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Commissioner Of Income Tax, Delhi ??? Xi Vs. Anil Khandelwal
May, 06th 2015
%                                              DECIDED ON: 21.04.2015

+                  ITA 247/2015 & ITA 248/2015
                  Through: Mr. Arjun Harkauli, Advocate.


      ANIL KHANDELWAL                                      ..... Respondent
                  Through: None.


      1.     The Revenue is aggrieved by an order of the Income Tax
      Appellate Tribunal (`ITAT') dated 18.07.2014 in ITA Nos.5516-
      5517/Del/2012. Its grievance - urged as a question of law - is against
      the ITAT's confirmation of the CIT (A)'s order cancelling the
      inclusion of `27 lakhs (for AY 2006-07) and `1,14,80,000/- (for AY
      2007-08) in ITA Nos.5516-5517/Del//2012.
      2.     A search and seizure action was conducted on 12.12.2006 at the
      business and residential premises of Shri S.K. Gupta along with other
      concerns. Similar search action was conducted in respect of
      companies and other business entities which were controlled by him
      or owned by him or different individuals connected with him. The
      assessee was one such individual. He was issued with notice under

ITA247&248/2015                                                        Page 1
      Section 153A of the Income Tax Act, 1961 on 24.10.2008. The
      assessee had filed return of income on 5.11.2008 showing
      `1,82,556/-. In further proceedings under Section 143 (3) read with
      Section 153A, it was asked to respond to a questionnaire dated
      7.11.2008 in regard to the transactions concerning his family
      members and concerns with which they were connected. The AO
      specifically confronted the assessee with extracts of certain
      documents, i.e., Annexure A-1 of party A-5 seized during the course
      of search of S.K. Group in the New Asiatic Building, Connaught
      Place, New Delhi. The assessee's replies were not accepted resulting
      in addition to the extent noticed in the earlier part of the judgment.
      The assessee preferred appeals [to the CIT (A)]. After considering
      the submissions, the said Commissioner accepted the assessee's
      contentions and directed that the amounts sought to be brought to tax
      by the AO ought to be deleted. The revenue's appeals were rejected
      by the ITAT through the impugned order.
      3.     The ITAT took note of the reasoning of the CIT (A) as well as
      various Supreme Court decisions on the question as to whether the
      principle of natural justice had been complied with. It secondly went
      into the question as to whether the inference drawn on the basis of the
      materials seized was sustainable. Confirming the reasoning of the
      CIT (A) in paragraph 2.2 of the appellate order, the ITAT held as
      follows: -
                   "7. We have heard the rival submissions and perused the
                   material available on record. On a consideration of the
                   same, we find that the arguments of the Ld. CIT DR have
                   no merit. We find that the specific questions put to Sh.

ITA247&248/2015                                                         Page 2
                   S.K.Gupta extracted in the impugned order during the
                   cross-examination cannot be termed to be vague where
                   full facts have not come out. A perusal of the same shows
                   that consistently Sh. S.K.Gupta states that no money has
                   been received or paid by him relatable to the annexures
                   shown. The other objection of the Ld. CIT DR that the
                   questions put forth in the cross-examination specifically
                   question 14 & 15 were also vague. We find that the
                   arguments of the Ld. AR that these are the extracts of the
                   statement of Sh.S.K.Gupta recorded at the time of the
                   search are correct and the Ld. CIT DR is mistaken in her
                   arguments to contend that the questions No-14 & 15
                   extracted in the impugned order are vague questions put
                   forth during the cross examination. It is seen that the
                   assessee in both the years has filed a Paper Books
                   running into 71 pages and 87 pages respectively and
                   none of the parties have considered it necessary or
                   expedient to refer to any document or fact therein."

             It further held as follows: -

                   "7.1. We find that no evidence has been placed before us
                   nor any cogent argument has been raised before us so as
                   to show that on facts the view taken by the CIT(A) was
                   not correct. In the absence of any specific infirmity in the
                   impugned order or reliance placed upon any evidence
                   upsetting the view taken, we find that the department has
                   failed to offer any meaningful argument in support of its
                   claim. No reasons which can be legally accepted so as to
                   remand the matter have also been placed before us. Thus
                   in the light of the arguments advanced before us being
                   satisfied by the reasoning and finding arrived at in the
                   impugned order, we are of the view that the departmental
                   appeal has no merit. We further find that the finding
                   arrived at in the impugned order is fortified by the
                   principle laid down in the judgement of the Hon'ble
                   Bombay High Court in the case of ACIT vs Lata

