Cash seized from locker of wife children added to assessee’s income as he failed to prove their earning capacity

By | April 24, 2017
Print Friendly, PDF & Email
(Last Updated On: April 24, 2017)

HIGH COURT OF ALLAHABAD

Commissioner of Income-tax (Central) Kanpur

v.

Dr. G. G. Dhir

BHARATI SAPRU AND SAUMITRA DAYAL SINGH, JJ.

IT APPEAL NO. 55 OF 2010

MARCH  30, 2017

Shubham Agarwal, S.C. for the Appellant. R.R. Agarwal and S. Agarwal for the Respondent.

ORDER

1. The present income tax appeal under Section 260-A of the Income Tax Act, 1961 has been filed by the revenue against the order dated 31.8.2009 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra.

2. The appeal arises from the block assessment proceedings in the case of the assessee, a medical doctor, for the block period 1.4.1997 to 24.4.2003.

3. The above appeal was admitted on the following four questions of law:-

“1.Whether on the facts and circumstances of the case the Hon’ble ITAT has erred in law in holding that undisclosed income in the form of cash & jewellery found & seized from various bank lockers be consider in the hands of the wife & sons of the assessee only because they owned it up when it was established that they had no known source to have accumulated so much of cash and jewellery whereas the assessee had huge undisclosed professional income.?
2.Whether on the facts and circumstances of the case the Hon’ble ITAT has erred in law in ignoring the fact that the Assessing Officer had initiated the proceedings u/s 158BC to conduct enquiry as to whether the alleged owner had the capacity to accumulate so much of undisclosed income but they did not co- operate despite the fact that Hon’ble High Court had given specific direction while admitting their writ petition that the asstt. proceedings will continue without passing the final order?
3.Whether on the facts and circumstances of the case the Hon’ble ITAT was justified in law in deleting the addition of Rs. 8,44,294/- on account of cash found from the lockers by accepting the availability Judicial member & the CIT(A) that the cash book was an after thought as no cash book was found either during the course of search or, from the possession of counsel/accountant as claimed by the assessee during search and the cash book produced subsequently was not even supported by vouchers?
4.Whether on the facts and circumstances of the case the Hon’ble ITAT was justified in law in deleting the addition of Rs. 7,80,000/- on account of alleged agriculture income of HUF without appreciating the admitted fact that no evidence could be produced at any stage to establish that agricultural operation was actually carried on either directly or indirectly?”

4. Briefly stated facts of the case are that a search was conducted on 24.04.2003 in the case of the assessee during which proceedings a large number of bank lockers in the name of assessee and his family members were also searched resulting in seizure of large amount of hard cash and jewellery.

5. Block Assessment was completed for the block period 01.04.1997 to 24.04.2003 on undisclosed income of Rs. 1,86,23,726/- as against Rs. 34,62,350/- disclosed by the assessee in his return of income for the block period.

6. It is claimed by the department that during the search, following cash and jewellery were found:-

Sl. No .Found fromCash (Rs.)Jewellery Net Wt. GmsValue
1.Residence of Dr. G.G. Dhir at 3A Ram Nagar Colony, Agra22,8206527500
2.Locker No. 1/25, PNB, Dayal Bagh, Agra in joint names of Dr. G.G. Dhir and Smt. Vijay Dhir63,12,700
3.Locker No. 485, PNB, Surya Nagar, Agra in the name of Sri Girdhar Gopal4,36,2003382.2501568299
4.Locker No. 37, SBI, Sadar Bazar, Agra in joint names of Smt. Vijay Dhir and Dr. G.G. Dhir5,48,000
5.Locker No. 345, SBI, Chipitola Agra in joint names of Dr. G.G. Dhir and Smt. Vijay Dhir10,100
6.Locker No. 281, PNB, Surya Nagar, Agra in joint names of Dr. G.G. Dhir and Smt. Vijay Dhir5,30,0001040.850521908
7.Locker No. 314, PNB, Surya Nagar, Agra in the name of Smt. Vijay Dhir5,67,300
8.Locker No. 30, Punjab &Sindh Bank, Ghatia Azam Khan, Agra in the names of Smt. Vijay &Girdhar Gopal11,32,000
9.Locker No. 109, SBI, Sadar Bazar, Agra in the names of Gopal Kishan and Sh. Udit Dhir5,14,000294.500123101
10.Locker No. 645, PNB, Surya Nagar, Agra in the name of Smt. Vijay Dhir and Sri Udgeath Dhir21,00,000
11Locker No. 59 SBI, Sadar Bazar, Agra in the names of Vibha and Raman5,62,800
12.Locker No. 98, PNB, Surya Nagar, Agra in the name of Sri Ushast Dhir16,64,900231.14010275
Total1,44,00,8205013.7402343563

