TaxTMI 
TaxTMI 
TaxTMI 
2008 (7) TMI 446
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....n it under section 143(3) of the Income-tax Act, 1961, by order dated March 27, 2001. In this assessment order, an addition of Rs. 16,80,475 was made under section 68 of the Act. The amount represented sale proceeds of jewellery which had earlier been disclosed under the Voluntary Disclosure Income Scheme, 1997. The jewellery was shown to have been sold to M/s. Bishan Chand Mukesh Kumar, a firm of jewellers located in Delhi. The Assessing Officer disbelieved the sale and held that the assessee has adopted a device to introduce his own unaccounted income into the regular books. The addition was confirmed by the Commissioner of Income-tax (Appeals) and the assessee has come in further appeal before the Tribunal. The hon'ble President took into account the recommendation of the Amritsar Bench of the Tribunal dated December 18, 2006 and also the fact that the matter was of public importance and by order dated March 8, 2007, referred the aforesaid appeal to a Special Bench consisting of five Members to be heard at Delhi. The following points were also referred to the Special Bench : "(a) Whether, the benefit of jewellery disclosed under V.D.I.S. 1997, is limited to the first stage....
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.... made under VDI Scheme, 1997, can be considered to be the income of the assessee from undisclosed sources under any of the provisions of the Income-tax Act, 1961 ?" 5. We also observed that it would be open to the parties to argue all aspects of the case, both factual and legal, within the framework of the above question and the grounds of appeal raised by the assessee. We have also explained therein the reason why the question has been reframed. 6. On December 4, 2007, when the appeal was taken up for hearing by the Special Bench Mr. Kapila submitted that the appeals in the case of M/s. Bishan Chand Mukesh Kumar, Delhi, a firm of jewellers, to whom Tejinder Singh (HUF) and several other declarants under the VDIS claimed to have sold jewellery, were pending before the Tribunal and the interests of justice required that they also be heard by the Special Bench to avoid any possibility of contradictory views being taken by the Tribunal. He sought leave to file an appropriate application before the hon'ble President. It was opposed by the assessee but we overruled the objection and permitted Mr.Kapila to move an appropriate application before the hon'ble President of the Trib....
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....s employees and family members. He had opened a number of bank accounts in various banks in the names of individuals and other business entities. These individuals were his relatives, family members, friends, employees, etc. and all these accounts were under his control. According to the Assessing Officer, the accounts were used for transferring the amounts from other associated accounts and thereafter the money was withdrawn from these accounts for returning the cash back to the persons who had given bogus accommodation. The bank accounts were also used for depositing the cash received. The cash was later transferred to other accounts and cheques were issued to the beneficiaries from those accounts. The Assessing Officer also stated that the assessee indulged in providing accommodation entries by accepting cheques as well as cash and the cash or the cheques were issued later. Cheques were also issued to the beneficiaries in their accounts as gifts which were supported by gift deeds to add a colour of genuineness. The details of the bank accounts, the names in which they were held, the names of persons who operated the accounts, the names of the bank and the account numbers are giv....
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....32,32,77,001 which represented the amount which came in as cash and clearing deposits (cheques) in the various bank accounts. The commission income thus calculated came to Rs. 66,16,385. From paragraphs 5.1 to 5.7, the Assessing Officer estimated commission income of 0.50 paise on the amount of Rs.57,63,33,291 which came in as clearing deposits in the bank accounts. This amount represents the profit cheques. The commission amount came to Rs. 28,81,666 and the same was treated as undisclosed income of the assessee. Thus, the commission income of Rs. 66,16,385 and Rs. 28,81,666 were assessed as commission of the assessee which he received on activities which were accepted by him as accommodation entries. So far as the activities which were claimed by the assessee to be genuine but was not accepted to be so by the Assessing Officer, he has devoted paragraphs 6.1 to 7.11 of the assessment order and has concluded that the assessee earned undisclosed commission income of Rs. 18,34,542 on the claimed purchases of Rs. 36,69,08,500 by Bemco Jewellers Private Limited from its incorporation till the date of search. The rate of commission estimated by the Assessing Officer was 0.50 per cent. F....
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....h 6 of his order. However, he finally concluded that the assessee did receive com mission at the rate of 0.50 paise. (c) That the assessee must have paid commission of 0.15 paise and thus the net commission income amounted to 0.35 paise with regard to the total turnover of Rs. 132.32 crores, which came to Rs. 46,31,425. (d) That as regards the clearing deposits of Rs. 57,63,33,000 representing profit cheques also, the net commission may be estimated at 0.35 paise. This came to Rs. 20,70,167 as against Rs. 28,81,666 estimated by the Assessing Officer. (e) As regards the alleged bogus purchase of jewellery of Rs.36,69,09,500 by Bemco Jewellers Pvt. Ltd., the Commissioner of Income-tax (Appeals) did not accept the assessee's submission that the transactions were genuine. He has discussed the reasons in paragraphs 10-16 of his order. He has upheld the findings of the Assessing Officer and has held that on these transactions also the net commission income may be estimated at 0.35 paise which came to Rs. 12,59,716 as against Rs.16,29,072 estimated by the Assessing Officer at 0.50 paise. (f) As regards the claim of expenditure to earn the income by way of commission, the asses....
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....n facts and not on surmises. He also submitted that the payment to mediators was not allowable because of the Explanation to section 37(1). In reply, the learned representative for the assessee submitted that the weighted average of the commission received comes to 0.34 paise and after payment of 0.15 paise the net commission income came to only 0.19 paise. To a query, as to how the weighted average was calculated, he answered that it was calculated on the basis of details available at page 389 of the paper book which are reproduced in columnar form in paragraph 4.6 of the assessment order. He also contested the submission of the special counsel that Explanation to section 37(1) was applicable. 16. We have carefully considered the facts and the rival contentions. In our view, the Commissioner of Income-tax (Appeals) was justified in adopting 0.35 paise as the net income by way of commission. From the details available on record, it is seen that the commission varies from 0.10 paise to even Rs. 3. The Commissioner of Income-tax (Appeals) has noted that the assessee himself had stated that he received commission at the rate of 0.50 paise. From this, he has allowed 0.15 paise for exp....
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....e assessee earned undisclosed income which has not been done and that in the present case, it was the assessee which wanted the profit cheques and, therefore, it was he who is to pay commission and not to receive the same. It was further contended that at any rate, if the income for the block period is based on estimate on the basis of material seized for part of the period, the expenditure to earn the income shall also be calculated on the same basis. 20. As against this, the special counsel for the Department contended that the Departmental authorities were justified in restricting the expenditure. 21. We have carefully considered the facts and the rival submissions. In paragraphs 5.1 to 5.6 of the assessment order, the Assessing Officer has discussed this issue. An amount of Rs. 57,63,33,291 has come in as clearing deposits in the bank accounts controlled by the assessee. These cheques were received by the assessee from parties who are said to have passed on their profits to him and his concerns in the garb of share profits and bogus purchases. The corresponding amounts have been given back to them in cash. The assessee has stated before the Assessing Officer that he never did....
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.... per Rs. 100, it stands to reason that he has also received commission. He, therefore, held, consistent with his stand, that the assessee received net commission at 0.35 paise per Rs. 100 and directed the Assessing Officer to add Rs. 20,70,167 as against Rs. 28,81,666 estimated by the Assessing Officer. We do not see any infirmity in the reasoning or logic adopted by the Commissioner of Income-tax (Appeals). 22. Turning to the claim of expenses, we find that at pages 246 onwards of the paper book, the assessee has placed the copies of the cash book written for the period July 7, 2000 to August 1, 2000. From pages 329, the ledger accounts are available starting from April 1, 2000. We find that on some dates, certain expenses which are not normally allowable have been debited. For example, on April 4, 2000 there is a debit of Rs. 20,000 under the head "Office expenses air-conditioner". Other examples are Rs. 46,000 debited on April 13, 2000, with similar narration, Rs. 30,000 debited on April 18, 2000 as house expenses, Rs. 2,400 debited as passport expenses on May 4, 2000, Rs. 25,300 debited as other expenses without any detail on May 15, 2000, and so on. In view of this, the cash ....
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....hat the same belonged to Bemco of which he was a director. The Assessing Officer did not accept the assessee's explanation because, according to him, Bemco did not carry on any genuine business in jewellery. He accordingly added the cash under section 69A. 25. On appeal, the Commissioner of Income-tax (Appeals) held that the availability of cash could not be explained out of the known sources of income of the assessee and was, therefore, rightly added as income. He however observed that the income must have arisen to the assessee from conducting the business of accommodation entries for which additions were already made. The Commissioner of Income-tax (Appeals) thus held that the cash was part of the income which was already assessed by the Assessing Officer. He, therefore, gave the benefit of telescoping, having regard to the fact that there was no evidence on record to show that it was generated from some other source of income. Accordingly, he deleted the same. 26. The assessee has come in appeal to contend that the Commissioner of Income-tax (Appeals) ought to have held that the cash came out of known sources of income as explained by the assessee and not out of income fr....
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....herefore, the returns were of no evidentiary value. He held that there was no evidence against the findings of the Assessing Officer. Accordingly, he confirmed the addition. 29. The argument advanced on behalf of the assessee before us was that the assessee was not maintaining any books of account and the deposits were found only in the assessee's bank statement which cannot be considered as the books of account of the assessee and, therefore, section 68 was not applicable. Our attention was drawn to the confirmation letters placed at pages 159 and 160 of the paper book. We are however unable to accept the argument. Though section 68 of the Act may not be strictly applicable since the assessee was not maintaining any books of account and the bank statement cannot be considered as the assessee's books of account, on the basis of the judgment of the Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, it is the onus of the assessee to explain the cash received by him and if there is no explanation or acceptable evidence to prove the nature and source of the receipt, the amount may be added as the assessee's income on general principles and it ....
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....actical difficulty which has to be taken note of since tax laws, like any other laws, have to be interpreted reasonably and in consonance with justice as held by the Supreme Court in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570. It is not disputed before us that the photocopies of the seized documents were given to the assessee on January 2, 2002, though the search took place on August 3, 2000. The assessee filed the return of income on January 18, 2002. This is within 30 days of being provided with the copies of the seized documents. Accordingly, the levy of interest is not justified. We cancel the same and allow the ground. 33. We now take up ground No. 3 which was the main dispute before us and was argued at great length by both the sides. The ground reads as under : "That on the facts and circumstances of the case and the provisions of law, addition of Rs. 12,59,716 as commission income in the hands of the appellant by treating entire purchase of M/s. Bemco Jewellers Pvt. Ltd. as pertaining to accommodation entry business and calculating commission at the rate of 0.35 paise on the purchase of Rs.36,69,09,500 is unjustified." 34. The relevant discussion can be found in ....
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....m that Bemco was really and genuinely engaged in the business of purchase and sales of jewellery, gold, silver and diamond ornaments, the Assessing Officer launched into a detailed enquiry. The enquiry was made under certain broad heads which are as follows : (a) Whether there existed a show-room of Bemco at 1182, Kucha Mahajani, Chandni Chowk, Delhi ? (b) Whether there existed a branch office of Bemco at B-108, Jai Sidhi Apartments, Ahmedabad ? (c) Whether any business was conducted from the aforesaid address in Ahmedabad ? (d) Whether the books of account maintained and produced by Bemco were genuine or bogus ? (e) Was any evidence found in the seized material showing that Bemco gave only accommodation entries ? (f) Enquiries conducted at Amritsarwhat do they show ? (g) What is the relevance of the confession of Girish Mittal, resident of 388, Sainik Vihar, Delhi ? 38. These are the broad heads under which the Assessing Officer has examined the claim of Bemco and the discussion is found at pages 22 to 40 of the block assessment order in the case of Manoj Aggarwal. 39. It is necessary here to clarify that IT (SS)No. 452/Delhi/2003 is an appeal filed by Bemco Jewell....
