TaxTMI 
TaxTMI 
2008 (7) TMI 446
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....er Singh (HUF). It arises out of the assessment made on 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....
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.... claimed to have been received on account of sale of jewellery etc. relating to the disclosures 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 ....
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.... of shares as also jewellery, etc. He had floated various companies and benami concerns in the name of its 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 he....
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....1 to 4.9 of the assessment order to the first part and has held that the assessee was in receipt of commission at the rate of 0.50 paise on Rs. 1,32,32,77,001 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 Jewell....
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....niform nor was there any evidence to show what was the commission exactly received by the assessee. He gave examples of the entries in the seized material in paragraph 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 c....
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....e for a commission of 0.50 paise and, therefore, the Assessing Officer was justified in adopting the commission received at 0.50 paise. According to the learned special counsel, the assessment order was based on 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....
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....basis that the actual expenses were much more than what was allowed by the income-tax authorities. It was contended further that in a block assessment, it was for the Assessing Officer to bring material to show that the 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 ....
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.... also by providing accommodation entries and must have charged commission for the services. The Commissioner of Income-tax (Appeals) has also noted that if the assessee has paid commission at the rate of 0.10 to 0.15 paise 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 narratio....
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....ated that it formed part of the cash-in-hand of the company. A similar explanation was given in respect of cash of Rs. 1,67,000. It may thus be seen that the explanation of the assessee for the entire cash of Rs. 11,71,900 was that 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 dele....
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....ommissioner of Income-tax (Appeals) rejected them saying that they cannot be relied upon at the appellate stage. From the copies of the Income-tax returns of these two HUFs, he found that there was no investigation into the facts and, therefore, 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 on....
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....the photocopies of the seized records to the assessee. However, unless the photocopies of the seized records are provided to the assessee, it will not be possible for him to compute the undisclosed income and file the block return. This is a practical 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 tr....
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....ch the vouchers were prepared. The sales bills also have the names of the mediators written on their reverse. Some pages in the sales bill book were left blank. Illustrations of such irregularities have been given in the assessment order. 37. In order to test and probe the claim 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....
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....et undisclosed commission income was worked out at Rs. 16,29,072 and the same was added on protective basis. The position ultimately is that whereas a sum of Rs. 16,29,072 was added as net commission income on protective basis in the assessment of Bemco, a sum of Rs. 18,10,079 was added in the assessment of Manoj Aggarwal on substantive 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....
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....with this issue in paragraph 7.2 of the assessment order. In the course of the assessment proceedings the assessee furnished details showing substantial sales from the branch office at the aforesaid address. Out of the total sales of Rs. 26,07,63,735, during the financial year 1999-2000, sales from Ahmedabad amounted to Rs.24,07,30,000 as per the details furnished. 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 Apartmen....
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....assessment order in the case of Manoj Aggarwal. He has referred to the statement of Bishan Chand Aggarwal recorded on August 16, 2002. In response to the queries of the Assessing Officer, Bishan Chand Aggarwal stated that the goods were being carried between Ahmedabad and Delhi by Manoj Aggarwal, that they were being carried personally by him, that he always travelled by train 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 t....
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....search. The new bill books were in serial order and included the bills, which have already been seized. The Assessing Officer noted that the books of account had not been found during the search in the premises of Bemco. When this was put to Bishan Chand Aggarwal he stated that the Delhi books were kept in the showroom at Kucha Mahajani and the Ahmedabad books were kept in the Ahmedabad 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 th....
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....ed by Bemco along with the return for the assessment year 2000-01 which mentioned that inventory records were not produced before the auditors for their verification. The auditors have further pointed out that most of the purchases could not be verified and that there was no documentary evidence made available to them to show the transfer of goods from Delhi to Ahmedabad and for remittance 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-furnishi....
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....ferred into Bemco's account No. 1106 with Vijaya Bank, Vigyan Vihar, New Delhi from various accounts of Manoj Aggarwal, which, according to the Assessing Officer, were used for giving accommodation entries. These transfers, according to the Assessing Officer, showed that "There is a cross nexus between the accounts of M/s. Bemco Jewellers (P.) Limited and the other accounts used by Sh. Manoj 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 s....
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....availed of by Bemco. The Assessing Officer, therefore, held that all the transactions of Bemco were bogus accommodation entries. In the order of the Commissioner of Income-tax (Appeals), there is a passing reference to the statement of Mittal in paragraph 15 (page 12) but there is no specific finding. 53. In the block assessment order passed in the case of Manoj Aggarwal, after discussing the aforesaid 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 ....
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....Mahajani. 56. Mr. Jain drew our attention to pages 191 to 196 of the paper book, which is a copy of the show-cause notice dated August 20, 2002 issued by the Assessing Officer to Manoj Aggarwal. Particular attention was drawn to the query raised in paragraph 4 of the notice in which the Assessing Officer had concluded that Bemco had only done accommodation business for commission and since this business was totally 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 ....
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....n placed in pages 16 to 24 of the said paper book. It is pointed out that in the balance-sheet, closing stock has been shown at Rs. 1,98,38,161. As regards the existence of the branch office at Ahmedabad, Mr. Ved Jain submitted that records showing the existence of the same were seized during the search and this has been acknowledged even by the Assessing Officer in page 26 of the block assessment order in the case 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. 1,92,1....
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....ember 14, 2000 (pages 52, 53 and 56 of the paper book), he has stated that all other accounts except Bemco and Bishan Chand Mukesh Kumar are accommodation entries, but he has not specifically excluded the payments to melters (of gold) from the accommodation entries/accounts which shows that even the payments to melters were only on account of accommodation. (Q. No. 3 and answer to the same). (d) In the statement given by Manoj Agarwal on 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 ex....
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....showroom to Kucha Mahajani were debited. Further, Ram Pehelwan and Omi Mama, who according to the assessee were aware of Bemco's showroom in Kucha Mahajani, were the witnesses of the assessee and it was his duty to produce them ; on the contrary, when they stated before the Assessing Officer that they were not aware of the showroom, the assessee asked for cross-examination which is contrary to all settled principles. All this pointed out to the existence of mere paper transactions even in respect of 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 ....
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....ent year 1999-2000 showed that its share capital was only Rs. 3,000 and that the job charges shown to have been paid was very low at 0.01 per cent. of the purchases. With such low job charges, it was not possible to buy and sell jewellery. The balance-sheet did not show any fixed asset, not even furniture or a safe to keep the jewellery. The closing stock was shown at Rs.1.98 crores and it was not proved where the same was being kept. There are no establishment expenses, no insurance cover. More significantly, 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 crucia....
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....d the exhaustive paper books filed before us by both the sides. In the statement recorded on oath from Manoj Aggarwal on August 3, 2000, the date of search, he has stated his background. A typed copy of the statement has been provided to us. Manoj Aggarwal has passed class 9 from Mathura High School, Kachi Sadak, Mathura, his father Bishan Chand Aggarwal was running a commission business in silver at Mathura. They were staying at Chowk Bazar, Mathura. About 5 to 6 years before the date of search, they shifted 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 com....
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.... was only concerned with giving cheques to them against cash received from them through beneficiaries. It is also submitted that no real transactions took place and all entries shown by him are the entries of only accommodation in nature passed by him in lieu of cash and commission on such transactions which ranged from 20 to 10 paise against Rs. 100." 65. It may be seen from the aforesaid statement that therein the assessee has narrated the modus operandi involved in giving accommodation entries in respect of only share transactions 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 al....
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....hat "these were the accommodation entries given to these parties against cash received from them". Thereafter he was asked to explain the chain of people who were instrumental in arranging the transaction. A detailed reply was given by Manoj Aggarwal. It will be recalled that Manoj Aggarwal had stated earlier that Friends Portfolio Private Limited was a company belonging to him and his father through which share transactions were to be put through. In this statement dated January 8, 2001, there was no question put to Manoj Aggarwal regarding 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....
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.... and not accommodation entries. The answers given by Manoj Aggarwal in the statement given on January 8, 2001/ January 9, 2001 also referred to the share transactions only. His admission that he never carried out any genuine transactions was confined to the share transactions. He had also admitted that there was no physical delivery of the shares. He had also stated in this statement that Sunil Kapoor was a sub-mediator attached to the main mediator-R. S. Bansal and in the context of the statement and the questions put to him it would appear that Sunil Kapoor 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,....
