ORDER
S. Bandyopadhyay, A.M.
1. For the sake of convenience, the Departmental appeals for the three successive years and also the assessee’s appeal for one year have been consolidated and a common order is being passed.
2. The facts of the case as stated by the learned CIT (A) in his consolidated appellate order not only in respect of the present assessee, but also his wife Smt. Kanakambal and his son Angashagan, are as follows :
Smt. Kanakambal is the wife of V. Govindan, and Anbashagan is their son. A search was conducted on 22nd Dec., 1987, in the business premises of the three, where business in cloth in the names and styles of Govindan & Sons and Kanakambal Textiles was being conducted. Govindan & Sons is a proprietary concern of Govindan and Kanakambal Textiles is the proprietary concern of Smt. Kanakambal managed entirely by her son Anbashagan. The search was also extended to the residence where some jewellery was seized. No cash, stocks of pronotes or other unaccounted valuables were ever found or seized; however two memoranda accounts (rough books) from 1st June, 1987 till the date of search 22nd Dec., 1987 (the assessee’s year of accounting ended on 30th May, 1987 (Asst. yr. 1989-90) were found both in respect of Govindan & Sons and Kanakambal Textiles, and these books indicated transactions that had been done that are outside the declared records. In statements recorded at the time of search Govindan admitted that the transactions found in the memoranda accounts were outside the declared records. Similarly Anbashagan admitted that all transactions in the memorandum accounts of Kanakambal Textiles were also outside the declare records and further that he had kept these transactions secret from the proprietrix (that is, his mother Smt. Kanakambal) and that he was appropriating the proceeds of this unaccounted business for himself for his own benefit. Both Govindan and Anbazhagan admitted that, the volume of the unaccounted and accounted turnover were more or less of equal inagritude. It was also admitted by both Govindan and Anbazhagan that the income arising from these unaccounted transactions were invested in a moneylending business belonging to each of them that is to Govindan and to Anbashagan. Smt. Kanakambal was also questioned and she indicated that although she was the owner of the business Kanakambal Textiles, she owned only the declared income, and was aware of only of the declared part of the business. She deposed that she was not managing the business from day-to-day but had entrusted this totally to her son Anbashagan who was doing the same. She was not aware either of the unaccounted transactions entered into by her son Anbashagan while he was managing her business, nor was she aware of the fact that the monies made by Anbashagan through this secret activity was being circulated away by Anbashagan in a moneylending business.
Subsequently Govindan and Anbashagan were stated to have been induced by the Deputy Director of the Intelligence wing who carried out the search operations, to come forward with revised returns agreeing to offer hitherto undisclosed income of Rs. 10 lakhs (Rs. 5 lakhs each in cases of Govindan and Anbashagan) spread over the three asst. yrs. 1986-87 to 1988-89. It is stated that Govindan and Anbashagan filed their returns of income for these three years offering additional amount of Rs. 1,66,667 for each of the three years along with a letter dt. 15th Feb., 1988, before the said Dy. Director, which were sent by him onward to the AO. The entire basis of offering the additional income in the returns was explained in the letters of the assessee and his son dt. 15th Feb., 1988.
However, in the assessment of the assessee for the asst. yr. 1986-87, as made on 30th March, 1990, in addition to the further admitted income of Rs. 1,66,667, the AO made two further additions of Rs. 1,56,159 and Rs. 1,31,550 also. The amount of Rs. 1,56,159 was considered by the AO to represent the gross profit arising out of the undisclosed sales kept out of the books calculated on the basis that the turnover of the undisclosed business was the same as that of the disclosed business. The amount of Rs. 1,31,550 was taken by the AO to represent the opening capital for starting the moneylending business.
In the asst. yr. 1987-88, besides the admitted additional income of Rs. 1,66,667, another amount of Rs. 1,59,305, computed by the AO to represent the gross profit out of the undisclosed sales was also added back.
It is however found that in asst. yr. 1988-89, the AO merely took into consideration the amount of Rs. 1,69,231 representing the gross profit of the undisclosed sales operations. It appears that he did not separately add the amount of Rs. 1,66,667 for the admitted additional income in this year.
3. In the first appeal, the CIT (A) held that when the additional admitted income of Rs. 5 lakhs has already been offered by the assessee and also taxed separately (it may be reiterated in this connection that in asst. yr. 1988-89, the corresponding amount was not taxed by the AO separately), there was no case for further estimating the income out of the undisclosed sales and taxing the same in these three years. Accordingly, he deleted the separate additions of Rs. 1,56,159 and Rs. 1,59,305 for the asst. yr. 1986-87 and 1987-88, respectively. As regards the opening capital of Rs. 1,31,550 for asst. yr. 1986-87 also, he was of the view that the entire capital was being assessed under s. 69A in the year in which the search had taken place, on the basis of the statement of advances made. He held that when the entire amount was included in the year of search, the opening capital was also subsumed within this and no separate addition was called for. Accordingly, he deleted the amount of Rs. 1,31,550 also for asst. yr. 1986-87.