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....tive basis. However, but for this small variation in the amount of the net commission income, the substance of the assessment is the same in both the cases. We have, therefore, not considered it necessary to deal with the appeal of Bemco in IT(SS)A. No. 452/Delhi/2003 separately. Our reasons and decision in the case of Manoj Aggarwal will decide the fate of the appeal of Bemco also. Existence of show-room at 1182, Kucha Mahajani, Chandni Chowk, Delhi : 40. The Assessing Officer has dealt with this in paragraph 7.1 of his order. He has held that there was no sales office or showroom of Bemco at the above address and the reasons given by him are as follows : (a) In the sales tax record, as per the report of the sales tax inspector dated February 15, 1999, the only premises mentioned is 7/22, Ansari Road, Daryaganj, Delhi. There is no mention of any Kucha Mahajani address. (b) The inspector of income-tax who was deputed to conduct local enquiries found no shop in the name of Bemco in the building. He also reported that no one in the building knew of the existence of a sales office of Bemco. (c) Even though the report of the inspector was put to Bishan Chand Aggarwal, the other....
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....d. The Assessing Officer issued commissions under section 131(d) to the DDIT, Ahmedabad to conduct an enquiry and find out whether Bemco had a branch at Ahmedabad at the aforesaid address as claimed and also to verify the veracity of the sales claimed to have been effected from the said address. The DDIT, Ahmedabad found that the premises at Jai Sidhi Apartment were tenanted to one Vijay Aggarwal who was not traceable and that the flat was locked. He also reported that the flat is of just 70 sq.yds. of area and belongs to the low income group. According to him, no business was ever conducted from the address. The DDIT recorded a statement on August 19, 2002 of one Manoj Sudhir Bhai Shah, who was the builder/developer of the property. The gist of the statement is that Manoj Sudhir Bhai Shah had constructed Jai Sidhi Apartment which consisted of 32 flats, that he was controlling the administration of the apartments, that Smt. Anita Vijay Aggarwal had occupied the flat from April 2, 1998, that she was residing there with her husband Vijay Aggarwal and two children, that there was no other person residing in the flat, that Vijay Aggarwal was carrying on textile business and Anita Aggar....
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....since the travel was always at short notice, that he used unreserved accommodation and that the used tickets were not in the possession of Bemco because they have to be surrendered to the railway authorities, that the sales were always in cash and the cash was also brought from Ahmedabad to Delhi for being deposited in the bank and that such deposits were made within a week after the return from Ahmedabad. It was observed by the Assessing Officer that during the financial year 1999-2000, Bemco had shown 73 visits to Ahmedabad and back by Manoj Aggarwal and the travelling expenses amounting to Rs. 3,74,440. The travelling allowance bills which were in Form TR-25, which is normally used by Government servants, were impounded by the Assessing Officer under section 131(d). Bemco had also claimed that there were two sales-cum-field boys working in Ahmedabad. However, Bishan Chand Aggarwal could not remember their names. They were paid a combined salary of Rs. 5,500 per month and the vouchers for the salary which were produced during the assessment proceedings were also impounded. It was noticed by the Assessing Officer that these vouchers did not contain the names of the employees nor w....
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....dabad branch. When the Assessing Officer asked how the books of account could be computerized when the assessee did not have a computer, it was explained that personal computers at the residence of the directors and their office at 7/22, Ansari Road, Daryaganj were used. When Bishan Chand Aggarwal was asked why the books of account were not found in Ansari Road during the search, where they normally should be, because the computers were at this address, Bishan Chand Aggarwal replied that one computer was temporarily shifted to the shop (presumably the reference is to the shop at Kucha Mahajani) and the accounts were written there. He also stated that one Ramesh Chand, who was also the computer operator of Bemco was visiting the shop for writing the books of account. The Assessing Officer did not accept the explanation of Bishan Chand Aggarwal since he had already held that the assessee did not have any shop or showroom in Kucha Mahajani or in Ahmedabad. He also referred to the statement of one Arvind Thakar, sales tax consultant of the assessee in Ahmedabad in which he stated that he has never seen the books of account of Bemco in Ahmedabad and that the figures of sales and purchas....
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....ance of the cash from Ahmedabad to Delhi. When the audit report was put to Bishan Chand Aggarwal, he stated on August 19, 2002, that stock records were available with Bemco and were ready, but due to shortage of time the auditors may not have checked them and the figures may not have been made available to them in the format in which they wanted. The Assessing Officer also pointed out that auditors had also expressed their inability to confirm the genuineness of the purchase transactions of Bemco. Bishan Chand Aggarwal replied that since Bemco was purchasing old jewellery from different parties who were not having any printed sales book, Bemco was forced to issue its own purchase book. Bemco also thought it unnecessary to get the sellers' signature in the purchase bill. As regards the non-furnishing of documentary evidence to show transfer of goods from Delhi to Ahmedabad and remittance of cash from Ahmedabad to Delhi, Bishan Chand Aggarwal stated that documents relating to these were ready with Bemco but were not seen by the auditors. The Assessing Officer was unable to accept the explanation of Bishan Chand Aggarwal for the various discrepancies in the records. He, therefore,....
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....anoj Aggarwal for accommodation entries". In the light of these facts, the Assessing Officer held that Bemco was used for providing accommodation entries for earning commission income. Enquiries conducted at Amritsar : 51. This is discussed by the Assessing Officer in paragraph 7.6 of the block assessment order. He noticed that there were several parties who had sold jewellery to Bemco and they belonged to Amritsar. The ledger account of Sunil Kapoor seized during the search had mentioned the names of some of these persons. The DDIT, Amritsar had recorded statements from Sunil Kapoor on December 3, 2001 and July 23, 2002. According to the Assessing Officer, in this statement Sunil Kapoor had accepted that these persons had shown bogus sales of jewellery to Bemco. The relevant part of the statement is extracted at page 34 of the assessment order of Manoj Aggarwal. It is seen therefrom that Sunil Kapoor had narrated how he came into contact with Manoj Aggarwal and has also explained the modus operandi adopted by Manoj Aggarwal to give accommodation entry to M/s. Novelty Group of cases through one Satish Kapoor, who was helped by Sunil Kapoor in getting the accommodation entry. Suni....
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....said aspects of the case, the Assessing Officer in paragraphs 7.9 and 7.10 has summarized his findings and the objections of Bemco/Manoj Aggarwal. Finally, in paragraph 7.11 of the order, he has concluded as under : "7.11 As has been discussed at length in the foreging parts of this order, it is conclusively proved that the company M/s Bemco Jewellers P. Ltd. was not doing any real business of sale or purchase of jewellery. The bank accounts of this concern was used by Sh. Manoj Aggarwal for providing bogus accommodation entries of sale and purchase of jewellery to various persons. The nature of activities of this concern are in no way different from the other entities which have been used by the assessee for providing accommodation entries. The commission income arising from such bogus accommodation entries has arisen in the hands of Sh. Manoj Aggarwal since he was the person controlling all the affairs of the company. Thus, it is held that commission income has been earned by Sh. Manoj Aggarwal on the total claimed purchases of Rs. 36,69,08,500 by the company from incorporation till the date of search. This commission is taken at the rate of 50 paise which works out to Rs. 18,3....
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....ally controlled by Manoj Aggarwal he was asked to show-cause why commission income cannot be assessed in his hands as undisclosed income. It was submitted that there was absolutely no material unearthed during the search to show that Bemco was indulging in accommodation entry business or that such business was fully controlled by Manoj Aggarwal. The submission was that in a block assessment under section 158BC of the Act, it is not open to the Assessing Officer to indulge in surmises and that the undisclosed income has to be computed only on the basis of the evidence found during the search. It was submitted that no information had come into the possession of the Assessing Officer in the course of the block assessment proceedings and relatable to the evidence found during the search to show that the transactions were accommodation entries and not real. The Assessing Officer had not carried out any cross verification of the transactions from the sellers, which could have proved Bemco's purchases to be genuine. It was submitted that the Bemco had asked for cross-examination of Girish Mittal and Sunil Kapoor vide letter dated August 26, 2002, and though admittedly these statements....
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....e of Manoj Aggarwal where the Assessing Officer has referred to annexure A-7 seized from 5A/ 12, Ansari Road and has mentioned that it is a letterhead of M/s. Bemco dated April 4, 1999, in which the branch transfer address of Ahmedabad is shown as the residence of Vijay Aggarwal. It was contended by Mr. Jain that when the seized records themselves show the existence of branch office of Bemco at Ahmedabad, it can never be doubted. Reliance was also placed on the letter written by the Assessing Officer to Manoj Aggarwal on May 3, 2002 (pages 78 to 100 of the assessee's paper book) and in particular our attention was drawn to pages 91 and 92 where the Assessing Officer has himself made reference to annexure A-7 showing sale of diamonds from Ahmedabad branch for Rs. 1,92,10,224 on November 13, 1999, and transfer of loose diamonds from Delhi to Ahmedabad in April 1999. It was submitted that in the light of the seized material, the existence of the Ahmedabad branch office of Bemco in the residence of Vijay Aggarwal has to be accepted as a fact. 57. Mr. Jain further contended that no question was asked from Manoj Aggarwal about Bemco and his connections with Bemco at any stage of the....
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....n January 8, 2001/January 9, 2001 (page 61 of the paper book), the name of Sunil Kapoor is mentioned in the list of mediators. (e) In the statement given by him on April 20, 2001 (pages 64-70 of the paper book), in answer to question No. 37, he has stated that the share transactions are mere accommodation entries and there is no reason why the jewellery transactions cannot also be treated the same way. (f) In the show-cause notice issued by the Assessing Officer on May 3, 2002 (pages 78-87 of the paper book) there is reference to cash memos issued by Bemco on March 31, 1999, in favour of Kishan Lal Murari Aggarwal and Sons which were seized during the search which were considered to be bogus by the Assessing Officer. The explanation given by the assessee (page 106 of the paper book) is evasive and unsatisfactory. (g) In the above show-cause notice there is also reference to the statement of account of Sunil Kapoor found during the search which was asked to be explained by the assessee. (h) The statement of affairs filed by the assessee (pages 110-114 of the paper book) before the Assessing Officer does not have much evidentiary value. (i) At page 129 etc. up to page 147, ....
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....f the jewellery just as in the case of the shares, according to Mr. Kapila. As regards the existence of a branch of Bemco in Ahmedabad in Jai Sidhi Apartments, Mr. Kapila drew our attention to the statement (Question Nos. 4-7 at page 177 of the paper book) in which Manoj Agarwal has stated that the branch functioned from Vijay Agarwal's premises and no rent was paid because Vijay Agarwal was a personal friend of Manoj Agarwal. Mr. Kapila contended that this was highly improbable. Further, in the second statement of Bishan Chand Agarwal given on August 19, 2002 (page 183 of the report) he gave very evasive and "totally shocking" replies vis-a-vis the auditors' report that they were not given the inventory and were unable to comment on the method of valuation of the stock. With regard to the statement of Girish Mittal who said that the sale of jewellery to Bemco was bogus, Mr. Kapila pointed out that the assessee was given an opportunity to cross-examine Mittal but it was not availed of, as mentioned in page 35 of the assessment order. In this connection, he relied on the judgment of the Full Bench of the Lahore High Court in Seth Gurmukh Singh v. CIT [1944] 12 ITR 393 which ....
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....antly, the auditors had expressed serious reservations in their report and they have stated that no inventory was made available to them and they were therefore unable to comment on the valuation of the stock. Thus, says Mr. Kapila, the very existence of stock of jewellery worth Rs. 1.98 crores is under serious question. Commenting on the return for the assessment year 2000-01, Mr. Kapila contended that there was no explanation as to where the stock worth Rs. 4.97 crores was kept and the profit and loss account did not even show excise licence fee. The tax audit report also expressed grave reservations/qualifications about the accounts of Bemco. The auditors were not provided crucial details and therefore they "have thrown up their hands" and were unable to comment on the genuineness or authenticity of the accounts. 61. Supporting the assessment order passed by the Assessing Officer in the case of Manoj Agarwal to the hilt, Mr. Kapila, learned special counsel for the Revenue, contended that the statement of Manoj that only the share transactions were bogus but the jewellery transactions were genuine should not be accepted as it would be against human probabilities and the normal c....