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....only a part of the transactions aggregating to Rs. 100 crores (approximate) has been done for commission. This implies that rest of the transactions are genuine. The share transactions aggregating to Rs. 132.32 crores have been admitted to be only accommodation entries. There is no such admission in the case of the jewellery transactions of Bemco. The figure of Rs. 100 crores is not an accurate figure of the share transactions and Manoj Aggarwal has advisedly stated it to be an approximate figure only. The reason is not far to seek. It must be remembered that the 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 admi....
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.....69 crores, which, according to him, were genuine transactions. In other words, it is of some relevance to note that transactions of a much higher value were admitted by him as accommodation transactions. It is further relevant to note from his statement given on the day of search (August 3, 2000) that Manoj Aggarwal had no experience in carrying on any business, whether it be shares or jewellery. His father Bishan Chand Aggarwal was carrying on commission business in silver at Mathura which he continued after he came to Delhi, at Kucha Mahajani. Two years prior to 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....
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....dresses of persons having shops in the neighbourhood who can testify that Bemco had a shop in 1182, Kucha Mahajani. Bishan Chand Aggarwal mentioned the names of Ram Pehalwan and Omi Mama who were running dalali business in the same building. He however made it clear that he was not aware in what name they were conducting their business and further that he did not know their residential address and hence it was not possible for him to ensure their presence for personal deposition. The Assessing Officer issued summons to these persons who gave statements denying any sales 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,....
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....ace as its sales office in No. 1182, Kucha Mahajani on a rent of Rs. 105 per month and that the said property belonged to a temple. A copy of the rent receipt, no objection certificate and the resolution of Bemco were given by Bishan Chand Aggarwal and they were enclosed to the report of the sales tax inspector. The inspector's report further states that Bishan Chand Aggarwal sent his younger son Deepak Aggarwal along with the inspector to show the sales office at Kucha Mahajani and he found that Manoj Aggarwal (the other director of Bemco) was functioning there. The 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, 20....
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....nesses of the Department and at that juncture it was incumbent upon the Assessing Officer to accept the request of Bemco for cross-examination of these persons. The Assessing Officer issued a show-cause notice the very next day, i.e., August 20, 2002, and the assessee did not lose time in asking for the cross-examination in its letter dated August 26, 2002. Within three days the Assessing Officer completed the assessment, knowing fully well that Bishan Chand Aggarwal had not only asked for cross-examination but had also stated on August 19, 2002, that he cannot produce these 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 Ahmedab....
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....hah to reject the assessee's claim. More importantly there is reference in the assessment order to page 7 of annexure A-7 seized from 5A/12, Ansari Road, Daryaganj which is a letterhead of Bemco dated April 4, 1999, where the branch address of Ahmedabad is shown as the residence of Vijay Aggarwal. Thus, the seized material itself contains evidence to show that Bemco had a branch at Ahmedabad in the residence of Vijay Aggarwal. When the seized material itself contains such evidence, it is difficult to brush aside the same and prefer to be guided by the statement of the administrator 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 inter....
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....han Chand Aggarwal in his statement dated August 16, 2002, has explained this by saying that most of the times the journey had to be undertaken at short notice and therefore, Manoj Aggarwal travelled by unreserved class. When asked to produce the tickets, he has stated that they were collected by the railway authorities while exiting the railway station and, therefore, could not be produced. This practice which is prevalent in the railway station is well-known and cannot be contradicted. So far as the journeys are concerned it does appear somewhat unusual that gold bars of such high 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 w....
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.... us by Mr. Kapila, the learned special counsel was that Bemco did not have a bank account in Ahmedabad though it had a sales office there and had effected huge sales of Rs. 27.93 lakhs during one financial year, which was quite unusual. Having a bank account in Ahmedabad would have been certainly prudent and would have obviated the need to carry the cash from Ahmedabad to Delhi, which was a risky affair, and it does appear to us unusual that there was no bank account in Ahmedabad but for that reason alone the other evidence on record cannot be ignored. There is evidence to show that 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 O....
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.... As regards stock register or records which were not made available to the Assessing Officer or the auditor, Bishan Chand Agarwal has stated on August 19, 2002, that they were ready but due to shortage of time the auditors may not have checked them. This is not acceptable. If they were ready, there was no reason why the auditors would not have checked them. Further, at least before the Assessing Officer the same could have been produced. The same position holds good in the case of inventory records also. As regards the other objection against the purchase invoices, Bishan Chand Agarwal 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....
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....gh notings and were not related to books of account. 85. All the above facts do throw considerable doubt on the way in which the books of account and records were maintained by Bemco both in Delhi and in Ahmedabad. However, a balance-sheet and profit and loss account were prepared by Bemco and they were also filed along with the returns of income. They were also audited by the statutory auditors who have confirmed that in their opinion, proper books of account as required by law have been kept by the company so far as it appears from their examination of the books and that the profit 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 an....
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...., therefore, be asserted with certainty or be taken as an established fact that the books of account maintained by Bemco and produced before the Assessing Officer were bogus. The auditor's report for the year ended March 31, 1999 is dated January 29, 2000. Their report for the year ended March 31, 2000 is dated July 24, 2000. In these reports, as already noted, they have opined that proper books of account as required by law have been kept so far as it appears from an examination of such books and that the profit and loss account and the balance-sheet are in agreement with the books 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 b....
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....and that the same cannot be said to be true in respect of the jewellery transactions carried on by Bemco. In the assessment order of Manoj Aggarwal, at page 33, the Assessing Officer has referred to six items of the seized material which, according to the Assessing Officer, shows that Bemco was carrying on only accommodation business and that this fact has also been accepted by Manoj Aggarwal to be so. A perusal of the letter dated May 3, 2002, issued by the Assessing Officer to Manoj Aggarwal shows that annexure A-1, pages 1 to 224 of the seized material, were the copies of the accounts' statements of various parties in the books of Manoj 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 ....
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....extend to the jewellery business of Bemco. At the cost of repetition, we may refer to the answer of Manoj Aggarwal to question No. 3 in the statement recorded by him on December 14, 2000, where he has stated that the entries in the bank account of Bemco do not represent accommodation entries but are genuine transactions. The commission payment of Rs. 78,013 to Sunil Kapoor stated to be mentioned in page 29 of annexure A-7 seized from 5A/ 12, Ansari Road, Daryaganj, appears to represent commission payment in respect of the share transactions which were admittedly accommodation transactions as Sunil Kapoor has been stated by Manoj Aggarwal to 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 ....
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....pila that he drew our attention to the melters, provoking Mr. Ved Jain, the learned representative for the assessee to point out that in a block assessment under Chapter XIV-B of the Act, there is no scope for relying on evidence that has not been unearthed during the search nor can the Assessing Officer rely on information collected by him in the course of the assessment proceedings unless such information is relatable to the evidence gathered during the search. His objection was that it was not open to the learned special counsel for the Department to add to or keep improving the block assessment order by referring to material which has not 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, hav....
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....ement, a specific question was put to Manoj Aggarwal and he was requested to state. "The entries against which the name Sunil Kapoor has been mentioned as accommodation entries". In answer thereto, he stated that "the transactions pertaining to Friends Portfolio (P.) Ltd. may be pertaining to accommodation entries". Later in the statement, he admitted that his staff may be having correspondence with Sunil Kapoor and may have posted some letters to him. To a specific question whether he paid any commission to Sunil Kapoor, Manoj Aggarwal replied in the negative but added that commission was paid to R.S. Bansal only with regard to Friends Portfolio 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 a....
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.... of Bemco dated August 26, 2002 to the show-cause notice issued by the Assessing Officer on August 20, 2002. In this reply, Bemco stated that it did not know any person by the name of Sunil Kapoor and denied having done any transaction through him. A specific request was made for cross-examining Sunil Kapoor if his statement was used against Bemco. No cross-examination was however allowed though Sunil Kapoor's statement was relied upon by the Assessing Officer in the block assessment order. 92. After considering the facts noted above, we get the impression that Manoj Aggarwal actually knew Sunil Kapoor and had in fact carried out several transactions 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 ....
