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TMI Blog2013 (6) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that deduction was claimed in respect of interest paid by partner on the capital withdrawn by the assessee for the purpose of investment in another firm. Interest paid to the partner must necessarily be added in the computation of his total business income. There is no provision made in the Act for deduction of interest paid by the partner to the firm. Hence, interest adjusted on the debit balance of the account of the partners in the books of a firm is not deductible while computing the income of the assessee. Interest paid on the debit balance of capital account by partner not for business purpose, cannot be allowed as business expenditure, though, interest income received from firm treated as business income. Further, we make it clear that in view of the judgment of jurisdictional High Court in the case of CIT Vs. T.V. Ramanaiah & Sons (1984 (10) TMI 20 - ANDHRA PRADESH High Court) wherein it was held that interest paid by the partner should be adjusted against the interest credited to the partners in the firm, if any. Accordingly, we direct the AO if there is any interest receipt and interest payment by the assessee to the same firm, to the extent it should be set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER Appellant by : Shri K. Sai Prasad Respondent by : Shri M. Ravindra Sai ORDER PER ASHA VIJAYARAGHAVAN, J.M.: All these appeals filed by the assessees and the revenue are having identical issues, therefore, the same were clubbed and heard together. Hence, we dispose them of by way of this consolidated order for the sake of convenience. First we deal with the appeals in the case of RAVINDER KUMAR Assessment Year Assessee s Appeal Department Appeal 2004-05 387/H/12 424/H/12 2005-06 388/H/12 425/H/12 2006-07 389/H/12 426/H/12 2007-08 93/H/12 427/H/12 2008-09 94/H/12 428/H/12 2009-10 95/H/12 429/H/12 2. The facts of the case are Operations u/s.132 of the Income Tax Act were conducted on 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come on the same. The total deposits in the 8 banks amounting to ₹ 9,32,32,836/- from the financial year 2003-04 to the date of search i.e. on 30.03.09. The assessee, Sri Ravinder Kumar offered an estimated income @ ₹ 46,61,642 at the rate of 5% for all the above years and admitting an amount of ₹ 46,61,642/- as his undisclosed income for the Assessment Years 2004-05 to 2009- 10. 6. In response to notices u/s.153A Sri ravinder Kumar declared the total deposits in the said 8 bank accounts amounting to ₹ 9,32,32,836/- (as per his admission dt.28.04.09) and cash sales of ₹ 1,96,27,108/- and the total amount being ₹ 11,28,59,944/- as his undisclosed turnover and offered 5% income on the same. 7. The next aspect is cash sales to the tune of ₹ 35,48,628/- effected in Bangalore Exhibition Sales, which were deposited in Sri Ravinder Kumar s bank account which had cash deposit facility anywhere in the country was later transferred by Sri Ravinder Kumar to the firms account books. This sale figure of ₹ 35,48,628/- was duly recorded in the books of Sri Jagadamba Pearl Dealers (the firm) much prior to the date of search. 8. The AO treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm M/s Sri Jagadamba Pealrs Dealer and not the appellant. 14. With respect of treatment of unaccounted turnover in the hands of Sri Jagadamba Pearl Dealers, the Ld. AR for the assessee submitted before the lower authorities that the issue is squarely covered by the order of ITAT based on earlier occasions when similar activities were carried on by Sri Ravinder Kumar and his brother. 15. Before the CIT(A) the Ld. AR submitted as follows to the observations made by the CIT(A): The CIT(A) observed that the bank account 8 in number were opened and operated by Mr. Ravinder Kumar as proprietary concerns and in none of the cases PAN was given. The transactions were manipulated by the group as a whole. Similar modus operandi was adopted earlier where bank accounts were opened and operated by two partners. In reply, the assessee has submitted as follows: Commissioner of Income Tax himself accepts that the bank account were opened and operated by Ravinder Kumar. Even the Bank account opening forms obtained by Assessing Officer indicate Ravinder Kumar as Proprietor. Unaccounted Bank accounts were operated by one partner only. Hence the allegation of manipulation by all p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) the affidavits are self serving and contradictory. The other partners on one hand said that they were unaware of such transactions (Bank accounts and deposits thereon) and on the other hand they proceeded to certify that the business in those Bank account belong to Ravinder Kumar, b) the lady partners are close family members, and CIT (A)) the affidavits are silent on any action taken against Ravinder Kumar, in reply, the assessee submitted as follows: This is not true. The partners were initially unaware of such transactions and after the Assessment Orders were passed treating the said deposits and cash sales as income of the firm Sri Jagadamba Pearl Dealers, the facts were explained to the other partners and immediately at the first opportunity i.e, before the first appeal proceedings they explained their stand. This is a fact and there is nothing to disbelieve or doubt this stand. It is humbly submitted, that the law does not prohibit the close family members as partners. Further as far as IT proceedings are concerned even the wife and husband are independent assessees and the provisions like 269SS and 269T do apply to them just like any other individuals. Hence an aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position on 28.04.2009 and the statement was filed by assessee on 27.04.2009 hence claim of the detection in the business premises is not correct. Kind attention is invited to the decision of the Gujarat High Court in the case of CIT Vs. President Industries 258 ITR 656 wherein it was held that contents of a statement should be accepted in full, but not in part. The Commissioner of Income Tax failed to bring on record any question raised by department on the date of search regarding any undisclosed turnover. 