Referred Sections:
Section 69-A of the Income Tax Act,
Section 142 (2A) of the Income Tax Act,
Section 40A (3) of the Act.
Section 68 of the Act,
Section 144A of the Act
Referred Cases / Judgments:
CIT v. K. Chinnathamban (2007) 7 SCC 390,
Sumati Dayal v. Commissioner of Income Tax, Bangalore (1995) Supp 2 SCC 453
Chuharmal v. CIT (1988) 3 SCC 588
CIT v. K. Chinnathamban
Sumati Dayal v. CIT, Bangalore
Commissioner of Income Tax v. Durga Prasad More,(1971) 82 ITR 540, at pp. 545, 547)”
ITO v. DC Rastogi 39 ITD 490.
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 18th July, 2019
Decided on: 22nd August, 2019
+ ITA 927/2005
COMMISSIONER OF INCOME TAX, DELHI ..... Appellant
Through: Mr. Ajit Sharma, Senior Standing
Counsel and Ms Adeeba Mujahid,
Junior Standing Counsel for Revenue.
versus
ANOOP JAIN ..... Respondent
Through: Mr Ajay Vohra, Senior Advocate with
Mr U.A. Rana and Mr Himanshu
Mehta, Advocates.
CORAM:
JUSTICE S. MURALIDHAR
JUSTICE TALWANT SINGH
JUDGMENT
%
Dr. S. Muralidhar, J.:
1. This is an appeal by the Revenue against the order dated 21 st February,
2005 passed by the Income Tax Appellate Tribunal (,,ITAT) in ITA Nos.
2959 & 3221/Del./1996 for the Assessment Year (,,AY) 1992-93.
2. While admitting this appeal on 22nd August, 2007, the following question
of law was framed for consideration:
"Whether the Income Tax Appellate Tribunal was correct in law
in affirming the decision of the Commissioner of Income Tax
ITA 927/2005 Page 1 of 21
(Appeals) deleting the addition of Rs.5,17,45,958/- made by the
Assessing Officer under Section 69-A of the Income Tax Act,
1961?"
3. The background facts are that the Respondent/Assessee is stated to be a
member of the Delhi Stock Exchange (,,DSE), carrying on business in the
name and style of M/s. Jain and Company. He is also stated to be an
empanelled broker of financial institutions and funds like Unit Trust of India
(,,UTI), Indian Bank Mutual Fund, Can Bank Mutual Fund, etc.
4. For the AY in question, the Assessee filed a return declaring his income as
Rs.3,96,960/-. The return was picked up for scrutiny. The Assessing Officer
(,,AO) noticed that the Assessee had disclosed a bank account with
Corporation Bank at Bombay in the Balance Sheet for the year ending on 31st
March, 1993. This was, however, not disclosed in the Balance Sheet for the
earlier year and the year ending on 31st March, 1992. In his statement on 13th
February 1995, the Assessee claimed that this bank account had been
inadvertently left out.
5. The AO further noticed that the balance in the said bank account as per the
books of accounts of the Assessee was nil, whereas the bank statement
showed it to be Rs.32,105/-. It was also noticed that as on 4th March, 1992, in
the said account, there was a credit balance of Rs.1,03,31,250/-. Against this
account, 24 cheques in different names had been issued between 11 th and 17th
March, 1992. The explanation offered by the Assessee was that this credit
amount represented the sale proceeds of 7,25,000 units of the UTI 1964
Scheme sold to State Bank of Hyderabad (,,SBH).
ITA 927/2005 Page 2 of 21
6. Looking into the complexity of the account, the AO directed a special
audit under Section 142 (2A) of the Income Tax Act, 1961 (,,Act). It
transpired that a chain of transactions had led to the above credit entry into
the bank account of the Assessee. On 6 th February, 1992, 7,25,000 units of
the UTI 1964 Scheme were purchased from SBH Funds Management Cell,
Bombay at Rs.14.20 each, for a total consideration of Rs.1,02,95,000/-. SBH
issued their bankers receipt for the same amount on the same date in lieu of
the units sold by them. The payment of this amount was made by the
Assessee by a cheque dated 6th February, 1992 drawn on Standard Chartered
Bank (,,SCB) in favour of SBH, Bombay.