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....ittal, resident of 388, Sainik Vihar, New Delhi. In his case also, there was a search under section 132 on August 3, 2000. He is stated to have sold certain jewellery belonging to several private welfare and marriage trusts to Bemco. In his statement on oath before the DDIT on August 28, 2000, he stated that the sale was bogus and that they were only accommodation entries without any real transactions having taken place. A copy of his statement was given to Bemco and when Bemco asked for cross-examination of Mittal, the same could not be complied with because Mittal was not present on the appointed date. The Assessing Officer had stated in page 36 of 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 we....
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....t even in the seized material there was a letterhead of Bemco which showed Jai Sidhi apartments at Ahmedabad as the branch office of Bemco which means that the claim of Bemco that it had a branch office at Ahmedabad where the gold bars were sold was right, as also the sales tax assessment order under the Gujarat Sales tax Act where the assessee declared Rs. 24,07,30,000 as total sales and exempted sales. There was no evidence of any consequence which was unearthed during the search to directly show that Bemco was carrying on only accommodation entry business for jewellery. Sunil Kapoor who was projected as one of the witnesses of the Department to support 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 ....
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....Appeals) has failed to appreciate that alleged satisfaction was recorded in order to make enquires regarding the banks accounts of the assessee and was not based on any material found during the search and the same cannot be construed as valid satisfaction. (vi) That the Commissioner of Income-tax (Appeals)-II has failed to appreciate the scope of the provision of Chapter XIV-B and has erred in sustaining the addition made in the block assessment and also failed to appreciate that all the transactions were already entered in the regular books of account and the returns were filed prior to search and the same cannot be treated as undisclosed income. (vii) That the learned Commissioner of Income-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....
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....rrate the circumstances in which the undisclosed income of Rs. 83,53,811 has been assessed by the Assessing Officer in the order dated December 31, 2004. 99. As observed earlier, a search was conducted on August 3, 2000, at the various residential and office premises of S/Shri Bishan Chand Aggarwal and Manoj Aggarwal and their various associate concerns including M/s. Bemco Jewellers Pvt. Ltd. Block assessment of Shri Manoj Aggarwal, Shri Bishan Chand Aggarwal as well as M/s. Bemco Jewellers Pvt. Ltd. were completed under section 158BC on August 29, 2002. In such assessments, the Assessing Officer inferred that the main source of income of Shri Manoj Aggarwal was from providing accommodation book entries of various kinds through various entities floated by him 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 ....
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....d the statement of Shri Bishan Chand Aggarwal. With regard to the claim of the assessee of running a branch office at Jaipur, the Assessing Officer confronted Shri Bishan Chand Aggarwal. The assessee had shown sales of more than Rs. 100 crores from its Jaipur office. Shri Bishan Chand Aggarwal stated that this office was being managed by one Shri Sunil Kumar, a relative of his in rented premises. The Assessing Officer made enquiries at Jaipur and statement of Smt. Lad Kanwar, w/o Shri Ramesh Singh, the owner of the premises was recorded by the ADIT (Inv-II), Jaipur on December 21, 2004. Smt. Lad Kanwar reported that though Shri Sunil Kumar had taken on rent one room in her premises for 5-6 months in 1998, he was not doing any business of jewellery. Smt. Lad Kanwar, it 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.....
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....ing to sell the jewellery to the assessee-firm and that no commission or incentives was either promised or paid to these four persons for their services. It was also explained by Shri Bishan Chand Aggarwal, in relation to the business of purchase of jewellery from Amritsar that the purchase executives used to bring the jewellery from the sellers in Amritsar to Delhi where it was valued and then its price was determined and accordingly the cheques were issued to the sellers of the jewellery. The Assessing Officer has noticed that enquiries were conducted by the DDIT, Amritsar and it was found that the four persons were local agents of the assessee-firm and they were engaged by the assessee-firm for providing accommodation entries of purchase of jewellery to various beneficiaries. 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 stat....
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....t the assessee was asked to produce galaiwalas, through whom the melting of jewellery is claimed to have been executed. It is stated that the assessee could not give the address of these galaiwalas and even the bills of only a few galaiwalas could be produced by the assessee. The Assessing Officer made local enquiries. On the basis of the enquiries the Assessing Officer observed that all the concerns mentioned by the assessee for having carried out the melting work were bogus entities and nonexistent. 106. The Assessing Officer noticed further abnormalities in the business of purchase/sale of jewellery claimed by the assessee-firm. The assessee had shown purchase of jewellery from sellers from far flung places like Gujarat, Madhya Pradesh, Assam, West Bengal, Uttaranchal and 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 rup....
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....ntified the commission income earned by the assessee-firm for providing these accommodation entries at the rate 50 paise per hundred rupees. This quantification was based on his similar action taken in the block assessments of M/s. Bemco Jewellers Pvt. Ltd. Accordingly, a gross commission income was computed at Rs.98,44,998. The Assessing Officer allowed a deduction at the rate of 10 per cent. on account of the likely expenses to have been incurred for earning this commission income. Hence, the net commission income of the assessee was worked out to Rs. 88,60,498 and after reducing therefrom the income disclosed by the assessee-firm of Rs. 5,06,687 during the various years of the block period, the total net undisclosed income of the assessee for the block period was computed at Rs. 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 fou....
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....st 3, 2000. 112. The admitted facts material to the issue on hand are that a search was conducted on August 3, 2000 in the cases of S/Shri Bishan Chand Aggarwal and Manoj Aggarwal and their associate concerns in New Delhi and block assessments were made in their cases under section 158BC of the Act and the present proceedings are stated to be a follow up of the said section 158BC proceedings. This could be discerned from the fact that the appellant requested for a copy of the recording of satisfaction leading to the issue of the impugned notice under section 158BD which was not initially provided but was later on provided on the direction of the hon'ble High Court at New Delhi pursuant to a writ petition filed by the appellant. As the said note of satisfaction dated December 19, 2002, is also under challenge it is essential to reproduce the same verbatim which is as under : "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 grou....
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.... that the Assessing Officer assessing the person searched was satisfied that the material and evidence unearthed as a result of the said search had indicated any undisclosed income as belonging to the appellant-firm and so the prerequisite for the issue of a notice under section 158BD of the Act is conspicuous by its absence and so the entire proceedings are null and void. 115. As can be seen, apart from the legal issues thrown up for consideration the findings on merit are also challenged in great detail and paper books have been filed to substantiate the points agitated upon with cases cited to back up the stand of the appellant. 116. The learned special counsel for the Revenue not only defended the orders of the authorities below but has also objected to the learned Commissioner of Income-tax (Appeals) in restricting the estimate of income to 0.35 per cent. as against 0.50 per cent. estimated by the Assessing Officer as commission earned by the assessee-firm by invoking section 145 and 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 w....
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....e relevant provisions contained in this chapter. Section 158BB(1) provides for the computation of undisclosed income as under : "(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined . . . " 118. Section 158BC lays down the procedure for making a block assessment in a search case as under : "Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,- (a) The Assessing 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 be....
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.... 158BC against such other person and the pro visions of this Chapter shall apply accordingly." 120. This chapter also provides for a time-frame for making such block assessment in section 158BE :- "(1) The order under section 158BC shall be passed,- (a) within one year from the end of the month in which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995, but before the 1st January, 1997 ; (b) within two years from the end of the month in which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after 1st January, 1997. (2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be- (a) one year from the end of the month in which the notice under this Chapte....
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.... or a requisition is made under section 132A, the conditions prescribed under section 158BD of the Act are required to be strictly complied with. It was further held that for invoking jurisdiction under the said section it is essential for the Assessing Officer to record a satisfaction that any undisclosed income belongs to any person other than the person with respect to whom the search is made under section 132 or a requisition under section 132A is made ; that the books of account or other documents or assets seized or requisitioned are required to be handed over to the Assessing Officer having jurisdiction over such other person ; that only upon the happening of the aforesaid that the said Assessing Officer of such other person shall be vest with jurisdiction under section 158BC read with section 158BD. In simple language, it may be stated that if any material is unearthed as a result of search either under section 132 or requisition under section 132A, an assessment has to be made on the person searched on the basis of the material unearthed and available and the accent of section 158BB is on "evidence found as a result of search or requisition of books of account or other doc....
