THE COMMISSIONER OF INCOME TAX v. M.N.KUNHIMOHAMMED

TRUE COPY OF THE HIGH COURT JUDGMENT IN THE CASE OF M/S.HOTEL MERIYA, PALA IN ITA NO.551 OF 2009 DATED 26.5.2010. ANNEXURE-F TRUE COPY OF STATEMENT GIVEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ON 11.10.2000. ANNEXURE-G TRUE COPY OF THE SWORN STATEMENT RECORDED FROM THE PETITIONER DATED 22.10.1998. RESPONDENT'S ANNEXURES:- -------------------------------------------- NIL. - true copy - C.N.Ramachandran Nair & K.Vinod Chandran, JJ. --------------------------------------- I.T.A.No.417 of 2010 --------------------------------------- Dated this, the 17th day of January, 2012 JUDGMENT K.Vinod Chandran,J. The Revenue is in appeal from the order of the Tribunal challenging the deletion of certain additions made by the assessing officer and confirmed by the first appellate authority in respect of the block assessment made against the assessee/respondent for the period 1989-90 to 1999-2000.

2. The brief facts leading to the above appeal necessary for the disposal of the same are as hereunder:

3. The residential premises of the assessee was searched under Section 132 of the Income Tax Act (for short “the Act”) on 22.10.1998 and notice under Section 158BC was issued. The notice being not complied with, subsequent notices were issued and ultimately the assessee filed return in From No.2B declaring a total undisclosed income of `.11,10,000/-. Pursuant to a notice under Section 143(2) dated 24.4.2000, the assessee also furnished cash flow statement for the block assessment years. The assessing officer verified the seized materials, written explanations, cash flow statements furnished and statements recorded and made a number I.TA.No.417 of 2010 - 2 - of additions in the respective years deeming the same to be the undisclosed income of the assessee. With respect to 4 properties, registered sale deeds were seized on search and the assessee having disclosed only `.35,550/- being the stamp paper and document charges, the total consideration of `.3,30,000/- was brought to tax as undisclosed income in the block assessment years 1993-94. Along with the same materials, another document seized as No.BJA-4, was relied on to make a further addition of `.15,65,563/- with respect to the purchase of various properties. Thus, an amount of `.18,95,563/- was brought to tax in the relevant assessment year being the amounts revealed in the four title deeds as also purchase of various other properties as allegedly revealed from BJA-4. An amount of `.20 lakhs, equivalent to 2 lakh Riyals, was brought to tax in the block assessment year 1997-98 relying on the statement under Section 132(4), an agreement of the year 1996 and certain diary entries. On the basis of the diary entries, a further amount of `.1,60,000/- was also brought to tax in the same year as rent received. Further, relying on the statement of the assessee an amount of `.50,000/- per year was brought to tax for the years 1991-92, 1992-93 and 1993-94 as brokerage received. An amount of `.6,28,000/- was also brought to tax as personal expenses estimated I.TA.No.417 of 2010 - 3 - for assessment years 1989-90 to 1999-2000; being the amount over and above that disclosed by the assessee for these years. One other document of S.R.O., Malappuram, in the name of the wife and children of the assessee, showing a value of `.3,92,000/- was also brought to tax for the assessment year 1997-98. The above six items of additions were the bone of contention in the instant appeal filed by the Revenue. As noticed earlier, the first appellate authority had confirmed all the above additions and the Tribunal deleted the same.

4. The Revenue would, in the above appeal, contend that the said additions made relying on the admissions made under Section 132(4) ought to have been sustained on the principles laid down in the judgment rendered by a Division Bench of this Court in CIT v. Hotel Meriya [(2011) 332 ITR 537].