ITA247&248/2015                                                          Page 3
                   Mangeshkar (1973) 97 ITR 696 (Bom.). A perusal of the
                   same shows that in the facts of that case reliance placed
                   by the Revenue on the statement of two witnesses was
                   considered to be not relevant for making an addition in
                   the hands of the assessee therein. It is seen that whereas
                   one of the witnesses was considered to be a person who
                   could not have any knowledge the other witness who
                   though was a partner in the concerned firm had given a
                   statement that he had made payments to the singer in
                   "black". Their Lordships were pleased to observe in the
                   facts of that case that the statement at best could arouse
                   suspicion but suspicion could not take place of proof and
                   in the absence of proof, the statement was discarded. We
                   also find that the order of the Coordinate Bench dated
                   07.02.2013 relied upon by the assessee in DCIT vs
                   Yashpal Narendra Kumar in ITA NO-5340 to
                   5342/De1/2012 also supports the case of the assessee
                   fully. The Co-ordinate Bench therein held that addition
                   on the basis of statement of the third party without any
                   corroborative evidence is not tenable."

      4.     Learned counsel for the Revenue submits that given the nature
      of the materials seized from Shri S.K. Gupta, findings of the AO with
      regard to the addition under Section 69 were warranted. He also
      submitted that the recourse to presumption by the AO under Section
      132 (4A) and Section 292C was in the circumstances valid and that
      both the CIT (A) and ITAT fell into error in holding that such
      inference could not have been drawn. It was submitted that the AO
      correctly deduced that the assessee's replies were evasive and
      unreliable given the determination that he was a friend of Shri S.K.
      Gupta whose premises were in the first instance searched. It was
      also submitted that the damaging material in the form of three pages

ITA247&248/2015                                                        Page 4
      of handwritten ledger extract clearly indicated the assessee's name
      and of the group companies and the inference drawn was, therefore,
      justified. Furthermore, given that Shri S.K. Gupta had admittedly
      indulged in furnishing accommodation entries, the assessee's
      explanation could not have been accepted.
      5.     This Court has considered the submissions and the record. It is
      quite evident that what materially persuaded the AO to make the
      addition were the extracts from documents - in the form of
      handwritten ledger entries seized from Shri S.K. Gupta.          These
      mentioned Shri Khandelwal's name as against which certain amounts
      were indicated. The other material was the statement of Shri S.K.
      Gupta recorded on 13.12.2006. Shri S.K. Gupta was further examined
      on 5.4.2011. The AO took recourse to the presumption permissible
      under Section 132 (4A) on the basis of these two statements. It is a
      matter of the record - duly noted by the CIT (A) as well as ITAT that
      the three companies or business concerns whose monies were
      supposed to have been reflected in the handwritten ledgers (Bondwell
      Insurance Brokers, E-Synergy Infosystems Pvt. Ltd. and Paradigm
      Advertising) were all concerns in which the assessee's family
      members or relatives were alleged to have been interested.     The CIT
      (A) after considering these materials and elaborately discussing the
      submissions, held as follows:-
                   "2.3 I have carefully considered the facts of the case, the
                   arguments of the appellant and the position of law. The
                   AO has made the impugned addition on the basis of
                   documents found and seized from Shri S. K Gupta, a
                   third party. His primary reasoning is that in these papers

ITA247&248/2015                                                         Page 5
                  there are intelligible narrations signifying payments of
                  cash on various dates by appellant to various group
                  companies of Shri S.K.Gupta, who have issued
                  accommodation entries for investment in the companies
                  in which the appellant and his relatives are interested.
                  The appellant on the other hand has contended that no
                  presumption is available to the Assessing Officer u/s
                  132(4A)/292C of the IT Act with regard to the impugned
                  seized documents as they were neither found and seized
                  from the appellant nor do they belong to the appellant.
                  Further, the appellant has also contended that despite a
                  simultaneous search operation in the case of the
                  appellant, no evidence whatsoever has been found which
                  correlates with the impugned seized documents found
                  from the premises of Shri S. K. Gupta ,a third party. The
                  appellant has also taken the ground that Shri S. K. Gupta
                  himself had denied the authorship/ ownership of the
                  impugned documents during his statement on 13/12/2006
                  and reiterated the same even during his cross
                  examination by the appellant before the AO on
                  05/04/2012. The appellant has also taken the ground that
                  since Shri S. K. Gupta, during his cross examination by
                  the appellant before the AO, has categorically denied
                  having any transactions in cash with the appellant or his
                  family members, companies or entities owned by him or
                  them, the impugned addition made by the AO is based on
                  no evidence but on presumptions, conjectures and
                  surmises. I have perused copies of the statement of Shri
                  S. K. Gupta recorded during the search operation on
                  13/02/2006 as well as the Cross- examination statement
                  of Shri S. K. Gupta dated 05/04/2011 which was
                  forwarded by the AO without any comments vide his
                  remand report dated 02.11.2011 in respect of
                  A.Y.2007-08. It is seen from these statements that Shri .S.
                  K. Gupta has denied having authored the impugned
                  seized material and has also denied that they are part of
                  his books of accounts. He has also denied having made
                  any cash transactions with the appellant or his family

ITA247&248/2015                                                        Page 6
                   members or entities owned by them and has also denied
                   having received any commission for the alleged
                   accommodation entries given to such entities belonging
                   to the appellant or his family members."