7 Simultaneously, a survey u/s. 133A(1) of the I.T. Act, 1961 was carried out at the assessee’s clinic. No regular books of account for the current year or for the preceding years were found either at the clinic or at the residence. The assessee stated that books of accounts were with the counsel. In order to obtain the books, summons were issued to the counsel of the assessee during the course of search itself to produce the books but no books were produced. At the residence only the cash book and the ledger for the F.Y. 97-98 were found and seized.

8. The assessee’s family comprises of his wife Smt. Vijay Dhir and two sons Udgeath Dhir and Ushast Dhir. While the assessee’s wife Smt. Vijay Dhir was, at the relevant time a partner in a firm M/s Deebha Pharmaceuticals, 57/2, Kaveri Centre, F-15, Sanjay Palace, Agra, the assessee’s sons were students thus having no source of professional income during the block period in question.

9. During the course of the block assessment proceeding against the assessee, he, for the first time produced a computer printed cash book relating to his professional income. However, no corroborative evidence as to existence of such books had been found during the course of the search and survey proceedings. Also, no books of account were produced in respect of the income of assessee’s wife and sons. Consequently, vide block assessment order dated 31.5.2005, total undisclosed income of the assessee was assessed at Rs. 1,86,23,726/- against the returned income of Rs. 34,62,350/-. It included following additions:-

“(i)Rs. 50,00,000/- allegedly received in cash from M/s Supriya Agrotech Ltd as advance against the sale of assessee’s land for Rs. 90 lacs. It was added as undisclosed income in A.Y. 2003-04.
(ii)Rs. 8,73,418/- cash found from the lockers alleged professional receipts entered in the cash books from 01.4.2003 to the date of search. It was added as undisclosed income in A.Y. 2003-04.
(iii)Rs.7,80,000/- alleged accumulated agriculture income of HUF. It was added as undisclosed income in A.Y. 1999- 2000.
(iv)Rs. 5,30,000/- found in the locker No. 281 of Smt. Vijay Dhir, wife of the assessee. It was added as undisclosed income in A.Y. 2003-04.
(v)Rs. 11,32,000/- found in locker No. 30 of Punjab & Sindh Bank, Ghatiya Azam Khan, Agra in the joint name of assessee and assessee’s wife Smt. Vijay Dhir, who has claimed that the contents belong to her. It was added as undisclosed income in A.Y. 2002-03.
(vi)Rs. 5,14,000/- found in locker No.109, SBI, Sadar Bazar, Agra claimed by Smt. Vijay Dhir, wife of assessee. It was added as undisclosed income in A.Y. 2000-01.
(vii)Rs. 21,00,000/- found in locker No. 645, with PNB, Surya Nagar, Agra in the names of Smt. Vijay Dhir and Sri Udgeath Dhir. It was added as undisclosed income in A.Y. 2001-02.
(viii)Rs. 16,64,900/- found in locker No. 98 PNB, Surya Nagar, Agra in the joint name of Sri Ushast Dhir and Sri G.G. Dhir claimed by Sri Ushast Dhir by filing an affidavit. It was added as undisclosed income in A.Y.
(ix)Rs 5,30,000/- on account of excess gold jewellery found. It was added as undisclosed income in A.Y. 2003-04.
(x)Rs. 11,600/- expenditure on account of purchase of tyres and tubes. It was added as undisclosed income in A.T. 2003-04.
(xi)Rs. 1,11,916/- on account of visit to foreign sponsored by M/s Aventis Pharma Ltd, Mumbai. It was added as undisclosed income in A.Y. 2002-03.
(xii)Rs. 19,800/- on account of undisclosed receipt of liquor. It was added as undisclosed income in A.Y. 2004-05.”