7. After purchasing the above shares, the Assessee sold the units on the same
date to Mr. D. D. Chaturvedi. The Assessee explained to the AO that the
Bank Receipt was purchased from SBH on 6th February, 1992 on behalf of
Mr. Chaturvedi, who in turn had bought the same on behalf of M/s. Shri
Maharaj Investment (,,SMI), which was a proprietory concern of Mrs. Sneh
Pathak wife of Mr. Jaideep Pathak, the manager of SCB. The Assessee
further explained that this bank receipt had been sold back to SBH on 4th
March, 1992 for a consideration of Rs.1,03,02,250/- on the instructions of
Mr. Chaturvedi. The Assessee thus claimed that he had entered into the
transaction not on his own behalf but on behalf of Mr. Chaturvedi, who in
turn was acting on behalf of SMI. The Assessee claimed that he had only
made a profit of Rs.7,250/- in this transaction.
8. The AO, not being satisfied with the above explanation, recorded the
statement of Mr. Chaturvedi. He also obtained statements of Mr. Jaideep
ITA 927/2005 Page 3 of 21
Pathak and his wife Mrs. Sneh Pathak at Bombay. In his statement, Mr.
Chaturvedi accepted the transaction of purchase and sale of units through the
Assessee. However, Mr. Pathak and Mrs. Sneh Pathak denied having entered
into any such transaction with Mr. Chaturvedi or with the Assessee. The AO
found that SCB had issued a letter on 6th February, 1992 under the signature
of Mr. Pathak by which a cheque for Rs.1,02,95,000/- was forwarded. The
AO was of the view that the cheque had been issued on the instructions and
at the instance of the Assessee i.e. M/s Jain & Company. It was concluded
that this amount had been obtained by the Assessee from SCB by utilizing
his own funds.
9. The AO found that there were in all 15 drafts/pay orders (,,PO) issued by
Mr. Jaideep Pathak on behalf of SCB totalling to Rs.5,68,75,958/-. Out of
these 15 POs, 13 were received by the Assessee, aggregating to
Rs.5,17,45,958/-. The first of such POs of Rs.1,02,95,000/- was utilised for
the purchase of 7,25,000 units from SBH. Remaining 12 POs were utilised
for the purchase of shares of different companies by the Assessee on his own
account which were later sold to Mr. Chaturvedi. Since the first PO of
Rs.1,02,95,000/- was held to have emanated from the funds of Assessee, the
AO held that for the remaining 12 POs, the same belonged to the Assessee
on the parity of reasoning given with respect to the first PO of
Rs.1,02,95,000/-. The AO noticed that the remaining 12 POs were not
deposited in the Assessee's bank account with the Corporation Bank but were
paid directly for the purchase of securities to the vendors.
10. The Assessee volunteered that this purchase was also done on behalf of
ITA 927/2005 Page 4 of 21
Mr. Chaturvedi and that the difference of the price and the amount of the
POs was adjusted in the running account of the Assessee with Mr.
Chaturvedi. However, the AO not being convinced with the above
explanation, treated the entire amount of Rs.5,17,45,958/- as unexplained
income of the Assessee under section 69A of the Act.
11. During the proceedings, the Special Auditor in his report under section
142 (2A) of the Act pointed out that the Assessee had made payments in
excess of Rs.10,000/- otherwise than by crossed cheque or a crossed bank
draft. This was held to be in violation of Section 40A (3) of the Act. Further,
the amount of the 9 cheques to the extent of Rs.3,43,450/- was disallowed
under Section 40A (3) of the Act. Rs.1,34,450/- was disallowed for failure to
enter the transactions representing the amount into ,,Chopris.
12. Aggrieved by the above order, the Assessee filed an appeal before the
Commissioner of Income Tax (Appeals) [,,CIT (A)]. By the order dated 6th
February, 1996, the CIT (A) held that there was no material on record to
suggest that the draft of Rs.l,02,95,000/- was utilised for the Assessees own
benefit. It was also held that there was no material to show that Assessee was
acting in collusion with Mr Chaturvedi.
