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TMI Blog2015 (5) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer has not rejected the assessee’s explanation that he was operating the bank account concerned as a benamidar of Sunil Shah, a director of Vam Artex, but yet held taxability of income in the hands of the assessee that the assessee could not having been doing so without a consideration. As a corollary to the approach so adopted by the Assessing Officer, at best hawala commission could have been brought to tax in the hands of the assessee and not the entire amount of bank on account of alleged bogus purchases. However, the Assessing Officer has added entire bank credit as income of the assesse, which, by no stretch of logic, could be added to the income of the assessee on the basis of findings so far. There is thus an inherent contradiction in the approach of the Assessing Officer. In any case, there is nothing more than an allegation of embezzlement by the assessee and such allegations, by itself, cannot be legally sustainable foundation for the addition being made in the hands of the assessee. - Decided in favour of assesse. - I.T.A. Nos. 1710, 1711, 1712, 1713, 406, 407 and 408/Ahd/06 - - - Dated:- 30-4-2015 - Pramod Kumar AM And S. S. Godara, JM,JJ. For the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osited in their bank accounts. Later on as reflected in the bank account, cash was withdrawn and possible given back to Shri Sunil Shah, Director of the company, Vam Airtex Pvt. Ltd. This modus-operandi has been admitted by Shri Ketan Thakkar in his statement on oath. Shri Ketan Thakkar used to look after the tax matters of the company before he left the company. H K Enterprise, proprietary concerns of Shri Ketan Thakkar, HUF was one of the concerns which accommodated Vam Airtex Limited to reduce its tax incidence by showing that purchases were made from it in the books of the company. It has been found that Vam Airtex Pvt. Ltd. Has debited excess purchases from 1993-94 to 1996-97 as under :- 1993-94 - ₹ 2335668/- 1994-95 - ₹ 3441606/- 1995-96 - ₹ 3119500/- 1996-97 - ₹ 4781800/- The case of Shri Ketan B. Thakkar, HUF need to be taken up for scrutiny to tax only that portion of income which arises out of the sales independent of the sales made to Vam Airtex Pvt. Ltd. since the sales made to Vam Airtex Pvt. Ltd. are non-genuine in nature. In the course of the above proceedings, Shri Sunil Shah stated that Shri Ketan Thakkar used to siphon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales. After through enquiry by the DDIT, the following facts were noticed. a. That the company had debited bogus purchases in the books thereby suppressed profit, appears to be largely true. b. That the concerns run and managed by the employees/associates, bogus purchases were debited in the books of VAM Air Tex Pvt. Ltd. were not filing returns of income. c. That the few concerns were created to rout unaccounted sales of car Air conditioners manufactured/assembled by VAM Air Tex Pvt. Ltd. The DDIT (Inv.) had recorded statements of K.B. Thakkar during the course of inquiry proceedings and came to the conclusion that employees/close associate of the company were accommodating the company in debiting bogus purchases in their names. The modus operandi adopted by VAM Air Tex Pvt. Ltd. was inflating the purchases to reduce its tax liability, payments were made by VAM against bogus purchases which were deposited in the bank account of Ketan B. Thakkar, HUF, Account No.2202 in General Co. Op. Bank. In the light of the inquiry proceedings conducted by the D.D.I.T. (Investigation) Ahmedabad the assessments of VAM Air Tex Private Limited and Ketan B. Thakkar, HUF was reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited in this bank account not be treated as income of the assessee, particularly as not only the account was owned by the assessee it was also operated by the assessee. In response to this show cause notice, the assessee explained that the assessee was only a benamidar of Sunil V Shah, Director of Vam Airtex Pvt Ltd, through the account no. 2202 of General Cooperative Bank Limited which was operated by him but never belonged to him. It was submitted that H K Enterprises, in which name this account was opened by the assessee as sole proprietor, was one of the sister concerns managed by Shri Sunil V Shah. It was also explained that cash withdrawn from the said account was duly handed over to Shri Sunil V Shah. The assessee further pointed out that these transactions were spread over a period of seven years and it is contrary to the preponderance of probabilities that a person will go on issuing the cheques, without any consideration, for such a long period. On a consideration of all these submissions and on a perusal of material on record, the Assessing Officer held that while assessee may have been in employment with