TaxTMI 
TaxTMI 
2003 (9) TMI 301
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.... of search on the basis of which the AO having jurisdiction on the assessee who had been searched that there was an undisclosed income, which has been found or detected as a result of search and that in support thereof he recorded a note of satisfaction. In the absence of any such valid material and or note of such satisfaction the assumption of jurisdiction and framing of assessment is wholly arbitrary and is thus unsustainable in law. 3. That the learned Dy. CIT Circle 11(1), New Delhi, has erred in framing the assessment under s. 254/158BC(c) of the Act without giving any independent reason for holding there was an undisclosed income and further computing the undisclosed income of the assessee at Rs. 3,31,20,258. The instant assessment made is wholly arbitrary and is without jurisdiction. 4. That in making the instant assessment, he has failed to appreciate that the Hon'ble Tribunal was pleased to set aside the assessment with a direction to reassess the issues involved in the assessment made and as such, before making the assessment, he was obliged in law, to have recorded his independent reasons after examining the evidence furnished and bring material to establish that ....
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....he assessee particularly when the Hon'ble Tribunal in the case of Paramount Enterprises Ltd. & Ors. cases had deleted a similar addition and as such the action of the learned Dy. CIT is without jurisdiction and totally untenable and unsustainable. 8.2 That the finding of the learned Dy. CIT that the Department had filed a reference against the order of the Hon'ble Tribunal and as such, the decision of the Tribunal cannot be applied to the fact of the case of the assessee is against the cannons of principles of judicial propriety as set out by the Hon'ble Supreme Court in the case reported in Union of India vs. Kamalksi Finance Corpn. Ltd. 5 ELT 433. 8.3. That further he has erred in concluding that the facts of the assessee's case were not brought before the Hon'ble Tribunal in the case of Paramount Enterprises Ltd., and in other cases. The observations made are based on misconception and is without any basis. In fact the learned senior Departmental Representative had in the case of Paramount Enterprises Ltd. had brought out the fact of the case of the assessee before the Hon'ble Tribunal by way of a written note and it is only after considering the note that the similar addi....
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....he transactions on the basis of which, the return of income had been furnished by the assessee. 3.2 In the instant case the assessment was completed by an order dt. 29th Jan., 1999, at an undisclosed income of Rs. 3,31,20258 which order of assessment had been set aside by the Tribunal vide order dt. 21st Feb., 2000, and on further appeal by the assessee under s. 260A of the IT Act, the Hon'ble High Court was though pleased not to admit the appeal but held that any finding/observation made by the Tribunal would not be taken into consideration while making the fresh assessment. 3.3. The present assessment which had been impugned before us has again repeated the additions made originally in the order dt.29th Jan., 1999and the Dy. CIT has completed the assessment adopting the same sum as an undisclosed income, as had been held as an undisclosed income by an order dt.29th Jan., 1999. 3.4 While computing the undisclosed income at Rs. 3,31,20,258, the learned Dy. CIT has held the following sums as an undisclosed income: (a) The loss suffered of Rs. 17,65,247 by the assessee on the sale of certain shares in the asst. yr. 1995-96. The entire transaction pertaining to purchase an....
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....sed income as alleged Break up of undisclosed income 1,93,378 2,91,255 2,81,850 2,90,222 (a) Notional enhancement of the annual letting value under the head "Income from house property" 1,34,137 1,82,789 1,77,622 2,14,582 (b) Disallowance of expenses upon concluding that the activity is not business activity and therefore, expenses incurred cannot be allowed under the head "Income from business" 55,178 99,321 1,04,228 75,640 (c) (i) Disallowance of short-term capital loss under the head "Capital gain" - - - - (ii) Treatment of short-term capital gain as income from undisclosed sources under the head "Income from other sources" - - - - (d) Increase (+)/decrease (-) in income from various sources under the head "Income from other sources" due to reassessment from one head to another. (-)2,341 16,521 - - Gross Total Income 1,86,974 2,98,631 2,81,850 2,90,222 (e) Deduction under s. 80-M reduced (+)/enhanced (-) 6,404 (-) 5,896 - - (f) Deduction under s. 80F reduction (+)' enhanced (-) - - - - (g) Income due to applicability of section - - - ....