13. The CIT (A) noted that certain assets were found by the Central Bureau
of Investigation (,,CBI) in possession of Mr Chaturvedi, who then
surrendered them to the CBI. The CIT (A) also held that there was no
evidence to show that the money in question was utilised by the Assessee.
The CIT (A) accordingly deleted the addition of Rs.5,17,45,958/-. The CIT
ITA 927/2005 Page 5 of 21
(A) however, confirmed the addition made by the AO of Rs.1,34,405/- and
Rs.3,43,450/-.
14. Both, the Assessee as well as the Revenue, filed appeals before the ITAT.
The addition of Rs.5,17,45,958/- under section 69A of the Act by the AO,
was held by the ITAT in the impugned order to be bad in law since the
Revenue had not been able to bring on record any material or evidence to
indicate that the Assessee had carried out any transactions outside the books
of accounts. The ITAT held that Section 69A of the Act was not applicable
since the conditions precedent to give rise to the legal fiction had not been
proved. However, in respect of the Assessees plea as regards addition of
Rs.l,34,150/- and disallowance of Rs.3,43,450/- under Section 40A (3) of the
Act, it was held that the since it was an inadvertent omission, no addition
could be made.
15. The ITAT further held that the loss of Rs.24,29,739/- was rightly
characterised as loss in speculation. The only question was how much of the
loss had been suffered by the Assessee and how much by the Assessees
clients. Despite ample opportunities the Assessee failed to furnish the
particulars. Thus the Assessing Officer (AO) was compelled to resort to an
estimate. The AO attributed 50% loss to the Assessee which was reduced by
the CIT (A) to 25%. Consequently, the ITAT saw no reason to interfere.
16. Thus, the Revenues appeal was dismissed and the appeal filed by the
Assessee was partly allowed by the ITAT. The addition of Rs.1,34,450/- on
account of failure to enter transactions into Chopris and Rs.3,43,450/- by
ITA 927/2005 Page 6 of 21
way of disallowance under Section 40A (3) of the Act were deleted.
17. As already noticed hereinabove the present appeal has been admitted
confined to only one question regarding deletion by the ITAT of the addition
made by the AO of Rs.5,17,45,958/- to the income of the Assessee under
Section 69A of the Act.
18. Mr. Ajit Sharma, learned counsel appearing for the Revenue submitted
that the ITAT failed to appreciate that both Mr. Jaideep Pathak and Smt.
Sneh Pathak had stated that they had not entered into any transaction with
Mr. Chaturvedi or with the Assessee. He submitted that the ITAT also failed
to appreciate that when Mr. Chaturvedi for whom the 7,25,000/- units of UTI
1964 scheme were purchased by the Assessee was questioned, he replied that
the PO had been received from SMI, a proprietary concern of the wife of Mr.
Jaideep Pathak. However, he was unable to produce any documentary
evidence to substantiate this. This was also denied by SMI. The fact
remained that in terms of the cheque dated 6th February, 1992 issued by the
SCB addressed to SBH the proceeds of the PO were to be credited into the
account of the Assessee.
19. Relying on the decision in CIT v. K. Chinnathamban (2007) 7 SCC 390,
Mr. Sharma submitted that in the above circumstances the onus to prove the
source of Rs.1,02,95,000/- was on the Assessee and he failed to discharge it.
Reliance was also placed on the decision in Sumati Dayal v. Commissioner
of Income Tax, Bangalore (1995) Supp 2 SCC 453 to urge that the burden
of proof in the present case had shifted to the Assessee to prove the sources
ITA 927/2005 Page 7 of 21
of income.
20. Mr. Ajay Vohra, learned Senior counsel for the Respondent/Assessee,
referred to the correspondence between the parties. In particular he referred
to the letter dated 21st August, 1995 issued by the SCB to the AO stating that
the record of the bank did not show that the aforementioned cheque of
Rs.1,02,95,000/- in favour of SBH was issued on instructions of Jain & Co.
i.e. Assessee. He pointed out that the letter stated that there were no written
instructions from the Assessee to that effect and further that the money was
not received back with the bank.
