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TMI Blog2008 (9) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... ses in an ad hoc manner. 2. Since ground No. 2 raises the legal issue, it is directed to dispose of that ground first. 3. The AO, before issuing notice under s. 148 of the IT Act, 1961 (hereinafter referred to as 'the Act'), recorded reasons as under: "The return of income declaring business income at Rs. 1,30,720 was filed on 29th Oct., 2002 along with audit report as required by s. 44AB of the Act which was processed on 18th Feb., 2003. In this case a survey under s. 133A was carried out on 8th Oct., 2002. During the survey, certain loose papers and diary were impounded under s. 133A(ia) of the Act. During the course of scrutiny for asst. yr. 2003-04, it is observed that certain documents impounded including the entries found in the note book pertain to the period 1st April, 2001 to 31st March, 2002 which is relevant to this asst. yr. 2002-03 and the assessee could not explain them with supporting evidence. In this diary, the following amounts have been shown as loans taken from various persons and these entries have not been reflected in the regular books of account: -------------------------------------------- Sl. No. Name of depositor Amount of loan -------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faith and not mere pretence. The reopening was done on relevant and reliable grounds and action was taken on the firm belief that the appellant had shown credits which were not recorded in his regular books of account. He, therefore, upheld the action so taken by the assessing authority. 4. Before us, the learned counsel for the assessee, Shri N.R. Mertia, in support of ground in appeal, made a reference to written submissions at p. 20 annexed in the paper book, wherein it was stated that "in the backdrop of facts and statutory provisions, the proceedings under s. 147/148 were not justified". The learned CIT(A) erred in not appreciating the facts and circumstances of the case. 5. On the other hand, the Departmental Representative placed strong reliance on the findings reached by the authorities below and as the valid reasons have been recorded, the assessee's ground No. 2 in appeal needs to be rejected. 6. We have heard the parties and carefully perused the material on record. Action in this case has been taken after recording the reasons as required under s. 148(2) of the Act. The AO had relevant material in his possession from which he formed a reasonable belief that the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Rs. 50,000 -------------------------------------------- 6. Jawarilal Bafna Rs. 1,00,000 -------------------------------------------- 7. Kishanlal Kankaria Rs. 50,000 -------------------------------------------- 8. Mahesh Nathuji Rs. 1,00,000 -------------------------------------------- 9. Champalal Dhamji Rs. 50,000 -------------------------------------------- 10. Moolchand Khanted Rs. 50,000 -------------------------------------------- 11. Sangeeta D/0 Mangilal Rs. 50,000 -------------------------------------------- 12. Mahaveeri Prakash Rs. 1,00,000 -------------------------------------------- 13. Manju R. Jain Rs. 50,000 -------------------------------------------- 14. Mahaveer Devi Lodha Rs. 50,000 -------------------------------------------- 15. Jinendra Kumar Vardia Rs. 50,000 -------------------------------------------- 16. Mohanlal Mahendra Kumar Rs. 1,00,000 -------------------------------------------- 17. Rajesh Kumar Jain Rs. 1,00,000 -------------------------------------------- Total loans allegedly taken Rs. 11,80,000 -------------------------------------------- This diary revealed that the amounts are taken as loans by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and the same is absolutely related to his father's concern. Below the said letter, Shri Jas Raj Dhoka, the assessee, has made an endorsement and recorded his satisfaction under his Signature made on 25th July, 2005 stating therein that whatever transactions are recorded in the said diary relate to himself only for his own business only. The assessee admitted that the diary relates to him and represents the amounts taken as loans from certain persons for his business requirement and entries appearing in the same are not accounted for in his regular books of account. 10. The AO, vide his office letter dt. 23rd Dec., 2005, required the assessee to produce all these 17 persons mentioned in the said diary from whom loans aggregating to Rs. 11,80,000 have been taken and as is evident from the aforesaid diary. He was also required to explain as to why the said amount of Rs. 11,80,000 should not be added to his income being unexplained and unrecorded. In reply thereto, the assessee through his written submissions dt. 30th Jan., 2006 stated that the amount of Rs. 11,80,000 was taken by him as loans from the aforesaid 17 persons which were not recorded in the regular books of account a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch circumstances, the contention that cross-examination opportunity was not allowed was found devoid of any merit in respect of depositors who, in compliance of summons under s. 131 of the Act, denied of having made any deposit with the assessee. Even otherwise, he found the action of the AO to be justified on the ground that: (1) The appellant failed to produce the persons before the AO for verification. (2) Entries found recorded in diary impounded during the course of survey were not recorded in the regular books of account. (3) The appellant failed to discharge the onus which lay upon him. (4) No confirmatory letter could be produced by the appellant from such depositors. He also discarded the assessee's objections that the AO nowhere mentioned in the assessment order that the addition has been made under s. 68 of the IT Act as it was not necessary for him to have quoted such a section, while making addition in the peculiar facts and circumstances of the case. Since money is found recorded in the diary and was not recorded in the books of account, the same was required to be treated as income of the assessee as unexplained deposits/loans under s. 69 of the Act and such a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said documents are not accounted for in the regular books of account of the assessee. The appellant also gave the names and addresses of the depositors, the amount of loan, date of loan, etc. He, however, did not file any confirmation nor explained the nature and source of these deposits. Despite several opportunities, the depositors were not produced for verification of the genuineness/nature and source of credit so found recorded in the diary so impounded from the appellant's business premises. In his written explanation dt. 30th Jan., 2006, the assessee had stated that "At this stage he is not in a position to produce these 17 persons for verification." 16. The AO, on his own, proceeded to issue summons to all these seventeen persons. Eight persons, namely, S/Shri Sohanlal Vardia, Bhimraj Mishrimal, Dhagalchand Chotmal, Jawarilal Bafna, Ms. Sangeeta, S/Shri Mahaveer Parakh, Ms. Mahaveeri Devi Lodha and Shri Kishan Lal Kankaria, who appeared in compliance to the summons have denied of making any loan to the assessee. The assessee was neither confronted with the statements so recorded nor any opportunity was allowed to it to cross-examine these persons. It was the duty of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02) 256 ITR 20 (Bom). We, however, find that the aforesaid judgment rendered by the Bombay High Court is in the context of books of account for the purpose of Expln. 5 to s. 271(1)(c) of the Act so as to afford immunity from penalty by expressing as under: "Explanation 5 was inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1st Oct., 1984. Explanation 5 enacts a deeming provision and has application to a situation where in the course of a search under s. 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income, for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or for any previous year which is to end on or after the date of the search." 19. In the appellant's case, it has been admitted that amounts recorded in the names of these persons are loans whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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