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....d to Delhi and Bishan Chand Aggarwal started doing commission agency business as well as business in silver at Kucha Mahajani in Delhi. Around two years before the date of search, Bishan Chand Aggarwal started two companies, namely, Bemco Jewellers Private Limited and Friends Portfolio Private Limited. The precise answer of Manoj Aggarwal to question No. 10 in this statement is as under : "Since two years he started these companies, namely, Bemco Jewellers and Friends Portfolio. In Bemco Jewellers we are doing trad ing in gold and silver and in Friends Portfolio we are doing share business as Friends Portfolio is member in Delhi Stock Exchange. As directors of these companies, I do not have any specific work. I enjoy life and whatever papers and cheques my father asks me to sign, I sign as an obedient son." 63. At the time of giving the statement, Manoj Aggarwal was aged about 28 years. There is no mention in this statement that the business in shares or gold and silver are only by way of accommodation entries. 64. The next statement given by Manoj Aggarwal before the Assessing Officer was under section 131 of the Act on September 11, 2000. A copy of this statement is at pages ....
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....nsactions and there is no mention about any accommodation entries regarding jewellery. Though the names of several mediators and companies, which were involved in the modus operandi, have been mentioned in the statement, the name of Bemco Jewellers Pvt. Limited was not one of them. The statement was thus limited only to the share transactions and in describing how the assessee was involved therein as the giver of accommodation entries. 66. We now turn to the assessee's statement given on December 14, 2000, before the Assessing Officer under section 131 of the Income-tax Act under oath. The assessee was shown copies of the bank account and statements along with account opening forms and specimen signature forms of 55 entities and he was asked what he had to state in this regard. It is relevant to mention here that items 21, 36, 42 and 54 were the bank accounts of Bemco with different banks, such as Vijaya Bank, SBI, Daryaganj branch, SBI, Vijay Nagar branch and Oriental Bank of Commerce, Bengali Market, Amritsar. Manoj Aggarwal answered that some of the accounts, such as Sl. Nos.14, 15, 18, 19, 28 and 30 did not belong to him but admitted that the rest of the accounts were "eit....
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....g the nature of the jewellery business or about Bemco. All the questions were related to the share business conducted through Friends Portfolio and Manoj Aggarwal had no hesitation in again admitting that the share transactions were not genuine and they were mere accommodation entries given for commission. 69. In the same statement dated January 8, 2001, which continued on January 9, 2001 (pages 61 to 63) of the paper book, Manoj Aggarwal was asked to explain the addresses of certain names which appeared in the seized record as mediators. The name of Sunil Kapoor is one of them. Manoj Aggarwal answered that these names were of the persons "who used to come to him for procuring accommodation book entries on behalf of other main mediators from time to time" and that "the transactions reflected in their names are in fact the transactions of main mediators". He gave the names of main mediators and related them with the sub-mediators. Sunil Kapoor's name was shown as attached to R.S. Bansal who was shown as the main mediator. Thereafter, question No. 9 and the answer thereto were as under : "In your seized record it is found that numerous persons are listed who seem to have done ....
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....acted as a sub-mediator for the accommodation entry business in connection with the share transactions carried out by Manoj Aggarwal. 72. Another statement was recorded from Manoj Aggarwal on April 20, 2001. About 52 questions were put to him. Most of the questions relate to the share transactions. There is hardly any significant question put to him which related to the jewellery business which Bemco was carrying on. There is only a reference in the assessee's answer to question No. 18 to the effect that the books of account of Bemco were already seized during the search operation and again in answer to question No. 50, which refers to annexure A-18 seized during the search, that the same has already been explained in the statement given on September 11, 2000. A perusal of the statement given on September 11, 2000 shows that annexure 18 contains the names of mediators in respect of the accommodation entries given for the share transactions. Thus, in the statement given on April 20, 2001, there is nothing of significance relating to Bemco. 73. At page 74 of the paper book filed by the assessee, there is a letter written by Manoj Aggarwal on August 22, 2000 to the Director of I....
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....letter was being written within three weeks of the date of search. Manoj Aggarwal did not have the copies of the seized documents with him at that time. He could therefore only venture an approximate figure of the share transactions which, according to him, were mere accommodation transactions. It was only after the seized material was examined and sorted out that it transpired that the aggregate of the share transactions came to Rs. 1,32,32,77,001. The fact however remains that at the earliest opportunity Manoj Aggarwal had admitted that the share transactions were only accommodation transactions. He has made no such admission in respect of the jewellery transaction. We have already referred to this aspect while dealing with the statement of Manoj Aggarwal given on December 14, 2000. Taking all these into account, it appears to us that when on August 22, 2000, the assessee admitted before the Income-tax authorities that the share transactions amounting approximately to Rs.100 crores are not genuine, by implication and as a necessary corollary it means that it was the assessee's case that the transactions of Bemco in jewellery were genuine. 74. We have referred to the above fa....
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....the search, he started Bemco and Friends Portfolio. Manoj Aggarwal had also stated that he used to sign the papers and cheques given by his father without question. From the statements given by him before the income-tax authorities, it is however seen that so far as the share transactions are concerned, which were carried out through Friends Portfolio he was very much aware of the modus operandi relating to the accommodation entries and had elaborately described with facts and figures the various steps involved. Though he had no background in share business he seems to have acquired knowledge about the intricacies of the same and had acquired sufficient mastery over the transactions to indulge in giving accommodation entries. So far as the jewellery business is concerned his father had considerable experience. There is apparently no reason why such experience would not have been used for conducting a genuine jewellery business in Delhi in the name of Bemco. All these facts and circumstances taken together render the probability of the assessee having carried on a genuine jewellery business that much stronger. 75. We now turn to the points made in the block assessment order as well....
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....es office of Bemco ever existed in the premises. This denial statement was brought to the notice of Bishan Chand Aggarwal on August 19, 2002. He stated that since Bemco was closed for the last two years these persons may not be knowing Bemco's name but may be knowing him personally. He also expressed his inability to produce them before the Assessing Officer. 76. On the basis of the above, the Assessing Officer issued a show-cause notice on August 20, 2002, in which these points were put to Bemco for rebuttal. A similar show-cause notice was also issued to Manoj Aggarwal. Bemco replied by letter dated August 26, 2002, stating that the Kucha Mahajani office was opened in April 2000 and purchases of Rs. 46.40 lakhs were made from Chandni Chowk out of the total purchases of Rs. 36.69 crores, that it had applied for the addition of the sales office in the registration certificate issued by the sales tax authorities at Delhi and since the original registration certificate had been seized by the Income-tax authorities on August 3, 2000, the necessary rectification could not be made in the same, that generally in Kucha Mahajani the shop owners know each other only by their individual....
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....sales tax inspector accordingly confirmed the additional place of business and recommended that the application of Bemco for amendment of the registration certificate may be considered accordingly. Attached to the sales tax inspector's report are the statement of Bemco confirming the taking up of the sales office, authorisation given to Bishan Chand Aggarwal to make the amendment application to the Sales Tax Department, copy of the application for amendment dated August 22, 2000, and a copy of the letter dated August 17, 2000 confirming that a sales office had been taken at 1182, Kucha Mahajani from April 1, 2000. These are all placed at pages 72 to 79 of the paper book containing 133 pages. 78. From the above facts, it appears to us that there was a sales office of Bemco at 1182, Kucha Mahajani, Chandni Chowk, Delhi. The report of the Sales Tax Inspector who has made a personal visit to the premises in August 2000 and found Manoj Aggarwal functioning from there cannot be ignored because it is a report of a functionary of the Delhi State Government. The rent receipts, as already observed, have not been doubted. The income-tax inspector apparently went to the premises sometime ....
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....e two persons as his witness. It cannot therefore be stated that the Department has conclusively established that Bemco did not have a sales office at 1182, Kucha Mahajani. On the other hand, the preponderance of the evidence points towards the strong possibility of existence of the sales office as claimed. 79. The next important point made was that Bemco's claim that it had a branch office at B-108, Jai Sidhi Apartments, Ahmedabad was not true and that no such office ever existed. It may be recalled that Bemco had claimed that during the financial year 1999-2000 it had made sales of gold bars from Ahmedabad to the tune of Rs. 24,07,30,000 out of the total sales of Rs.26,07,63,735. In order to verify the same, the DDIT, Ahmedabad was asked to conduct an enquiry and report the same to the Assessing Officer. The DDIT, Ahmedabad found the apartment locked and the resident one Vijay Aggarwal was not traceable. He reported that local enquiries revealed that no business was conducted from the premises. The flat was found to be of only 70 sq. yds. and was of low income group. He was however able to examine and take a statement from Manoj Sudhir Shah who was the builder or developer o....
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....inistrator of the apartment complex who is not expected to know each and every detail about the activities carried on by a resident from his flat. 80. The income-tax authorities have also relied on the statement of Arvind Kumar Thakar, sales tax consultant at Ahmedabad. It is their case that Thakar had not seen the books of account. We have gone through his statement, a copy of which is at pages 96 to 98 of the paper book containing 133 pages. He confirmed that Bemco was his client for sales tax purposes in Ahmedabad and that they were trading in all kinds of jewellery. He confirmed his familiarity and interactions with Bishan Chand Aggarwal and Manoj Aggarwal. He stated that Bemco had filed sales tax returns for the financial years 1999-2000 and 2000-01 and that these returns were signed by Vijay Aggarwal. He stated that he got the figures of sales and purchases from the main person of Bemco. He also confirmed that he met Vijay Aggarwal at the time of obtaining sales tax number in Gujarat and that his address was given as the branch address of Bemco. He admitted that he did not verify the figures of sales from the books of account of Bemco, but confirmed that the figures of sales....
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....igh value were carried in person by Manoj Aggarwal from Delhi to Ahmedabad and the cash was also brought by him by train from Ahmedabad to Delhi but in the absence of any strong evidence in the possession of the Department to contradict the claim, it is difficult to reject it merely because it appears somewhat unusual. The Assessing Officer has himself noted that Bemco has shown travelling expenses of Rs. 3,74,440 during the financial year 1999-2000 which includes expenses of 73 visits to Ahmedabad and back by Manoj Aggarwal. The only vouchers available for the expenses were the travelling allowance bills which are in form TR-25 which is normally used by Government servants to submit their claims for travelling allowance. No tickets were produced by Bemco but this has been explained by saying that they were collected by the railway authorities at the exit gate. The Assessing Officer has noticed that the ticket expenses claimed were for first class or AC-2 Tier and has observed that nobody can travel in these compartments without reservation. Bishan Chand Aggarwal has however stated before the Assessing Officer that most of the times the journeys had to be undertaken at short notice....
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....t the assessee effected sales in Ahmedabad as is clear from the sales tax assessment order passed under the Gujarat Sales tax Act, the seized letterhead of Bemco which showed Jai Sidhi apartments as the branch office of Bemco in Ahmedabad and the statement of Arvind Thakar, the sales tax consultant. In the light of these evidences, we are inclined to accept Bemco's claim that the sales claimed to have been made from Ahmedabad branch office were real and not bogus. 83. We may now turn to the question whether there is material to hold that the books of account produced by Bemco before the Assessing Officer were bogus or were reliable. The Assessing Officer has placed reliance on (i) the fact that they were not found during the search ; (ii) that they were supported only by computer generated sheets showing cash sales without the addresses of the parties to whom sales were made ; (iii) the bills appeared to be freshly prepared ; (iv) that no stock register was maintained/ produced ; and (v) the auditor's report filed along with the return for the assessment year 2000-01 mentioned that the inventory was not produced for the perusal of the auditors, that the purchases were supp....