10. Against the assessment order dated 27.6.2005 the assessee had preferred the first appeal which was dismissed by the CIT (Appeal), Agra vide his order dated 30.3.2006.

11. Against the first appellate order the assessee filed the appeal before the Tribunal which has vide its impugned order granted partial relief to the assessee. Hence this appeal.

12. In the appellate proceedings before the Tribunal, there arose a difference of opinion between two members who first heard the appeal in respect of various additions made at the hands of the assessee. While the accountant member granted relief to the assessee, the judicial member had denied the same. Resultantly, the matter was placed before the third member who largely agreed with the findings of the accountant member. Thereafter, the appeal has been decided in terms of the majority view and the Tribunal has thus partly allowed the appeal of the assessee.

13. The department being aggrieved by the final order of the Tribunal dated 31.8.2009 has approached this Court as it has felt aggrieved on three counts. Second, according to the department the Tribunal ought not to have granted relief of Rs. 8,73,418/-, the said amount being undisclosed cash found in the lockers that were subjected to search proceedings. Third, the department is aggrieved by the deletion of addition made by disallowing claim of agricultural income in absence of any evidence of such income having arisen. First, the department has seriously contested the deletion of various amounts namely Rs. 5,30,000/-, 11,32,000/-, 5,14,000/-, 21,00,000/-, 16,64,900/-, 5,30,000/- and 44,471/- (total Rs. 65,15,371/-) being the amounts found in different bank lockers that were subjected to search proceedings. Addition on this account has been deleted by the Tribunal accepting the contention of the assessee that these amounts and jewllery belonged to the wife and sons of the assessee.

14. Heard Sri Shubham Agarwal, learned counsel for the department and Sri Suyash Agarwal, learned counsel for the assessee and perused the record.

15. First we take up for consideration question nos. 1 and 2 together as they relate to addition on account of cash and jewellery found and seized from the bank lockers. Question no.2 is in fact a reflection of question no.1 itself and does not raise independent and different issue.

16. In the course of the assessment proceeding the Assessing Officer had found assessee’s wife Smt. Vijay Dhir was an income tax assessee and was a partner in the firm M/s Deebha Pharmaceuticals, 57/2, Kaveri Centre, F-15, Sanjay Palace, Agra from which firm she earned Rs. two lacs per annum and that she did not maintain any personal set of accounts. He had also found that the elder son of the assessee Sri Udgeath Dhir was a student of MBBS course at the time of search having completed his study only in 1999 and was working as an intern. Thereafter he joined MS course at Baroda in April 2001 and that he continued his study up to financial year 2003-04. The assessee’s second son namely Ushast Dhir started his MBBS study during the period 1998-99.

17. Further, the assessing officer found that the elder son of the assessee namely Udgeath Dhir filed his return for the assessment year 2002-03 disclosing the income of Rs. 92,810/- only including his professional income of Rs. 30,000/-.

18. The Assessing Officer also relied on the statement on oath recorded during the investigation proceedings wherein upon being specifically confronted as to the source of professional income, Sri Udgeath Dhir only furnished evasive replies and could not substantiate in any manner, the cash claimed by him. Thus the Assessing Officer disbelieved the claim of Sri Udgeath Dhir having earned professional income in any proportion of the cash seized as during the financial year 1997-98 he was in the midst of his MBBS course.

19. The assessee’s second son Ushast Dhir had filed only one return of income for the assessment year 2003-04 that is after the search date and disclosed only interest income only Rs. 5,000/-.

20. As is apparent, in this case large amounts of cash were found in different bank lockers all traceable to the assessee inasmuch as it has been further found by the Assessing Officer that the assessee was the person, operating those lockers from time to time and had also been paying the rent for maintenance for those lockers.

21. In contrast, it appears from the record that the assessee’s family members namely his wife and two sons did not have any source of income that could justify discovery of such large amounts of cash found in various bank lockers while the assessee was a medical practitioner in which profession it was possible to generate such amounts in cash. The assessee’s wife being a partner in the firm could normally not be assumed to be in receipt of such amounts in cash, especially, when it was claimed that she received Rs. 200,000/- per annum from that source. In any case she neither maintained any separate books of account and thus could not have claimed receipts sufficient to cover cash found in various bank lockers.

