ITA No. 110 of 2002 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 110 of 2002 Date of Decision: 25.4.2011 M/s Chandigarh Rubber Inds. ....Appellant. Versus ACIT, INV. CIR-II ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. D.K. Goyal and Mr. Rishabh Kapoor, Advocates for the assessee. Ms. Urvashi Dhugga, Senior Standing Counsel, for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 110 and 111 of 2002 as, according to the learned counsel for the parties, common questions of law are involved therein and have been decided by the Tribunal by a common order. Income Tax Appeal No. 110 of 2002 relates to assessment year 1991-92 whereas Income Tax Appeal No. 111 of 2002 pertains to assessment year 1990-91. 2. The appeals were admitted by this Court for determination of the following substantial questions of law:- “1. That whether on the true interpretation of Section 69 and also interpretation of the two agreements found ITA No. 110 of 2002 -2- and seized, the Tribunal is justified in arriving at the conclusion that Rs.2,25,000/- is investment in the property which has not been disclosed by the appellant for the A.Y. 1990-91 and hence unexplained investment and the investment made on construction in A.Y. 1991-92 is in addition to the apparent consideration of Rs.7,25,000/-. 2. That whether under the facts and circumstances of the case the conclusion drawn by the Tribunal in respect of addition holding the alleged sales amounting to Rs.2,25,685/- for the A.Y. 1990-91 and Rs.2,49,350/- for the A.Y. 1991-92 as outside the books is unsustainable in law which is without any material or evidence to prove the said sales. That in case the reply to the aforesaid question is in the positive i.e. the Tribunal is justified, then whether the whole of the sale is to be added in the income or it is only the profit on such sales is the only possible addition to be income from undisclosed sources.” 3. Put shortly, the facts necessary for adjudication as narrated in the appeal are that the assessee is a partnership firm engaged in the business of manufacturing of rubber tractor parts like seats, hose pipes and various other rubber items to be used in the tractors manufacturing units. The questions of law arising in this appeal relate to additions on account of undisclosed investment in purchase of plot No. 288, Industrial Area, Phase-II, Chandigarh, and construction raised thereon ITA No. 110 of 2002 -3- and also regarding unaccounted sales not shown in the books of account. Facts necessary for the adjudication of these issues may be noticed. 4. A search was conducted at the business and the residential premises of the partners of the assessee-firm on 10.1.1992 during which, one of the partners, namely, Ramesh Kumar Sharma made a disclosure of Rs.7,00,000/- for the assessment year 1991-92 under Section 132(4) read with clauses (i) and (ii) of Explanation 5 to Section 271(1)(c) of the Act at the hands of the firm. Out of the said amount of Rs.7,00,000/-, Rs.5,50,000/- was surrendered on account of purchase and construction of plot No. 288, Industrial Area, Phase-II, Chandigarh and Rs.1,50,000/- was unaccounted transactions found during assessment proceedings. Ramesh Kumar Sharma made ad hoc surrender without consulting even any other partner and without knowing to which year the unexplained investments pertained and which was required to be disclosed. Later, on 5.3.1992, without disturbing the quantum as disclosed, amendment in the disclosure was made by writing various years to which these amounts pertained. The said surrender was considered to have been disclosed for the following assessment years by reserving the right to amend the same on verification of seized documents:- Assessment Year Amount 1990-91 Rs.4,75,000/- 1991-92 Rs.1,25,000/- 1992-93 Rs.1,00,000/- 5. Thereafter, on getting the copies of the seized documents, ITA No. 110 of 2002 -4- the surrendered amount was revised by bifurcating the surrender of Rs.4,75,000/- against plot No. 288, Industrial Area, Phase II, Chandigarh at Rs.2,50,000/- for the assessment year 1990-91 and Rs.2,25,000/- for the assessment year 1991-92 on the basis of correct facts and investments made by amending the years though the amount of surrender remained the same at Rs.7,00,000/- as originally surrendered in the initial statement made under Section 132(4) of the Act. Originally, the return was filed on 4.9.1990 for the assessment year 1990-91 for an amount of Rs.67,270/- and the same was processed. During the course of search, two agreements were found and seized. One of the agreements, dated 1.1.1990 was for the purchase of an industrial shed for a consideration of Rs.7,25,000/- and the second agreement dated 1.3.1990 showed a consideration of Rs.2,50,000/-. The Assessing Officer relied upon the first agreement dated 1.1.1990 and not accepting the subsequent agreement dated 1.3.1990, as the same was not signed by the buyer, addition of Rs. 4,75,000/- on account of unexplained investment in the plot in question was made. The assessing officer made an addition of Rs.2,25,685/- for the assessment year 1990-91 being undisclosed sales found from the seized documents and allowed set off of such income against unexplained investment of Rs.4,75,000/-. Accordingly, net addition of Rs.2,49,350/- was made being unexplained investment. Feeling aggrieved, the assessee took the matter in appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred to as “the CIT(A)”]. The CIT(A) affirmed the order of the Assessing Officer making addition of Rs. 2,25,685/- and Rs. 2,49,350/- by taking unexplained ITA No. 110 of 2002 -5- investment to be Rs.4,75,000/- in the purchase of industrial shed. On further appeal by the assessee, the Tribunal upheld the order of the CIT(A) which gave rise to the assessee to approach this Court by way of instant appeal. 