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....al has explained that since Bemco was purchasing old jewellery from different parties who were not having any printed sale bills, it was forced to issue its own purchase invoice and that the signatures of the sellers were not insisted upon. He has also stated that the sellers did not sign the invoices because of the goodwill enjoyed by Bemco. Though we are unable to appreciate this part of the explanation and what the reputation and goodwill of Bemco have to do with the signatures of the sellers, it appears to us that the substance of the explanation is that since those who sell old jewellery are mostly householders and individuals and ladies who are not in the business of selling such jewellery they did not have any printed sale bills and that was the reason why Bemco had to use its purchase invoices to maintain some sort of record for its purchases. It seems to us that this is an acceptable explanation, considering the fact that most of those who sell old jewellery are householders and individuals and ladies who may have a need to sell them. They are not persons who are in the business of selling or buying old jewellery and it is generally not expected of them to have printed sal....
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....and loss account and the balance-sheet are in agreement with the books of account. Having regard to the audit report, it seems to us that Bemco did maintain books of account at Delhi and Ahmedabad. However, as per the audit report, no basis was given for the stock valuation and the inventory records were not made available to the auditors with the result that they were unable to express any opinion on the correctness of the stock valuation which was certified by the management. Maintenance of books of account is one thing and the reliability of those books for purposes of income-tax assessment is another. The auditor's certificate does not say that the books of account are bogus or have been falsified. It only says that the stock valuation and the purchase invoices are not properly supported. We have already noted that the auditors have only refrained from expressing any opinion about the genuineness of the stock valuation and the purchase invoices ; they have not said that there was no stock or that the valuation as certified by the management was contrary to the principles of accounting or known methods of valuation of stock or that the purchase invoices were not authentic or....
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....of account. Nor can it be held that Bemco never maintained any books of account and that they were prepared subsequently for the purpose of assessment proceedings as has been held by the Assessing Officer. 86. We now take up the question whether any evidence was found in the seized material showing that Bemco gave only accommodation entries and that there were no genuine purchases and sales. The Assessing Officer has referred to annexure A-18 seized from 5A/12, Ansari Road, Daryaganj, New Delhi and has observed that Manoj Aggarwal has admitted that all the entries in the annexure related to the business of providing accommodation entries. This appears to be contrary to the statement given by Manoj Aggarwal on December 14, 2000 to which we have already made detailed reference in the earlier part of our order. In this statement, he was quite categorical in saying that the bank accounts of Bemco did not represent accommodation entries. We have also seen that annexure 18 contains entries mostly relating to the share transactions which Manoj Aggarwal had no doubt admitted to be not genuine. This annexure did not contain anything relating to the business of Bemco. We may also refer to t....
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....oj Aggarwal and group cases. Manoj Aggarwal replied that these are statements of various mediators kept for the purpose of reconciliation. Annexure A-2, page 29, was the statement of account of Sunil Kapoor which was also accepted by Manoj Aggarwal as a statement of account of various mediators. No doubt this statement included Sunil Kapoor but the entire annexure A-2 which consists of a bunch of 128 loose papers relates to the share business as can be seen from the letter of the Assessing Officer (at pages 89 and 90 of the assessee's paper book). It may be noted that Sunil Kapoor was a mediator for the share transactions which were admittedly only accommodation transactions. All the six items mentioned at page 33 of the block assessment order show Bemco transactions along with other accommodation entries but what has been admitted as accommodation entries are only those entries relating to the share transactions but not the transactions of Bemco. With respect to these six items mentioned at page 33 of the block assessment order, there is no admission by Manoj Aggarwal that they related to the business of accommodation entries. The persons from whom the commission income is sai....
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....be a sub-mediator attached to R.S. Bansal, one of the main mediators in respect of the share transactions and this has been clearly stated by Manoj Aggarwal on January 9, 2001, before the Assessing Officer. We have referred to this statement also in the earlier part of the order. In fact, we have also opined that the context and tenor of the statement given on January 8, 2001/January 9, 2001 shows that what was being enquired into was the role of Manoj Aggarwal in respect of only the share transactions and there was no mention in this statement of any jewellery transactions or the transactions of Bemco. It was because of this aspect of the matter that Mr. Ved Jain, the learned representative for the assessee, at some point in the course of his arguments submitted that no question was asked to the assessee about Bemco's transactions at any stage of the assessment proceedings and it was only for the first time that queries were raised by the Assessing Officer in his show-cause notice dated February 28, 2002. Mr. Jain's further submission was that in a block assessment, the undisclosed income can be determined only on the basis of evidence unearthed during the search and that ....
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....been unearthed during the search or to information which has no link with the material collected during the search. The reference to the melters, according to Mr. Ved Jain, during the arguments was therefore impermissible. We see force in the submission. Apart from the three reasons which we have given above which make it difficult for us to draw the inference that the jewellery business was not genuine or real because the assessee did not specifically exclude the melters from the admission, we have also to uphold Mr. Jain's objection, having regard to the language of section 158BB(1), as amended retrospectively from July 1, 1995 by the Finance (No. 2) Act, 1998. 90. We may now turn to the enquiries conducted by the Assessing Officer at Amritsar in order to show that Bemco/Manoj Aggarwal was involved in giving accommodation entries only even in respect of the jewellery business. Sunil Kapoor, one of the mediators, gave statements before the DDIT, Amritsar on December 3, 2001 and July 23, 2002, in which he said to have accepted that some assessees of Amrtisar had shown bogus sale of jewellery to Bemco. In the statement given on December 3, 2001, Sunil Kapoor has stated that he ....
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....o transactions. Thereafter, the Assessing Officer asked him how is it that he is denying payment of commission to Sunil Kapoor when the seized material shows commission payment of Rs.78,013 to him in annexure-14 page 35. Manoj Aggarwal replied that the accounts were opened in the name of sub-mediators (Sunil Kapoor was one of them) to facilitate cash transactions and as far as annexure 14 page 35 is concerned, these details were of purchases of Bemco and that no commission has been paid on the same. The Assessing Officer persisted that the aforementioned annexure clearly mentioned commission of Rs.78,013 and asked Manoj Aggarwal to explain the same. He replied stating "This statement is not from my books hence I cannot explain why commission was paid as mentioned in the papers". The statement ended at this place. The Assessing Officer did not bring any material to contradict the statement of the assessee that the annexure was not from his books and hence he cannot explain the payment of commission. 91. On February 18, 2003, Sunil Kapoor retracted from his earlier statement and filed a letter to that effect before the Chief Commissioner of Income-tax, Amritsar. Copy of his retracti....
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....sactions through him for which commission was also paid, but these transactions were share transactions and were not transactions in jewellery. We have earlier made reference to the statement of Manoj Aggarwal dated January 8, 2001/January 9, 2001 in which he clarified that Sunil Kapoor was a sub-mediator attached to the main mediator R. S. Bansal. R. S. Bansal was one of the mediators for Manoj Aggarwal's share accommodation entry business. He seems to have had nothing to do with the jewellery business at all. We have also referred to the statement of Manoj Aggarwal made on July 25, 2002, where he has admitted that the account of Sunil Kapoor was opened in his books at the behest of R. S. Bansal and that the commission payment was only in respect of the share transactions and not in respect of Bemco's jewellery transactions. He also confirmed in this statement that the commission was paid to R. S. Bansal, perhaps for the account of Sunil Kapoor who was his sub-mediator, and was paid with regard to the share transactions of Friends Portfolio. It would thus appear that Manoj Aggarwal had engaged Sunil Kapoor as sub-mediator for R. S. Bansal, the main mediator, in respect of ....
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....the assessment order that the company failed to avail of this opportunity but at the time of hearing the learned representative for the assessee, Mr. Ved Jain made a statement that since Mittal was absent on the appointed date the cross-examination could not take place. The statement of Girish Mittal is, therefore, untested testimony and, therefore, not safe to be relied upon. There is no other evidence corroborating his statement. His statement cannot, therefore, add anything to the evidentiary value. In fact, not much of arguments were addressed on the statement of Girish Mittal on behalf of the Department except pointing out that the opportunity to cross-examine was not availed of by Bemco. 94. In view of the foregoing discussion, it appears to us that the evidence collected by the Revenue authorities is not sufficient to establish their stand that the jewellery transactions carried on by Bemco Jewellers Pvt. Ltd. were only paper transactions or bogus and that Manoj Aggarwal, who was one of the directors of the company at the relevant time, controlled and put through these transactions by accommodation entries and earned commission income therefrom. We are aware that the entire....
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....rt their stand that Bemco's jewellery business was bogus, has been found by us to have acted as sub-mediator in the share accommodation entry business carried on by Manoj Aggarwal through Friends Portfolio and he has also been paid commission in that business. Bemco has been found to have had a shop or showroom in 1182, Kucha Mahajani and this has been confirmed by the report of the sales tax inspector as also by the rental receipt starting from January 1998. Thus, the surrounding circumstances, apart from the direct evidence in the case, do not contain anything which belies the claim of Manoj Aggarwal that though his share transaction business was only an accommodation entry business for commission, the jewellery business carried on by Bemco has not been proved to be so. 95. For these reasons, we allow ground No. 3 in the appeal of Manoj Aggarwal. Thus, his appeal in IT (SS) A. No. 404/Delhi/ 2003 is partly allowed. The appeal of the Department in IT (SS) A.No. 415/Delhi/2003 is dismissed. IT(SS) A. No. 452/Delhi/2003 (Bemco Jewellers Pvt. Ltd.) 96. This is an appeal by Bemco which is consequential to our decision in the appeal of Manoj Aggarwal, as stated in paragraph 35 (....
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....-tax (Appeals)-II has failed to appreciate that the assessment framed under section 158BD read with section 158BC of the Act, without granting the assessee a fair, proper and reasonable opportunity, was in violation of the principles of natural justice and therefore a nullity. (viii) No material has been confronted to the appellant, in spite of specific request, on the basis of which it could be alleged that there was any undisclosed income belonging to the appellant. (ix) That the Commissioner of Income-tax (Appeals) has erred on facts and in law in upholding the finding that the appellant is engaged in giving bogus accommodation book entries and sustaining the addition of Rs. 56,95,6660 at the rate of 35 paise as net commission of Rs. 1,96,89,99,669 made by the Assessing Officer by invoking the provision of section 145. The Commissioner of Income-tax (Appeals) has also erred in not giving any finding on the applicability of section 145. (x) That the additions made are arbitrary, unjust and unlawful and are based on mere surmises and conjectures and the same cannot be justified by any material on record and have been wrongly upheld. (xi) That the Commissioner of Income-tax....
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.... and commission thereof. Shri Bishan Chand Aggarwal and Shri Manoj Aggarwal were directors in M/s. Bemco Jewellers Pvt. Ltd., in which case also the Assessing Officer inferred that all the transactions undertaken were bogus accommodation entries transactions following the reasoning in the case of Shri Manoj Aggarwal. At this stage, we are not touching upon such reasons in detail since the same have been discussed in detail while dealing with the appeals in the case Shri Manoj Aggarwal. The assessee is a partnership firm with Shri Bishen Chand Aggarwal and Shri Mukesh Aggarwal as partners and was claimed to be operating from 1166/202, Kucha Mahajani, Chandni Chowk, Delhi-6. It was also claimed that the firm had a branch office at D-91, Ladli Path, Chomu House, Jaipur. In this case too, the case made out by the Assessing Officer is that the assessee was not doing any real business of purchase or sale of jewellery and instead the bank accounts of the assessee were used for providing bogus accommodation entries of sale and purchase of jewellery to various persons. According to the Assessing Officer the nature of activities of this concern is in no way different from the other entities,....