22. Similarly, the assessee’s sons who were only students could not lead any evidence and could not thus justify any part of large sums of cash found in the bank lockers maintained and operated by the assessee as having arisen from any source or profession.

23. Thus according to the Assessing Officer the assessee’s wife and sons had no capacity to claim the ownership of money found in the bank lockers.

24. In view of the such conclusion the Assessing Officer disbelieved and disregarded the claim made by the assessee’s wife and his two sons over the money found in the bank lockers in question.

25. It may further be noted that while the Assessing Officer made the addition at the hands of the assessee on a substantive basis, at the same time he also made corresponding addition in the case of the assessee’s wife and his two sons on protective basis, obviously, in view of the claim made by those persons.

26. While the CIT (Appeals) dismissed the appeal filed by the assessee against such additions made on substantive basis in its case, in further appeal before the Tribunal, the accountant member held in favour of the assessee. This view has also been taken by the third member to whom the matter was referred upon difference of opinion. The third member has while deleting the addition in respect of additions of Rs. 5,30,000/-, 11,32,000/- and 5,40,000/- has held:

“The fact that Smt. Vijaya Dhir was not having capacity to possess cash to the extent it was found in her lockers, by itself could not be a reason to discard the ownership of cash as that of the lady and to treat the same as the property and the income of the assessee.”

27. Similar reasoning has been given by the third member of the Tribunal while deleting similar additions on account of cash and jewellery found from the lockers.

28. On the other hand the judicial member had while deciding this issue reasoned that sons of the assessee were students at the time of search and had no source of income to justify or explain the amounts of cash claimed by them and that even after completion of study they had meager incomes which were wholly insufficient to justify the cash found in the lockers. Also, he had similarly disbelieved the case of the assessee’s wife having regard to her known source of income and lack of any books of account.

29. In this light the judicial member reasoned that it was necessary for the assessee to demonstrate that the persons had the capacity to account for the cash and they were not benami- name lenders. In the facts of the case, he held the assessee had failed to demonstrate that the sons and wife were not name- lenders, whereas the department had demonstrated on facts and evidences duly confronted to the assessee, that the family members lacked the capacity to generate the kind of funds found during the search and the assessee on the other hand had the capacity to earn money commensurate to the money and jewllery found during the search.

30. Moreover, the assessee had admitted suppression of professional receipts and on top of it all he had a history of deficiency in its books of accounts. Thus according to the judicial member of the Tribunal, the finding that the family members are benami-name-lenders of the assessee cannot be set aside lightly by merely resorting to calculated silence on facts and by abusing the process of law. To hold so, in his view would set a very dangerous precedent and proposition and would tantamount to misreading and misapplying the decisions rendered by the Courts in facts peculiar to their own.

31. Sri Shubham Agarwal, learned counsel for the department has vehemently urged that while judicial member had recorded, a well considered finding on the issue and had rightly disbelieved the claim made by the assessee’s wife and sons, the finding recorded by the third member and the accountant member are absurd and unsupported by any evidence inasmuch as once it was found even by the third member and the accountant member that Smt. Vijay Dhir, Sri Udgeath Dhir and Ushast Dhir had no capacity to possess cash found in the bank lockers maintained and operated personally by the assessee, the explanation furnished ought to have been rejected.

32. He has further submitted that in absence of financial capacity, the burden was squarely and completely on the aforesaid three persons to disclose the source of money on which they lay their claim. He has further submitted that no evidence at all was led either by the assessee or his wife or his two sons to show that any part of the cash found and seized from the lockers was such as may have been deposited by the assessee’s wife or his two sons.

33. In reply Sri Suyash Agarwal, learned counsel for the assessee reiterated the findings of the accountant member and the third member that are in favour of the assessee.

34. We have perused the record and are of the opinion that the finding recorded by the third member and the accountant member of the Tribunal that the lack of the capacity to possess cash could not be a reason to discard the ownership, in the facts of the case, is wholly erroneous as in the instant case there was a complete lack of any plausible explanation as to the source of acquisition of money either by the assessee’s wife or by his two sons from any source and in any case, the first, and at times the only presumption that may arise upon lack of financial capacity of a person being proven be that such a person was not at all possessed of the money being claimed by him. A very heavy burden would then be on such persons to explain the source of money being claimed by them. It was never discharged in the instant case.