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....nder section 158BD as stated above and the first and foremost requirement is that the Assessing Officer making the block assessment in the case of the person searched has to be satisfied that the undisclosed income detected belongs to some person other than the person searched and so the section itself contemplates satisfaction on the part of the Assessing Officer making the assessment in the case of the person searched. We shall advert to this aspect in greater detail when we come to the specific ground taken in this behalf and the submissions made on this aspect by both the parties. Suffice it to say, recording of satisfaction is mandatory as held by the apex court. This view has been emphasized in Amity Hotels P. Ltd. [2005] 272 ITR 75 by the hon'ble Delhi High Court also. 123. It is clear from the above that the provisions of section 158BD are thus inextricably interlinked and intertwined with section 158BC and they are like Siamese twins. In the circumstance, it is not possible to view section 158BD in isolation and de hors section 158BC as that would militate against the intention behind the enactment of Chapter XIV-B to provide for a complete code for assessment of un....
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....all. 125. It is in this context questions that crop up as to whether there is any time limit at all for assumption of jurisdiction under section 158BD ; whether there is any requirement for satisfaction being recorded by the Assessing Officer, whether such satisfaction, if required, can be recorded at any point of time ; and, whether there is any time limit for issue of a notice under section 158BD at all. 126. Section 158BD commences with the words "where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made" and thus it is clear that the satisfaction of the Assessing Officer assessing the person searched is the first and foremost requirement. The Assessing Officer can arrive at this satisfaction only after ascertaining whether there is any undisclosed income at all and this finding can be arrived at by him only in the course of the section 158BC assessment proceeding. Thereafter, he has to arrive at a finding as to the person to whom such income belongs. This finding also can be arrived at only in the course of the section 158BC proceeding in the case of the person searched. He may fi....
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.... the entire enactment relating to search. 127. Section 158BE provides for time limit for completion of block assessment. It stipulates that the order under section 158BC shall be passed within two years from the end of the month in which the last of the authorization for search under section 132 was executed or for requisition under section 132A as the case may be and so the order envisaged under section 158BC has necessarily to be passed within this time frame set in law. If there is a time-limit for passing such order, there is an implied timelimit for giving a finding as to the person to whom the undisclosed income belongs which under no circumstance can be beyond the time-limit set in section 158BE. If there is no such finding given in the order under section 158BC, the provisions of section 158BD stand ousted at the expiry of the said time limit for the reason that such a finding is the very basis for invoking section 158BD. 128. Section 158BD as said earlier begins with the expression "where the Assessing Officer is satisfied" and so the very section implies a recording of satisfaction. The satisfaction contemplated is a judicious satisfaction and not a subjective satis....
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....nterlaced and intertwined and both form part and parcel of the same chapter. 130. In the backdrop of this analysis of Chapter XIV-B of the Income-tax Act, 1961, we shall advert to the submissions made by the rival parties before us and in this context we may refer to the written submissions made before the first appellate authority placed at pages 179-202 of the paper book filed before us. It is contended that the proceedings under section 158BD are illegal and without jurisdiction and barred by limitation. It has been submitted that it is doubtful whether the Assessing Officer making the block assessment had in law assumed jurisdiction over the appellant-firm as the jurisdiction vested in the Assessing Officer Ward 10(2), New Delhi. In view of the fact that no opportunity was granted to the appellant before the transfer of the case was effected from one Assessing Officer to the other, the order transferring the said case from the Assessing Officer having original jurisdiction to the Assessing Officer passing the block assessment order is vitiated. It is also the stand of the appellant that since the satisfaction had not been recorded within time the proceedings are barred by li....
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....the bank accounts had been disclosed and as no fresh material was detected as a result of search, no block assessment is possible. These submissions have been reiterated in the appeal before us and the plea of the learned authorized representative is that the hon'ble Commissioner of Income-tax (Appeals) had disposed of these submissions in a cursory manner without appreciating the serious nature of the said submissions. 132. Besides supporting the orders of the authorities below, it is submitted by the learned special counsel that recording of satisfaction in respect of third party is neither integral nor relevant in the assessment of the raided person especially when section 158BD does not contain the expression "in the course of any proceedings" as can be seen in section 271(1)(c) ; that satisfaction may be recorded at any time within a reasonable period from the date of completion of assessment under section 158BC of the searched person ; that if there is no inordinate delay it cannot be challenged ; that the practical problems in the way have to be appreciated ; that the satisfaction note need not necessarily contain any finding of undisclosed income and that it is enoug....
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....he proceedings pursuant thereto are rendered invalid. On the other hand, the submission of the learned Departmental representative is that the whole matter is procedural in nature and so even if there is any defect it is curable and not void ab initio as contended, especially after the insertion of section 292BB by the Finance Act, 2008. 134. An almost similar issue cropped up in a proceeding under section 148 in the case of Winter Care P. Ltd. v. Deputy CIT (W. P. No. 33832 of 1992 dated February 15, 1993) in which the issue raised before the hon'ble Karnataka High Court was whether the notice issued under section 148 giving less than 30 days for filing the return of income in contravention of the specific provision for giving not less than 30 days time to file the return was valid in law and the hon'ble High Court answered the question in favour of the assessee holding that such a notice was invalid in law in its judgment dated February 15, 1993, in W. P. No. 33832 of 1992 and this decision is referred to by the Bangalore Bench of the Tribunal in the cases of Prabhat Saw Mills and Timber Merchants v. ITO [1994] 51 ITD 548 and H. G. Narayan v. Deputy CIT [1994] 50 ITD 4....
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....d. As the notice itself is not in conformity with the specific provision made in this behalf, we do not consider it necessary to go into the other aspects like not specifying the date, not mentioning the status, and not stating the purpose etc. As the reasoning approved by the hon'ble Karnataka High Court has been accepted by the Government and the law itself was duly amended, we do not find it necessary to discuss the decisions cited on this issue. However, we may make a reference to the decision of the Special Bench of the Income-tax Appellate Tribunal in the case of Smt. Krishna Verma [2007] 292 ITR (AT) 88 (Delhi). In the case of Smt. Krishna Verma [2007] 292 ITR (AT) 88 (Delhi), the notice under section 158BC was issued in case of a person in whose case a search under section 132 had been conducted. It was, thus, held that such a notice was a procedural notice issued after acquisition of jurisdiction, which in such cases vests with the Assessing Officer in terms of section 158BA of the Act. The case on hand is on a different footing as the impugned assessment is in the case of a person other than a person who is subjected to search and the proceedings are initiated under s....
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....2 ITR 75 (Delhi), the hon'ble jurisdictional High Court held that (page 80 of 272 ITR) : "it is very clear that satisfaction is required and it cannot be said that proceedings can be initiated without such satisfaction". A similar view was taken in Priya Blue Industries P. Ltd. v. Joint CIT [2001] 251 ITR 615 by the hon'ble Gujarat High Court. Even apart, section 158BD provides for assumption of jurisdiction to make a block assessment in the case of a person not searched and against whom no proceedings have till then been initiated. Can it be said that such jurisdiction can be assumed without recording satisfaction ? We do not think so. It has to be noted that the proceedings under section 158BC are against the person searched and if in the course of such proceeding the Assessing Officer assessing the person searched comes across material indicating the presence of undisclosed income in the hands of the person not searched, there has to be a provision for making a similar assessment in the case of the other person. As section 158BC relates to a person searched, there has to be different provision for making a similar assessment in the case of the other person and hence sect....
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.... person searched and this too has to be in the course of the said proceeding only. If he finds that any or all of such income belongs to a person not searched, then he has to record such finding in this behalf and take follow up action as envisaged in section 158BD which again has to be only in the course of the section 158BC proceeding and hence if no such satisfaction is recorded in the course of the section 158BC proceeding, then assumption of jurisdiction under section 158BD is not possible. In the circumstance, we are of the firm view that the absence of the words "in the course of the proceeding" in the section is not material to the issue in the context of the said section itself and so the case law referred to by the learned Departmental representative in this behalf is not considered as relevant to the issue in the view we have herein taken. 137. Having held that recording of satisfaction is imperative before assumption of jurisdiction under section 158BD, we may now turn to examine the meaning of the expression "where the Assessing Officer is satisfied" appearing at the beginning of section 158BD for the meaning so ascertained gives us a clue as to the nature of the no....
