PRADEEP AMRUTLAL RUNWAL Vs. TAX RECOVERY OFFICER
LAWS(IT)-2014-5-120
INCOME TAX APPELLATE TRIBUNAL
Decided on May 30,2014

Pradeep Amrutlal Runwal Appellant
VERSUS
TAX RECOVERY OFFICER Respondents

JUDGEMENT

Shailendra Kumar Yadav, Member (J) - (1.) THIS appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeal) -II, [in short CIT(A)] Pune, dated 11.10.2012 for A.Y. 2004 -05 on the following grounds. 1) The learned CIT(A) erred in upholding the action of the learned A.O. in reopening the case of the assessee u/s. 148 on the following grounds - a. The material seized was sufficient enough to form a reasonable opinion that the income of the assessee had escaped asst. b. The correctness of the material seized cannot be considered at the stage of reopening but the same was to be investigated during the asst. proceedings u/s. 147. c. The A.O. had much wider powers to reopen the case since the scrutiny asst. u/s. 143(3) had not taken place in the case of the assessee. 1.1) The learned CIT(A) ought to have appreciated that the reopening u/s. 148 is bad in law and hence, the reasst. u/s. 147 be declared null and void for the following reasons - a. There was no evidence to show that the loose papers seized from the third party related to the assessee. b. There was no corroborative evidence to indicate that the assessee had received any amount from the RMD Gutkha Group. c. Thus, the reopening was based on mere suspicion and surmises, without any concrete incriminating evidence and therefore, it was illegal and void. Without prejudice to the above ground, the assessee submits the following grounds - 2] The learned CIT(A) erred confirming the addition of Rs. 5.10 Crs. made by the learned A.O. u/s. 69A on the ground that the assessee had received the said amount from RMD Gutkha Group on the basis of papers seized in the course of search action "on the said Group.
(2.) 1] The learned CIT(A) erred in holding that the addition was justified for the following reasons - a. Shri Sohanraj Mehta, the C & F agent of RMD Gutkha Group had admitted in the statement recorded u/s. 132(4) that the seized papers were written by him and hence, the same carried great evidential value. b. The notings on the seized paper were explained by the author, Shri Mehta which clarified the modus operandi of the dealings of the RMD group and hence, the said papers could not be regarded as dumb documents. c. The amounts noted against the name 'Pradeep Runwal' were accepted by Shri Mehta to be in the nature of unaccounted payments made by the RMD Group and hence, it was clear that the said amounts were received by the assessee. d. No documents could reasonably be expected to be maintained in respect of unaccounted dealings and hence, in such cases, the corroborative evidence has to be seen in the documents seized whereas the inference is to be drawn based on the statements recorded post search action. e. The assessee has not offered a satisfactory explanation in respect of the alleged receipt as per the notings in the seized papers and hence, the addition made by the learned A.O. is justified in view of the decision in the case of Sumati Dayal [ : 214 ITR 801(SC)]. 3) The learned CIT(A) ought to have appreciated that the addition made by the learned A.O. is totally based on presumption and surmises and there is no evidence that the assessee had received any such amount from RMD Gutkha Group and hence, the addition made is not justified at all. The learned CIT(A) failed to appreciate that - a. The assessee had not received any amount from RMD Gutkha Group in cash. b. The presumption u/s. 132(4A) if at all applicable could be applied only in the case of RMD Gutkha Group and not in the case of the assessee. c. No addition could be made in the hands of the assessee on the basis of some loose documents found with third party. d. There may be many people of the name 'Pradeep Runwal' in Pune and hence, the presumption made on the basis of the seized paper was not justified in the absence of any evidence to show that the assessee and the RMD Group had any past business relations. e. Although Shri Mehta had admitted to have written the document, he had never specifically admitted that the RMD Group had advanced any funds to the assessee and hence, in the absence of any corroborative evidence, the learned A.O. is not justified in presuming that the person named in the seized paper was the assessee. f. The various decisions relied upon by the learned CIT(A) are distinguishable on facts and hence, the same are not applicable to the case of the assessee. 4] The learned CIT(A) ought to have appreciated that no addition could be made on the basis of documents found with third parties and hence, the addition made should have been deleted. 5] The learned CIT(A) erred in placing reliance on section 114 of the Indian Evidence Act without appreciating that it had no relevance to the facts of the present case. 6] The learned CIT(A) failed to appreciate that the assessee had not carried out any transaction with RMD Gutkha Group and hence, the addition made on presumptions and surmises may kindly be deleted. 7] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 2. At the outset of hearing, the learned Authorized Representative has not pressed the ground Nos. 1 and 1.1 which pertain to reopening, so they are dismissed as not pressed. The assessee is an individual. The original return of income declaring the total income of Rs. 3,12,974/ - was filed on 01.11.2004. The Assessing Officer thereafter received information from ACIT, Central Circle -1(2) that a search and seizure action u/s. 132 was carried on 21.01.2010 in the case of Shri Sohanraj Mehta, C & F of the RMD Gutka Group, wherein, the documents seized during the course of search action included transaction related to the assessee. The seized documents revealed that the assessee was in receipt of Rs. 4,80,00,000/ - on 17.05.2003 and Rs. 30,00,000/ - on 13.05.2003. The Assessing Officer, thus after seeking approval of Addl. CIT, Range -3, Pune issued a notice u/s. 148 of the Act. In response to the same, the assessee filed a return of income for A.Y. 2004 -05 on 15.04.2012 with the same returned income of Rs. 3,12,974/ - as filed in original return. The Assessing Officer sought the explanation from assessee with regard to the noting made on seized documents, found and seized during the search action. The assessee put forward his explanation vide its letter dated 28.12.2011. However, the Assessing Officer did not accept the submission and explanation furnished on behalf of assessee. The Assessing Officer thereafter noted that seized documents found at the residence of Sohanraj Mehta C & F of RMD Gutka Group had been accepted to have been written by him and also that the modalities of the method of transaction entered into by RMD Gutka group had been completely exposed. The Assessing Officer, thus, placing reliance on sections 80 and 114 of the Indian Evidence Act and also following the certain decisions held that the entire amount of Rs. 5,10,00,000/ - as unexplained money u/s. 69A of the Act. 3. The matter was carried before first appellate authority, wherein the various contentions were raised on behalf of assessee and having considered the same, the CIT(A) has confirmed the order of Assessing Officer on preliminary as well as on merit. The same has been opposed before us on behalf of assessee. As discussed above, the issue of reopening has not been pressed before us, we are confined to adjudicate the issue on merit which is with regard addition of Rs. 5,10,00,000/ - made by the Assessing Officer u/s. 69A on the ground that the assessee has received the said sum from RMD Gutka group. The stand of the assessee has been that the CIT(A) erred in holding that the addition was justified for the following reasons - a. Shri Sohanraj Mehta, the C & F agent of RMD Gutkha Group had admitted in the statement recorded u/s. 132(4) that the seized papers were written by him and hence, the same carried great evidential value. b. The notings on the seized paper were explained by the author, Shri Mehta which clarified the modus operandi of the dealings of the RMD group and hence, the said papers could not be regarded as dumb documents. c. The amounts noted against the name 'Pradeep Runwal' were accepted by Shri Mehta to be in the nature of unaccounted payments made by the RMD Group and hence, it was clear that the said amounts were received by the assessee. d. No documents could reasonably be expected to be maintained in respect of unaccounted dealings and hence, in such cases, the corroborative evidence has to be seen in the documents seized whereas the inference is to be drawn based on the statements recorded post search action. e. The assessee has not offered a satisfactory explanation in respect of the alleged receipt as per the notings in the seized papers and hence, the addition made by the learned A.O. was justified. The CIT(A) failed to have appreciated that - a. The assessee had not received any amount from RMD Gutkha Group in cash. b. The presumption u/s. 132(4A) if at all applicable could be applied only in the case of RMD Gutkha Group and not in the case of the assessee. c. No addition could be made in the hands of the assessee on the basis of some loose documents found with third party. d. There may be many people of the name 'Pradeep Runwal' in Pune and hence, the presumption made on the basis of the seized paper was not justified in the absence of any evidence to show that the assessee and the RMD Group had any past business relations. e. Although Shri Mehta had admitted to have written the document, he had never specifically admitted that the RMD Group had advanced any funds to the assessee and hence, in the absence of any corroborative evidence, the learned A.O. is not justified in presuming that the person named in the seized paper was the assessee. f. The various decisions relied upon by the learned CIT(A) are distinguishable on facts and hence, the same are not applicable to the case of the assessee. g. No addition could be made on the basis of documents found with third party. h. The CIT(A) erred in placing reliance on section 114 of the Indian Evidence Act without appreciating that it had no relevance to the facts of the present case. i. The CIT(A) also failed to appreciate that the assessee had not carried out any transaction with RMD Gutkha Group and hence, the addition made on presumptions and surmises may kindly be deleted.