5. Before considering the question of admissions made under Section 132(4), we would first consider the addition made with respect to the value disclosed in registered sale deeds seized on search. The addition of `.3,30,000/- was made with respect to four documents, bearing Nos.6757, 6758, 6759 and 6760 of 1992. The assessee having disclosed only the amount incurred for stamp paper and document charges contended that the payments with respect to the said properties though were made, was returned since I.TA.No.417 of 2010 - 4 - possession could not be taken over due to pending litigation regarding the ownership of the property. The assessing officer as well as the first appellate authority rejected the said contention of the assessee. The Tribunal, however, relying on confirmation letters from the vendors of the property, held that there was a dispute on the question of possession of the erstwhile properties and there was no actual handing over of possession of the property despite execution of the sale deed. The Tribunal proceeded on the premise that since the possession was not handed over, the assessee had to pursue legal remedies. On such reasoning, the Tribunal categorically found that the possession was not handed over and hence the explanation of the assessee is acceptable and deleted the addition made by the assessing officer, as confirmed by the first appellate authority.

6. We are unable to understand how the handing over of possession of property is relevant in treating the income as undisclosed income. The assessing officer has adopted the value as shown in the title deed for the purpose of computing the undisclosed income and the assessee has admitted to paying the same. The contention of the assessee was that the said amounts were returned by the vendors. Admittedly, the said amounts were not reflected in the cash flow statements. The assessee having categorically admitted to I.TA.No.417 of 2010 - 5 - the payment, those amounts definitely constitute “undisclosed income”, as no other source is revealed. With respect to the finding regarding legal remedies availed of by the assessee, the learned counsel for the respondent would produce before us an injunction order issued by the Sub Court, Thrissur on the application of strangers against the daughters of the assessee. The suit is seen to be of the year 1993. But however to a specific query made by us, the learned counsel for the assessee was not able to apprise us of the fate of the said suit. The addition of `.4,00,000/- made with respect to the investment in property at Tirurangadi in the name of the assessee's wife and children was also deleted by the Tribunal on similar findings of possession not being handed over. The Tribunal has proceeded on a totally wrong premise and has found that there is no consideration passed, despite clear recitals in the documents all of which are registered documents. The counsel for the assessee also would fairly concede that the said additions made on the basis of the recitals in registered documents cannot be contested by him in appeal. In such circumstances, on the findings rendered above as also the concession made by the learned counsel for the assessee, the deletion of `.3,30,000/- and `.4,00,000/- on the basis of the registered sale deeds is set aside and the assessing officer's order is I.TA.No.417 of 2010 - 6 - restored to that extent.

7. Despite the concession made by the learned counsel for the assessee, we are constrained to specifically enter a finding with respect to the said additions and reverse the order of the Tribunal, since the findings of the Tribunal disbelieving the recitals in registered deeds on the mere assertion of the assessee without any material was patently irregular.

8. The next addition, the deletion of which is challenged by the Revenue, is with respect to an amount of `.15,65,563/- made by the assessing officer for the block assessment year 1993-94 along with `.3,30,000/-. On a reading of the assessment order, specifically paragraphs 2 and 3, the assessing officer details the transaction and deeds with respect to `.3,30,000/- in paragraph 2 and while discussing the contentions of the assessee in paragraph 3, states that the seized material inventory item BJA-4 reveals purchase of various properties including those covered by the title deeds and makes a total addition of `.18,95,653/-. Reducing the amount of `.3,30,000/- from the said total, what remains is `.15,65,563/-. The said addition as is discernible from the assessment order is based on a document listing out certain accounts regarding the purchase of a property for the brother of the assessee. The assessing officer does I.TA.No.417 of 2010 - 7 - not specifically state as to which figure or property the addition related to, nor is anything discernible from the first appellate authority's order. The first appellate authority, in fact, notices that the additions made by the assessing officer and the figures in BJA-4 does not tally. The seized document, according to the first appellate authority, represents payment of amounts on behalf of the assessee's brother regarding joint purchase of the property, the investment of which has been disclosed by the assessee at `.20,50,000/- for the financial year 1993-94 in the cash flow statement. The non-availability of any material regarding the said addition and the vagueness of the discussion made by the assessing officer dissuade us from interfering with the order of the Tribunal regarding the deletion of the said addition.