4. In the Departmental appeals filed before us, the Department, challenges the said deletions. We agree with the learned CIT (A) that when the assessee himself offered additional amounts on account of sales not included in the regular books of accounts and when the entire capital required for starting the moneylending business is also taken as having come out of this undisclosed income, there is no scope for making separate addition on these issues. We therefore, uphold the deletions as ordered by the learned CIT (A).
5. So far as however asst. yr. 1988-89 is concerned, on the basis of a statement made by the assessee under s. 132(4) on the day of search viz., 22nd Dec., 1987, the AO took into consideration the amount of Rs. 16,20,600 stated by the assessee to represent the undisclosed investment in the moneylending business done by him. The AO discusses in the assessment order for asst. yr. 1988-89 that subsequently, the assessee charged the stand and come to say that a substantial portion of the amount represents the borrowings made by him. In fact, the point of the assessee was that the entire amount of Rs. 16,20,600 did not represent moniles lent out by him but though the list furnished by him also included, through mistake, certain amounts actually borrowed by him. It was furthermore stated by him that some or the names and amounts concerned had no basis and should not be treated as part of his capital of moneylending business. The AO however did not accept the contention of the assessee and added back the entire amount of Rs. 16,20,000 separately after allowing credit for an amount of Rs. 4,84,694 being the aggregate amount of gross profits estimated by the AO out of undisclosed sales for the three years under consideration. The net amount of addition on this account thus stood at Rs. 11,35,305.
6. Before the CIT (A), it was contended by the assessee that out of the above mentioned aggregate amount of Rs. 16.20 lakhs, an amount of Rs. 3,20,000 represented monies not actually lent by the assessee but borrowed or considered in duplication. The CIT (A) examined and verified the list of such cases as provided by the assessee and came to the finding that these items actually represent duplications or erroneous additions. In the Departmental appeal for asst. yr. 1988-89, the aforesaid finding of the CIT (A) has been challenged. The learned Departmental Representative appearing before us has strongly contended in this regard that from the detailed list as filed by the assessee, no duplication of any item can be found out and furthermore that even if some duplication might have been there, they actually represent monies separately lent out by the assessee to the same party on different dates. It is thus contained that the relief allowed by the CIT (A) in respect of Rs. 3,20,000 be reversed.
The learned counsel for the assessee appearing before us, however, strongly contends that the abovementioned list of monies lent totalling to Rs. 16.20 lakhs was submitted by the assessee fully out of his memory on the date of search and in the early hours (1.30 AM) of the next day. It is thus argued that there are every chance that the list would not be a correct one. It is also stated that the assessee had to come out with a list of certain amount just to get rid of the searching party. Before both the lower authorities, the assessee filed detailed list of the cases involving duplication of erroneous insertion of certain borrowings by the assessee as his lendings. The CIT (A) examined the same. We have also examined the relevant latter list filed by the assessee. Copies of certificates produced by the assessee from the concerned persons have also been perused by us. On an examination of the entire issue, we are in agreement with the CIT (A), that the amounts contained in this latter list do not actually represent monies lent by the assessee. This stand is corroborated by the certificates from the relevant parties. Furthermore, it is required to be mentioned here that during the course of the search, neither any pronotes nor any other evidence relating to the lending activities of the assessee could be found out, excepting a few signed cheques. The entire basis for the addition is the detailed list supplied by the assessee in the wee hours of the day of the search and the day following. We fully agree with the contention of the assessee that the list submitted at such time was completely from his memory, might have contained a number of erroneous items. When the basis for addition in this regard is simply the list furnished by the assessee without any other corroborating evidence, we do not understand why the latter submission of the assessee that the list was not fully correct, would not be accepted. The CIT (A) has examined the non-includibility of certain items to the extent of Rs. 3,20,000 therein. We have also examined the same and we agree with his finding. The CIT (A) might have used a wrong language about duplications of certain items. What however he meant is that certain items were not to be included at all. We therefore, cannot find any fault with the order or the CIT (A) in granting relief of Rs. 3,20,000 to the assessee in this regard.
The assessee also claimed another amount of Rs. 3,00,600 which have been denied totally by the assessee to be having any connection with his moneylending business. The names and addresses of the parties were also given by the assessee to the AO. The parties were however not examined by him. The CIT (A) however refused to accept the contention of the assessee in this regard on the ground that no further verification or corroboration was possible in this regard. This issue has been taken up by the assessee in his appeal. We would therefore, revert to this issue once more when we take up the assessee’s appeal.
