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TMI Blog2015 (7) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... we hold that the CIT(A) was not justified in sustaining the addition made by the Assessing Officer amounting to ₹ 16,83,500/- on account of unaccounted cash received by the assessee from Shri Rajendra S. Raka of M/s. Rajendra Trading Company. - Decided in favour of assessee. Disallowance on account of loss on account of forgery - Held that:- The assessee company is not authorised to carry on the business of hire purchase of vehicles as per Memorandum and Articles of Association. No steps have been taken to revise the Memorandum and Articles of Association following the Board Resolution dated 02-02-2009. The assessee purportedly rented out the cars on 25-02-2009 when the payment had not been made nor the physical ownership transferred to the assessee. No remedial measures have been taken to recover loss of ₹ 36 lakhs which is substantial amount. Not even a Police FIR has been registered by the assessee nor any criminal complaint filed against the suspect. The loss does not pertain to the impugned assessment year as the first instalment of ₹ 14,40,000/- was made through RTGS on 19-03-2009. Accordingly AO was justified in disallowing the loss claimed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed. 5. In grounds of appeal No.2 to 2.4 the assessee has challenged the order of the CIT(A) in confirming the addition of ₹ 16,83,500/- made by the Assessing Officer on account of receipt of cash of ₹ 16,83,500/- from M/s. Rajendra Trading Company. 6. Facts of the case, in brief, are that the assessee is Private Limited Company. A search action u/s.132 of the I.T. Act was conducted in the Malpani group of cases on 06-10-2009. Since warrant of authorisation u/s.132(4) of the I.T. Act was executed in the case of the assessee, the Assessing Officer issued notice u/s.153A of the I.T. Act which was duly served on the assessee. In response to the same, the assessee filed the return of income on 24-06-2010 disclosing total income of ₹ 2,31,00,278/- which is same as the income returned vide original return filed on 21-09-2009. During the course of assessment proceedings, the Assessing Officer noted that simultaneous search action u/s.132 of the I.T. Act was also carried out on 06-10-2010 at the business premises of Shri Rajendra S. Raka proprietor of M/s. Rajendra Trading Company at Malegaon Road, Satana, Nashik. The statement of Shri Rajendra S. Raka was record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of search action and no incriminating documents showing assessee s name has been found in his premises. Even during the survey in the assessee s premises no incriminating document was found. It was stated that initial statement given by Shri Rajendra S. Raka was totally incorrect and this fact was also clarified by him in the statement recorded u/s.131 on 27-01-2010. He has also mentioned that the original statement given u/s.132(4) was wrong and it was given due to misunderstanding of the questions and the panicky state of mind. 9. However, the Assessing Officer did not accept the same. He noted that during the course of search action on the business premises of Shri Rajendra S. Raka his statement u/s.132(4) was recorded on 06-10-2009 and he had confirmed that he has returned the total cash of ₹ 49,24,500/- to the assessee M/s. Fasttrack Packers Pvt. Ltd. which is not recorded in his books and that under the said arrangement an amount of ₹ 16,83,500/- has been returned to the assessee during A.Y. 2009-10 @ ₹ 500/- per bag for 3367 bags. The Assessing Officer therefore again confronted the assessee by issuing the final show cause notice. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing the same bags of Gai Chhap Jarda from Malpani Group's sister concern, M/s FastTrack Packers Pvt. Ltd. @ ₹ 1,850/ big i.e. at a lesser cost of @ ₹ 500/bag of Gai Chhap Jarda. 3) When confronted with the evidences gathered during the Search, Shri. Raka, dealer of M/s FastTrack Packers Pvt Ltd (a concern of Group) admitted in his sworn statement u/s 132(4), that this was H windfall gain for him in the form of enhanced profit of ₹ 500/bag of Gai Chhap Jarda, but it was a part of an arrangement between him and Malpani Group ( he being under their influence and control, being their dealer), wherein he was required to return this cash @ ₹ 500/bag to M/s. FastTrack Packers Pvt Ltd. 4) Vide question No. 10, 11, 12, 13 14 of the said statement dtd. 6/10/2009 recorded u/s 132(4), Shri Raka has confirmed that he has returned a total cash of ₹ 49,24,500/- to M/s Fasttrack Packers Pvt. Ltd. (FTPPL) which Is not recorded in his books. Accordingly, vide Q. No. 14, total cash returned to FTPPL under the said arrangement for A.Y. 2009- 10, has been worked out at ₹ 16,83,500/- @ 500/- per bag for 3,367 bags. 5) This admission on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee which was incorrect. Thus, from January 2009 onwards, the assessee availed the goods at discounted price of ₹ 1,850/- per bag from the assessee. It was accordingly stated that the assessee has not received any consideration over and above the amount of ₹ 1,850/- per bag as recorded in the books of the assessee. 