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.... annual letting value under the head "Income from house property" 17,17,263 17,48,286 10,84,188 97,15,364 (b) Disallowance of expenses upon concluding that the activity is not business activity and therefore, expenses incurred cannot be allowed under the head "Income from business" 12,51,217 6,46,003 10,54,982 47,97,974 (c) (i) Disallowance of short-term capital loss under the head "Capital gain" 1,76,52,477 - - 1,76,97,857 (ii) Treatment of short-term capital gains as income from undisclosed sources under the head "Income from other sources" - - - (-) 47,200 (d) Increase (+)/decrease (-) in income from various sources under the head "Income from other sources" due to reassessment from one head to another. (-) 83,000 11,43,933 3,21,298 9,66,171 Gross Total Income 2,05,37,957 35,38,222 21,70,468 3,31,30,166 (e) Deduction under s. 80-M reduced (+)/enhanced (-) - - - 508 (f) Deduction under s. 80F reduced (+)' enhanced (-) - - - (-) 8,936 (g) Income due to applicability of s. 115J originally adopted but now excluded from the undisclosed income computed for block asse....
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....'s counsel further contended that the main addition made pertaining to the asst. yr. 1995-96 of Rs. 1,76,52,477 is entirely erroneous both on fact and in law. Explaining the nature of the aforesaid addition it was submitted by him that the aforesaid sum, which has been held to be undisclosed income, represents loss suffered by the assessee genuinely on the sale of shares owned and held by it of Hindustan Development Corporation Ltd. It was contended by him that no material whatsoever was found as a result of search on the basis of which it could be held that the entries resulting into loss is bogus or manipulated but on the contrary represents the loss suffered in the course of its business. It was specifically contended by him that all the transactions of purchase and sale are duly entered in the books of account which are also supported by relevant material i.e., contract of purchase and sale and the payments for purchase and sale have duly been reflected in the books of account which have duly been cleared through account payee cheques. It was submitted that all the transactions are verifiable and it is not that as a result of search it has been found or has been established by ....
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....ld be warranted in law. It was contended that there had been no evidence or material found as a result of search on the basis of which it could be concluded that there was any undisclosed income found or detected as a result of search, the addition made and held as an undisclosed income is wholly erroneous both on facts and in law. 4.4 It was further contended that even the notional interest on the advance against rent could not go to increase the annual letting value as has judicially been held in the following decisions: a. CIT vs. Satya Co. Ltd. (1997) 140 CTR (Cal) 569 : (1994) 75 Taxman 193 (Cal) b. MCD vs. S.D.S. Bali 45 DLT 215 (Del) c. B&A Plantations & Industries Ltd. vs. CIT (2000) 242 ITR 22 (Guj) d. CWT vs. State Bank ofIndia(1995) 125 CTR (Bom) 461 : (1995) 213 ITR 1 (Bom) e. Bharat Hotel Ltd. vs. Dy. CIT (1964) 53 ITD 450 (Del) (relevant at p. 490) 4.5 The appellant's counsel further relied on the following judicial pronouncements in support that what has not accrued, could not be held and assessed as an income: a. CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC); b. India Finance & Construction Co. (P) Ltd. vs. B.N. Panday, Dy. CIT (1993) 109 C....
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.... books of account: 1. Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai) 2. J.K. Narayanan (HUF) vs. Asstt. CIT (2000) 245 ITR 45 (Mad) (sic) 3. J.K. Narayayan (HUF) vs. Asstt. CIT (1999) 64 TTJ (Mad)(TM) 823 : (1999) 69 ITD 104 (Mad)(TM) 4. CIT vs. N.R. Papers & Boards Ltd. (2000) 162 CTR (Guj) 488 : (2001) 248 ITR 526 (Guj) 5. CIT vs. Vinod Dhanchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom) 6. Pradip C. Patel vs. Dy. CIT (1997) 58 TTJ (Ahd) 409 7. Parakh Foods Ltd. vs. Dy. CIT (1998) 64 ITD 396 (Pune) 8. Bhagwati Prasad Kedia vs. CIT (2001) 167 CTR (Cal) 336 : (2001) 248 ITR 562 (Cal) 9. Harakhchand N. Jain vs. Asstt. CIT (1998) 61 TTJ (Mumbai) 223 10. Essem Intraport Services (P) Ltd. vs. Asstt. CIT (2000) 68 TTJ (Hyd) 103 : (2000) 72 ITD 228 (Hyd) 11. Nagindas M. Goradia vs. Dy. CIT in ITA No. IT(S&S)A 99/Mum/1996 12. P.K. Ganeshwar vs. Dy. CIT (2002) 80 ITD 429 (Chennai) 4.8. The learned counsel further submitted that in all the said decisions it has been held that the provisions of Chapter XIV-B of the IT Act are not meant to reassess the income as envisaged under s. 148 of the IT Act.....