21. Mr. Vohra referred to a letter dated 25th August, 1995 stating that no
security had been received against the PO. He also referred to the letter dated
25th August, 1995 addressed by the bank to the AO stating that it had not
received any security against the PO nor were the funds returned to the bank.
He referred to the reply of Mr. Chaturvedi to Question No. 3 of the AO
where he confirmed that the payment of the above sum of Rs.1,02,95,000/-
was made by Mr. Chaturvedi to the Assessee for making payment to SBH.
He also confirmed that 24 cheques issued from Corporation Bank, Bombay
by the Assessee were as per his instructions and on his behalf. He denied that
the Assessee was connected with the clients of Mr. Chaturvedi to whom the
24 cheques were issued. Even in the course of cross-examination by the AO,
Mr. Chaturvedi confirmed these transactions.
22. Mr. Vohra referred to the statement of Mr. Jaideep Pathak recorded by
the AO on 24th March, 1995. In reply to questions 3,4 & 5 Mr. Pathak stated
ITA 927/2005 Page 8 of 21
that he had received instructions from Mr. Hiten P. Dalal, who was a stock
and share broker from Kanpur, for issuing pay orders totalling
Rs.5,68,74,958/-. He referred to the charge-sheet filed by the CBI on 20th
June, 1992 where it was alleged that the pay orders of SCB were issued by
Mr. Pathak from the funds of Mr. Hiten P. Dalal which were then given to
Mr. Chaturvedi as part of criminal conspiracy to derive pecuniary benefit.
He pointed out that in the assessment order dated 31st July, 1995 of Mr.
Pathak for AY 1992-1993 Rs. 5,68,75,958/- was added to his income and
this included a sum of Rs. 5,17,45,958/- added by the AO in the hands of the
Assessee. He pointed out that Mr. Pathak had also written a letter on 6th
February, 1992 to SBH stating that he had not received any instructions from
the Assessee to issue a draft for Rs.1,02,95,000/-.
23. By a letter dated 26th September, 1995 SCB confirmed to the Assessee
that he did not have any bank account with them and that SCB had not filed
any civil claim against the Assessee. Mr Vohra referred to the letter dated
25th September, 1995 from Mr. Chaturvedi to the Assessee giving a list of the
securities and money deposited by Mr. Chaturvedi with the CBI amounting
to Rs.4,73,19,836/- consisting of drafts, shares and money. This letter also
confirmed that the assets were held by Mr. Chaturvedi in his books in the
name of SMI whose proprietor was Mrs. Sneh Pathak, the wife of Mr.
Jaideep Pathak. This showed that the money was held by Mr. Chaturvedi on
behalf of SMI. Additional evidence was also admitted by the CIT (A) at the
time of appeal.
24. The above submissions have been considered. Apropos the question of
ITA 927/2005 Page 9 of 21
law framed in this appeal, it is necessary first to refer to Section 69A of the
Income Tax Act which reads as under:
"69A. Where in any financial year the assessee is found to be the
owner of any money, bullion, jewellery or other valuable article and
such money, bullion, jewellery or valuable article is not recorded in
the books of account, if any, maintained by him for any source of
income, and the assessee offers no explanation about the nature and
source of acquisition of the money, bullion, jewellery or other valuable
article, or the explanation offered by him is not, in the opinion of the
Assessing Officer, satisfactory, the money and the value of the bullion,
jewellery or other valuable article may be deemed to be the income of
the assessee for such financial year."
25. The legal requirement as regards Section 69A may be summarised thus:
i) In any financial year the Assessee should be found to be the owner of any
money, bullion, jewellery etc.
ii) Such money, bullion, jewellery etc. should not be recorded in his books of
account, if any maintained by him for any source of income.
iii) The Assessee should offer no explanation about the nature and source of
acquisition of the money.
iv) The explanation offered by him is not found to be satisfactory in the
opinion of the AO.
26. If the above conditions exist then such money and the value of such
bullion, jewellery etc. would be deemed to be the income of the Assessee for
ITA 927/2005 Page 10 of 21
such financial year. In Chuharmal v. CIT (1988) 3 SCC 588 it was
explained that the word ,,income in Section 69A had a wide meaning.