9. What remains to be considered is the question regarding the evidentiary value of the statement made under Section 132(4) by the assessee; for making additions. The addition of `.20 lakhs and `.1,60,000/- for the block assessment year 1997-98, `.1,50,000/- being brokerage income for 1991-92, 1992-93 and 1993-94 and personal expenses estimated at `.6,28,000/- are all additions, which were made on the basis of statement recorded under Section 132(4). A Division Bench of this Court in C.I.T. v. Hotel I.TA.No.417 of 2010 - 8 - Meriya [(2011) 332 I.T.R. 537] considered the scope of a statement recorded under Section 132(4) and found that such statement recorded by the officer as well as the documents seized would come within the purview of evidence under Section 158(BB) of the Income Tax Act read with Section 3 of the Evidence Act and Section 131 of the Income Tax Act. Based on the above finding, it was also held that such evidence would be admissible for the purpose of block assessments too. The explanation to Section 132(4) of the Income Tax Act was also noticed by the Division Bench to further emphasise that the evidence so collected would be relevant in all purposes connected with any proceedings of the Income Tax Act.

10. The Tribunal's finding that no additions can be made on the basis of statement recorded under Section 132(4) without any supporting material, hence, cannot be a proposition of law for all situations. What is to be looked into is the effect and the gravity of the admissions made under Section 132(4) of the Act, seized documents and attendant circumstances. We will first consider the deletion of `.21,60,000/- made in block assessment year 1997-98. It is seen from the order of the assessing officer as also the first appellate authority that the assessee in the statement recorded during the course of search narrated that he had handed over 2 lakhs Saudi I.TA.No.417 of 2010 - 9 - Riyals to Sri.Hassan Haji in pursuance of an agreement. It is true that this constituted a clear admission by the assessee under Section 132 (4) of the Act. However, the assessee's contention was that the documents would reveal otherwise. The Tribunal noticed that the agreement dated 14.8.1996 seized from the premises of the assessee would show that the share of the investment of the assessee along with one another person was only to the extent of

1.75 lakh Riyals and towards this share, being 25% of the total amount, only one lakh Riyals was paid. This contention is further fortified by the notings made by the assessee in a diary dated August 12, 1996 that “Hassan Haji has to give 2 lakh Riyals in respect of the hospital” (sic). The agreement dated 14.8.1996 was with respect to a partnership in a “Poly Clinic” and the first party to the agreement Mangalasserry Hassan Haji, as per the agreement, was to pay 2 lakh Riyals. In such circumstances of the assessee's contention having been proved on the strength of documents, the Tribunal found that the addition could be made only to the extent of the investment of the assessee in accordance with the agreement, supported by the diary notings, both seized documents. The Tribunal on facts found that only an amount of 50,000 Riyals could be taken as the assessee's share. The addition of `.1,60,000/- as “rent” was also found to be not paid or I.TA.No.417 of 2010 - 10 - received by the assessee as per the seized materials. The Tribunal having found that on facts and on the basis of the recitals in the seized materials that the additions can be confirmed only with respect to `.5,00,000/- for the relevant year, we are not inclined to interfere with the same.

11. Now we come to the issue of brokerage and personal expenses estimated by the assessing officer on the basis of statement recorded under Section 132(4). During assessment proceedings, on a query regarding the disclosure of the income in the block return, the assessee admitted that he used to receive `.50,000/- annually from brokerage activity, but however with a gap of 1 or 2 years. It was noticed by the assessing officer that in the block period from 1994-95 onwards the assessee had disclosed an amount of `.1,00,000/- as income from brokerage activity. Hence, taking into account the assessee's admission about receipt of `.50,000/- annually, but with occasional gaps, the assessing officer excluded the first 2 years of the block period and estimated a total amount of `.1,50,000/- for the years 1991-92 to 1993-94 at the rate of `.50,000/- each year. The assessing officer also estimated the personal expenses of the assessee for all the assessment years in the block period relying on the statement made by the assessee that the I.TA.No.417 of 2010 - 11 - personal expenses would come to `.10,000/- monthly. The Tribunal deleted both the estimations on the ground that there is no seized material to substantiate the additions.