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....t is observed by the Assessing Officer, also stated that she had never rented any premises to the assessee-firm. The Assessing Officer inferred from the statement of Smt. Lad Kanwar that no business of jewellery was ever conducted at the stated premises in Jaipur. The assessee was also asked to produce Shri Sunil Kumar. The Assessing Officer observe that the assessee never produced Shri Sunil Kumar nor gave his address. He, therefore, inferred that there was no evidence that Shri Sunil Kumar was doing any business on behalf of the assessee-firm at Jaipur. Even otherwise, the Assessing Officer noticed that the claim of the assessee of having sold jewellery in excess of Rs. 100 crores in less than 1½ years in its newly set up office at Jaipur, was not probable. The Assessing Officer noticed that all sales made from the alleged office at Jaipur were of small amounts below Rs. 1,00,000 indicating a large number of alleged customers of jewellery and it is impossible that the landlord who was residing at the same premises would not even know the existence of the assessee-firm. 102. Secondly the Assessing Officer considered the stand of the assessee that it was running its busines....
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....ciaries. The Assessing Officer has narrated the modus operandi whereby it is stated that blank cheques of the assessee's bank account were kept by these four agents. The cash belonging to the beneficiaries was deposited in the bank accounts of the firm by either the beneficiaries or by said agents and subsequently the cheques were issued against these cash receipts. The Assessing Officer has referred to the statement of four persons recorded by the DDIT, Amritsar on January 29, 2003, January 30, 2003 and January 31, 2003 in this regard. The Assessing Officer has further noticed that the said agents were also operational in relation to the affairs of M/s. Bemco Jewellers Pvt. Ltd., whose purchase and sales were held to be bogus in the block assessment proceedings. For the same reasons as noticed by the Assessing Officer in the assessment of M/s. Bemco Jewellers Pvt. Ltd., the Assessing Officer held that the so called agents were in fact working as contact persons only for providing accommodation entries to the beneficiaries from the assessee-firm. The Assessing Officer has also observed in relation to the purchase of jewellery at Amritsar that the bank accounts of the firm at Am....
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....d also small towns like Rudrapur etc. The Assessing Officer found it unlikely that the sellers at so far away places would come to sell the jewellery to the assessee-firm at Delhi. That there was substantial time difference of months between the alleged purchase of jewellery and the payment made with respect to said purchases. That the purchase bills indicated that the purchases were invariably in lakhs of rupees and the sellers were having first time transactions with the assessee-firm. That even then, the sellers agreed to accept payments months after the assessee-firm made the purchases. That there was a sudden rise in the turnover of the assessee-firm which itself shows the in-genuineness of the business. In the assessment year 1997-98, the turnover was Rs. 13.39 lakhs and the total turnover since formation of the firm in three years up to the assessment year 1997-98 was Rs. 22.78 lakhs. Further in the assessment year 1998-99, turnover was Rs. 13,461.62 lakhs and in the assessment year 1999-2000, it was Rs. 6256.92 lakhs. That after this the assessee-firm suddenly closed down the business. 107. The Assessing Officer further noticed that the assessee was repeatedly asked to pro....
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..... 83,53,811. 109. The assessee had carried this addition in appeal before the Commissioner of Income-tax (Appeals). The order of assessment was assailed by the assessee both on legal as well as factual grounds. The Commissioner of Income-tax (Appeals) has upheld action of the Assessing Officer in principle. However, while estimating the commission income, the Commissioner of Income-tax (Appeals) has found it expedient to adopt 35 paise per hundred rupees as appropriate. He has, accordingly directed the Assessing Officer to charge commission income at the rate of 35 paise per hundred rupees on the turnover of Rs. 1,96,89,99,669 as computed by the Assessing Officer. 110. The genesis for the block assessment order is to be found in the notice dated nil issued under section 158BC read with section 158BD of the Act by the Deputy Commissioner of Income-tax, Central Circle 3, New Delhi. It is necessary to reproduce the said notice (placed at page 118 of the paper book filed by the appellant) as certain vital issues arise for determination in the appeal and it reads thus : "Notice under section 158BC read with section 158BD of the Income-tax Act, 1961 Office of the Deputy Commissione....
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....M/s. Bishan Chand Mukesh Kumar 1166/202, Kucha Mahajani, Chandni Chowk, Delhi. Search and seizure operations were conducted on August 3, 2000 at various residential and office premises of Sh. Manoj Aggarwal and his associate concerns. The block assessments of this group have been completed on August 29, 2002. The assessment order of Sh. Manoj Aggarwal, conclusively establishes the fact that he was involved in providing bogus accommodation book entries to various persons on commission basis. The modus operandi adopted by him have been elaborated in para 1.5 of the assessment order of Sh. Manoj Aggarwal. For the purpose of providing such bogus accommodation book entries, he had used the names and bank accounts of various companies, benami proprietorship concerns in the names of his employees, in the names of his relatives and various HUF entities and firms. There are substantial cash and clearing deposits and withdrawals from these bank accounts. One such concern is M/s. Bishan Chand Mukesh Kumar, the bank accounts of which was operated by Sh. Mukesh Kumar and Shri Bishan Chand Aggarwal. The source of the cash and clearing deposits and the withdrawals from these bank accounts....
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....rejecting the book results. The contentions raised on these issues on both sides shall be adverted to at appropriate places as and when these contentions are taken up for consideration. As we have the benefit of a large number of decisions on the subject from various courts and some of them have been referred to by the contesting parties and as we find that most of the legal issues are almost settled we shall refer to only those decisions that are material to the issues on hand. 117. In order to appreciate the various issues thrown up in this appeal, it is necessary and appropriate to refer to the scheme and the purport behind the introduction of a special chapter for dealing with cases of search, i.e., Chapter XIV-B as part and parcel of the Income-tax Act, 1961. This chapter deals with the procedure for making assessment in cases of search and was introduced by the Finance Act, 1995 and it comprises of various sections 158B to 158BH and it came into force with effect from July 1, 1995. The various provisions contained in this chapter underwent changes from time to time keeping in mind various decisions rendered by the courts and they provide for making what can be termed as a bl....
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....Officer shall- (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June 1995, but before the 1st day of January 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days ; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of subsection (1) of section 142, setting forth his total income including the undisclosed income for the block period : Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter : Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return ; (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid d....
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....from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th June, 1995, but before the 1st January, 1997 ; and (b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st January, 1997." 121. Needless to state, Chapter XIV-B is a complete code by itself providing for the mode and manner of making an assessment in cases of search as different from a regular assessment. It covers two types of persons : firstly, the person searched ; secondly, the persons not searched and in respect of whom the search material discloses the existence of undisclosed income in their hands. Section 158BC provides the procedure of making an assessment in the case of the person searched and section 158BD provides the mode and manner of making an assessment in the case of a person not searched but in respect of whom there is discovery of undisclosed income in his hands. We have the benef....
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....ount or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence" and for this purpose a notice is required to be issued under section 158BC of the Act to the person searched and such assessment is termed as a block assessment to be made within a specified time limit as provided in section 158BE. The assessment to be made shall relate to the undisclosed income uncovered as a result of search and shall be on the basis of evidence found as a result of search. The settled position is therefore that the Assessing Officer having jurisdiction over the person searched has to examine the material unearthed as a result of search and determine the undisclosed income found on such examination. The use of the expression "available" in section 158BB of the Act clearly indicates that the scope of enquiry for purposes of block assessment is limited to the material and evidence unearthed as a result of search as different from a wider enquiry contemplated in a regular assessment. The Assessing Officer while examining the seized material can conduct further enquiries in respect of such material for eliciting more details but ....
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....ssessment of undisclosed income as different from the assessment of normal income in regular assessment. The concept of undisclosed income as different from what we may call as "normal" or "regular" income is at the very core of this chapter. 124. It is in this context that we have to view the provisions of section 158BD of the Act. It is not as if the said provision can be invoked at the whims of the Assessing Officer. On the other hand, the section has certain built-in requirements which have to be scrupulously followed as held in the case of Manish Maheshwari [2007] 289 ITR 341 (SC) if an attack against an order under this section has to be repelled. The first pre-condition is that the Assessing Officer examining the material found as a result of search or other related proceedings as in section 132A should determine whether the material throws up any income which can be termed as undisclosed. If so, he has to identify such undisclosed income. The next step is to determine to whom such undisclosed income belongs. It may happen that such income may not belong to the person searched in respect of whom he has jurisdiction, in which event he has no other option but to give a findin....
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....He may find that part of the said undisclosed income belongs to the person searched and the rest belongs to other person or persons. At this stage, he has to give a finding in this behalf as to which of the undisclosed income belongs to the person searched and the other person to whom the rest of the income belongs. This finding too has to be arrived at in the course of the section 158BC proceeding. After arriving at this finding, he makes an assessment of the undisclosed income relating to the person searched in his hands and hands over the material relating to the undisclosed income belonging to the other person or persons to the respective Assessing Officers. As section 158BC proceeding is specifically intended for determining the undisclosed income, the material unearthed has to be examined in the course of the said proceeding and if such examination shows that the undisclosed income belongs to some other persons a finding in this behalf has to be recorded in the course of the section 158BC proceeding as such finding has to form an integral part of the said proceeding and in conformity with the intention behind the said provision. So, it is essential that such finding has to fo....
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....satisfaction and unless the same is recorded it is not possible for any person to discern whether the satisfaction meets the requirements of law at all. The satisfaction can be found in the order passed under section 158BC and if no such order is passed then it will have to be found in the note handing over the material seized to the Assessing Officer assessing the other person. In any event, it has to be in writing and in view of section 158BE, the said recording has to be made before the time set in section 158BE expires. After the said date, it is not possible to invoke section 158BD at all. 129. A view is expressed that wherever a time-limit is intended, Parliament has provided for the same and in the absence of a specific provision made in this respect it has to be assumed that there is no time-limit intended in law. It has to be remembered that the matter relates to fixing huge financial and other civil liability on the person affected and it has been repeatedly held that there must be a finality to any proceeding under the Act and that a concluded proceeding cannot be reopened at the whim and fancy of the Assessing Officer without the due process of law. Strict interpretati....
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....imitation. It is the submission of the appellant that although no specific limitation has been provided in the statute, it cannot be construed that unlimited period can be assumed as available with the Department for initiating proceedings under section 158BD. It is pointed out that the satisfaction has been recorded on December 19, 2002 and the block assessment under section 158BC of the Act in the case of Mr. Manoj Aggarwal has been framed on August 31, 2002, the satisfaction having been recorded beyond the date of the order under section 158BC, the proceedings are beyond time and void ab initio. It is submitted that the satisfaction has to be recorded before the conclusion of the section 158BC proceedings and in this case the outer limit being August 31, 2002, the said satisfaction is not in accordance with law. In respect of the satisfaction, it is submitted that it is not based on the seized material and in the satisfaction note there is no reference to any incriminating material indicating that the appellant-firm was used for accommodation entries and in this connection the decision of the hon'ble Delhi High Court in Amity Hotels P. Ltd. [2005] 272 ITR 75 is cited to the ....
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....ima facie case of existence of undisclosed income ; that there is no limitation for commencement of proceedings under the Act excepting in the provision to section 143(2), that even in respect of section 158BC there is limitation provided for conclusion of block assessment but not for commencement and hence the question of limitation does not apply. In respect of the material defects in the notice pointed out by the learned representative for the appellant, it is submitted that the whole matter is procedural in nature ; that section 292BB recently inserted by the Finance Act, 2008 shows that any defect in such notice can be cured and is not fatal ; that even otherwise the said notice is not a statutory notice and is intended only to ensure that the person proceeded against is duly informed of the matter and in this behalf the decision of the Special Bench of the Income-tax Appellate Tribunal in Smt. Krishna Verma reported in [2007] 292 ITR (AT) 88 (Delhi) is cited. Various case laws are cited in support of the submissions which are : (i) Lalta Prasad Geonka v. CIT [1980] 122 ITR 399 (Bom) ; (ii) CIT v. Ajodhya Prasad Gopi Nath [1977] 107 ITR 951 (Bom) ; (iii) Asst. CIT v. Raj....