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....e case of an assessee and so that escaped income has to be brought to tax by re-opening his assessment as per the provisions of section 147/ 148 of the Act. On the other hand, the term "satisfaction" in section 158BD connotes that there exists undisclosed income and that such undisclosed income is that of the person not searched. The use of the expression "satisfied" in section 158BD cannot be read in isolation and it has to be understood in the context in which the said term appears in the said section. It will be seen that section 158BD starts with the expression "where the Assessing Officer is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made . . . ". It is significant that the term "satisfied" is not used in a vacuum but along with the words "that any undisclosed income belongs to . . . other than the person with respect to whom search was made. . . " and the words in the context are "undisclosed income" and "belongs to" which clearly indicate that at that point of time when satisfaction is recorded by the Assessing Officer the undisclosed income is to be identified. Further, the said expression does not stop ....
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....usively establishes the fact that he was involved in providing bogus accommodation book entries to various persons on commission basis and for this purpose he had used the names and bank accounts of various companies, benami proprietorship concerns in the names of his employees, in the names of relatives, various HUF entities and firms and one such concern is M/s. Bishanchand Mukesh Kumar the bank accounts of which were operated by S/Shri Mukesh Kumar and Bishanchand Aggarwal ; that the sources of cash and clearing deposits and the withdrawals from these bank accounts need to be examined ; these accounts have been used for accommodation book entries and hence, undisclosed income has arisen in the hands of this concern which has been found during the course of search and seizure operations in the case of Shri Manoj Aggarwal and his associate concerns ; thus, proceedings under section 158BD are applicable in this case. Admittedly, this note is after the date of block assessment in the case of Manoj Kumar Aggarwal which was finalized on August 29, 2002. Further, the note of satisfaction is not recorded by the Deputy Commissioner of Income-tax, Central Circle-3, New Delhi acting as the....
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....w that there is undisclosed income belonging to the appellant-firm calling for the assumption of jurisdiction under section 158BD. In the circumstances, we hold that the said note of satisfaction is non-established in law and further that the section 158BD proceedings pursuant thereto is invalid and void ab initio on this ground also. 141. We are of the firm view that the proceedings under section 158BD are invalid for the reasons above stated and so the assessment made pursuant to these proceedings is bad in law. The same is accordingly liable to be cancelled. 142. In the view we have taken herein above, the dispute on the merits of the addition made is purely academic. Elaborate arguments have been advanced by the learned representative for the appellant assailing the addition and the same have also been countered by the learned Departmental representative in detail. We have not adverted to them for we refrain from rendering our decision on merits of the addition in view of our decision to hold the block assessment order dated December 31, 2004 as invalid in law in the preceding paragraphs. 143. We however may adjudicate upon one more legal issue raised by the assessee i....
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....ere as per the provision of the Income-tax Act, notice under section 143(2) should be served with in a period of 12 months from the end of the month in which the return is filed, and the impugned notice is beyond the period of 12 months. 4. Without prejudice to clauses (i) (ii) and (iii) above, we will sub mit the required details as per your notice under section 143(2) of the Income-tax Act, 1961, dated November 8, 2004 received on Novem ber 18, 2004, on the next date of hearing. Now you are requested to please adjourn the case for 10 days. Thanking you, Yours faithfully, for Bishan Chand Mukesh Kumar (Sd.) . . . . . . . . . . . . . . . . . . . . . (Partner)" 145. From the above, it may be seen that the notice under section 143(2) was issued on November 8, 2004, and served on the assessee on November 18, 2004. According to the assessee, since the block return was filed on June 16, 2003, the last date for service of the notice was 12 months from the end of the month in which the return was furnished as per the proviso to section 143(2)(ii), which means that no notice could be issued after June 30, 2004. The contention is that....
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....lling upon the assessee to file a block return which the assessee did on June 16, 2003. The assessee, by letter dated June 16, 2003, asked the Assessing Officer to supply a copy of the reasons recorded by him for issuing the aforesaid notice but the same was not supplied. A copy of the assessee's letter is at page 119 of volume 1 of the paper book filed by the assessee. The assessee therefore filed Civil Writ Petition No. 5125 of 2003 and Civil Misc. No. 8962 of 2003 before the hon'ble Delhi High Court. On September 24, 2003, the writ petition was disposed of by a Division Bench of the High Court by observing as under : "by the court : Mr. R.D. Jolly, learned senior standing counsel for the Revenue, states on instructions from Mr. Ram Mohan Singh, Deputy Commissioner of Income-tax that the reasons recorded for issuing notice under section 158BD of the Income-tax Act, 1961, shall be supplied to the petitioner. In view of the statement, we dispose of the writ petition with a direction that on the petitioner's filing objections within two weeks of the supply on the reasons, the Assessing Officer shall dispose of the same before proceeding further in the m....
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....pointed out that it is not the intention of the law to give unlimited time to the Assessing Officer to complete the assessment. To a query from the Bench, as to whether it was open to the Tribunal to examine what would be a reasonable time to dispose of the assessee's objections, learned counsel for the assessee submitted that it would depend on the facts and circumstances of each case and there can be no hard and fast rule. It was pointed out that nothing prevented the Assessing Officer from serving notice under section 143(2) within the prescribed time and that any notice served after the time prescribed was no notice at all and the consequent assessment requires to be quashed. Reliance was placed on the judgment of the Gauhati High Court in Smt. Bandana Gogoi v. CIT [2007] 289 ITR 28 and Circular No. 549, dated October 31, 1989, issued by the Central Board of Direct Taxes when the proviso to section 143(2) prescribing the timelimit of 12 months for service of the notice was added in 1990 (reported in [1990] 182 ITR (St.) 1, 24). 152. Mr. Kapila, the learned special counsel for the Income-tax Department, on the merits of the additional ground submitted that having regard t....
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....ntroduced in the Act. He also referred to section 292BB of the Act introduced by the Finance Act, 2008, with effect from April 1, 2008 which says that where an assessee has appeared in any proceeding or co-operated in any enquiry related to an assessment it shall be deemed that all notices required to be served on him have been duly served upon him in time in accordance with the provisions of the Act and the assessee cannot raise any objection regarding the issue or service or the validity of the notice. 153. Mr. Kapila also filed before us a copy of the letter dated April 10, 2008, written to him by the Assessing Officer in which it was explained that because of shifting of the officers and changes in the incumbent the assessee's objections to the notice under section 158BD, though filed on December 17, 2003, could be disposed of only on November 8, 2004. 154. In reply, learned counsel for the assessee contended that section 292BB was prospective and was applicable only from the assessment year 2008-09. He further contended that the explanation given by the Assessing Officer in the letter dated April 10, 2008, is not supported by the relevant facts and the dates and even....
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.... that the Income-tax Act does not contain a specific provision for exclusion of the time during which the order of the High Court was in operation for the purpose of issuing notice to the assessee under section 143(2), but we should also keep in mind the impossibility of a notice being issued by the Assessing Officer in the face of the directions of the hon'ble High Court that he should dispose of the assessee's objections first before taking any further step in the matter of the assessment of the assessee. The law does not expect a person to perform the impossible. It is the duty of every officer of the Government and every citizen coming within the jurisdiction of the High Court to obey its orders. It is in this spirit that the Assessing Officer refrained from issuing the notice during the pendency of the assessee's objections. To hold that even in these circumstances the notice issued on November 8, 2004, was invalid would be unjust and unfair to the Assessing Officer and also to the Income-tax Department. Learned counsel for the assessee was not justified in saying that the Assessing Officer tried to take advantage of his own wrong, for he did not commit any wrong i....
