course of Rs. 29,43,250/-, the appellant is able to explain the cash in hand available as on the date of search for Rs. 5 lakhs only. The remaining amount of cash of Rs. 24,43,250/- is still unexplained. Thus, we direct the Assessing Officer to restrict the addition to the extent of Rs. 24,43,250/- towards cash found and seized during the course of search. Unexplained investment in jewellery - HELD THAT - In the present case, going by the amount of jewellery found during the course of search, it is well within the parameters prescribed by the CBDT for seizure of jewellery. No doubt, the Department has not seized jewellery. However, when it comes to explanation of the source for the said jewellery, it is a customary in India that every household will have certain quantity of jewellery in family and the same has been acquired out of their savings and known source of income. Since going by the quantity of jewellery found in the present case, in our considered view, the same is within the parameters prescribed by the CBDT for not seizure of the jewellery and also the assessee is able to explain the source out of his known source of income. Therefore, we are of the considered view that the AO is erred in making addition towards jewellery found during the course of search as unexplained investment. CIT (A) without appreciating the relevant facts simply sustained the addition made by the AO. Thus, direct the AO to delete the addition made towards the jewellery found during the course of search.

Summary

Issues Involved:

1. Addition towards unaccounted investment in film financing.
2. Addition of Rs. 5 lakhs towards gift received from brother-in-law for A.Y 2010-11.
3. Addition of Rs. 48,17,730/- towards gift received for A.Y 2011-12.
4. Addition of Rs. 29,43,250/- towards unexplained cash found during the search for A.Y 2012-13.
5. Addition towards unexplained investment in jewellery for A.Y 2012-13.

Detailed Analysis:

1. Unaccounted Investment in Film Financing:
- The core issue revolved around the addition towards unaccounted investment in film financing business. During a search operation, loose sheets and promissory notes were found, indicating loans given to film producers. The Assessing Officer (AO) added these amounts as unexplained investments, arguing that the assessee could not substantiate the source of these loans. The assessee contended that he acted as a middleman, arranging loans from various associates/lenders to film producers, earning a commission. The Tribunal found that the AO selectively considered only parts of the seized documents. It was concluded that the assessee's explanation of acting as a middleman was plausible. The Tribunal directed the AO to estimate a 5% net income on the total loans given, allowing for a deduction of 1% towards business expenses from the claimed 6% margin.

2. Gift of Rs. 5 Lakhs from Brother-in-law (A.Y 2010-11):
- The AO added Rs. 5 lakhs as unexplained, arguing that the assessee failed to establish the donor's relationship and creditworthiness. Although the assessee provided a confirmation letter, the AO noted discrepancies, such as the gift being received in cash. The Tribunal upheld the AO's decision, finding no error in sustaining the addition due to insufficient evidence of the gift's legitimacy.

3. Gift of Rs. 48,17,730/- (A.Y 2011-12):
- The AO added Rs. 48,17,730/- as unexplained, citing a lack of evidence for the relationship and creditworthiness of the donor. The assessee argued that the amount was initially a loan from his sister and brother-in-law, later converted to a gift. The Tribunal found that the assessee provided sufficient evidence, including confirmations and bank statements, proving the identity and genuineness of the transaction. The Tribunal directed the deletion of the addition, noting that the amount was received in earlier financial years, making the addition for A.Y 2011-12 inappropriate.

4. Unexplained Cash of Rs. 29,43,250/- (A.Y 2012-13):
- During the search, cash of Rs. 29,43,250/- was found. The AO added this amount as unexplained, as the assessee could not fully account for it. The Tribunal accepted the assessee's explanation for Rs. 5 lakhs based on updated cash books but sustained the addition for the remaining Rs. 24,43,250/-, as the source remained unexplained.

5. Unexplained Investment in Jewellery (A.Y 2012-13):
- Jewellery valued at Rs. 12,15,500/- was found during the search. The AO added this as unexplained investment due to a lack of documentary proof. The Tribunal referred to CBDT Instruction No. 1916, which provides guidelines for non-seizure of jewellery up to certain limits. It was noted that the jewellery found was within these limits, and the assessee explained it as family-owned. The Tribunal directed the deletion of this addition, finding the AO's decision to be erroneous.

Conclusion:
The appeals for the assessment years 2010-11, 2011-12, and 2012-13 were partly allowed, with specific directions to adjust the additions based on the Tribunal's findings.