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....o the issue of such a notice are invalid in law and so the reassessment was void ab initio and without jurisdiction. The hon'ble High Court repelled the contention of the Revenue that the defect, if any, was procedural in nature and so curable by holding that the said defect is incurable. It was held that such defect goes to the root of jurisdiction and so the notice giving a time of less than 30 days for filing the return of income under section 148 was invalid in law. In view of the fact that section 158BC(a)(i) is in pari materia insofar as the words used therein are identical, the logic behind the said decision would apply on all fours to the case on hand and so the force of this decision has to be applied hereto and as the notice in this case is similarly worded and gives a time of less than 15 days as against the stipulated time of not less than 15 days, the said notice suffers from an incurable defect rendering all proceedings emanating therefrom invalid and void ab initio. It must be remembered that to overcome the legal hurdle caused by the said decision, section 148 itself was amended omitting the words "not being less than thirty days". It is significant that all the....
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....58BC of the Act on the assessee-firm is a jurisdictional notice. Therefore, the controversy covered by us with regard to section 158BC(a)(i) in the present case is factually different than that before the Special Bench of the Income-tax Appellate Tribunal in the case of Smt. Krishna Verma [2007] 292 ITR (AT) 88 (Delhi). 135. We now turn to the next issue agitated upon vehemently on the question as to whether it is imperative to record satisfaction before commencement of the proceedings under section 158BD as contended by the learned representative for the appellant or whether there is no such requirement as equally contended by the learned Departmental representative. The submission of the learned representative for the appellant is that the apex court has very clearly held in Manish Maheshwari's case [2007] 289 ITR 341 that recording of such satisfaction is mandatory before assumption of jurisdiction under section 158BD whereas the learned Departmental representative submits that recording of satisfaction prior to assumption of jurisdiction is not imperative in view of the absence of the expression "in the course of the proceeding" as appearing in section like 271(1)(c). It i....
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....ing Officer is satisfied that the undisclosed income belongs to the other person, then he shall hand over the seized material so as to enable the second Assessing Officer to make a block assessment in a similar manner and that is not possible if the satisfaction is not recorded. And this can be recorded only and only in the course of the section 158BC proceedings and nowhere else. It is the Assessing Officer assessing the person searched who goes through the seized material and comes to a decision as to whether there is any undisclosed income unearthed as a result of search, if so its nature and to whom it belongs. If the said undisclosed income belongs to the person searched that is the end of the matter. If, on the other hand, the material examined shows that the undisclosed income pertains to some other person he has to give a finding to this effect and thereupon transmit the related seized material to the Assessing Officer having jurisdiction over the other person. All these findings have to be recorded after an honest appreciation of the seized material with an objective mind and there has to be a record reflecting such findings on the basis of which alone the other Assessing ....
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....on of the learned representative for the appellant that such satisfaction must clearly show detection of undisclosed income on examination of the seized material as belonging to the person not searched and that it cannot be based on assumptions and surmises or guesswork. The learned Departmental representative argued that the term "satisfaction" appears in various parts of the Act itself and that even in section 147/148 dealing with cases of reassessment for assessing income which had escaped assessment, the only requirement is that the Assessing Officer must have reason to believe that there is a prima facie case of existence of escaped income and that there is no requirement that there must be a clear finding of undisclosed income as suggested. In this context, reference has been made to the apex court decision in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 wherein the term "reason to believe" has been interpreted and the apex court held therein that (headnote of ITR) : "what is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant ma....
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....erson with respect to whom search was made" which indicates that the undisclosed income identified by the Assessing Officer is found to be belonging to the other person. It would thus mean that at the stage of recording, the Assessing Officer has reached a finding that undisclosed income has been detected as a result of search and also further that such income belongs to the person not searched. All these constitute findings and not a mere belief held by the Assessing Officer on the examination of the seized material and hence the satisfaction contemplated in section 158BD is totally different than contemplated in section 147. It is fundamental that the Assessing Officer finds out whether there is undisclosed income. If he finds that there exists undisclosed income, then he has to give a finding as to whom the said income belongs. In the absence of such a finding, it is not possible to conclude a block assessment under section 158BC. Only thereupon, the section 158BD proceeding in respect of the other person for making a similar block assessment of such undisclosed income would commence. Hence, in our considered view, the note of satisfaction must contain a positive finding by the ....
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....rwal since the said assessment has been finalized earlier. Clearly the note of satisfaction dated December 19, 2002 is beyond the date of block assessment in the section 158BC proceedings dated August 29, 2002, in the case of Shri Manoj Aggarwal. Therefore, the satisfaction recorded is belated. 140. Further, the said note of satisfaction speaks of Manoj Kumar Aggarwal doing accommodation business through various benami concerns and in the names of various persons and earning commission through such accommodation and that one such concern used by him is the appellant firm. It further states that the bank accounts of the firm have to be examined and the source of the cash and clearing deposits and the withdrawals from the banks have to be examined. There is thus no finding in the said note that on examination of the seized material by him in the case of Manoj Kumar Aggarwal he has found that there is undisclosed income and that such undisclosed income belongs to the assessee-firm. On the other hand, it says that the bank accounts of the firm have to be examined. There is not even a whisper of detection of undisclosed income in the hands of the firm. The very record leaves a tell tal....
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....section 143(2) has been served on the appellant within 12 months from the end of the month in which the block return has been filed as such the addition made are illegal and bad in law and the block assessment order is also illegal and without jurisdiction." 144. In support of the plea for admission of the aforesaid additional ground, it is submitted on behalf of the assessee that the issue raised is purely legal in nature and all the relevant facts are on record, that no new facts are to be investigated and further that the additional ground goes to the root of the matter and is crucial for determining the liability of the assessee and the validity of the order. It is further submitted that this objection was taken before the Assessing Officer by letter dated November 29, 2004 (copy filed) but the same was not dealt with by the Assessing Officer and no reply was received from him. A copy of the block return filed by the assessee was also filed to show that in the covering letter dated June 16, 2003, the assessee had stated that the return was being filed under protest in response to the notice issued under section 158BC read with section 158BD dated nil. It is also pointed out th....
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....dditional ground. On merits, he contended that even prior to the assessee's letter dated November 29, 2004, several hearings had taken place before the Assessing Officer in which the assessee had participated. He further pointed out that the assessee's letter dated November 29, 2004 is not categorical on the point whether any notice under section 143(2) was issued and served on the assessee before November 18, 2004. He further contended that under orders of the hon'ble Delhi High Court, a copy of which is at page 85 of the paper book, the Assessing Officer was barred from proceeding further in the matter of the assessment till he disposed of the assessee's objections to the reasons supplied to it for issuing notice under section 158BD, which meant that the Assessing Officer could not have issued any notice under section 143(2) before he disposed of the assessee's objections on November 8, 2004, except on peril of committing contempt of the orders of the High Court and that on the very day on which he disposed of the assessee's objections, i.e., on November 8, 2004, he issued the notice under section 143(2) which was served on the assessee on November 18, 200....
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....tands disposed of in the above terms. [as reported in Bishan Chand Mukesh Kumar v. Union of India [2004] 190 (Delhi) CTR 258 ]" 149. Pursuant to the orders of the hon'ble High Court, the Assessing Officer supplied the reasons for the issue of notice under section 158BD to the assessee on December 3, 2003. The assessee filed its objections to the same on December 17, 2003. These objections were disposed of by the Assessing Officer on November 8, 2004. On the very same day, he issued the notice under section 143(2) which was served on the assessee on November 18, 2004. 150. Learned counsel for the assessee made a reference to clause (b) to section 158BC which reads as under : "the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143 shall so far as may be apply." 151. Accordingly learned counsel submitted that section 158BB provides for the methods of computation of undisclosed income of the block period and section 158BC prescribes the statutory procedure to be adopted for making a block assessment, and clause (b) of sectio....
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.... He contended that all actions of the Assessing Officer are subject to the orders of the hon'ble High Court and if necessary the provisions of the Act have to be so read as not to come in conflict with the orders and directions of the hon'ble High Court. He drew our attention to section 158BC(b) which says that section 143(2) shall, "so far as may be, apply" to a block assessment and contended that the quoted words indicate that the procedural provisions such as issue or service of notice are always subject to the directions of the hon'ble High Court. He further contended that every block assessment under Chapter XIV-B of the Act has to be a scrutiny assessment after issue of due notice to the assessee and the directions of the High Court cannot be used by the assessee to disable the Assessing Officer from issuing a notice under section 143(2) once such directions have been complied with. In this connection, he referred to pages 4790 and 4791 of the Commentary on Income-tax Law by Chaturvedi & Pithisaria, Volume 3, Vth edition. Reference was also made to the orders of the Tribunal in CIT v. Mrinalini V. Sarabhai [2004] 265 ITR 64 (Guj) and CIT v. Arkay Wires P. Ltd. [20....
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....itself is invalid. 155. On a careful consideration of the rival contentions, we are of the view that the notice cannot be said to be served after the period of limitation. As rightly pointed out by Mr. Kapila, the learned special counsel for the Department, the Assessing Officer could not have issued the notice under section 143(2) before disposing of the objections of the assessee to the notice under section 158BD. The clear and unambiguous direction of the hon'ble High Court is that the Assessing Officer shall first dispose of the assessee's objections and thereafter proceed further in the matter of assessment of the assessee. The notice under section 143(2) is a step in furtherance of the assessment proceedings and it could not have been issued by the Assessing Officer before he disposed of the assessee's objections as directed by the hon'ble High Court. This is what the Assessing Officer has done. He might have taken 11 months to dispose of the objections of the assessee but that is a different matter and does not affect the validity of the issue of notice under section 143(2). The hon'ble High Court did not lay down any time-limit for the disposal of the o....
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....ases, and give enough elbow room for the Department where the proceedings relating to the issue of notices etc. before completion of the assessment are made subject to the directions of the hon'ble High Court. 156. We may also in this connection refer to section 15(1) of the Limitation Act, 1963 which is reproduced below : "15. Exclusion of time in certain other cases.-(1) In computing the period of limitation for any suit or application for the execution of a decree, the institution or execution of which has been stayed by injunction or order, the time of the continuance of the injunction or order, the day on which it was issued or made, and the day on which it was withdrawn, shall be excluded." 157. The above section gives a clue to the position that the time during which an injunction or order of court was in operation should be excluded for the purpose of calculating the period of limitation for filing an action. There is no reason why this position cannot be incorporated while interpreting the words, "so far as may be" appearing in section 158BC(b). 158. For the above reasons, we are unable to subscribe to the contention of learned counsel for the assessee to the effe....
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....ery was shown by the assessee. It was claimed that the said jewellery was declared under the VDI Scheme at its cost of acquisition adopted on April 1, 1987 at Rs.7,88,131 and after reducing the said cost of acquisition as indexed at Rs.18,63,365 from the sale proceeds of Rs. 16,80,475, the long-term capital loss was arrived at Rs. 1,82,891. During the course of assessment proceedings, it was noticed by the Assessing Officer that the said jewellery was shown to be sold by the assessee to M/s. Bishan Chand Mukesh Kumar, Saraf at Kucha Mahajani under four separate vouchers in the month of February, 1998. The confirmation of the said jeweller dated February 28, 1998, was also filed by the assessee confirming the purchase of jewellery made from it. In order to cross verify the said transaction, a letter was sent by the Assessing Officer directly to the said jeweller on November 7, 2000. There was, however, no reply received by the Assessing Officer from M/s. Bishan Chand Mukesh Kumar either to the said letter or even to the subsequent letters issued on November 24, 2000 and December 11, 2000. The Assessing Officer, therefore, examined the assessee and in his statement recorded by the As....
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....etters sent by this office were not received back. In case they were duly received and replied, then why were they not trace able on enquiry of Inspector of the DDI office. Also, non-co-operation of the jeweller with the office to whom commission was issued by this office also gives credence to the conclusion being drawn by this office. (e) The jewellery sold, inter alia, includes diamond jewellery sold worth Rs. 3,67,868 whose value as on April 1, 1987, had been shown at Rs. 77,170. Thus the increase has been shown at 4.77 times. How ever as per the data of the Export Promotion Council this increase in rates of diamond jewellery has not been so sharp." 163. The Assessing Officer thus treated the relevant cash credits representing alleged sale proceeds of jewellery amounting to Rs. 16,80,475 as unexplained and added the said amount to the total income of the assessee under section 68 in the assessment completed under section 143(3) vide an order dated March 27, 2001. 164. Aggrieved by the order of the Assessing Officer, an appeal was preferred by the assessee before the learned Commissioner of Income-tax (Appeals) and various submissions were made on its behalf before him to co....