Vam Airtex only for a few months in 1985, the assessee himself acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Lalji Haridas vs. CIT (1961) 43 ITR 387 (SC) [Per Gajendragadkar J) has clearly held that protective assessment can be made only if there is doubt in respect of ownership of receipts in question. They should be either belong to A or B. If the receipts belong to A, then the substantive addition should be made in the case of A. If there is a doubt, it can be made on protective basis in the case of B. In the present case under consideration, it is seen from the records that substantive addition has been made in the case of Vam Airtex Pvt. Ltd. This addition has been confirmed by the Ld. CIT(A)-XIV, Ahmedabad in his orders referred to above. Recently, the Hon. ITAT, Ahmedabad Bench in their consolidated order dtd. 11.11.2005 (supra) have set aside the addition made on substantive basis only on a technical ground that there has been violation of principle of natural justice in as much as statement recorded of Shri Sunil Shah and Ketan Thakkar were not furnished. On merits, the Hon. ITAT has approved the reopening of the assessments for all the years i.e. from A.Yr. 1990-91 to 1998-99 as Shri Sunil Shah had indulged in debiting bogus purchase through sister concerns. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner. The aforesaid abundant caution on the part of a quasi judicial authority has been reiterated by the Hon ble Supreme Court (Per H.R. Khanna J at pp 10) in Parushuram Pottery Works Company Ltd. v/s. ITO (1977) 106 ITR 1 (SC), a judgement delivered by a Bench of 2 judges. It is true that every Assessing Officer is expected to be well-versed in law and accounts. It has been said that the taxes are the price we pay for civilisation. If so, it is essential that those who are entrusted with the task of calculating and realising the price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject .... (vi) It would be worthwhile mentioning here that a critical analysis of the aforesaid two judicial pronouncements referred to in 105 ITR 212 (SC) (Supra) and 106 ITR 1 (SC) (Supra) shows that the abundant caution given to a quasi judicial authority like the Assessing Officer is in the nature of judicial obiter dicta. The Supreme Court of India being the Apex Court of the land, not only ratio decidendi but also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was in this context that Their Lordships observed as follows: ..It is the settled law that where there is doubt or ambiguity about real entity in whose hands a particular income is to be assessed, the assessing authority is entitled to take recourse to making protective assessment in the case of one and regular assessment in the case of other. ..In Jagannath Hanumanbux vs. ITO (1957) 31 ITR 603 (Cal), Calcutta High Court held that it is open to the Department to make assessments on two persons in respect of the same income, where it is doubtful which assessee is really liable to charge, because unless such `protective' or `alternate' assessment is made, assessment proceedings against the party ultimately found to be liable may become time barred; but the Department cannot recover the tax from both the assessees in respect of the same income. We are in respectful agreement. 12. Quite clearly, therefore, the protective assessment of an income can be made when, in the opinion of the Assessing Officer, an income has definitely arisen in a particular assessment year but there is any doubt about the entity in whose income is to be brought to tax. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can only be allowed when embezzlement has actually taken place and someone has benefited from such an embezzlement. As principle of conservatism essentially requires, a deduction in respect of reasonably anticipated loss, which can be quantified on a scientific basis, can be allowed as deduction even before such a loss has actually taken place. In such a situation, while the loss on account of embezzlement can indeed be allowed as a deduction, there cannot be an occasion for corresponding benefit to anyone. This dichotomy arises due to timing difference in a deduction being allowed and in corresponding income, even if any, being brought to tax in the hands of the beneficiary. There cannot, therefore, be any legally sustainable protective additions in the hands of an assessee on the basis of a corresponding substantive disallowance being made to the income of another assessee. 16. On the facts of this case, it is also an incorrect assumption that in the event of embezzlement having actually taken place in Vam Airtex, the corresponding income must belong to this assessee. Even if one is to reach a conclusion that embezzlement has taken place in Vam Airtex, the assessee is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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