12. The learned counsel for the assessee would contend before us that the estimation on account of brokerage income as also personal expenses is a mere guess work and the income on brokerage as also the personal expenses declared by the assessee should have been adopted by the assessing officer. In this context, the admission of the assessee acquires significance. True that the assessee had disclosed brokerage income from 1994-95 at `.1,00,000/-, however, the assessee's clear assertion was that he used to receive `.50,000/- annually as brokerage income with a gap of 1 or 2 years. Considering the fact that the assessee was answering specific queries made with respect to the block period, there was no explanation offered for not showing any brokerage income for assessments prior to 1994-95. It was in this circumstance that the assessing officer made an addition of `.50,000/- each for the years 1991-92 to 1993-94 without making any addition in the first two years of the block period. The estimation made by the assessing officer cannot be said to be a mere guess work, since the same is based on clear admissions and in consonance with the admission. I.TA.No.417 of 2010 - 12 -

13. Regarding personal expenses, the learned counsel for the assessee would bring to our notice that the statement made under Section 132(4) was in the financial year 1997-98 and the assessing officer ought to have adopted the drawings disclosed by the assessee for all the other years. It is pertinent to notice from paragraph 13 of the assessment order that even for the assessment year 1998-99, the personal expenses for the year shown in the cash flow statement is only `.78,000/-, far below to that of the admission made under Section 132(4). The assessing officer also has not adopted the amount admitted by the assessee for all the years while estimating the personal expenses at `.1,00,000/- in the assessment years 1989-90 to 1992-93 and `.1,20,000/- in the years 1993-94 to 1998-99. The assessing officer confined it to `.60,000/- for the period assessed in the year 1999-2000. The assessing officer would rely on attendant circumstances like the living standard of the assessee as is revealed from a residential house of 5200 sq.ft. with an Out-house, foreign made cars and so on and so forth. The estimate made by the assessing officer on this count also cannot be said to be unreasonable and the deletion of the said additions by the Tribunal is found to be unsustainable. I.TA.No.417 of 2010 - 13 -

14. In the circumstances - (i) We refuse to answer the first question of law raised by the Revenue regarding the principles of deletion of additions laid down by this Court in Annexure-E decision, since the said principles need no reiteration and the deletions have to be considered independently based on the said principles. (ii) The question of law regarding the addition of sale consideration of `.18,95,563/- (wrongly noted as `.18,60,063/- in page 6 of the memorandum) is answered in favour of the Revenue only to the extent of `.3,30,000/- being the amounts disclosed by way of registered sale deeds. The deletion of `.15,56,563/- made by the Tribunal is sustained. Thus, we answer the question partly in favour of the Revenue and partly in favour of the assessee. (iii) The third question raised regarding the deletion of `.15,00,000/- and `.1,60,000/- for the year 1997-98 is sustained and we refuse to interfere, since no question of law arises from the issue as the Tribunal has decided the same on the basis of the materials seized on search. (iv) The deletion of `.1,50,000/- for the assessment years 1991-92 to 1993-94 on account of brokerage income and the deletion of personal expenses for the block period estimated by the assessing I.TA.No.417 of 2010 - 14 - officer is set aside, restoring the order of the assessing officer, as confirmed by the first appellate authority, finding the same to be reasonable and on the basis of the clear admissions made by the assessee. (v) The deletion of investment of `.4,00,000/- with respect to property purchased in the name of the assessee's wife and children is also set aside as the same is based on the recitals in a registered document and assessing officer's order is restored on that count answering the question of law in favour of the Revenue and against the assessee. The appeal filed by the Revenue is partly allowed as noticed above with no order as to costs. Sd/- C.N.Ramachandran Nair Judge Sd/- K.Vinod Chandran Judge. vku/- - true copy -