13. The assessee further argued that the Assessing Officer has no where disputed that the sale price declared in the books of M/s. Rajendra Trading Company is under stated or that M/s. Rajendra Trading Company has received something over and above the sale price declared by it. All the sales made by M/s. Rajendra Trading Company have been made at a price of ₹ 2,350/- per bag. The assessment order of Shri Rajendra S. Raka for A.Y. 2009-10 was also brought to the notice of the CIT(A). 14. As regards the conclusion of the Assessing Officer that apart from purchase consideration of ₹ 1,850/- per bag stated in the books of M/s. Rajendra Trading Company, M/s. Rajendra Trading Company has made unaccounted payment of ₹ 500/- per bag to the assessee is concerned, it was stated that if the contention of the Assessing Officer is to be accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submitted that it is not in any way related to M/s. Sargam Retails Pvt. Ltd. Finally, it was argued that the statement of Shri Rajendra S. Raka may be relevant for deciding the case of Shri Rajendra S. Raka. However, on that basis no addition should be made in the case of the assessee in the absence of any incriminating evidence found as a result of the search. It was accordingly argued that no such addition should be made in the hands of the assessee. 16. However, the CIT(A) was not satisfied with the arguments advanced by the assessee. She held that the statement recorded u/s.132(4) has good evidentiary value. The initial reaction of the assessee during search action is to reveal the truth to avoid any hardship and inconvenience later. Therefore, unless it is proved from the record that the statement made by Shri Rajendra S. Raka on 06- 10-2009 was recorded under coercion or undue influence, the said statement is to be held as true and correct. Since there was no coercion, therefore, his statement that cash payments were made to the assessee @ ₹ 500/- per bag has to be accepted as true and correct statement. The main witness in this case Shri Rajendra S. Raka had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totally incorrect. She further noted that it is also an admitted fact that during the course of search on the premises of Sargam Retails Pvt. Ltd. at Sangamner the seized documents found during the search showed that Shri Rajendra S. Raka had paid ₹ 95/- per bag to Sargam Retails Pvt. Ltd. as per the MOU dated 12-10-2009 which has not been disclosed to the Department. This fact was also accepted by Sargam Retails Pvt. Ltd. who is the recipient. Shri Rajendra S. Raka has offered to disclose additional income on this account. She further noted that Sargam Retails Pvt. Ltd. which was the main business concern of the Malpani group has approached the Settlement Commission following the search admitting that unaccounted income had been generated through the modus operandi of cash receipts not recorded in the books of account. 19. She noted that in his statement recorded u/s.131 on 27-01-2010 Shri Rajendra S. Raka in response to Question No.6 has unequivocally mentioned about the payment of cash of ₹ 6.50 lakhs for the period April 2008 to December 2008 as per the cash collected on behalf of Malpani group on the sales made through him. Therefore, the entire modus operandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d through a mere retraction and rethinking unless evidence is brought on record that undue influence or coercion was applied at the time of recording the initial statement. Relying on various decisions the Ld.CIT(A) held that the retraction by Shri Rajendra S. Raka is not be relied upon and the totality of the facts and circumstances including the discovery of incriminating and uncontrovertible evidence during the course of search clearly show that the unaccounted cash received from M/s. Rajendra Trading Company, proprietor Shri Rajendra S. Raka of ₹ 16,83,500/- has been correctly assessed in the hands of the assessee. 22. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 23. The Ld. Counsel for the assessee strongly objected to the order of the CIT(A). He submitted that the assessee is in no way related to the Malpani group. The assessee is only packing the material and not the manufacturer. The search took place in the case of Shri Rajendra S. Raka on 06-10-2009. Simultaneous search also took place in the case of the assessee as well as in the case of Malpani group. The Malpani group has not stated anything against the assessee. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt u/s.132(4) is doubtful. He submitted that the assessee has to first explain as to why he gave such a statement stating that ₹ 500/- per bag has to be given to the assessee in cash when there was no threat or coercion. 