27.1 In CIT v. K. Chinnathamban (supra) relied upon by learned counsel for
the Revenue, the Respondent/Assessee was connected with the firm by name
of V.V. Enterprises. On search of its premises by the police officers Rs.1.18
crores of cash was seized. The firm was managed by one K. Palaniasamy
who had filed its returns and gave statements in the course of the assessment
proceedings.
27.2 Mr. K. Palaniasamy was not in a position to explain the source of
deposit of Rs.1.18 crores. The AO therefore treated the said amount as
undisclosed income of the persons in whose names the deposit appeared. As
far as the Respondent/Assessee was concerned, Rs.5.16 lakhs was
determined to be his income on the basis that Rs.16,148/- as his salary and
Rs.5 lacs as undisclosed income. It was found by the AO that although M/s
V.V. Enterprises was stated to be a registered firm but there were in fact no
bank accounts in the name of such firm. Also there were no accounts in the
name of any of the partners alleged therein. There were no deposits either in
the name of the firm or of any of the partners.
27.3 In view of the statements of Mr. K. Palaniasamy the AO proceeded to
frame assessment in his hands on protective basis and in the hands of the
deposit holders for unexplained deposits. As far as Assessee is concerned, he
could not establish the source of the deposit and there was no evidence to
support his claim that the amount had been collected from members of the
ITA 927/2005 Page 11 of 21
public.
27.4 It was held by the Supreme Court in CIT v. K. Chinnathamban that
where the deposit stands in the name of third person and that person is
related to the Assessee then in such a case the proper course would be to call
upon the person in whose books the deposit appears or the person in whose
names the deposit stands to explain such deposit.
27.5 In that case it was found that there was no evidence regarding the
registration of firm or the source of investment. The onus of proving the
source of deposit primarily rested on the persons in whose names the deposit
appeared in various banks. Accordingly, the action of the department in
making the individual assessment in the hands of the Assessee was upheld.
Therefore, what turned the decision in the case was the failure of the
Assessee to properly explain the source of the deposit.
28.1 Turning now to the decision in Sumati Dayal v. CIT, Bangalore
(supra), the Assessee there carried on business as a dealer in art pieces,
antiques and curios in Bangalore. During the AY 1971-72 the Assessee
received a total amount of Rs.3,11,831/- "by way of race winnings in
Jackpots and Treble events in races at Turf Clubs in Bangalore, Madras and
Hyderabad." The amount was shown by the Assessee in the capital account
in the books. The AO recorded the statement of the Assessee and in the
Assessment Order held that the above amount did not represent winnings and
races. He treated the receipt as income from undisclosed sources and
assessed it as income from other sources. For the AY 1972-73 similar
ITA 927/2005 Page 12 of 21
amount of Rs.93,500/- shown by the Assessee as race winnings was treated
as income from other sources.
28.2 While the appeals were pending before the Appellate Tribunal the
Assessee withdrew those appeals and went before the Settlement
Commission. By majority, the Settlement Commission came to the
conclusion that the Assessees claim about her winnings and races was
contrived and not genuine. The Chairman of the Settlement Commission
gave a dissenting opinion.
28.3 In upholding the majority of the opinion of the Settlement Commission
the Supreme Court explained that once there was prima facie evidence
against the Assessee, the burden shifted to the Assessee to rebut the inference
that the unexplained money constituted income in the Assessees hands. The
legal position was explained in para 4 as under:
"4. It is no doubt true that in all cases in which a receipt is
sought to be taxed as income, the burden lies on the Department
to prove that it is within the taxing provision and if a receipt is in
the nature of income, the burden of proving that it is not taxable
because it falls within exemption provided by the Act lies upon
the assessee. (See: Parimisetti Seetharamamma (supra) at P.