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....diators during the assessment proceedings and this has been considered and clarified that the rate of commission has been taken from the scribblings on the reconciliation accounts of the mediator and thus they indicated the net payment of commission to the assessee." 160. As we have already cancelled the block assessment framed by the Assessing Officer vide an order dated December 31, 2004, while disposing of the appeal of the assessee, this cross appeal of the Revenue emanating from the said order has become infructuous and the same is accordingly dismissed. I. T. A. No. 163/ASR./2003 [Tejinder Singh (HUF)] 161. This is an appeal filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals), Jammu (Headquarter Amritsar), dated January 28, 2003, and the solitary issue raised therein relates to the addition of Rs. 16,80,475 made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) under section 68 on account of sale proceeds of jewellery declared under the VDIS treating the same as bogus. 162. The assessee in the present case is an HUF which is engaged in the business of manufacturing and sale of knitted fabrics....
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.... informed the Assessing Officer that the said concern of jeweller did not respond to the summons issued by him and even the Inspector could not trace the said concern at the address given where one concern viz. M/s. Aggarwal Brothers was found to be carrying on the business. As the assessment was getting time-barred by March 31, 2001, the Assessing Officer proceeded to complete the assessment and arrived at a conclusion on the basis of material already available on record that the sale of jewellery shown by the assessee was bogus. He based this conclusion on the following factors as enumerated on page 3 of the assessment order : "(a) The assessee has submitted that the jewellery was very old and has sentimental value. However the same has been immediately sold after the date of receipt of VDIS certificate from the office of worthy Commissioner of Income-tax, Amritsar. (b) The assessee submits that M/s. Bishan Chand Mukesh Kumar jeweller was introduced to him through his relatives at Delhi. How ever he was unable to identify the relatives. (c) The assessee has further submitted that the representative of the jeweller came to Amritsar to take delivery of th....
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.... and necessary certificate as issued by the Commissioner of Income-tax, Amritsar, under the VDIS, 1997, along with the valuation report of the jewellery, was filed with the Assessing Officer, not only with the return of income but also subsequently. (6) Notice under section 133(6) was issued by the Assessing Officer to the party and the party has, in compliance with the notice, confirmed the purchase of jewellery and also directly forwarded the xerox copy of the purchase bills to the Assessing Officer, in confirmation of the transaction qua his PAN, Ward No. etc. (7) The sale transactions are duly confirmed both by the buyer and seller. The seller in his statement recorded by the Assessing Officer himself, the buyer has confirmed in the confirmation as obtained by your appellant from him and submitted to the Assessing Officer. The buyer has again confirmed the same in compliance with the letter issued under section 133(6) by the Assessing Officer, wherein he has also supplied xerox copies of the bills as called for by the Assessing Officer. The buyer has again confirmed the transactions in submitting to your appellant certified copies of his income-tax and sales t....
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....e date of service of notice under section 158BD. The Deputy Commissioner of Income-tax, Central Circle-3, New Delhi has further stated that the preliminary enquiries conducted at the alleged showroom of this firm have revealed that no such shop (Bishan Chand Mukesh Kumar, Delhi) existed at the claimed address of this firm, i.e., 1166/202, Chandni Chowk, Kucha Mahajani, Delhi, as per the report of the Inspector, copy of which is also enclosed herewith. Shri Bishan Chand Aggarwal, partner of M/s. Bishan Chand Mukesh Kumar was also the director of a company, M/s. Bemco Jewellers (P.) Ltd. in which action under section 132(1) was conducted and the block assessment proceedings under section 158BC have been completed in August, 2002, wherein all the transactions of this concern have been held to be transactions of providing bogus accommodation books entries in the garb of alleged sale and purchase of jewellery. Keeping in view the above facts as reported by the Assessing Officer, Delhi, in his report, the transactions of this concern also appears to be bogus. As such, the appeal deserves to be dismissed and appeal may kindly be decided in favour of the Department." 167. A cop....
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....conducted and the block assessment proceedings have been completed in August, 2002, wherein all the transactions of this concern have been held to be transactions of pro viding bogus accommodation books entries in the garb of alleged sale and purchase of jewellery. I shall keep you informed of the developments in the case." 168. A copy of the report dated July 25, 2002 prepared by the Inspector, CC3, New Delhi after his visit to the premises of M/s. Bishan Chand Mukesh Kumar at 1166/202, Kucha Mahajani, Chandni Chowk, Delhi received by the Assessing Officer was also forwarded by him to the learned Commissioner of Income-tax (Appeals) wherein it was reported by the Inspector as follows : "Per report dated July 25, 2002 of S. Harjinder Singh, Inspector CC-3, New Delhi in the case of Bishan Chand Mukesh Kumar, Saraf, 1166/ 202, Kucha Mahajani, Chandani Chowk, Delhi As directed, I visited the above mentioned premises on July 25, 2002. This building is a commercial complex consisting of small shops. Each floor has about 6 to 7 shops, measuring approximately 8' Ã- 10' sq.ft. Shop No. is given according to floor, i.e., 1st floor starts with 100....
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....under the facts and peculiar circumstances, is called for. With regard to the report of the Inspector that the party never existed at the address, the Assessing Officer/Deputy Commissioner of Income-tax, Central Circle-III, New Delhi in his letter to the Income-tax Officer, Ward 4(4), Amritsar has enclosed report dated July 25, 2002, of one Inspector. Here it is worthwhile to point out that there is one another report basing himself on which the Assessing Officer has made an addition. An extract from the report in tabular form are as under :- Report of the Inspector submitted to the DDIT(Inv.), Delhi dated 19-3-01, Sh. Umesh Chander, I.A. Report of the Inspector, CC-III, New Delhi dated 25-7-02, S. Harjinder Singh, I.A. Remarks/submissions of the appellant As desired, I visited 1166/202, Kucha Mahajani, Chandni Chowk, Delhi, the address mentioned on the summons dated 7-3-2001. There was no sign board of this shop which is on the 2nd floor. I met one person by the name of Mukesh Kumar, but he denied that M/s. Bishan Chand Mukesh Kumar existed at this premises. He intimated that the firm had been dissolved and the firm M/s. Aggarwal Bros. was functioning from this premise....
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....wellery made by your assessee are bogus. Such presumptions against the assessee is not only unjudicious, but also uncalled for under the facts and circumstances of the case. A particular circumstance under which the assessment has been framed by the Assessing Officer on a mere report by the Investigation Wing that the firm is not existent at the address, particularly when now it has been thoroughly located and that the firm is centralized in Central Circle. It does not give any presumption against the assessee that the assessee has made any bogus sale. No such findings has ever been given by the Assessing Officer assessing the firm, M/s. Bishan Chand Mukesh Kumar. The existence of the firm is well established, merely because that the Investigation Wing has certain allegations against the firm M/s. Bishan Chand Mukesh Kumar, that does not automatically lead to the conclusion that sales made by the assessee-appellant to the firm, are also bogus. It may not be out of place to mention that we have along with our paper book submitted various documents in the nature of confirmations, income-tax and sales tax assessment orders etc. of the party. And have also obtained the origina....
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....hand Mukesh Kumar viz. Bemco was indulging in providing accommodation entries through the various bank accounts opened in different names including the name of M/s. Bishan Chand Mukesh Kumar. He also noted that M/s. Bishan Chand Mukesh Kumar, Delhi had failed to appear for examination and to give evidence in respect of jewellery claimed to have been purchased from the assessee either during the course of assessment proceedings or even during the course of appellate and remand proceedings and even the assessee had also failed to produce the said party to support and substantiate its claim that the sale of jewellery made to that party was genuine. The learned Commissioner of Income-tax (Appeals), therefore, upheld the action of the Assessing Officer in treating the sale of jewellery claimed to be made by the assessee to M/s. Bishan Chand Mukesh Kumar as bogus and in adding the proceeds of the said sale amounting to Rs. 16,80,475 to the total income of the assessee as unexplained cash credit under section 68. 172. Learned counsel for the assessee, at the outset, objected to the addition made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) ....