4) The order of the Income Tax Appellate Tribunal is based on facts and examination or record. 21. The Ld. AR for the assessee, further submitted as follows: Kind attention of the Hon ble Income Tax Appellate Tribunal is invited to page 49 of the paper book. The para 2 of the said page is part of earlier Income Tax Appellate Tribunal order in the case of Sri Jagadamba Pearl Dealers. In fact a plain reading of the said arguments rendered by the DR in that case show that none of the adverse features existing at that time like 1) cheques signed as partners (2) Bank account opened in the name of firm (3) Firm logo used in the invoices; (a) The unaccounted business was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed. Clause 8 reads as follows: a) It is agreed by and between the parties hereto that the following partners (herein after referred to as working partners ) shall devote their time and attention in the conduct of the affairs of the firm as the circumstances and business needs may require: 1. Ravinder Kumar 2. Kusum Lata 3. Anita 4. Avanish The total remuneration, bonus, commission payable to the working partners shall be worked out as per limit laid down by section 40(b) of the IT Act, 1961. Such total remuneration shall be paid to the working partners in the following manner: 1. Ravinder Kumar ₹ 10,000/- p.m. 2. Kusumlata ₹ 10,000/- p.m. 3. Anita ₹ 10,000/- p.m. 4. Avanish ₹ 10,000/- p.m. b) The remuneration payable to the working partners as above shall be credited to their respective accounts on ascertainment of book-profits. The partners shall be entitled to increase, reduce or waive the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... express or implied authority to do so by the firm. As of now no amendment to this clause brought to the notice of the Bench. As stated in Clause 16 of the Partnership Deed, partners of the assessee firm is governed by the Indian Partnership Act, 1932. Now we proceed to look at the provisions of Indian Partnership Act. 15. Application of the property of the firm: Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business. 26. Being so, if any partner use the property of the assessee firm, benefit derived from that property shall go to the common pool of the assessee firm, which is for the common advantage to all the partners. If any partner un-authorizedly carries on any business by using name and goodwill of the firm, profit derived from that business shall be the income of assessee s firm. Further, no partner is entitled to carry on any business which is in the nature of competing with the business of the assessee firm. The partners are jointly and severally responsible for any acts done by them though individually and jointly. If the partners carry on any business contrary to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 3.4 of his order for Asst Year 2009-10 in the case of Sri Jagadamba Pearl Dealers, the AO has estimated the profit at more than 100% in this line of business. This is erroneous and based on mere assumption and not supported by individual evidence. The Ld. Counsel relied on the following case law where it has been consistently held that to assess only net profit involved in the undisclosed turnover. S.No. Name of the case ITA No. Date of order Decision 1 Pahal Foods ITAT, Hyderabad 42/H/05 30.09.09 We direct the estimation of net income in respect of unaccounted turnover. 2 Rasna Foods (P) Ltd., ITAT, Hyderabad 114 TTJ 283 Only profit element can be subjected to tax and not the entire sale. 3 Ravi Foods (P) Ltd ITAT, Hyderabad 41/H/05 30.09.09 .And then estimate undisclosed income in relation to such unaccounted turnover adopting net profit @ 3.91% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Asst. Year 2006-07 reads as follows: The learned CIT(A) is not correct in disallowing the interest on housing loan amounting to ₹ 50,907/- 36. Since the issue was not pressed by the assessee it is dismissed as not pressed. 37. Ground No.2 for Asst. Year 2007-08, reads as follows: The CIT(A) is not correct in sustaining the addition made by the Assessing Officer on account of Gifts received by the appellant and credited to his capital account amounting to ₹ 1,27,202/- 38. The facts are that Ravinder Kumar claimed the credits in the capital account as two gifts of ₹ 50,000 and ₹ 77,202 from Sri Prakash Gupta and Smt. Santosh Gupta who are the paternal uncle and aunt of Sri Ravinder Kumar. The Assessing Officer made addition u/s.68 and CIT(A) sustained the addition even after evidence was filed in the form of affidavit from the donors. It was submitted by the Ld. Counsel that the credit in the capital account are through banking channels and are part of the Income Tax returns filed prior to search and hence to be deleted. It is also submitted the ITAT had accepted in the case of Ravinder Kumar similar case from other family members vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal balance and invested the same as his capital in another Partnership Firm whereby paying interest on the negative balance to one partnership firm and earning positive interest from the other Partnership Firm. Since the interest on capital is assessable as business income U/s.28(V) the net income was rightly offered to tax by the assessee and the lower authorities are totally unjustified in disallowing the interest paid to the first firm by invoking the provisions of section 14A. It is humbly submitted that the provisions of section 14A have no application because the interest paid was in relation to taxable income and not any exempted income. In this regard the appellant places reliance on the decision of the Mumbai SMC Bench in the case of Santosh Kumar Agarwal Vs. ACIT (78 ITD) 394. 