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TMI Blog2009 (2) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... he Majestic area of the city of Bangalore known as the Blue Club as also was operating a card room in "The Club" situated at 7th Mile, Mysore Road, Bangalore. The materials also showed that he had produced a Kannada film titled "Trin Trin". The Assessing Officer also came to know that the assessee had not filed hitherto any Income-tax returns. 3. Pursuant to the search, notice was issued to Rangaswamy to file the returns for the years under appeal, which are the assessment years 1998-99 to 2004-05. It appears that no returns were filed by the assessee. The Assessing Officer then issued notice under section 142(1) asking him to produce the books of account which also did not evoke any response. The assessment orders show that several opportunities were given to the assessee thereafter, in the course of which he filed returns showing income of Rs. 40,000 from real estate business for the assessment year 1998-99 and Rs. 50,000 from the said business for the assessment years 1999-2000 to 2004-05. Several opportunities were given to the assessee to substantiate the returns of income and produce the books of account but they were not availed of and, therefore, the Assessing Officer was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law as reasons for issue of notice under section 153A of the Act have not been given and the appellant has reasons to believe that the same have not been recorded and consequently the assessment is bad in law. Reliance is also placed on the parity of reasons of the apex Court in the cases of GKN Driveshafts (India) Ltd. v. ITO [2003] 179 CTR (SC) 11 /[2003] 259 ITR 19 (SC) and Manish Maheshwari v. Asstt. CIT [2007] 208 CTR (SC) 97/[2007] 289 ITR 341 (SC). 7. For the assessment year 2004-05, one more additional ground has been taken to the effect that "the assessment made under section 153A of the Act is further bad in law as it transgresses the provisions of section 153A and no such notice can be issued for the assessment year 2004-05". 8. So far as the additional grounds questioning the jurisdiction to make an assessment under section 153A for all the years is concerned, the contention of the learned Representative for the assessee was two-fold. He first contended that the search was not valid since no warrant under section 132 was issued exclusively in the name of the assessee. The second contention was that no reasons have been recorded for issuing notices under section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1998-99, Rs. 1,28,383 for the assessment year 1999-2000, Rs. 1,80,840 each for the assessment years 2000-01, 2001-02, 2002-03 and 2003-04, and Rs. 1,40,591 for the assessment year 2004-05. The CIT(A) has upheld all the aforesaid additions. The argument of the learned Representative for the assessee before us is that the assessee was 53 years old on the date of search and therefore, the presumption of the Assessing Officer that the assessee had no opening capital to be invested in the IVPs would seem far-fetched. However, he was unable to give us the relevant facts and the background of the assessee's activities from which he could have earned any income which was available for being invested in the IVPs. It was submitted that the assessee was a honorary secretary of the Merchants Social Club, also known as Blue Club and the HUF of the assessee was in receipt of rental income. Even granting that, in the absence of the facts and figures to show the possibility of savings available with the assessee out of the income allegedly earned from these sources, it is difficult to give any credit for the opening capital. We, therefore uphold the additions for investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,43,881 represented advances made by the assessee in cash to various persons and Rs. 4 lakhs represented amounts paid for renovation of the temples. It was also pointed out that the addition of Rs. 1,78,723 made in the assessment year 1999-2000 was for cash advances made to various persons. So far as the cash advances for both the years are concerned, i.e., Rs. 6,43,881 and Rs. 1,78,723, our attention was drawn to pp. 347 to 383 of the paper book and it was submitted that the notings therein only show the outstanding amounts every day compared to the earlier day, that any reduction meant recovery of the advance and any increase meant a further payment and on these facts, which are evident from the seized material itself (A/ANR/20), the total of each day cannot be said to represent the amount advanced on that day as has been done by the Assessing Officer. It was also submitted that no specific question was put to the assessee with reference to these notings, except to ask him to identify the seized papers. Our attention was drawn also to the relevant portion of the assessee's statement which is available at p. 20 of the paper book filed by the Department and the answer