(3.) ON the other hand, the stand of learned Departmental Representative has been as under: a) A search action u/s. 132 of the I.T. Act, 1961 was carried out on 09 -10 -2009 in the case of Shri Mithulal, a real estate broker of Bangalore by the Investigation Wing of Bangalore. In course of this search action by the Investigation Wing of Bangalore, certain incriminating documents related to one Shri Sohanraj Mehta were found which were in connection with the C & F agency of RMD Group of Pan masala and Gutkha Products. Subsequently, on the next day Shri Sohanraj Mehta was also covered by the investigation wing of Bangalore and confronted on these incriminating documents. Shri Sohanraj Mehta accepted that these documents are related to him and are in connection with the C & F agency of RMD Group for pan masala and gutkha products. Since RMD Gutkha Group is based at Pune, information related to this was intimated by the Investigation wing of Bangalore to the Investigation wing at Pune. On analysis of the documents seized by the Bangalore investigation wing, it is observed that the total receipts due to the sale of unaccounted production carried by RMD Gutkha Group through Shri Sohanraj Mehta alone who is over seeing Karnataka region is of Rs. 355.51 crores for the period April 2003 till February, 2008. This amount received has either been remitted back to RMD Gutkha group or handed over as per the instructions of RMD Gutkha Group to the various suppliers of raw materials, to other businessmen etc. For the purpose of ascertaining the business connection of RMD Gutkha group with the parties whose names figured in the said incriminating documents, extensive discreet enquiries were carried out. These enquiries revealed that Malikarjun Group of Shimoga, Bholenath Radhakishan Group of Delhi, P.C. Jain Group of Mumbai, Mukesh Garg Group of Delhi, Vineet Ranawat Group of Mumbai, S. Balan Group of Pune, Malu Group of Pune, Champion Packaging Group of Bangalore, etc. are closely connected with the business activity of RMD Gutkha group related to the unaccounted production and sale of gutkha and pan masala products. Accordingly, these business groups were also covered alongwith RMD Gutkha Group on 20/01/2010. b) The modus operandi revealed in course of the search action can briefly be enumerated as under: - i. RMD Gutkha group carries out a parallel production of its accounted production and also its unaccounted production. For its accounted as well as its unaccounted production, the purchases of major raw materials like edible perfumes, betel nut, ellaichi, kattha etc, are purchased from the same suppliers. This is to ensure that the quality of its products both accounted as well as unaccounted, is maintained. In the books of the suppliers, and also RMD Gutkha Group the supplies made for the accounted production of RMD Gutkha group are duly reflected in the books but the supplies made for the unaccounted production are kept out of the regular books. ii. After procuring of raw materials, the manufacturing activity is carried out in the factories of RMD Gutkha group at Vadodara and Bangalore. At these two factories, no proper primary records are maintained so that a proper analysis of the unaccounted production could not be made by the Govt., authorities like Excise, Sales -tax etc. iii. For the purpose of distribution and marketing of its products, RMD Gutkha group has appointed a number of C & F agents. Below the C & F agents, a number of dealers are appointed who finally supply the products to the retailers, pan shops, etc. RMD Gutkha group maintains direct contact only with the C & F agents. The C & F agents maintain accounts of the unaccounted sales, expenses incurred etc. The C & F agents remit the unaccounted cash so generated to the RMD Gutka group and also make payments to the suppliers of raw materials, etc, for the unaccounted production as per the instructions of RMD Gutkha group. c) At the time of search action on 20/01/2010, the said documents seized by the Investigation wing of Bangalore related to the unaccounted sales and deployment of the sale proceeds by Mr. Sohanraj Mehta, C & F were confronted both to Shri Rasiklal M. Dhariwal and also his son, Shri Prakash R. Dhariwal. Both these persons accepted that the chits giving instructions either to Shri Sohanraj Mehta (C & F of RMD Gutkha Group for Karnataka Region) or Shri Jeevan Sancheti (Bangalore factory in -charge of RMD Gutkha Group) which are part of loose paper bundle A/MI/29 seized vide Panchanama dtd. 9 -10 -2009, bear either of their signatures. They also accepted that these are short term advances given by them to their friends and