43. We have heard both the parties and perused the material on record. In this case, the AO disallowed the interest paid to the firm M/s Sri Jagadamba Pearl Dealers and the excess drawings made by the assessee claimed as expenditure against the income. The assessee while furnishing the return of income has computed the net income under the head business and the said net income was shown to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee counsel pointed out that on 15.6.2009 a detailed letter was filed before the Deputy Director of Income Tax explaining that as on the date of search the books of Sri Jagadamba Pearl Dealers are incomplete and on completion of the same the cash available on the date of search relates to the book balance in the case of Sri Jagadamba Pearl Dealers. The Ld. Counsel also submitted that: It is humbly submitted that there is absolutely no inconsistency. The books of accounts, the returns speak for themselves. The Balance sheet and Schedules filed for Asst Year 2009-10 in the case of Sri Jagadamba Pearl Dealers clearly show the cash seized by the department duly accounted in the books of Sri Jagadamba Pearl Dealers (pages 81 to 95 of Paper Book). Further these books were taken in to consideration whilke completing the post search assessments. Hence the cash balance duly recorded in the books of Sri Jagadamba Pearl Dealers cannot be added in the hands of Ravinder Kumar without rejecting the books of Sri Jagadamba Pearl Dealers. 48. In these circumstances we remit this issue to the file of Assessing Officer to verify whether the cash balance has been recorded in the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are partly allowed. The departmental appeals being ITA Nos. 424 to 429/Hyd/12 in the case of Ravinder Kumar appeal are dismissed. SRI JAGADAMBA PEARL DEALERS Assessment Year Assessee s Appeal 2004-05 87/H/12 2005-06 88/H/12 2006-07 89/H/12 2007-08 90/H/12 2008-09 91/H/12 2009-10 92/H/12 Departmental appeal only for 2007-08 to 2009-10 Assessment Year Departmental Appeal 2007-08 368/H/12 2008-09 369/H/12 2009-10 370/H/12 54. Ground no.1 General in nature. 55. Ground no.2 for all years Validity of assessment u/s.153A of the IT Act. Since the ground is not being pressed by the assessee it is dismissed. 56. Ground no.3 is common for all years and interlinked to the issue of Rravinder Kumar. 57. We have heard both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, we are of the considered opinion that the plea of the assessee can be accepted only in part. The firm in which the assessee are partners has declared gross profit rate of 27.37%. The AO allowed a margin of 2.36% as expenses on this gross profit margin. The CIT(A) had allowed an expenditure of 4% in the place of 2.36% allowed by the AO. This has been accepted by the Revenue in that case. Thus, the gross profit estimated by the Department worked out to 27.37% minus 4%, i.e. 23.37%. We are of the considered view that this is a reasonable estimate and direct the AO to adopt the same. The grounds of the assessee on this aspect are allowed in part. 58. The above finding of the Tribunal for the block period in IT(SS)A No. 144/Hyd/02 and others in assessee s group cases vide order dated 21/09/2000 has reached finality. No contrary decision in assessee s own case has been produced before us. Being so, it will be appropriate to estimate the assessee s income on the basis of assessee s past record. Accordingly, we are of the opinion that the GP declared by the assessee in its regular books of account to be considered as yard-stick to determine the undisclosed income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parklane, Secunderabad, the business premises of M/s Spectrum Pearls Exports Pvt Ltd. certain loose sheets were found and seized as annexures A/JAG/CTC/O1 to 05. Among those, annexure A/JAG/CTC/04 was containing 120 loose sheets and few of such pages shown to be indicating certain details related to purchase of pearls and other Jewellery wherein the details such aas quantity, rate and total amounts. On the Initial query put to the appellant on 1.5.2009, it was replied by Mr. Ravinder Kumar, the Managing Partner of the firm, that he cannot readily explain the contents and requested for copies which were provided to him and subsequently he filed a letter dt.5.6.2009 wherein it was contended that papers do not pertain to the firm and are planted In the premises by their business rivals. On this plea, no explanation was offered by the appellant on the transactions recorded in the seized material. The Assessing Officer has quoted the provisions of sec.132(4A) as per which any books of accounts, documents or valuables found at the premises of the assessee are presumed to be belonging to the said party and the contents of such books/documents are presumed to be true. In the process, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re taken and sent to forensic lab by the Department and based on the report of the said laboratory, it was informed to them that the writings on the planted documents and the signatures collected from the employees are not one and the same. According to the assessee, the papers utilized by the Assessing Officer for making the additions are the papers received from Jaipur, Mumbai and other places and were written by the same person, who has written the other documents. It was also submitted that a complaint was lodged with Mahankali Police Station, Secunderabad. 