Chander Singh, Accountant Member -
(1.) THIS appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-I, Pune, and pertains to the assessment year 1989-90.
(2.) Briefly the facts : There was a search action under Section 132 of the Income-tax Act, 1961 (hereinafter called the 'Act'), at the premises of Kant Electronics, a sister concern of the assessee-firm, Among other things, a 'piece of paper' was found. It contained the name of 32 persons. Different amounts were mentioned, against the name of those persons. Shri Jayantilal, a partner of the assessee-firm, was questioned about this paper. In reply, he admitted that the said paper was written by him, and it comprised the amounts brought in cash on interest from different persons named therein. Some amounts were taken by cheque and these were reflected in the books of account. The amounts which were not found in the books were brought in 'No. 2'. It was submitted that the amounts shown in the paper represent only borrowings. Under most of the items listed in the paper, an amount with + sign was written which, according to the assessee, represented interest payable. Entry No. 17 contained a note that two months' interest is to be reduced. At the end of the list, amounts of Rs. 1,42,000 and Rs. 1,61,000 were reflected under the letters J & X respectively. The words J & K were stated to be used for the partners, namely, Shri Jayantilal and Shri Kantilal. The assessee contended that the entire amount reflected on paper represents borrowings (including capital). These borrowings were utilised for the purpose of investment found in various assets during the search operation. In respect of the entries made in the assessee's books, confirmations were said to have been filed.
The contention of the assessee was not accepted by the Assessing Officer. In the order passed under Section 132(5) of the Act, the amounts were treated as advances due. After considering the repayment of Rs. 87,000, an amount of Rs. 32,69,745 was proposed for addition in that year. In view of the categorical statement made by the assessee that some of the amounts were collected out of the books. Assessing Officer held that the assessee had undisclosed income. In making the addition, the Assessing Officer did not consider the following deductions claimed by the assessee from the total of all the amounts, Le., Rs. 33,56,000 :
In regard to the amount belonging to trust, it was held by the Assessing Officer that this pertains to educational trust. In the list it was in the name of Baba Trainer. In the books the trust was shown as a creditor. The Assessing Officer further held that other claims are also not correct. All these persons are creditors in the books while the list is of advances given. Further the last two entries of Rs. 50,000 + Rs. 50,000 are in different names. The major portion of the list was treated as income of the assessee.
Coming to the deductions in respect of amount returned, the Assessing Officer noted that the amount of Rs. 2,55,000 is total of all amounts noted below the main amount with + sign. This, according to the Assessing Officer, represented interest to self. Against some of the items, a remark, is given "fnys". The word "fnys" is Marathi word and its English equivalent was said to be "given". In actual calculation, such items with this remark were deducted.
The A.O. allowed deduction for the capital of the partners. He also allowed set off for cash shortage. The amount of Rs. 30,53,640 was worked out as under:
The assessee made a declaration of Rs. 15 lakhs. The A.O. allowed deduction of Rs. 15 lakhs from Rs. 30,53,640 and brought to tax Rs. 15,53,640. This addition was confirmed by the CIT(A).
(3.) SHRI K.A. Sathe, learned counsel for the assessee, appeared before us. Relevant documents and papers were filed. At the outset, it was submitted that addition of Rs. 15,53,640 should not be made separately and total of all additions may be taken at Rs. 19,25,025 in place of Rs. 40,63,522 as made by the A.O. and as against Rs. 18,00,000 declared by the assessee. In support of the claim, the learned counsel stated that there is no evidence to show that the amounts mentioned on the piece of paper represented 'advances due' to the assessee and not borrowings. According to the learned counsel, their is overwhelming evidence to support that the list contains the borrowings and not the amount of 'advance due' :
(i) Statement of Jayantilal who was examined at the time of raid is relevant in this connection. He admitted that the amounts represented borrowings, some of which were recorded in books and some of which were not recorded. It was also mentioned that the rate of interest was 1 per cent per month (page ,30 - Answer to question 3).
(ii) The capital of the partners is mentioned below the list. This goes to show that the list is of borrowings.
(iii) Those amounts which appear in books are appearing as creditors and not as debtors. These are as follows :
If these items represent creditors, it could also be inferred that the other unrecorded items also represented creditors only.
(iv) Against some entries an amount is mentioned with a remark "RHI" which means given. This suggests payments and not receipt. These are-
In view of the above, it is obvious that the list was in respect of the assessee's borrowings and not in respect of the 'amounts due'.;