      Thereafter the CIT (A) extracted the relevant parts of the statement of
      Shri S.K. Gupta specifically with respect to the entries which were
      attributed to the assessee. When asked about them, in response to
      question nos.13 and 14, Shri S.K. Gupta stated that he did not know
      "about these rough books and how they are lying in my office
      premises". He further stated that "these books may be rough entries
      of daily entries as shown to me in detail of our group companies and
      enter transfer and deposits". In his cross examination on 5.4.2011, he
      denied the authorship of Annexure A-5 which specifically stated that
      he had not given or taken cash from the assessee and his office. He
      also denied having received or paid any commission. He claimed to
      know two or three other individuals bearing the name of the assessee,
      i.e., Shri Anil Khandelwal who belongs to his native place.
      Furthermore, he claimed that he never received or paid any cash to
      the assessee or those connected with him. In the light of these, the
      CIT (A) held as follows: -
             "2.3.1 A perusal of the above extracts clearly indicates that in
             the absence of any corroborative evidence found during the
             search at the premises of the appellant, no adverse inference
             can be drawn against the appellant merely on the basis of the
             seized documents as found and seized from the premises of the
             third party. As has been held in a number of judicial
             pronouncements relied on by the appellant and extracted in
             para 2.2.2 hereinabove, presumption u/s 134(4A)/292C is
             available only in the case of the person from whose possession

ITA247&248/2015                                                         Page 7
             and control the documents are found and it is not available in
             respect of a third party. Even in the case of such a person from
             whose possession and control any incriminating document is
             found, the presumption u/s 132(4A)/292C is a rebuttable one.
             Since in the case of the appellant, no corroborative documents
             or evidence has been found from the control or possession of
             the appellant, I hold that the legal presumption as incorporated
             u/s 132(4A)/292C will not be available to the Assessing Officer
             in the appellant's case.

             2.3.2. Further, the appellant has also denied the contents of the
             impugned seized documents and the person from whom the
             impugned documents were seized has also stated during
             cross-examination that there has been no cash transactions
             between him and the appellant or his family members or
             entities in which they are interested. The AO has heavily
             emphasized on the fact that Shri S.K.Gupta was an entry
             provider and since the names of the companies in which the
             appellant's family members or relatives were interested was
             found mentioned in the document seized from Shri S.K.Gupta, it
             is enough to conclude that the appellant must have paid cash to
             Shri Gupta to receive accommodation entries from his group
             companies. I am afraid, I cannot concur with such logic in the
             absence any corroborative evidence to suggest that the entries
             found in the seized documents were also reflected in the books
             of the appellant or his concerns. It is well settled in law that the
             loose papers, diaries and documents cannot possible be
             construed as books of account regularly kept in the course of
             business. Such evidence would, therefore, be outside the
             purview of Section 34 of the Evidence Act, 1972. Therefore, the
             revenue would not be justified in resting its case just on the
             loose papers and documents found from third party if such
             documents contained narrations of transactions with the
             assessee as decided by the Hon'ble Supreme Court in the case
             of Central Bureau of Investigation vs. V.C.Shukla (1988) 8 SSC
             410 and Chuharmal vs. Commissioner of Income Tax (1988)
             172 250/138 Taxman 190 (SC)."

ITA247&248/2015                                                            Page 8
      6.     This Court further notices that the ITAT independently
      examined the evidence which the CIT (A) had scrutinized. It also took
      note of the paper book which had been furnished to the lower
      authorities and was satisfied that the amounts attributed to the
      assessee in fact had not been established and that in the given
      circumstances, the reference to Section 132 (4A) and Section 292C
      was not justified. Having regard to the factual nature of the dispute -
      and having examined the findings of the lower authorities on this
      account which we do not consider unreasonable, this Court holds that
      no substantial question of law arises for consideration. The appeals
      are devoid of merit and are consequently dismissed.

                                                    S. RAVINDRA BHAT

                                                         R.K. GAUBA
      APRIL 21, 2015

ITA247&248/2015                                                        Page 9
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