to question N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely. 14. As regards the addition of Rs. 4 lakhs made for the assessment year 1998-99 on the basis of the seized material marked A/ANR/13, it stands on different footing. It would appear that these are payments made to L. Nagaraja Shetty S/o Lakshmaiah Shetty residing at Dabaspet Village, Kesumpura Hobli, Nelamangala Taluk. According to the learned Representative for the assessee, these are monies belonging to the temple with which the assessee is connected and those monies were given to Nagaraja Shetty for purchase of agricultural lands for the temple. Our attention was drawn to pp. 67 and 68 of the paper book which are acknowledgements issued by Nagaraja Shetty which confirmed that he received the monies for selling his lands to Lakshmi Kempamma temple, Nelamangala Taluk. It is pointed out that Nagaraja Shetty has narrated the receipt of advance from the temple in the letterhead belonging to one Manjunatha Taluk who was connected to the temple and the assessee's name nowhere figures in the acknowledgement. It is also submitted that the sale deed was yet to be executed in favour of the temple. The submission is that no monies were advanced by the assessee and only the temple funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A). In the further appeal before us no specific arguments were advanced on behalf of the assessee against the aforesaid additions except that they should be telescoped into the addition made for club income and card room income. For the assessment year 1998-99 there is no club income or card room income since this business was started only on 1-1-1999. Therefore, for this year there is no question of telescoping and the addition is sustained. For the other years additions have been made for club income and card room income. The bank deposits could have come out of the aforesaid income and, therefore, there is scope for giving the benefit of telescoping for these years. Separate additions are, therefore, not required to be made for bank deposits for the assessment years 2000-01, 2002-03 and 2003-04. Income from Merchants Social Club (also known as Blue Club) 16. The following additions were made by the Assessing Officer under the head 'Income from running of Merchants Social Club (Blue Club) : Asst. year Amount added 1999-2000 Rs. 72,40,000 2000-01 Rs. 72,40,000 2001-02 Rs. 72,40,000 2002-03 Rs. 72,40,000 2003-04 Rs. 72,40,000 The brief facts giving rise to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the relevant details about the club's activities, its collections, expenditure incurred etc. On the basis of these, the Assessing Officer came to the conclusion that the income of the club belonged to the assessee. Accordingly, he confronted the assessee with his conclusion. From the answers given by the assessee to questions 6 to 17 (extracted at pp. 17 and 18 of the assessment order for the assessment year 1999-2000), the Assessing Officer concluded that the assessee has earned net income of Rs. 10,000 per day which is the difference between the collection of Rs. 35,000 and the expenses of Rs. 15,000. He put forth his proposal to the assessee, proposing to adopt the yearly income at Rs. 73 lakhs and invited the assessee's objections. There was no response from the assessee. The Assessing Officer considered that the club would be open for 362 days excluding three national holidays and at the rate of Rs. 20,000 per day, would have earned an income of Rs. 72,40,000 per year. He included this amount as income of each of the five assessment years from 1999-2000 to 2003-04. 17. In respect of the assessment years 2000-01 to 2003-04, the assessee was found to be operating a card room ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statements it is clear that the management, administration and control of the personnel and the finances were exclusively with the assessee and he was thus the owner of the club. The Assessing Officer is right in holding so. (e)However, as regards the quantification of the income, it is based mainly on statements from kitty boys who may tend to overestimate their master's income figures. Though there were twenty tables, they may not be always full. Further, the business may not be uniform on all days and there could be adverse circumstances such as Hartals, Bandhs, etc., The high income estimated by the Assessing Officer is not reflected in the lifestyle, investments, conspicuous consumption of the assessee or in acquisition of gold jewellery, luxury cars, bank deposits etc. The CIT(A) therefore held that the financial assets found during the search would be a fair indication of the income from the club. He held that from what was found during the search as IVPs, cash, purchase of land, gold jewellery and investment in film production, an estimate of Rs. 9.5 lakhs (net) per year as income from the club would be a fair estimate. The CIT(A) supported his estimate by referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given