35. In fact, to the contrary, the said three persons only sought to explain the source through their own earning and from no other source which issue stood determined against them upon finding of lack of financial capacity recorded by the all members of the Tribunal. From perusal of their returns as also from their status namely Smt. Vijay Dhir being a partner in a partnership firm with declared income of Rs.2 lacs per annum and the assessee’s two sons being student at the relevant time, it is clear that they had no means to come in possession of such large amount of cash or jewellery. Clearly they had claimed the money and jewellery only to cover the unexplained income of the assessee. The judicial member had rightly rejected the explanation of the claim and accountant member and third member accepted the claim on no evidence. Their findings to that effect are clearly perverse.

36. In view of the above we answer the questions no.1 and 2 in favour of the department and against the assessee. Accordingly the addition of total Rs. 65,15,371/- as sustained by the judicial member of the Tribunal and the order of the CIT (Appeals) to that effect stands affirmed.

37. Coming to question no.3 we find that it is an admitted case between the parties that no cash book was found during the course of search and it was not produced in the course of investigation following the search, though again it is a common case between the parties that the search and survey conducted in the case of assessee was quite extensive. The cash book was produced for the first time in the block assessment proceedings itself and it was not the case of the assessee that the cash book had been produced during the search and survey proceedings. This act appears, to us, to be clearly a case of poor afterthought after considerable lapse of time of almost one year or more.

38. The assessee had initially offered a shifting stand on this issue inasmuch as during the course of search it has been first claimed by him that the account books were with the lawyer, later however it was stated at the same with the accountant but the cash book that was produced was a print taken from computerized record which belies the stand taken by the assessee during search and survey proceedings. Commonly, computerized accounts are maintained on a computer that stores the data on its hard drive and either prints of the same or copies on storage devices are carried by other users etc. At no stage during the search and survey proceedings was any evidence adduced of existence of cash book on a computer.

39. The Assessing Officer was of the view that such books if regularly maintained, some proof or evidence of such accounts being maintained would have been found during the search proceedings itself. It is itself difficult to believe that the assessee was under any difficulty to produce prints of cash book maintained on the computer specially when, the computer on which it later claimed to have maintained such cash book) was neither seized nor discovered during the course of search of proceedings. In this regard also the case of the assessee did not inspire any confidence as some of the statements and explanation smacks of intention to evade tax.

40. Sri Shubham Agarwal, learned counsel for the department has submitted that cash book was not found during search proceedings and it was first produced during the course of assessment proceedings. He has also submitted that none of the entries in the cash book is supported by any voucher and that the entries in the cash book are merely self-serving statements made by the assessee as a mere after thought.

41. Alternatively, he also submits that cash sought to have been explained by the assessee through the production of cash book was found in various bank lockers. The last operation of the bank lockers was admittedly done by the assessee on 27.6.2002 whereas the cash balance of Rs.8,44,294/- figured on 31.3.2003. Therefore, the cash book is even otherwise not related to the cash found in the bank lockers for the reason that the cash earned up to 31.3.2003 could not have been placed in the bank lockers in June, 2002.

42. In this regard we find that the third member of the Tribunal has recorded a finding to the effect that the banks allow their premier customers to operate their bank lockers without obtaining their signatures. This finding has been reached in absence of any pleading or evidence of such fact thereby implying, on a mere presumption, unfounded in fact and in law that the assessee must have operated the bank lockers even after 27.6.2002 and would have deposited the cash sought to be explained through entries made in the cash book after date 27.6.2002.

43. We may also note that there is no evidence led by the assessee and it was not even his case that such state of affairs prevails with the banks. We are constrained to observe that the finding of the third member of the tribunal is not only perverse but also a conjecture and a pure figment of imagination.

44. While hearing the appeals, the Tribunal being the last fact finding authority can reach the conclusion different from that recorded by the lower authority. However this power does not give a license to the Tribunal to record a finding contrary to the pleadings and evidence and the law itself. There was no pleading or case or evidence that the bankers had allowed or could have allowed the assessee to operate the lockers without making relevant entries in their record. In fact, to the contrary, banks being governed by statute and guidelines by the Reserve Bank of India, it may be safely presumed that the assessee did not operate the bank lockers after the date 27.6.2002 and if the assessee had claimed otherwise then heavy burden would have been on him to prove such an occurrence.