business associates. However, they refused to accept the de -coding explained by Shri Sohanraj Mehta that the amounts mentioned in lakhs actually stands for crores of rupees and the word 'packet' stands for a lakh of rupees. d) The said incriminating documents seized by the Investigation wing of Bangalore on 9/10/2009 had details of the unaccounted sales of Gutkha carried out by Mr. Sohanraj Mehta, C & F of RMD Gutkha Group for Karnataka Region. As per these seized documents, the sale proceeds from this unaccounted sale were being deployed to a number of entities which included Shri S. Balan (Director of M/s. Sai Constructions Pvt. Ltd.) to whom an amount of Rs. 1435 lakhs was paid. Shri S. Balan was confronted on this transaction in course of the search action on 20/1/2010. In course of the statement on oath, he admitted that he was custodian of around Rs. 14 crores on behalf of RMD Gutkha Group. Though subsequently under influence of M/s. Dhariwal Industries Ltd., has retracted his statement on 25.11.2011 by filing an affidavit. e) Similarly, as per the said documents seized by the Investigation wing of Bangalore on 9/10/2009, an amount of Rs. 4656 lakhs was paid to Shri Mallikarjun of Shimoga for purchase of Arecanut (supari). Shri Mallikarjun was confronted with the documents seized by the Investigation wing of Bangalore at the time of the search action. In course of his statement on oath, he admitted to have made unaccounted sale of Rs. 4656 lakhs during the period of April 2003 to February 2008 to RMD Gutkha Group. This statement was subsequently retracted by Shri Malikarjun of Shimoga under influence of M/s. Dhariwal Industries Ltd. However, circumstantial evidences show that the said unaccounted sales have actually been made to RMD Gutkha Group. f) For the purpose of establishing the genuineness of the documents seized by the Investigation wing of Bangalore, a number of post search inquiries were carried out. The said post search inquiries are elaborated as under: i. Examination of the said documents seized by the Investigation wing of Bangalore revealed that Shri Sohanraj Mehta, C & F of RMD Gutkha Group for Karnataka Region used to maintain a detailed day to day account of the transactions of sale of Gutkha and also of the deployment of the said sale proceeds. From the day to day accounts, he used to draw a monthly summary giving information of the sale proceeds received and its deployment during a particular month. Finally, from the monthly summary he prepared a consolidated summary for the entire period. As per the consolidated summary, the total unaccounted sales for the period April, 2003 to August, 2006 were of Rs. 2,18,00,91,198/ - and the total unaccounted sales for the period Sept., 2006 to Feb., 2008 were of Rs. 1,27,74,71,480/ -. It was established that the said documents seized by the Investigation wing of Bangalore are not some baseless documents but a detailed account of the daily, monthly and consolidated summary of the unaccounted sales carried out by Shri Sohanraj Mehta on behalf of M/s. Dhariwal Industries Ltd. ii) Shri Rasiklal M. Dhariwal was examined to ascertain the business relation etc. with the various entities whose names were mentioned on the said documents seized by the Investigation wing of Bangalore. This examination revealed that Shri Rasiklal M. Dhariwal is knowing most of the persons whose names are mentioned in the said documents and is having a close business association with them. The names mentioned on the said documents included the suppliers to RMD Gutkha Group of betel nut, kattha, edible perfume, cardamom, menthol and packaging pouches, some prominent builders of Pune, etc. With most of these parties their association with RMD Gutkha Group was very old, in fact in most of the cases more than 10 years old. This shows that the documents seized by the Investigation wing of Bangalore are clearly related to the RMD Gutkha Group itself. iii) It was initially being claimed by RMD Gutkha Group that Shri Sohanraj Mehta is a man of dubious character and therefore the records found from him cannot be relied upon. In course of the post search inquiries, it was revealed that Shri Sohanraj Mehta has been the C & F of RMD Gutkha Group for more than 15 years and during this period no cases etc. of any wrong doings have been filed against him by RMD Gutkha Group. It was further revealed that RMD Gutkha Group does not have the faith and confidence to give instructions in the form of signed chits to any other person other than Shri Sohanraj Mehta. Moreover, it was also revealed that in a number of agreements signed by RMD Gutkha Group for properties acquired at