65. In view of the lack of clarity, contradictory claims and to know the findings of the forensic lab reports on the genuineness of the documents, the CIT(A) referred the matter to the Assessing Officer requesting for full details on the subject matter along with the report on the complete facts. In response to the same, it was submitted by the Assessing Officer that the photocopies of the seized material were originally sent by the DDIT (Inv.), Unit-II(1), Hyderabad to the forensic laboratory and the forensic laboratory stated to have requested for original documents in the place of photocopies and the same are yet to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, were kept aside and not taken cognizance of. Under the circumstances, the case laws quoted by the Assessing Officer are distinguishable from the facts of this case and as such the ratios of the said decision cannot be the basis for making the additions ignoring the facts of the case. The facts emerged at the end of the investigation and assessment proceedings, are that the documents relied upon by the Investigation Authorities as well as assessing authorities were indeed doubted as regards to the genuineness of the claim of the appellant that they are the planted material in their premises by the business rivals as well as the contents of the said seized material and accordingly, these documents were referred for verification With the forensic lab and the report is very much underway at the time of completion of the assessment proceedings. 67. The CIT(A) observed that where certain documents/loose sheets are found In the course of search proceedings, the usual inference would be that such documents represent concealed transactions. But, it cannot be so readily inferred, unless such inference can be made positively on due verification. In matters of inference on facts, ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 DTR 241/146 TTJ 334 wherein it was held as under : 17. At this stage we are not able to consider the argument of the assessee s counsel regarding the planting of seized documents by his business rivals since there is no concrete evidence to suggest the placing of the seized material by third party. It is also fact that assessee has not at all taken any step as per law against the issue relating to planting of documents. Further, the contention of the assessee s counsel is that the department has not given an opportunity to cross examine the witnesses. The assessee is also having grievance regarding not considering the representation filed by the assessee on various occasions. 18. But the issue before us now remains is that whether the seized material A/GAR/05 can be the basis for addition of ₹ 2,55,50,000/- As seen from the above seized materials, these are just hand written loose documents. The Department got verified the handwriting of the seized material A/GAR/05 from the Govt. Examiner of Questioned Documents, Directorate of Forensic Science, Govt. of India who had given report that on comparison of the questioned documents and specimen writings of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of his claim. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. There is no conclusive presumption. In the present case, the assessee as well as the assessee s son and also assessee s brother Shri S.K. Agarwal categorically stated in every stage of examination and statement recorded u/s 132(1) or132 that the seized material A/GAR/05 is not at all belonged to them. In spite of this the assessing officer proceeded to conclude that these seized materials are conclusively belonged to the assessee. Leave alone the issue relating to authorship of the document seized and the findings of the GEQD, the Department should find out and establish the nexus of these seized materials to the assessee s business while concluding block assessment The assessing officer shall be specific about the nature of nexus of the seized material to the business of the assessee. The allegation of the Department is the seized material that reflected money lending business of the assessee. But they are notable to unearth any background with regard to the money lending business like loan agreement, promissory notes, security details, bank account receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of seized material A/GAR/05. In our opinion, no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material to show that the assessee has carried on money lending business. Noting on the note book/diary/loose sheets are required to be supported/ corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross examine the parties. In the present case, undoubtedly no statement from the parties whose names found in the note book/loose slips has been recorded and assessee such there is no question of cross examination of them and entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible. The evidence on record is not sufficient to support the revenue s case that huge money lending business has been carried on by the assessee outside the business of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us. It is needless to say that the evidence to be considered by the assessing officer for this block assessment is all the evidence on record found as result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. 71. In view of the above order of the Tribunal, we are of the opinion that no addition can be made solely on the basis of the seized unwritten note book/loose slips, which are dumb documents and the same were disowned by the assessee and there being no other corroborative material to show that the transaction reflected in seized loose slips actually belong to the assessee. Accordingly, deletion of addition by the CIT(A) is justified. Accordingly, this ground of appeal is allowed in assessee s case and dismissed in the case of revenue. 72. In the result, assessee s appeals being ITA Nos. 87 to 92/Hyd/12 are partly allowed and the revenue appeals being ITA Nos. 368 to 370/Hyd/12 are dismissed. 73. To sum up, the result of all the appeals under consideration are as follows: 1) The appeals being ITA Nos. 387 to 389/Hyd/12 filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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