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TMI Blog2003 (12) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... p with Nilesh Shah upto March, 1998 (i.e. cheque discounting), that Nilesh Shah used to bring cheques for discounting purposes from various parties and that he (Pankaj Patel) and his father (the assessee herein) used to discount them and make cash payment. To a question as to whether, in view of the provisions of s. 132(4), Pankaj Patel had any proof to show that the "hundies" do not belong to him or the assessee, he answered in the negative. However, he finally confirmed (in answer to question No. 8) that the "hundies" belonged to him and his father and that they were kept by him in the locker and further explanation would be given after discussing the matter with his father who was then in hospital. A copy of the statement is placed at pp. 48-52 of the paper book filed by the assessee. 2. In the course of the assessment proceedings, the AO recorded a statement from Nilesh Shah on 25th Dec., 2000, a copy of which is available at pp. 53-55 of the paper book. He stated as under: (a) That on the advice of the assessee's son he opened a current account with Dena Bank in which the assessee and his son used to deposit cash and that he (Nilesh Shah) used to issue cheques signed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "his unaccounted discounting business". In this connection, he referred to the statement of Nilesh Shah to that effect and noted that the assessee, despite opportunity, did not refute the statement. He therefore, concluded that the account (which was in the name of Vivek Enterprises) was fully under the control of the assessee. The total deposit and withdrawal (cash) in the account was Rs. 9.41 crores. Since the account was operated through Nilesh Shah, the AO estimated the income at a reduced rate of 0.25 per cent, which came to Rs. 2,35,250. This was added to the assessment. 6. The assessee challenged all the three additions in appeal before the CIT(A). The CIT(A) initially was of opinion that the AO had taken an inconsistent stand inasmuch as he (the AO) had accepted the statement of Nilesh Shah that he was acting only as a conduit in operating the account in Dena Bank in the name of Vivek Enterprises and estimated the income at Rs. 2,35,250 but rejected the statement insofar as Nilesh Shah had stated that he had signed the promissory notes ("hundies") only as a precaution and had not received any monies from the assessee. He, therefore, called for a remand report from the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count and take steps to bring to tax the appropriate income in their hands, if they are assessable in his charge, and also to pass on the information to the AOs concerned so that all the beneficiaries are brought to assessment. He noted that the bank account has not been used to discount cheques but for the purpose of giving accommodation entries to connected persons. 10. Both the assessee and the Department are in appeal. In the appeal filed by the assessee, two grounds have been taken: (1) Addition of Rs. 23 lakhs under ss. 69A and (2) disallowance of the bank interest of Rs. 92,460 and salaries of Rs. 1,34,968. In the appeal filed by the Department, objection is taken to (1) the estimate of the gross commission income from bill discounting activity at Rs. 2,80,159 @ 0.22 per cent as against 0.60 per cent as estimated by the AO and (2) the deletion of the addition of Rs. 2,35,250. Assessee's appeal: 11. In respect of the first ground, the following contentions were taken before us by the learned counsel for the assessee: (a) The "hundies" are dumb documents. They are in fact promissory notes. They do not satisfy the definition of holder in due course" according to s. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 lakhs is not assessable under s. 69A as amount advanced under the "hundies", it would be assessable as unexplained cash deposits in the Dena Bank account. It is pointed out that the assessee has not rebutted the statement of Nilesh Shah that deposits in the bank account came from the assessee despite opportunity and, therefore, the deposits, being unexplained, should be assessed. Attention is drawn to para 11 of the assessment order where there is a clear finding to the effect that the bank account was being used by the assessee for "his unaccounted discounting business". In support of this alternative contention, he relied on r. 11 of the Tribunal Rules, under which the respondent can support the order of the first appellate authority on a different ground. 13. On a careful consideration of the facts and rival contentions, we are of the view that no strong grounds have been made out by the IT authorities to make the addition of Rs. 23 lakhs on the basis that it represented advances made by the assessee against the "hundies". The statement of Nilesh Shah is clear in this regard. He has asserted that no monies were received by him from the assessee against the "hundies" execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any unexplained cash deposits into the bank account cannot exceed the amount of Rs. 23 lakhs in any case. Therefore, while accepting the alternative plea of the learned CIT (Departmental Representative), we restore the matter to the AO, who will examine this aspect of the matter and make additions for unexplained cash deposits into the bank account, if any, keeping in mind our directions given above. The method to be adopted while making the addition, if any, such as the peak method or any other appropriate method, is also left open for examination by the AO. He shall take a fresh decision on both the points as to whether any addition is called for and, if so, what is the method to be adopted to ascertain the quantum of addition in accordance with law and after giving adequate opportunity to the assessee. 16. The first ground is thus partly allowed, for statistical purposes. 17. As regards ground No. 2, we find that the CIT(A) has issued directions to the AO to verify the bank account and allow the interest if debited in the account. No further directions are considered necessary. With regard to the salaries, there is no evidence on record to support the claim and hence i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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