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....s not justified in rejecting the explanation of the assessee about the sale of jewellery and in treating the proceeds of the said sale as unexplained cash credits by invoking the provisions of section 68. 166. The aforesaid submissions made on behalf of the assessee before him during the course of the appellate proceedings were forwarded by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer and a remand report was sought by the learned Commissioner of Income-tax (Appeals) from the Assessing Officer after making necessary enquiries in the matter and after confronting the assessee with all the material available with him. In compliance with the direction of the learned Commissioner of Income-tax (Appeals), a final remand report dated December 20, 2002, was prepared and submitted by the Assessing Officer to the learned Commissioner of Income-tax (Appeals). The contents of the said remand report were as under : "The Assessing Officer's remand report per his letter No. ITO/ W-IV(4)/ ASR./6707, dated December 20, 2002 In this connection, it is submitted that the Deputy Commissioner of Income-tax, Central Circle-3, New Delhi vide his office letter dated Nov....
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....w Delhi vide letter dated November 27, 2002, to the Assessing Officer The case of M/s. Bishan Chand Mukesh Kumar to whom the jewellery has allegedly been sold by your assessee, Sh. Tejinder Singh, HUF in the financial year 1997-98 has been centralized in this circle in September 2001, on the basis of certain seized material found in the case of search and seizure operation carried out in the case of Sh. Manoj Aggarwal, Sh. Bishan Chand Aggarwal and Mukesh Aggarwal in the month of August, 2000. Sh. Bishan Chand Aggarwal and Sh. Mukesh Aggarwal are partners of M/s. Bishan Chand Mukesh Kumar. The cases of Bishan Chand Aggarwal and Mukesh Aggarwal were covered under section 132(1) and the proceedings under section 158BC have been completed in August, 2002. The case of M/s. Bishan Chand Mukesh Kumar has been recommended for proceedings under section 158BD. The proceedings under section 158BD shall be initiated next month. The transactions of this concern have to be seen in totality and deep investigation is required to verify the genuineness of the sales and purchases claimed to have been made by this concern. Mere examination of the books of account of this concern at this stage shal....
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....e Assessing Officer as above was made available by the learned Commissioner of Income-tax (Appeals) to the assessee for his comments and in his reply filed in writing, the following submissions were made by the assessee : "(1) The remand report as forwarded by the Assessing Officer go to reveal that the firm M/s. Bishan Chand Mukesh Kumar, to whom your appellant has sold the jewellery, has been centralized in the Central Circle-III, New Delhi in September 2001, after search having been conducted in August, 2000 on Shri Manoj Aggarwal, Sh. Bishan Chand Aggarwal and one Sh. Mukesh Aggarwal. The Assessing Officer, assessing the firm M/s. Bishan Chand Mukesh Kumar has also confirmed that Shri Mukesh Aggarwal and Shri Bishan Chand Aggarwal, are partners in the firm M/s. Bishan Chand Mukesh Kumar, which is now assessed by the Deputy Commissioner of Income-tax, Central Circle-III, New Delhi. The Assessing Officer has also intimated the Assessing Officer in the case of your appellant that the case of M/s. Bishan Chand Mukesh Kumar has been recommended for proceedings under section 158BD and the Assessing Officer assessing the firm M/s. Bishan Chand Mukesh Kumar has also in his reply poin....
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....mises. Submitted for your kind perusal" As directed, I visited the above mentioned premises on 25-7-2002. This building is a commercial complex, consisting of small shops. Each floor has about 6 to 7 shops msg. approx. 8' X 10' sq.ft. Shop No. is given according to floor i.e. 1st fl. start with 100 likewise. On the 2nd fl. Shop No. 202 is presently occupied by M/s. Aggarwal Bros. I met Sh. Chuni and Mahesh, both are employees of M/s. Aggarwal Bros. According to them, Aggarwal Bros, is operating for the last 5 years. This is a rented shop. According to Sh. Chuni, there has never been any business establishment in 1166/202 by the name of Sh. Bishan Chand Mukesh Kumar Saraf. Local inquiry also revealed the same. It is worthwhile to mention here that both these reports have come up before the assessee/appellant after the completion of the assessment proceedings against which your appellant is in appeal before your honour. Your appellant is being asked to submit his reply on both the report and incidentally the official in charges is the same. At first instance he was the DCIT, Inv. and now the Assessing Officer of the party M/s. Bishan Chand Mukesh Kumar. An examination of ....
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....ncome-tax (Appeals) in the light of material available on record and on such examination, he recorded the following findings/observations : "(i) Though the appellant claimed jewellery to be very old and having sentimental value, the appellant had promptly sold this very jewellery immediately after the date of receipt of the VDIS certificate ; (ii) Jewellery was sold to unknown party of Delhi, i.e., M/s. Bishan Chand Mukesh Kumar claimed to have been introduced through a relative of the appellant to whom the appellant was not able to identify ; (iii) The appellant handed over jewellery worth Rs. 14 lakhs to this unknown jeweller of Delhi without any receipt or without receiving any payment on the delivery of the jewellery ; (iv) Although confirmation has been received by the Assessing Officer but the party is not traceable at the address given on the confirmation ; (v) All the letters sent by the Assessing Officer through registered post/speed post have not been received back undelivered ; (vi) The said party i.e. M/s. Bishan Chand Mukesh Kumar, Delhi is stated to be not traceable as per the report of the Inspector, referred to above." 171. On the basis of the above fin....
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.... the purpose of the VDIS as explained in [1997] 224 ITR (St.) 140 paragraph 92 was to harness the black money for productive purpose and special treatment in this regard was given to the jewellery by allowing the declarants to adopt the valuation as on April 1, 1987, in respect of jewellery purchased prior to that date. He contended that even the sale of the jewellery declared under VDIS was sought to be encouraged under the scheme as the very purpose of the scheme was to utilize the undisclosed resources for priority sector. In this regard, he relied on section 68 of the VDI Scheme to contend that the sale of jewellery was also embedded in the VDI Scheme itself and having regard to the purpose of the said scheme as well as the provisions of section 68 of the VDIS, the immunity under the said scheme was also available to the sale of jewellery declared under the scheme. He contended that the certificate issued by the concerned Commissioner of Income-tax under section 68(2) of the Scheme accepting the declaration of the assessee has not been withdrawn and the immunity available under the said scheme in respect of sale of jewellery thus cannot be denied to the assessee. 173. The lear....
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....of the Income-tax Act including the provisions of section 68. This immunity, however, stops there and there is no provision in the scheme to extend the same further, either expressly or even by implication, to cover the sale of jewellery declared under VDIS also. We have also explained with hypothetical example as to how the VDI Scheme operates in this context and what exactly is the scope of immunity available under it to the declarant. As finally held by us, the Assessing Officer is not only empowered to go into the genuineness of the transaction of sale of jewellery declared under VDIS, but he is duty bound to do so in order to ensure that the scheme is not misused by the declarants for any more benefits than what were intended to be given under the scheme. In our considered opinion, it is thus open to the Department to go into the genuineness of the transactions of sale of jewellery declared under the VDIS and examine the same in accordance with the relevant provisions of the Income-tax Act. 175. Before we proceed to hear and decide the issues raised in the present case on merits, it is pertinent to note here that three applications, two by the assessee dated August 18, 2005 a....
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....e into consideration as well as all the facts of the case, the additional evidence filed by the Revenue as well as the assessee under the said applications has been admitted by us as per the order sheet entry dated March 17, 2008, and the decision to that effect was also pronounced in the open court. 177. On merits, learned counsel for the assessee submitted that sufficient documentary evidence was placed on record by the assessee before the Assessing Officer during the course of assessment proceedings itself to prove the sale of jewellery in question to M/s. Bishan Chand Mukesh Kumar. In this regard, he invited our attention to the copies of relevant bills issued by M/s. Bishan Chand Mukesh Kumar showing purchase of jewellery from the assessee placed at page Nos. 18 to 22 of his paper book. He also invited our attention to the copy of bank statement of the assessee placed at page No. 7 of his paper book to point out that the proceeds of the said sale of jewellery received from M/s. Bishan Chand Mukesh Kumar by cheque were deposited in the said account. He submitted that even the confirmation letter of M/s. Bishan Chand Mukesh Kumar was also filed by the assessee before the Assess....
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....lue of the documents filed by the Revenue as additional evidence. 179. The learned special counsel for the Revenue Shri S. D. Kapila, at the outset, invited our attention to a copy of valuation report placed at page No. 15 of the assessee's paper book and pointed out the description and valuation of jewellery given therein as declared by the assessee under VDIS. Then he invited our attention to the copies of bills placed at page Nos. 8 to 12 of the assessee's paper book whereby the said jewellery was claimed to be sold to M/s. Bishan Chand Mukesh Kumar and pointed out the deficiencies/discrepancies in the description and valuation of jewellery given therein vis-a-vis that of valuation certificate. For instance, he pointed out that the jewellery sold as per the said bills was stated to be "pure gold ornaments (old)" whereas, according to him, there were no pure gold jewellery available with the assessee as per the valuation certificate. He further pointed out that as per the VDIS declaration, the jewellery was stated to be acquired in the financial years 1985-86 and 1986-87 which again was contrary to the mention of the said jewellery as old in the relevant bills. He conten....
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....ost be possible while taking the jewellery at Amritsar was to weigh the same. It was, however, not possible to ascertain the purity of the jewellery so as to make any estimate of the value of jewellery in order to make the payment. He contended that M/s. Bishan Chand Mukesh Kumar thus had clearly conspired with the assessee in making the transaction of bogus sale of jewellery as a part of accommodation and in these circumstances, neither the bills issued by the said concern nor their confirmation could be relied upon to accept the claim of the assessee about the genuineness of sale of the said jewellery. 181. Shri S. D. Kapila submitted that M/s. Bishan Chand Mukesh Kumar throughout avoided enquiry by not responding either to the letters or even to the summons issued by the Department. He submitted that no enquiry thus could effectively be made from M/s. Bishan Chand Mukesh Kumar insofar as the assessee's case is concerned. He submitted that the statements of the said party, however, have been recorded subsequently during the course of proceedings in the case of other assessees and such statements, being a vital evidence to decide the issue involved in the case of the assessee....
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.... of jewellery and for doing this entire exercise, the matter needs to go back to the Assessing Officer. He submitted that this will also facilitate in giving an opportunity to the assessee to cross-examine the deponents so that a proper conclusion can be reached. In support of this contention, he has relied on the decision of the Delhi Bench of the Income-tax Appellate Tribunal in the case of UOP LLC v. Addl. Director of Income-tax, International Taxation [2007] 108 ITD 186 wherein it was held that the voluminous evidence coming to the possession of the Department after completion of the assessment having been admitted as additional evidence, the matter has to go back to the Assessing Officer to evaluate the said evidence and decide the said matter afresh. 183. In the rejoinder, learned counsel for the assessee strongly opposed the case sought to be made out by Shri Kapila for restoring the matter to the file of the Assessing Officer for reconsideration. He submitted that the second innings cannot be given to the Assessing Officer especially when the assessee has already suffered for more than ten years. He further submitted that it is not a case of the Revenue that the assessee i....