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....arification issued in the form of questions and answers under VDIS. In this regard, he invited our attention to question No. 16 and answer given thereto to point out that a condition was stipulated in respect of jewellery declared under VDIS to get the valuation done by the approved valuer. He contended that a caution, therefore, was exercised under the scheme in respect of jewellery and it cannot be said that any special treatment was given to the jewellery under the scheme. He also contended that in any case, none of the clauses of VDIS shows that the immunity available under the scheme extends further also to the subsequent sale of the jewellery and such immunity sought to be claimed by the assessee in respect of subsequent sale of jewellery cannot be granted. In support of this contention, Shri Kapila relied on the decision of the hon'ble Andhra Pradesh High Court in the case of Radio Instruments Associates P. Ltd. v. CIT [1987] 166 ITR 718 submitting that the scope and ambit of the VDIS has been explained therein. 174. We have considered the rival submissions and also perused the relevant material on record. It is observed that a similar plea seeking to claim the immuni....
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....sar from which cheques were issued to S. Tejinder Singh (HUF) for the assessment year 1998-99. 2. Statement of Sh. Sudhir Kapoor dated January 31, 2003. 3. Statements of Sh. Sunil Kapoor dated January 16, 2003, and January 29, 2003 who were involved with M/s. Bishan Chand Mukesh Kumar in arranging accommodation entries through the bank account No. 1366 of Punjab National Bank, Tunda Talab, Amritsar. 4. The assessment order in the case of M/s. Bishan Chand Mukesh Kumar for the block period assessment for the assessment years 1991-92 to 2001-02, passed on December 31, 2004 under section 158BC of the Income-tax Act, 1961 by the Deputy Commissioner of Income-tax (Central), Circle-III, New Delhi." Application dated November 27, 2007, by the assessee : "1. Letter of Sh. Sunil Kapoor dated February 18, 2003, filed before the Income-tax Department stating that the statements recorded by the DDI-Investigation Wing, Amritsar were not correct and were recorded under threat and undue pressure. 2. Letter of Sh. Sudhir Kapoor dated February 26, 2003, filed before the Income-tax Department stating that the statements recorded by the DDI-Invest....
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....ceedings before the Assessing Officer. He contended that the primary onus that lay on the assessee in terms of proving the sale of jewellery thus was duly discharged and in the absence of any adverse material brought on record by the Assessing Officer, there was no reason to treat the said sale as bogus. 178. As regards the reliance placed by the Revenue in the case of M/s. Bishan Chand Mukesh Kumar wherein the purchase and sale of jewellery shown by the said party were held to be bogus, learned counsel for the assessee invited our attention to the copy of sales tax assessment order passed in the case of the said concern for the relevant period placed at page Nos. 138 and 139 of his paper book and pointed out that the entire purchase and sale of the said party were accepted as genuine by the sales tax authorities. He submitted that the appeal in the case of the said concern is now before this Special Bench wherein the issue about the genuineness of the purchase and sale of jewellery is involved. As regards the reliance of the Revenue on the statements of the concerned persons recorded subsequently filed as additional evidence before the Tribunal, he submitted that no opportunity....
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....id bills were just the bogus bills generated fraudulently to accommodate the assessee. According to him, the said bills, therefore, did not constitute a reliable evidence and the sale of jewellery claimed by the assessee cannot be accepted relying on the said evidence. 180. Shri S. D. Kapila further submitted that the sale consideration of the jewellery from M/s. Bishan Chand Mukesh Kumar was stated to be received by the assessee initially by cheques issued by the said party from the Amritsar bank account. He submitted that it was, however, stated by the assessee at other place that the jewellery collected from Amritsar was valued at Delhi. He contended that if the valuation was done subsequently at Delhi, how it was possible to give the cheques for the exact amount of sale consideration at Amritsar while taking the delivery of the jewellery. He submitted that it is also not clear as to whether the bills for sale of jewellery were prepared at Amritsar or Delhi. He contended that the said bills were bearing the signature of Bishan Chand Aggarwal as well as the assessee and if the same were prepared at Amritsar, how Bishan Chand Aggarwal could sign the same especially when he was ....
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.... not very clear as to whether the sales tax assessment order filed at page Nos. 138 and 139 of the assessee's paper book was filed before the authorities below and before relying on the said documentary evidence, an opportunity has to be given to the Assessing Officer to verify the same. As regards the payment of Rs. 39.23 lakhs claimed to be made by M/ s. Bishan Chand Mukesh Kumar in respect of sale of jewellery, he raised an objection saying that if the gross margin on the sale of entire jewellery was only about Rs. 40 lakhs as claimed by the assessee, how he could pay the sales tax of Rs. 39.23 lakhs on sale of jewellery. He contended that the said amount, if at all paid by M/s. Bishan Chand Mukesh Kumar as sales tax, it was nothing but a cost incurred by the said concern in order to show the genuineness of purchase and sale transactions of the jewellery involving nearly Rs. 200 crores which was otherwise bogus. He contended that the reliability of evidence filed by the assessee in the form of sales tax assessment order or sales tax payment challan is required to be seen in the totality of the facts of the case and surrounding circumstances. 182. As regards the statements....
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....a new case. He then made an attempt to explain and clarify each and every discrepancy/deficiency allegedly pointed out by Shri Kapila in the said bills by making a detailed submission in this regard. Relying on the said submissions, he submitted that the objections raised by Shri Kapila thus are based on mere guess work and surmises and the same are not sufficient to controvert the documentary evidence produced by the assessee in the form of the said bills. He also contended that although there are certain variations in the description of jewellery given in the said bills, the same are due to clerical mistakes and as the price is paid on the basis of weight which is tallying, such variations are neither material nor relevant to ignore the evidentiary value of the said bills. He submitted that the jewellery in question was sold by the assessee not through any agent but directly to the representative of M/s. Bishan Chand Mukesh Kumar who had come to Amritsar as clearly stated by the assessee in his statement. He contended that the case of the assessee about the genuineness of sale of jewellery thus is based on cogent evidence and the test of human probability cannot be applied to dra....
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....id declaration. 185. In his statement recorded by the Assessing Officer during the course of assessment proceedings, the manner in which the jewellery was sold to M/s. Bishan Chand Mukesh Kumar was explained by the assessee and the reason for making the sale of jewellery to a Delhi based concern i.e. M/s. Bishan Chand Mukesh Kumar was also explained by the assessee. Despite these depositions made by the assessee and the relevant documentary evidence produced by him in support of his claim of having sold the jewellery to M/s. Bishan Chand Mukesh Kumar, the Assessing Officer treated the said sale as bogus mainly because M/s. Bishan Chand Mukesh Kumar did not respond to the letters/summons issued by him and the Inspector deputed to visit the said concern could not trace it at the address given. As mentioned by the Assessing Officer in the assessment order, no further enquiry, however, could be conducted by him in spite of the confirmation received from the said concern as the assessment was getting barred by limitation which he finally completed vide an order dated March 27, 2001. Taking note of this vital aspect of the matter and keeping in view the submissions made on behalf of t....
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....learned Commissioner of Income-tax (Appeals). Keeping in view the relevancy of the outcome in the case of M/s. Bishan Chand Mukesh Kumar wherein the genuineness of the transaction relating to purchase of jewellery claimed to be sold by the assessee was also under in-depth and detailed investigation at the relevant time and the finalization of the same subsequently with the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) taking a view against the assessee by holding the relevant transactions as bogus, Shri S.D. Kapila, special counsel for the Revenue, has filed the assessment order passed in the case of M/s. Bishan Chand Mukesh Kumar as well as some other relevant documents such as copy of bank statement of M/s. Bishan Chand Mukesh Kumar and statements of Sudhir Kumar and Sushil Kumar, mediators allegedly involved in arranging accommodation entries as additional evidence before the Tribunal which has been admitted. Thereafter, he also made a request on behalf of the Revenue for clubbing the appeals filed in the case of M/s. Bishan Chand Mukesh Kumar and Shri Manoj Aggarwal/Bemco with the appeal of the assessee for the consideration of this Special Bench....
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.... the Tribunal as additional evidence. He has contended that this will enable the Assessing Officer to reach a proper conclusion after taking into consideration this entire evidence which has been gathered after the completion of assessment in the case of Tejinder Singh, HUF and which is relevant to decide the issues involved in the said case. Although this plea of Shri S. D. Kapila sounds to be logical and legally tenable, we find it difficult to accept the same in view of our decision rendered in the cases of Shri Manoj Aggarwal and Bemco in the foregoing portion of this order. It is no doubt true that the jewellery by Tejinder Singh, HUF was sold to M/s. Bishan Chand Mukesh Kumar and the issue about the genuineness of the transactions of purchase and sale of jewellery by M/s. Bishan Chand Mukesh Kumar including the purchase of jewellery from the assessee has not been considered and decided by us on merits. However, a similar issue involved in the case of Bemco/Manoj Aggarwal has been considered and decided by us on merits. In the said cases, the facts involved were almost similar to the facts involved in the case of M/s. Bishan Chand Mukesh Kumar inasmuch as the transactions rela....