Bangalore, Shri Sohanraj Mehta has signed in the capacity of a witness. All these facts clearly prove that the claim of RMD Gutkha Group that Shri Sohanraj Mehta is a man of dubious character is incorrect and with a motive so that it can disown the contents of the said documents. iv) On the basis of the instructions given in the said signed coded chits either by Shri Rasiklal M. Dhariwal or Shri Prakash R. Dhariwal, Shri Sohanraj Mehta used to make payments to the parties whose names were mentioned on the said chits. In many instances, these payments were spread over more than one installment. The day books maintained by Shri Sohanraj Mehta have a detailed narration of the various installment payments for the amounts mentioned in the signed chits. At times, in the day books the amounts have been mentioned in de -coded form, which again prove's the decoding explained by Shri Sohanraj Mehta. v. The said documents seized by the Investigation wing of Bangalore have details of the accounted dispatches and also the unaccounted dispatches made by M/s. Dhariwal Industries Ltd. to Shri Sohanraj Mehta. The unaccounted dispatches apparently have letter 'A' mentioned before them and the accounted dispatches have VDIL1 mentioned before them. Investigations revealed that the accounted dispatches are duly reflected in the books of M/s. Dhariwal Industries Ltd. Since Shri Sohanraj Mehta has accepted that the transactions with letter 'A" mentioned before them are in respect of the unaccounted dispatches, a natural corollary is that the same are also dispatches which are not recorded in the regular books of M/s. Dhariwal Industries Ltd. g) Even before the A.O. during the course of assessment proceedings, statement on oath was recorded of Shri Sohanraj Mehta on 10.08.2011 wherein he again confirmed that the transactions in the said seized documents relate to the unaccounted as well as accounted transactions of M/s. Dhariwal Industries Ltd. It was also stated that the retraction made earlier was at the behest of M/s. Dhariwal Industries Ltd. However, subsequently clearly under pressure from M/s. Dhariwal Industries Ltd., Shri Sohanraj Mehta submitted letter dated 03.12.2011 requesting to consider his retraction made vide his earlier letter dated 23.12.2009. 4.1 Besides this, the learned Departmental Representative has pointed out that a similar addition has been made in other cases i.e. Shri S. Balan, Shri Binit Ranawat, Shri Vimal Nahar and Shri P.C. Jain who were assessed with DCIT, Central Circle 1(1), Pune and additions were also made in the case of assessee i.e. Shri Pradeep Runwal, Shri Kantilal Lunkad & Shri Pravin Lunkad which were assessed with Circle -3, Circle -2 & Ward 1(1) respectively. The issue of Shri Pradeep Runwal is before us and we will concentrate the same on merits in its facts and circumstances. It is pertinent to mention here that every case is decided in its facts and circumstances, so we will decide the case of assessee in its facts and circumstances which are without prejudice to other similarly placed cases. It is not appropriate for us to comment on other parties which are not before us. So, this case is being decided in its facts and circumstances. 4.2 Further, with regard to the assessee's observation that the Assessing Officer has neither provided copies of statements of seized persons i.e. Sohanraj Mehta nor any opportunity to cross examination given to the assessee. The learned Departmental Representative stated that the Assessing Officer has not relied on statement of Shri Sohanraj Mehta while making the addition. There is no discussion of the said statement in the assessment order. When the Assessing Officer is not relying on the statement for making addition, so, there is no need to give its copy to the assessee. Secondly, a copy of assessee's letter dated 28.12.2011 furnished to the Assessing Officer during scrutiny proceedings clearly states that the assessee was given all information of seized documents by the Assessing Officer. Hence, the principles of natural justice have not been violated by the revenue. With regard to the identity of Shri Pradeep Runwal, it was stated on behalf of learned Departmental Representative that the seized documents mentioned Shri Pradeep Runwal from Pune. A search in the ITD database of the Income Tax Department shows only one Pradeep Runwal, which is the assessee. So, according to learned Departmental Representative, the person mentioned in seized documents in question is only Pradeep Runwal, so the action in the case of assessee is justified and the addition made in his hand should be sustained.;


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