45. The Tribunal being quasi judicial authority ought to have confined itself to the facts and pleadings of the case and the law governing the conduct of the parties. The wholly imaginative finding recorded by the third member of the Tribunal is perverse and wholly unsustainable in law and, therefore, set aside.

46. Sri Suyash Agarwal, learned counsel for the respondent has on the other hand contended that none of the authorities have rejected the books of account of the assessee and have not invoked Section 145 for that purpose. In fact it is his case that the authorities have relied in part of entries found in the cash book. It is therefore his contention the explanation of the assessee as to valuable of Rs.8,44,294/- was rightly accepted by the Tribunal.

47. While it is true that the authorities have not invoked Section 145 of the Act and have not passed a best judgment assessment order under Section 144 of the Income Tax Act, we are unable to accept the submission made by Sri Suyash Agarwal as in the instant case the department had found and seized the cash from the bank lockers operated and maintained by the assessee. The assessee was required to explain the source of acquisition of such money. It was for the assessee to offer such explanation as was true and correct to explain source of cash found in the lockers, the cash having been found placed in the lockers that were last operated on 27.6.2002. Thus the source of acquisition of cash found in lockers could be only for up to 27.6.2002 and not 31.3.2003.

48. The assessee tried to explain the same by means of the cash book entries which show the cash balance on 31.3.2003. Clearly this explanation is an eye wash. It may, in fact have been open to the department, in such a situation to have made further addition of Rs. 8,44,294/- disclosed in the cash book as on 31.3.2003 or considered it to be part of the regular assessment of the assessee. The departmental authorities have in fact been lenient to such an assessee. We leave the matter at that without making any further observation or direction.

49. However, for the purpose of decision in the instant appeal suffice is to say that the explanation offered by the assessee was rightly not accepted by the Assessing Officer and the said finding was rightly sustained by the CIT (Appeals) and the judicial member of the Tribunal who had taken note of the circumstances of the cash book having not been found during the search; of it having been produced belatedly during the assessment proceedings; of the entries in the cash book being not supported by any voucher and of the lockers having been last operated date 27.6.2002.

50. In view of the above, we find that the findings recorded by the third member of the Tribunal and the accountant member are perverse and unsustainable, there are accordingly set aside. On the other hand the findings recorded by the judicial member are based on appraisal of evidence and material on record. The said finding is affirmed and the order of the CIT (Appeals) is restored on that count.

51. Lastly, Sri Shubham Agarwal has raised the issue of dis-allowance of agricultural income of the assessee. In this regard we find that the assessee had established original ownership of about ten acres of agricultural land of which about three acres were sold. The sale of land has been believed by the Tribunal and the revenue is not aggrieved by that finding. It gave rise to cash receipt of Rs. 3,44,000/- that has been accepted. To this extent the claim of the assessee has not been rejected and it is only the balance amount which has been claimed as accumulated agricultural income from about seven acres of agricultural land that has been sustained by the Tribunal.

52. In this regard we find that the finding of the third member of the Tribunal and the accountant member do not suffer from any infirmity inasmuch as, the ownership of agricultural land about seven acres is undisputed. Besides the observation that there was no evidence of the assessee having carried out any agricultural activities, there is nothing on record to disbelieve the claim made by the assessee. We do not find any infirmity in such finding keeping in mind the total amount of agricultural income (accumulated) claimed by the assessee, being about seven lacs, such income in any case being a matter of estimation. Accordingly, question no.4 is answered in favour of the assessee and against the department.

53. In view of the above, the question no.1, 2 and 3 are answered in favour of the department and against the assessee. The order of the Tribunal (majority view) in that regard, is set aside and that of the Judicial member is upheld. The order of the CIT (Appeals) on these issues is affirmed. On question no.4 the order of the Tribunal (majority view) is affirmed. That question is answered in favour of the assessee and against the department.

The appeal is partly allowed as above.

Direct Taxes Ready Reckoner
Service Tax Ready Reckoner
Company Law Ready Reckoner
tax deduction at source

Leave a Reply

Your email address will not be published. Required fields are marked *