6. The assessee for the assessment year 1991-92 filed the original return declaring income of Rs. 1,72,983/- on 31.3.1993 which comprised of Rs. 70,483/- on account of profit from the business and Rs. 1,25,000/- surrendered vide the statement made under Section 132 (4) of the Act relating to unaccounted business transaction. During the course of assessment proceedings, revised return was filed on 2.3.1994 declaring an income of Rs. 3,97,983/- by surrendering further sum of Rs. 2,25,000/- spent and invested in the construction of industrial shed No.288, Phase-II, Chandigarh during the current assessment year. The assessing officer determined Rs.2,54,490/- as unaccounted sales and after adjusting the surrendered amount of Rs.1,25,000/-, made an addition of Rs. 1,29,490/- as sales outside the books of account during the assessment year 1991-92. Besides this, addition of Rs.2,25,000/- surrendered by the assessee on account of unexplained investment in the form of amount spent on construction on plot of Industrial shed was also made. The appeal carried by the assessee before the CIT(A) was partly accepted as it was held that the addition of Rs. 1,29,490/- stood covered with the additional income of Rs. 2,25,000/- assessed on account of unexplained investment in the construction of factory shed. This addition of Rs. 95,510/- i.e. Rs. 2,25,000/- less Rs. 1,29,490/- was upheld. Further appeal by the assessee to the Tribunal met with partial success and the addition of Rs. 95,510/- sustained by the CIT(A) was ITA No. 110 of 2002 -6- also deleted. 7. We have heard learned counsel for the parties. 8. The point that arises for consideration in these appeals is whether the Tribunal was justified in sustaining the addition under Section 69 of the Act amounting to Rs. 4,75,000/- on account of unexplained investment in purchase of industrial plot No.288 during the assessment year 1990-91 and Rs.2,25,685/- as undisclosed sales and Rs.2,54,490/- as unaccounted sales for assessment year 1991-92. 9. The agreement dated 1.1.1990 had been accepted by all the authorities to be valid agreement. However, after considering various factors, subsequent agreement dated 1.3.1990 which was not even signed by the buyer had not been relied upon to be genuine. The unaccounted sales have also been determined by all the authorities on appreciation of material on record. The concurrent finding has been recorded by the authorities below. The Tribunal while affirming the finding relating to unexplained investment in the plot for the assessment year 1990-91, had recorded as under:- “We have heard both the parties at some length and carefully considered the rival submissions. We have examined the facts, evidence and material on record. We have also perused the orders of the authorities below. The undisputed facts of the case are that in the books of account the assessee had disclosed investment of Rs.2.50 lakhs in the acquisition of industrial shed. This property was purchased in the name of the firm. Therefore, as per provisions of ITA No. 110 of 2002 -7- section 69B of the Income-tax Act, amount of investments in the industrial shed to the extent these have not been fully disclosed in the books of account are liable to be considered in the hands of the firm. Moreover, the disclosure on account of unexplained investment in the industrial shed has been made in the hands of the firm and not in the hands of the partners. No such plea has at all been taken either during the course of assessment proceedings, or appellate proceedings before the CIT(A) that investments in the said property should be considered in the hands of the partners. In fact, no such plea/ground has been taken before us either. The first issue that needs to be considered is, whether the factual position stated in the first agreement regarding purchase consideration of Rs.7.25 lakhs should be accepted or the purchase consideration stated in the second agreement should be accepted as correct. We have taken due note of the fact that in the original agreement, there was no stipulation on the part of the seller to construct industrial shed. Had there been any such stipulation, the same would have been provided in the agreement itself. Moreover, the transaction for purchase was supposed to be completed by 20.2.90. There was hardly any time for the seller to construct ITA No. 110 of 2002 -8- the industrial shed. Further, the second agreement does not mention the amount of Rs.2 lakhs received on execution of the first agreement. Clause (I) of the second agreement mentions that the total sale price of the semi-constructed plot is fixed at Rs.2.50 lakhs for which the seller has acknowledged the receipt in the presence of witnesses. This agreement was not even signed by the purchaser. The agreement becomes legally enforceable only when both the parties sign it. Further, in the assessment order the AO has referred to document No.17 seized during the course of search, a copy of which was placed on our record. A perusal of the same shows that an amount of Rs.4.35 lakhs was paid in cash by partners on 1.1.90, 13.2.90 and 1.3.90. Apart from this an amount of Rs.2.50 lacs was also paid by cheque, which is duly reflected in the books of accounts. Total payments as recorded on this page are to the tune of Rs.7,19,000/-. It is an admitted fact that construction of industrial shed took place in the subsequent year i.e. 91-92, which is evident from the seized document No.18. Therefore, nothing on document No.17 does not contain the cost of construction of the industrial shed. If the assessee's contention that industrial shed was purchased for Rs.5 lakhs out of