7. On examination of the facts of the case, the CIT (A) clearly came to the finding on the basis of the submissions made by the assessee and his son at the time of the search that the entire capital in the moneylending business came out of the undisclosed profit earned by the assessee and his son from sales made outside the books. It is also an admitted fact that the son of the assessee viz., Anbashagan did not himself carry out the moneylending business but handed over the capital represented by undisclosed profit out of the sales of the business belonging to her mother, to the assessee who alone carried on the entire money landing business for himself as well as his son. The CIT (A) found out that an amount of Rs. 5,60,000 had already been assessed to tax as profits arising out of the undisclosed sales in the hands of Anbashagan. He therefore, allowed credit of this amount of Rs. 5,60,000 in addition to the earlier amount of Rs. 3,20,000 (as discussed above), from the total amount of Rs. 16,20,000. He furthermore found out that the assessee himself had offered for taxation the amount of Rs. 5 lakhs by way of profits arising out of the undisclosed sales in the assessee’s own textile business. Giving credit for that amount also, the CIT (A) ultimately held that the balance amount of Rs. 2,37,035 should be assessed further in the hands of the assessee under s. 69 whereas an amount of Rs. 60,000 should be assessed in the hands of Anbashagan. In the departmental appeal for asst. yrs. 1988-89, these further reliefs as ordered by the CIT (A) are also challenged.
8. There is no proof with the Department. about carrying on of the moneylending business of the assessee except the statement of the assessee given under s. 132(4). On this ground, we have already held above that the latter statement of the assessee giving a correct position of the capital employed in the moneylending business should be accepted. We have also upheld the deletion of Rs. 3,20,000 on this account. Since the capital employed in the moneylending business has been accepted to have been out of the profits of undisclosed sales of the textile business belonging to the assessee and his wife and inasmuch as it has already been held and also accepted by the Department that such profits relating to the textile business of the wife of the assessee actually belonged to the son of the assessee viz., Smt. Anbashagan, we are unable to understand why such profits already assessed to tax in the hands of the assessee and his son should not be allowed as credit in computing the unexplained capital in the moneylending business run by the assessee. We therefore, upheld the actions of the learned CIT (A) in allowing credits in respect of Rs. 5,60,000 being the amounts assessed in the hands of Anbashagan and also Rs. 5 lakhs being the amount assessed separately in the assessee’s own case. The Departmental grounds in this regard are, therefore, liable to be rejected.
9. In the appeal filed by the assessee for asst. yr. 1988-89, the order of the CIT (A) in sustaining the addition to the extent of Rs. 3,00,600 has been challenged. We find that there is some confusion in this regard inasmuch as ultimately the learned CIT (A) has sustained the addition to the extent of Rs. 2,37,035 only. In any case, it is the assessee’s contention that the items comprising this amount of Rs. 3,00,600 were given by the assessee fully out of mistake at the time of the search and that these items do not at all form a part of his lending capital. The CIT (A) discusses in this connection that the names and addresses of the parties were also supplied by the assessee but that no effort was made by the AO to examine them so as to find out whether they had any connection with the moneylending business of the assessee or not. Although the CIT (A) says that no further verification or corroboration is possible on this issue, we feel that inasmuch as the entire addition on account of undisclosed capital in the moneylending business is based solely on the statement given by the assessee on the night of the search without there being any other corroborating evidence in that regard, and since the assessee himself, at a later stage most probably on a detailed examination of the matter, wanted to shift from his earlier version, it was necessary for the AO, before making the addition, to have fully verified the latter version of the assessee also. So far as the issue relating to the claim of the assessee in respect of this further amount of Rs. 3,00,600 is concerned, we set aside the order of the CIT (A) and restore it back to the file of the AO with a direction that he would examine the parties comprising this particular list, whose names and addresses are stated to have been supplied by the assessee to him. On such examination, if the AO finds out that the parties under consideration had actually borrowed money from the assessee, in such case alone, he would be entitled to make additions of the concerned amounts towards capital in the moneylending business. We however, feel that if the parties would clearly deny any connection with the assessee and/or the AO would not be in a position to examine the parties for various factors, it would not be possible for the AO to add back such amounts.
At the same time again, we are of the opinion that any relief to be granted to the assessee on this account should not exceed the amount of Rs. 2,37,035 as held by the learned CIT (A) to represent the ultimate amount of addition to be made on account of undisclosed capital of the moneylending business.
10. In the result, the departmental appeals are dismissed, whereas the appeal filed by the assessee is partially allowed to the abovementioned extent.