536). But, in view of Section 68 of the Act, where any sum is
found credited in the books of the assessee for any previous year
the same may be charged to income tax as the income of the
assessee of that previous year if the explanation offered by the
assessee about the nature and source thereof is, in the opinion of
the Assessing Officer, not satisfactory. In such case there is,
prima facie, evidence against the assessee, viz., the receipt of
money, and if he fails to rebut, the said evidence being
unrebutted, can be used against him by holding that it was a
receipt of an income nature. While considering the explanation
ITA 927/2005 Page 13 of 21
of the assessee the Department cannot, however, act
unreasonably. (See: Sreelekha Banerjee (supra) at p. 120)"
28.4 As far as the merits of the case was concerned, it was observed as
under:
"7. There is no dispute that the amounts were received by the
appellant from various race clubs on the basis of winning tickets
presented by her. What is dispute is that they were really the
winnings of the appellant from the races. This raises the
question whether the apparent can be considered as real. As laid
down by this Court, apparent must be considered real until it is
shown that there are reasons to believe that the apparent is not the
real and that the taxing authorities are entitled to look into the
surrounding circumstances to find out the reality and the matter
has to be considered by applying the test of human probabilities.
(See: Commissioner of Income Tax v. Durga Prasad
More,(1971) 82 ITR 540, at pp. 545, 547)"
28.5 Both the above decisions, therefore, turned on the peculiar facts of each
case. In both cases, the Assessee was not able to satisfactorily explain the
source of income.
29. Turning to the case on hand, the question to be asked is whether the
Assessee was able to satisfactorily explain the source of the credit entry of
Rs.1,02,95,000/- appearing in his Corporation Bank Account. It must be
recalled that while this was the starting point, during the course of
assessment the AO found that the Assessee had received not one but 13 pay
orders aggregating to Rs.5,17,45,958/- from SCB, Bombay during the FYs in
question and mostly between December, 1991 and February, 1992. All these
POs were utilised by him for purchasing units and shares from different
ITA 927/2005 Page 14 of 21
banks and mutual funds.
30. The explanation offered by the Assessee was that all 13 POs were
received from Mr. Chaturvedi, a Bombay Broker and the purchase of units
and shares were done by him on behalf of Mr. Chaturvedi and then the same
were sold back to Mr. Chaturvedi after earning normal brokerage. The AO
found that all 13 POs were actually tainted POs relating to the Securities
Scam of 1992 and that they had been issued by the SCB under extra ordinary
circumstances. The SCB had informed the ACIT Circle 7 (3) that it had been
a victim of a massive fraud perpetrated in 1992 by certain brokers in
collusion with certain ex-employees of the SCB to siphon out funds from the
bank. It was also informed that SCB had filed an FIR with CBI in which Mr.
Jaideep Pathak, an ex-employee was named as one of the accused and all the
above referred 13 POs were part of total 15 POs fraudulently issued by Sh.
Pathak.
31. It must be noticed here that even during the course of the assessment
proceedings the AO required the Assessee to show cause as to why the said
sum of Rs.1,02,95,000/- should not be added to his total income under
Section 69A of the Act. The Assessee filed a petition before the CIT under
Section 144A of the Act challenging the above proposal. This application
was disposed of by the Additional CIT by an order dated 22/25th September,
1995.
32. The direction sought by the Assessee from the Additional CIT was that
the AO should put to the Assessee, the material gathered by him on the basis
ITA 927/2005 Page 15 of 21
of which the addition was proposed to be made. In the said order dated
22/25th September, 1995 the Additional CIT noted the fact that the AO of
Mr. Jaideep Pathak had held that there was an apparent case of financial quid
pro quo against Mr. Pathak and had already added a sum of Rs.5.68 crores,
equal to the amount of said 15 POs, as Mr. Pathaks income from other
sources. It was noticed therein that "13 out of these 15 POs were received by
Mr. Anoop Jain, the Assessee and were utilised by him for purchasing the
units and shares from different banks."
33. According to the Additional CIT the above facts appeared to be
"sufficient justification to the AO to suspect the Assessees claim that the
transactions relating to 13 POs of SCB were normal business transactions."
He started investigation to find out the truth. The Additional CIT set out the
gist of the evidence collected by the AO but added that it was "not
exhaustive nor is it possible for me to describe it fully due to time
constraint."