26. So far as the argument of the Ld. Counsel for the assessee that assessee has got nothing to do with Malpani group, he submitted that nothing has been brought on record to substantiate that assessee is not related to the Malpani group. He submitted that the same sets of people are the Directors in both the companies. Further, when Sargam Retails Pvt. Ltd. was supplying the material at ₹ 2,350/- per bag, M/s.Fasttrack Packers Pvt. Ltd., all of a sudden started supplying the same goods at ₹ 1,850/- per bag. Therefore, there is no justification for such sudden fall in the rate unless the assessee is required to return equivalent cash amount. Referring to the order of the CIT(A) at Para 6.5 he submitted that the CIT(A) has given categorical finding that the Challan No.242 Bundle Z-2 dated 07-08- 2009 seized from the office of the assessee evidences payment of ₹ 12,16,387/- by M/s. Rajendra Trading Company which has not been recorded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alpani group had been disclosed before the Settlement Commisison and Shri Rajendra S. Raka was under the influence and control of the Malpani group. The possibility of such unaccounted payments made by Shri Rajendra S. Raka to the assessee could not be denied. It is also the observation of the CIT(A) that retraction of statement by Shri Rajendra S. Raka was only an after thought. It is the submission of the Ld. Counsel for the assessee that no incriminating material or evidence was found in the course of the search on the assessee that it had received ₹ 500/-per bag from M/s. Rajendra Trading Company and that the assessee is no way related to the Malpani group and therefore the modus operandi of the business transaction of the Malpani group unearthed during the search on the Malpani group had no bearing on the case of the assessee. It is also the case of the Ld. Counsel for the assessee that Shri Rajendra S. Raka had retracted from his statement recorded u/s.132(4), therefore, the Assessing Officer had no reason to place reliance on the statement recorded u/s.132(4). 29. We find some force in the arguments advanced by the Ld. Counsel for the assessee. Admittedly, Shri Raje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reflected in our books of accounts which are seized by the department. I have not paid any cash to Fast Track Packers (P) Ltd. or Mr. Sachin Palod. Q.7 You have already stated in your earlier statement that you have paid ₹ 49,24,500/- to Fasttrack Packers Private Limited. A.7 Since I was little tense at the time of search, and was not in possession of the accounts and seized documents from different premises, my replies were not totally as per facts. Earlier our gross margins were about ₹ 500/- per bag out of which ₹ 95/-per bag were collected on behalf of Malpani Group. I therefore wrongly multiplied the number of bags purchased by this gross margin and gave the answer. Please consider the fact that if I was returning entire gross margin to Malpani Group then why would I do such business where I won t earn anything. Seized books of accounts also has evidence that the sell bills are duly accounted then how I can collect such cash amount out of books? You can also verify my profit and loss account where such margin is already shown. I have not made any cash payments to Fasttrack Packers Private Limited. 30. As regards the observation of the Ld.CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in holding that the assessee has received unaccounted income in cash to the extent of ₹ 16.83,500/-. Therefore, we find merit in the submission of the Ld. Counsel for the assessee that when the assessee is no way related to the Malpani group and since Shri Rajendra S. Raka has retracted from his statement, though belatedly, and in absence of any corroborative evidence that the assessee has received cash of ₹ 500/- per bag for 3367 bags, therefore, no addition can be made in the hands of the assessee. 31. We further find merit in the submission of the Ld. Counsel for the assessee that when Shri Rajendra S. Raka has purchased the goods from the assessee @ ₹ 1,850/- per bag and sells the same at ₹ 2,350/- he makes profit of R.500/- only per bag, out of the same pays ₹ 95/- per bag to Sargam Retails Pvt. Ltd., as compensation and also pays income-tax on the profit. Therefore, there is no surplus to the extent of ₹ 500/- per bag to be given to the assessee. If the contention of the Assessing Officer is accepted, then Shri Rajendra S. Raka has to incur loss which no prudent businessman will do and it is against the theory of human probabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer held that the said loss is not an allowable expenses for the business purpose of the assessee. He therefore directed the assessee to substantiate the claim made by it. It was argued that the loss has occurred for the business purpose and therefore the same should be allowed as a deduction. The decision of Hon ble Bombay High Court in the case of CIT Vs. Sasoon J. David and Company reported in 146 ITR 390 was relied upon, according to which embezzlement of money by the Director is a business loan. 37. However, the Assessing Officer did not accept the above submission of the assessee. According to him, assessee had given advance of ₹ 36 lakhs for purchase of car to run on hire basis. The car is nothing but a capital asset and therefore this advance is in nature of capital asset. When the assessee has written off this amount to profit and loss account, its basic nature still remains and it is nothing but clearly a capital expenditure. Relying on the decision of the Hyderabad Bench of the Tribunal in the case of VST Industries Ltd. Vs. ACIT reported in 6 taxmann.com 86 where it has been held that to claim debt as bad debt and as a deduction it should be in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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