any remuneration nor any share in the profit and that practically all the activities of the club are conducted and managed by the assessee. They are not aware of the income and expenditure of the club. The cashier has stated that the kitty boys hand over the cash to Rangaswamy at the close of the day with the slip containing the financial transactions of the day. The cashier was not maintaining the books of accounts and stated that only the assessee would be aware where they are kept. He confirmed that the daily collections range from Rs. 30,000 to Rs. 50,000 per day which is handed over to the assessee at the end of the day. The kitty boys also substantially confirmed the daily collections, giving details of each table, number of tables etc. Some of them gave details of collections per table, per hour, whereas others gave the figure of collections per hour for several tables. There are in all 341 members and guests are permitted with reference of members. Statements were also taken from the suppliers and cleaners. All these statements were put to the assessee and the relevant portions of the answers given by him are reproduced at pp. 17 and 18 of the assessment order for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 9.90 lakhs per year which he has further scaled down to Rs. 9.50 lakhs per year. We are of the opinion that the CIT(A) was not justified in doing so in the light of the admission of the assessee that his income would be Rs. 20,000 per day, which has been subsequently reduced by the assessee himself to Rs. 15,000 per day and Rs. 54 lakhs per year (answer to question No. 15 at p. 18 of the assessment order). It is no doubt trite law that an admission can be acted upon only if it is corroborated by evidence in material particulars. This condition is also satisfied in the present case because the assessee, who is in control of the Blue Club and is expected to know its affairs has admitted that the collections would be around Rs. 30,000 to Rs. 35,000 per day and the expenditure would be Rs. 15,000 to Rs. 20,000 per day, thus leaving a net income of Rs. 15,000 to Rs. 20,000 per day and this is also corroborated by the kitty boys. The assessee has not made any attempt, when confronted by the Assessing Officer to dispute these figures and the statements made by the kitty boys. Though he stated that he has maintained a ledger and day book, they were not produced before the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's lifestyle and acquisitions do not reflect the extent of income earned. For this reason, we are of the view that the argument of the CIT-Departmental Representative that where evidence for earning the income is on record, there is no case for examining how it was spent or invested, merits acceptance. 23. For the above reasons, we are unable to uphold the findings of the CIT(A) that the income from the club is to be assessed at Rs. 9.50 lakhs per year as against Rs. 72.40 lakhs per year assessed by the Assessing Officer. 24. Coming to the question of how much would be a fair estimate of the income from the club, it is seen that the Assessing Officer has taken the net income at Rs. 20,000 per day whereas the assessee has admitted, in answer to question No. 15 in the statement, that the average income would be Rs. 15,000 per day and Rs. 54 lakhs per year. We are inclined to be guided by the assessee's own admission for the reason stated in the earlier order. The assessee has produced a film titled Trin Trin'. He has also made investments in IVPs, land etc. However, he has not filed any returns of income at any time with the Income-tax Department. As per his own admission he de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was also reflected in the seized material. He stated that he has not maintained any day-book, ledger etc., but has maintained Katcha books and one bank account. He also identified the bunch of loose papers marked 'A/ANR/4-11' as expenditure vouchers related to the film production. Another opportunity was given to the assessee to explain the sources of the expenditure in film production which was not availed off. Hence the addition. Before the CIT(A) the assessee stated that the expenditure incurred was only Rs. 17,99,364 and that the Assessing Officer has taken several figures from the seized papers twice and thus was not justified in estimating the expenditure at Rs. 52,65,120. The CIT(A) observed that the assessee could not match the entries one to one and accordingly upheld the addition. 27. Before us, apart from the argument that the addition was not justified and should be telescoped into the other additions, it was also argued that there are several double additions. In our view, there is merit in the submission that the addition should be telescoped into the other income. We have already sustained an addition of Rs. 54 lakhs as club income and the card room income (subj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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