34. However it was concluded that "prima facie there appears to be a
collusion between the Assessee and DDC in obtaining the 13 POs from
Standard Chartered Bank through a financial quid pro quo with Mr. Jaideep
Pathak." The objective behind the collusion appeared to be to invest heavily
in the booming stock market prior to the Budget of 1992 and make a big and
quick profit on sale of the shares subsequently. However, the additional CIT
added as under:
"15. However, I hasten to add that before coming to a final and
fair conclusion in this regard it would be necessary to consider
ITA 927/2005 Page 16 of 21
all the facts, materials, and surrounding circumstances of the
case including the materials and arguments advanced by the
assessee in this regard. This will be lengthy and time
consuming exercise and I do not have adequate time for this
purpose. However, I am satisfied that the AO is capable of
passing a fair and judicious order after considering all relevant
facts, materials and surrounding circumstances of the case. I,
therefore, direct him to do so and decide the issues on merits
and in accordance with law."
35. When the matter went back to the AO he referred to not this paragraph
but subsequent paragraphs of the order of the CIT where the attention was
drawn to the AO to the decision of the ITAT Delhi in ITO v. DC Rastogi 39
ITD 490. The AO then proceeded to hold that the Assessee had acquired a
pay order of Rs.1,02,95,000 from SCB "after a financial quid pro quo of an
equal amount". On this very basis he added the amount to the income of the
Assessee. On the same basis he further concluded that the amount
constituting the remaining 12 POs should also be added to the income of the
Assessee.
36. Thus it is seen that the very basis for making the additions is the
inference drawn by the AO that the Assessee had received the above POs and
spent the monies for purchase of shares and units as a result of some
,,financial quid pro quo.
37. This Court has again examined the evidence in some detail. There are
certain facts that stand out which showed that the aforementioned amounts
received by the Assessee as POs did not belong to him. The Assessee was
only a conduit through whom the amounts were floated. One of the essential
ITA 927/2005 Page 17 of 21
conditions in Section 69A of the Act is that the Assessee should be the
"owner of the money" and it should not be recorded in his books of accounts.
This was a pre-condition to the next step of the Assessee offering no
explanation about the nature and source of the acquisition of such money.
38. In the present case the evidence placed before the AO clearly indicated
that Mr. Chaturvedi confirmed that the draft of Rs.1,02,95,000/- was given
by him to the Assessee and that the transactions of purchase of units were
done by the Assessee on his behalf. Books of accounts maintained by Mr.
Chaturvedi confirmed the above statement.
39. Added to this is the fact that CBI recovered securities and cash worth
Rs.4,73,19,836/- from Mr. Chaturvedi and he claimed that these were held on
behalf of Mrs. Sneh Pathak, the proprietor of SMI. This was to be read with
the statement of Mr. Jaideep Pathak, an employee of the SCB, stating that the
drafts worth Rs.5,68,74,958/- were issued by him on instructions of Mr.
Hiten P.Dalal.
40. The two letters issued by SCB dated 21st August and 25th August, 1995 to
the AO are significant. They clearly state in regard to the cheque of
Rs.1,02,95,000/- issued in favour of SBH that as per the records "there were
no written instructions from M/s Jain & Company to this effect." They also
confirmed that the money was not received back by SCB. The letter dated
25th August, 1995 in this regard is even more detailed. It was confirmed that:
"The above Pay Order is a part of 15 Pay Orders which were
issued by the said Mr. Jaideep Pathak to siphon out funds from
ITA 927/2005 Page 18 of 21
the Bank. The circumstances surrounding these Pay Orders have
been investigated by Deputy Superintendent of Police, Central
Bureau of Investigation (CBI) in SCBs case Ref No. RC-11 (S)
92-Bom."
41. This obviously meant that the above POs had been issued without
obtaining any corresponding deposit of money into SCB by anyone else.
Certainly the Assessee did not seem to have been involved at all. The
addition of the sum of Rs.5,17,45,958/- to the income of Mr. Jaideep Pathak
by his AO is another significant aspect. The said addition was part of the
larger sum of Rs.5,68,79,958/- added to his income. The question of adding
the same amount in the hands of the assessee clearly was not permissible.