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....e decision rendered in the case of Bemco/Manoj Kumar on the said issue is applicable even in the case of M/s. Bishan Chand Mukesh Kumar with equal force and this being so, no meaningful purpose will be served by sending the matter back to the Assessing Officer for reconsideration and re-decision merely because the issue has not been decided on merits in the case of M/s. Bishan Chand Mukesh Kumar. In our opinion, this exercise would prove to be merely academic and it would result only in multiplicity of litigation. In that view of the matter and keeping in view the reasons given above, we do not find any justifiable reason to send this matter to the Assessing Officer for reconsideration as sought by Shri Kapila and following our conclusion drawn in the case of Bemco/Manoj Aggarwal, we hold that the transaction relating to sale of jewellery in the case of the present assessee, i.e., Tejinder Singh, HUF is genuine. Accordingly, we delete the addition made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) under section 68 and allow this appeal of the assessee. Cases of interveners : Divya Kapoor : 188. Mr. Sudarshan Kapoor, learned counsel for ....
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....impliciter because the assessee has shown the sale proceeds as giving rise to capital gains and the same has been offered for tax. Therefore, section 68 cannot be invoked. (c) The sale proceeds of the jewellery cannot be treated as "sum credited" so as to attract the section. (d) Section 68 will not apply to transactions which are of income nature. (e) It is for the Department to prove that the money came from the assessee himself in the guise of a cash credit and that such moneys were unaccounted moneys. If that proof is lacking, section 68 is not applicable. (f) It is for the Department to prove that the apparent is not the real state of affairs as held by the Supreme Court in the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349. In the present case, it is the Depart ment's case that the moneys have moved from the assessee himself and have appeared as sale proceeds of jewellery. It is for the Department, therefore, to prove that the moneys were unaccounted moneys and they moved from the assessee and were brought in as sale proceeds of jewellery. It is only where section 68 applies that the burden is on the assessee to prove the nature ....
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....t in CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 where it was held that if the assessee has done everything within his powers and the Department has not done anything which it could have done such as verification of the assessment records, then no addition under section 68 can be made. 194. Mr. Vohra further contended that in proceedings under section 147, the confession of the creditor cannot be taken to be conclusive and it cannot be the basis for the belief held that income chargeable to tax had escaped assessment. Reliance was placed on the following decisions in support of this contention : (a) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) ; (b) Agarwalla (S. P.) alias Sukhdeo Prasad Agarwalla v. ITO [1983] 140 ITR 1010 (Cal) ; (c) Kripa Ram Ramji Das v. ITO [1982] 135 ITR 68 (P&H) ; (d) United Electrical Co. P. Ltd. v. CIT [2002] 258 ITR 317 (Delhi) ; (e) CBI v. V. C. Shukla [1998] 3 SCC 410 ; and (f) Hazi Amir Mohd. Mir Ahmed v. CIT [1977] 110 ITR 630 (P&H). 195. Learned counsel for the assessee has also filed the compilation of the case law. 196. Mr. Kapila, the learned special counsel for the Income....
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....ewellery to Bishan Chand Mukesh Kumar, that non-payment of commission is irrelevant and what is important is the fact that the brokers appeared before the Assessing Officer and confirmed the transactions. 199. Arguments were also addressed before us on behalf of Tejinder Singh (HUF) on the above aspect. In this case, a specific ground has been raised to the effect that the addition made by the Assessing Officer by invoking the provisions of section 68 of the Income-tax Act are unwarranted and uncalled for in the facts and circumstances of the case. The facts relating to this appeal have been already discussed elsewhere in this order and while doing so we had remarked that the argument questioning the applicability of section 68 will be dealt with in the appropriate place. We consider it to be appropriate to discuss the argument here since the main argument of the interveners was also that section 68 cannot be invoked for making the additions. Mr. Salil Kapoor, learned counsel appearing for Tejinder Singh (HUF) contended that the amount credited as sale proceeds of jewellery in the books of the assessee cannot be treated at par with cash credits, an argument which was also addres....
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.... the jewellery. As per the learned Departmental representative, the assessee is required to prove a receipt or a credit in his account as per the provisions of sections 68 and 69 of the Act. If his explanation is that the receipt is on account of sale of immovable assets (whether or not covered by VDIS) hitherto owned by him, the burden of proof is on him to prove the factum of sale. He placed reliance on the decision of the hon'ble Supreme Court in the case of CIT v. P. Mohanakala [2007] 291 ITR 278, in support of the proposition that money came by way of bank cheques and was paid through the process of banking transaction was not by itself of any consequence. 202. Under these facts and circumstances, the question arises as to whether the provisions of section 68 pertaining to cash credits were correctly invoked by the Assessing Officer. In Chapter VI of the Income-tax Act, under the heading "Cash credits" provisions of section 68 stipulates that if any sum is found credited in the books of account of the assessee maintained for any previous year and the assessee either offers no explanation about the nature and source thereof, or his explanation, in the opinion of the Asse....
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....nt. In the cases of the interveners who are all declarants under the VDIS, 1997, this condition has been satisfied and there is no dispute about the same. The immunity given by section 68 of the Finance Act, 1997, is limited to this, that the declared income will not be assessed again as the income of the declarant for any assessment year under the Income-tax Act. Obviously the only provision, which the Assessing Officer can invoke for assessing the amount credited in the books of account, is section 68 of the Income-tax Act, but by virtue of section 68 of the Finance Act, 1997, the applicability of section 68 of the Income-tax Act to the amount declared under the VDIS is ruled out. But the immunity stops there. When the asset representing the declared income or acquired out of the declared income is later sold, the powers of the Assessing Officer to examine the question whether there has been a real sale of the asset is not curtailed in any manner by any of the provisions of the VDIS, 1997. Supposing, to give an example, an assessee files a declaration under the VDIS that he had acquired gold bars for Rs. 5 lakhs out of his undisclosed income. He is required to credit his books of....
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....tials, evidence in the form of bills, etc. It is also open to the income-tax authorities to examine such proof in the manner authorized by law and come to the conclusion whether the sale is genuine or not. While doing so, the Assessing Officer may rely on section 68 of the Income-tax Act. 204. Mr. Ajay Vohra, learned counsel for one of the interveners contested the aforesaid position by submitting that the sale proceeds credited in the books cannot be treated as cash credit simpliciter so as to enable the Assessing Officer to invoke section 68. He says that the sale proceeds have been shown as income in the sense that after deducting the cost of the asset from the sale proceeds, the balance has been declared as capital gains and therefore the sale proceeds cannot be probed under section 68 and the assessee cannot be asked to prove the nature and source of the monies. His further submission is that in the cases before us, it is the Department which says that the sale proceeds are in truth undisclosed income of the assessee and they have moved from the assessee and have been brought back as sale proceeds and, therefore, it is for the Assessing Officer to adduce evidence to show th....
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....ited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liabi....
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....8] 34 ITR 807 and the well-settled legal position recognised by several courts as one of the fundamentals of the income-tax law but also to turning the law upside down. Therefore, as a proposition of law it cannot certainly be accepted that section 68 is not applicable to such cases. But in the application of the section, courts have laid down broad guidelines as to how to judge or evaluate the evidence, when can an assessee be said to have discharged his burden, when the burden shifts to the Department and so on. For instance, in the case of CIT v. Smt. P. K. Noorjehan [1999] 237 ITR 570 the Supreme Court has noted that the use of the word "may" in section 69, as against the word "shall" used in the section as originally introduced in Parliament, shows that the section confers a discretion on the Income-tax Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee. It was held that where there was an inherent improbability of a young lady of 20 years of age having any unexplained or undisclosed income to be utilised in the purchase of land and that in such circumstances her explanation that she acquired the land out of t....