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....r was issued by the said concern which was signed by the assessee on the receipt of the same at his end. As regards the objection of Shri Kapila about the substantial payment of Rs. 39.23 lakhs on account of sales tax by M/s. Bishan Chand Mukesh Kumar from the profit of Rs. 40 lakhs, he submitted that the sales tax being an indirect tax was liable to be recovered from the customers and the same, therefore, could not have any bearing on the profitability of the said concern. 184. We have considered the rival submissions and also perused the relevant material available on record and judicial pronouncements cited at the bar. It is observed that the jewellery declared under VDIS was claimed to be sold by the assessee to M/s. Bishan Chand Mukesh Kumar during the year under appeal and the said claim was sought to be examined by the Assessing Officer during the course of assessment proceedings. In this regard, the following evidence was filed by the assessee in order to establish the genuineness of the transaction of sale of jewellery to M/s. Bishan Chand Mukesh Kumar : (i) A confirmation letter of M/s. Bishan Chand Mukesh Kumar giving all the relevant details including its PAN/GIR No.....
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....Chand Mukesh Kumar has been recommended for initiating proceedings under section 158BD. He also informed in his report that in-depth and detailed investigation was required to be done in order to verify the genuineness of purchase and sale of jewellery claimed to have been made by the said concern which might take some time. He, however, informed that the block assessment proceedings in the case of M/ s. Bemco Jewellers Pvt. Ltd. wherein Shri Bishan Chand Aggarwal was a director have already been completed in August, 2002 and the transactions of the said concern of purchase and sale of jewellery have been held to be bogus in the said assessment. These contents of the report sent by the Deputy Commissioner of Income-tax, Central Circle-3, New Delhi along with the report of the Inspector who was deputed to visit the shop of M/s. Bishan Chand Mukesh Kumar were incorporated by the Assessing Officer in his remand report and a comment was given on the basis thereof that the transactions of M/s. Bishan Chand Mukesh Kumar were also apparently bogus. Relying mainly on the said remand report submitted by the Assessing Officer, the claim of the assessee of having sold the jewellery to M/s. Bi....
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....estigated in detail and the decision thereon will have a direct bearing on the ultimate fate of the case of the assessee, i.e., Tejinder Singh, HUF. Accordingly, the appeals filed in the case of M/s. Bishan Chand Mukesh Kumar have already been disposed of by us in the foregoing portion of this order wherein the assessment made under section 158BC read with section 158BD has been held to be bad in law on the grounds and for the reasons set out therein. Consequently, the said assessment made in the case of M/s. Bishan Chand Mukesh Kumar has been quashed by us holding the same to be invalid and keeping in view this decision on the preliminary legal issues, we have refrained ourselves from considering and deciding the other issues involved in the said case on merits including the issue relating to genuineness of the transactions of purchase and sale of jewellery. Assuming the possibility of such an eventuality and keeping in view that the material collected during the course of assessment proceedings in the case of M/s. Bishan Chand Mukesh Kumar, which has already been filed and admitted as additional evidence in the case of Tejinder Singh, HUF, can still be utilized, Shri S. D. Kapila....
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.... such examination, we have held that the evidence collected by the Revenue authorities was not sufficient to establish their stand that the jewellery transactions carried on by Bemco Jewellers Pvt. Ltd. were only paper transactions or bogus and the same were put through by accommodation entries in order to earn commission income therefrom. We have found it difficult to reject the assessee's plea about the genuineness of the jewellery transactions as opposed to the normal course of human conduct even applying the principles laid down by the hon'ble Supreme Court in the cases of Durga Prasad More [1971] 82 ITR 540 and Sumati Dayal [1995] 214 ITR 801. We have also found that the circumstances surrounding the case were not strong enough to hold the claim of the assessee about genuineness of the jewellery transactions as totally unbelievable or outrageous. We have also found that no evidence of any consequence was unearthed during the course of search to directly show that the jewellery business was bogus and that it was only accommodation entry business. On the other hand, the evidence brought on record by the assessee especially the evidence in the form of sales tax assessment....
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....try itself is proof of sale of the gold or jewellery already declared under the VDIS since it is already part of the balance-sheet of the assessee-declarant and no further proof of sale can be insisted upon. Suraksha and Sunil Chawla : 189. Mr. Baljit Singh, learned counsel for these interveners put forth the following submissions. He first contended that the sale was disclosed and assessed in the normal assessment and when the jewellery was not found in the course of the search conducted under section 132, it must be taken that the sale of the jewellery has been proved. Alternatively, it was contended that the course open to the Assessing Officer, if at all, was to reopen the assessment earlier completed by issue of notice under section 148. He also contended that section 68 is not applicable to the case of the interveners who do not maintain any books of account and the entry is found only in the bank pass book which cannot be equated to books of account of the assessee. 190. In support of his submissions, learned counsel relied on the judgment of the Supreme Court in CIT v. P. Mohanakala [2007] 291 ITR 278, that of the Madras High Court in CIT v. Taj Borewells [2007] 291 ITR ....
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....tion, the cited judgment does not apply. In support of these submissions, he relied on the following : (i) CIT v. Pancham Dass Jain [2006] 205 CTR (All) 444; (ii) Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Raj) ; and (iii) Smt. R. Imbavalli v. ITO [2004] 83 TTJ 352 (Chennai). 193. Turning to the facts of the present case, Mr. Vohra pointed out that the assessee's sale of jewellery to Uma Shankar Kamal Narain and S. R. Jewellery of Delhi were accepted as genuine, whereas the sale of jewellery to Bishan Chand Mukesh Kumar was not accepted as genuine though this sale was also similar to the other two sales. He submitted that the brokers have confirmed the sales. It was submitted that the assessee has discharged the burden even under section 68 of the Act and thereafter, the burden shifted to the Department which has not discharged the same. He pointed out that the Departmental authorities have relied on statements recorded by the ADI in December, 2002 from the brokers after the search and such statements cannot be used in the assessment. It was pointed out that in any case, the statements were retracted on February 18, 2003, and these persons even appeared before the ....
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.... by way of capital gains. One has to look at the substance of the transaction and not merely the form it takes. (d) Section 68 does not require the Assessing Officer to prove that the money emanated from the assessee. The very fact that the assessee was in receipt of moneys, allegedly by way of sale proceeds of jewellery, puts the burden on the assessee. The case of Daulat Ram Rawatmull (supra) is not a case arising under section 68 of the Act. (e) The statements given by the brokers before the ADI, Amritsar can be used in evidence against the assessee even if it is assumed for the sake of argument that he had no jurisdiction to take such statements on the ground that Bishan Chand Mukesh Kumar, the purchaser of the jewellery, was located in Delhi. (f) The so-called brokers who appeared before the Assessing Officer to confirm the sale to Bishan Chand Mukesh Kumar were not shown to have been paid any commission by that firm. 197. On the basis of the above, Mr. Kapila pleaded that the sale of jewellery was not proved. 198. In reply, Mr. Vohra, learned counsel for the assessee, besides reiterating his earlier submissions, contended that the statements of the brokers given befor....
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....and the said sale trans action is confirmed by the purchaser. (d) The purchaser is an existing person who is registered with sales tax authority and has filed its sales tax and income-tax returns. (e) The partner of BCMK has appeared before the income-tax authorities and confirmed the purchase of jewellery from the assessee. 200. Learned counsel further contended that if the explanation of the assessee shows that the receipt was not of an income nature, the Department cannot act unreasonably and reject that explanation to hold that it is income. If, however, the explanation is unconvincing and once it deserves to be rejected, the Department can reject and draw the inference that the amount represents income either from source already disclosed by the assessee or from some undisclosed sources. The Department cannot by merely rejecting unreasonably a good explanation convert good proof into no proof. The learned authorised representative further contended that sale proceeds of any declared capital assets has to be treated as capital receipts subject to capital gains tax. 201. On the other hand, the contention of learned special counsel for the Income-tax Department was that VDI....
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....apital gains cannot be strictly put at par with cash credits under section 68 of the Act, according to learned counsel. 203. We have carefully considered the arguments of both the sides. We are unable to subscribe to the contention of Mr. Sudershan Kapoor, the learned counsel for one of the interveners that where an entry has been made in the books of account of the assessee as required by the VDIS of 1997, section 68 cannot be invoked when the declared asset is sold later and the sale proceeds are credited in the books of account. Section 68 of Chapter IV of the Finance Act, 1997, which provided for the Voluntary Disclosure of Income Scheme, 1997, says that the amount of the voluntary disclosed income will not be included in the total income of the declarant of any assessment year if certain conditions are satisfied. One such condition is that the declarant should have credited the amount in the books of account, if any, maintained by him for any source of income or in any other record and should have intimated the credit so made to the Assessing Officer. This is an enabling provision. It enables the hitherto undisclosed income to be brought into the accounts of the assessee as d....
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.... a power has not been either expressly or by implication taken away from the Assessing Officer. Such a power may be exercised by the Assessing Officer to ensure that the provisions of the VDIS, 1997 have not been misused by an assessee. In the example given earlier, suppose that the assessee had falsely declared under the VDIS that he had acquired gold bars out of his undisclosed income of Rs. 5 lakhs. He pays tax under the scheme at concessional rates, pays no interest or penalty. There are actually no gold bars in existence. After the VDIS comes to an end, he falsely claims that he has sold the gold bars for Rs. 8 lakhs and brings the same to account. He may be no doubt paying capital gains tax on the surplus but by doing so he will be bringing into account a sum of Rs. 3 lakhs which is his own undisclosed money. This would be abuse of the VDIS, 1997. It is to prevent this that the Assessing Officer examining the case of the assessee in the year of sale of the gold bars should be given the power to probe whether the gold bars were really sold. It is true that the existence of the gold bars with the assessee cannot be questioned because of the acceptance of the declaration made un....
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....nce in this connection may be made to three judgments of the Supreme Court : (1) A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, (2) Lakhmichand Baijnath v. CIT [1959] 35 ITR 416 and (3) CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194. Reference may also be made to the judgment of the Delhi High Court in Yadu Hari Dalmia v. CIT [1980] 126 ITR 48. In this decision, it was observed by the Division Bench of High Court presided over by the hon'ble Justice S. Ranganathan (as his Lordship then was) at page 57 that section 68 was inserted "only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions". At page 58, it was observed by the court as under : "We are, therefore, of opinion that the whole history of the intro duction of sections 68 to 69D and the judicial decisions bearing there upon clearly establish the proposition that these sections are only clarificatory and that even otherwise an addition can be made towards income from undisclosed sources in respect, inter alia, of amounts of expenditure which the assessee is found to have actually incurred but not satisfactorily explained." 205. The argument that section 68....
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....ds. The Department, however, disputes this and merely calls upon the assessee to prove the nature and source of the monies, invoking section 68. At that stage, it is not the case of the Department that the monies have emanated from the assessee himself and have come back to him in the guise of sale proceeds. The assessees (declarants under the VDIS) lead evidence to show that the sale of the asset is genuine and that the sale proceeds credited in their books of account stand proved. What the Department does is to reject the evidence as not acceptable, for reasons given by them, or to lead evidence to contradict the evidence adduced by the declarants. But all this is only in the realm and dispensation of section 68. It is well-settled that under section 68 the burden keeps shifting from one side to the other depending upon the evidence adduced. But all that the Departmental authorities are called upon to do is to prove that the explanation of the assessee with regard to the nature and source of the sale proceeds or the evidence adduced by the assessee in support of the explanation is not acceptable. They are under no duty to lead evidence to show that the monies shown as sale procee....
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....ot only under the Income-tax Act, but also under all enactments under which the court is required to evaluate the evidence or judge a set of facts or circumstances or explanation put forth by the parties. 206. The entire question under section 68 of the Act as it is applied to the cases before us is whether the assessee has succeeded in proving that the sale of jewellery declared earlier under the VDIS is a genuine sale. If it is a genuine sale the sale proceeds stand explained as regards their nature and source. Section 68 gives the Assessing Officer the power to examine the genuineness of the sale transaction while examining the assessee's explanation regarding the nature and source of the monies credited. 207. We are therefore of the view that the argument that section 68 is not attracted to a case of sale proceeds of an asset credited in the books of account cannot, with respect, be given effect to. 208. The arguments of Mr. Baljit Singh, learned counsel for some of the interveners cannot also be given effect to. Even if the assessee does not maintain books of account, under general principles he is bound to explain the nature and source of a receipt. The argument to the....