42. The following reasoning of the CIT (A) in disbelieving the case of the
Revenue appears to be an acceptable analysis of the evidence.
"36. During the course of the hearing of the appeal, the A.C.
was confronted with the letter of SCB stating that no security
was received by them against the issue of draft of
Rs.1,02,95,000/-. The A.O. admitted that his case does not rest
any longer on the deposit of money with the bank of equivalent
amount and the case of the department now is that this money
was given by the assessee to Mr. Jaideep Pathak, the manager
of SCB in his personal capacity for obtaining the draft in his
favour. If this is so, it means that the assessee had utilised his
unaccounted money to obtain the white money by way of a
draft from the bank. If that is so, there was no need for him to
attempt to conceal his bank account in the corporation bank,
Bombay as is claimed by the department. Secondly, the draft
would have been utilised by the assessee for his own benefit
and it has not been shown by the A.O. whether it was so. On the
contrary, the amount of Rs.1,02,95,000/- has been utilised for
issuing 24 drafts in favour of certain parties on the instruction
of Mr. DDC which fact is confirmed by DDC. Thus, the
ITA 927/2005 Page 19 of 21
subsequent conduct of the assessee does not support the case of
the department that the money was given by the assessee to Mr.
Jaideep Pathak to obtain the drafts and is rather disproved by
the facts stated above including the chargesheet filed by the CBI
where the facts and modus operandi adopted have been
discussed in details.
37. The theory of the A.O. is also not sustainable on another
consideration. If the money belonged to the assessee and the
purpose was to launder the same as is made out, then it has to
be explained as to why Mr. DDC is supporting the contention of
the assessee that the money was supplied by him which
belonged to Shri Maharaj Investment. It was argued on behalf
of the revenue that the assessee was acting in collusion with Mr.
DOC and that is why the case of the assessee is being supported
by him.
38. However, this contention is without any merit as even as per
the case of the department, no money has been invested by Mr.
DDC. If the assessee and Mr. DDC were acting in collusion
then it stands to reason that both will be making the investments
and not merely the assessee. No such investment by Mr. DDC is
even alleged by the Department. Further, from the conduct of
the parties and the subsequent events, it appears that no benefit
was to accrue to Mr. DDC and if that is so then the story of
collusion is not supported by the facts. As already stated, the
chargesheet filed by CBI disproves this contention totally. It
may however, be mentioned that certain assets were found by
the CBI in the possession of Mr. DDC which have been
surrendered by him to the CBI. He claimed that these assets
were held by him on behalf of SMI and not on his own behalf.
He had not stated that this money belonged to the assessee or he
himself and this claim has not been disproved and on the
contrary is accepted by the Deptt. in case of Mr. Jaideep
Pathak."
43. As rightly noted by the CIT (A) there was no evidence to show that the
24 cheques stated to have been issued by the Assessee on behalf of Mr.
ITA 927/2005 Page 20 of 21
Chaturvedi were utilised by the Assessee and were meant for the benefit of
the Assessee.
44. In other words, there was nothing to show that the Assessee had
benefited in any way from any of the above transactions. As regards the test
of human probabilities if there was no evidence whatsoever to the contrary it
could have been resorted to draw certain inference.
45. However, in the present case there appears to be overwhelming evidence
to show the involvement of Mr. Chaturvedi acting on behalf of Mrs. Sneh
Pathak for SMI. The CBI also did not choose to proceed against the Assessee
and that discounts the case of any collusion between the Assessee and Mr.
Chaturvedi along with Mr. Pathak. It does appear that the Assessee was at
the highest used as a conduit by the other parties and did not himself
substantially gain from these transactions.
46. In that view of the matter, the concurrent view of both the CIT (A) and
the ITAT that the addition of the aforementioned sum to the income of the
Assessee was not warranted, does not call for interference. The question of
law framed is accordingly answered in the affirmative i.e. in favour of the
Assessee and against the Revenue. The appeal is accordingly dismissed.
S. MURALIDHAR, J.
TALWANT SINGH, J.
AUGUST 22, 2019/rd/mw
ITA 927/2005 Page 21 of 21
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