which an amount of Rs.2.50 lakhs ITA No. 110 of 2002 -9- was paid outside the books of accounts is accepted, it is not understood why the party was required to make payments of Rs.4,35 lakhs in cash and another sum of Rs.2.50 lakhs by cheque in the accounting year relevant to assessment year 90-91. In fact, the payments of Rs.50,000/- were made by a partner by two cheques. But it is not known whether the payment was utilized by the firm in making payment to the seller. The assessee's contention that second agreement contains the correct cost of acquisition could have been accepted if the consideration was admitted to be Rs.2.50 lakhs. In fact, the assessee admits that consideration paid was Rs.5 lakhs out of which Rs.2.50 lakhs were paid outside the books of accounts. Moreover, at the time of search, the assessee had made a disclosure of Rs.4.75 lakhs for the assessment year 90-91 to cover the undisclosed investment in industrial shed. It was only when the assessee was confronted with further cost of construction in the accounting year relevant to assessment year 91-92 that the assessee modified the disclosure as mentioned above. Having regard to these facts and circumstances of the case and for the detailed reasons discussed by the CIT(A) in her appellate order, with which we agree, we are of the opinion that the CIT(A) was justified in coming to the ITA No. 110 of 2002 -10- conclusion that industrial shed was purchased for Rs.7.25 lakhs as mentioned in the original agreement and in addition the assessee incurred cost of construction of Rs.2.25 lakhs in the subsequent assessment year. We, therefore, hold that the CIT (A) was justified in confirming the addition of Rs.4,75,000/- for the assessment year 90-91 apart from the amount of Rs.2,25,000/- offered by the assessee in the revised return for the assessment year 91-92. Therefore, this ground of appeal for the assessment year 90-91 is rejected.” 10. The assessee's contention relating to unexplained sales for the assessment years 1990-91 and 1991-92 was rejected by the Tribunal, with the following observations:- “We have heard both the parties and carefully considered the rival submissions. We have examined the facts, evidence and material on record. We have also perused the orders of the authorities below. From the facts detailed above, it is obvious that entries in regard to receipts were found recorded in the ledger seized during the course of search and marked as document No.18. There is no dispute about the quantum of unrecorded receipts taken by the AO for both the assessment years. There is also no dispute that as against the receipts mentioned above, only receipts of Rs. 1,27,550/- and Rs.68,129/- were disclosed in its regular books of account. While the assessee made ITA No. 110 of 2002 -11- disclosure of Rs. 1.25 lakhs for the assessment year 91-92, no such disclosure was made for the assessment year 90- 91. There is absolutely no evidence adduced before any of the authorities below or even before us to show any expenditure incurred by the assessee on the purchases and claimed before us. It is also an admitted fact that there are no entries in the seized books of account indicating any expenditure incurred by the assessee on purchases. If the assessee had really made some purchases, the same would have been duly reflected in the books of account against the corresponding receipts, particularly, when the assessee was recording receipts in minute details. After all, rule of evidence applicable to income tax proceedings is preponderance of human probability. Reliance in this regard is placed on the two judgments of Hon'ble Supreme Court in the cases of CIT vs. Durga Prasad More, 82 ITR 540, and Sumati Dayal vs. CIT, 214 ITR 801. When we apply such test to assessee's case, we find no evidence, whatsoever, to support the contention of the assessee. In the absence of any evidence, we are of the considered view that the assessee had not in fact incurred any expenditure apart from the expenditure already debited to the regular books of account and, therefore, the entire receipts were liable to be included as undisclosed income of the assessee. The decision of the ITAT, Bombay Bench in the case of Balaji Textile Ltd. (P) Ltd. Cited supra, is not ITA No. 110 of 2002 -12- applicable to the facts of the case because it related to a trading concern whereas in the case of the assessee the receipts indicated sales of items produced during the manufacturing process for which the entire cost had already been debited to the trading account. Having regard to these facts and circumstances of the case, we confirm the orders of the CIT(A) in sustaining the additions for both the assessment years under reference. Accordingly, these grounds of appeal are dismissed.” 11. Learned counsel for the assessee was unable to demonstrate that the findings recorded by the Tribunal are perverse in any manner which may call for any interference by this Court. Accordingly, the substantial questions of law are answered against the assessee and in favour of the revenue. 12. The appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE April 25, 2011 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 110 of 2002 -13- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 111 of 2002 Date of Decision: 25.4.2011 M/s Chandigarh rubber Inds. ....Appellant. Versus ACIT, Inv. Cir-II ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. D.K. Goyal and Mr. Rishabh Kapoor, Advocates for the assessee. Ms. Urvashi Dhugga, Senior Standing Counsel, for the respondent. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 110 of 2002 (M/s Chandigarh Rubber Inds. v. ACIT, Inv. Cir-II). (AJAY KUMAR MITTAL) JUDGE April 25, 2011 (ADARSH KUMAR GOEL) gbs JUDGE