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.... case. In fact, it was submitted by the assessee's learned counsel that there is no question of filing any reference as the provisions of filing reference under s. 256(1) of the IT Act had been omitted w.e.f. 1st Oct., 1998 and he has stated that no appeal against the order of the Hon'ble Tribunal under s. 260A had been filed and it has received no notice on the basis of which it could be contended that the appeal has been filed. Be that as it may, the learned Dy. CIT has not disputed that the fact of the instant case in any manner are not identical to the facts of the case of Paramount Enterprises Ltd. 4.12 It was vehemently argued by the assessee's counsel that in the instant case the shares of HDC Ltd. (on which loss occurred) had been purchased by the assessee-company before the sale of shares of ABB Ltd. and Ingersoll Rand on which the assessee had made handsome gains. Therefore, the Revenue's plea that (sic) had entered into the transactions of purchase/sale of shares of HDC Ltd. with a view to set off the loss from the gain, is based on mere conjecture and surmises and without any material. He further submitted that no income had been earned or accrued till the date the s....
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....n assessed in the hands of M/s Lakshmangarh Estate & Trading Co. Ltd. who had purchased the shares from the assessee-company of course, through the broker and at the market rate. It is also not a case of the Revenue that the dividend income earned by the assessee from the shares held by it before its sale to M/s Lakshmangarh Estate & Trading Co. Ltd., was not its income or it continues to remain its income after the sale of the shares was made. (c) The learned counsel for the assessee had also relied upon the orders passed by the Tribunal in the case of M/s Jai Commercial Co. Ltd., who had borrowed the funds for the purchase of shares and in which case, such interest had duly been allowed by the Tribunal of which orders have also become final as no reference or appeal has been filed against such orders. 5. The learned Departmental Representative vehemently opposed each of the submissions made and heavily relied on the findings of the learned Dy. CIT and further submitted that the assessee has manipulated the transaction of purchase and sale of shares and as such the loss claimed to have been suffered on the sale of shares has correctly been disallowed by the learned Dy. CIT. ....
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....March, 2002, which was again adjourned to13th March, 2002, and further adjourned to15th March, 2002. On15th March, 2002, the assessee has filed a detailed reply along with the necessary annexure as have been placed in the paper book from pp. 775 to 848 in support of its submissions that there is no undisclosed income. The hearing was thereafter adjourned to 20th March, 2002, which again was adjourned to 22nd March, 2002, and again adjourned to 26th March, 2002, and further adjourned to 28th March, 2002, without making any enquiry from the assessee and on 28th March, 2002, the instant assessment has been framed. It will be seen from the aforesaid sequence of events that after the assessee had filed a detailed reply dt. 15th March, 2002, and the learned Dy. CIT without either calling upon the assessee to further place on record any further material and to substantiate the submissions as contained in its reply or confronting any adverse material proceeded to frame the assessment by adopting the same income, which had originally been assessed by an order dt.29th Jan., 1999, which order was set aside on appeal by the Hon'ble Tribunal. It is thus apparent that the learned Dy. CIT could n....
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....s of which, proceedings under s. 158BD of the IT Act could have been initiated against the assessee. 6.2 Apart from the aforesaid, in our opinion, further we find that in the instant case, the learned Dy. CIT, while framing the assessment was entirely incorrect in holding that there was any undisclosed income particularly because no books of account or any other document was found or seized other than relating to the financial years 1994-95 to 1996-97, relevant to the asst. yrs. 1995-96 to 1997-98. So far as the asst. yr. 1994-95 is concerned the assessee had duly furnished the return of income on 29th Nov., 1994, even before proceedings had been initiated and further no books of accounts or any other material was found or seized. So far as the asst. yr. 1996-97 is concerned the return of income had not become due and all the transactions had admittedly been entered in the books of accounts maintained by the assessee-company. Similar remains the position for the asst. yr. 1997-98 and as such there can be no justification to compute the income alleged to be undisclosed income since the same is against the mandate of s. 158BA(3) of the IT Act. In fact the learned Departmental Repr....
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....undisclosed income of the assessee. Further, in our opinion, on the basis of judgment cited by the assessee's learned counsel we find no justification that the ALV of the properties as adopted could be enhanced. 6.5 So far as asst. yr. 1996-97 is concerned we find that the return of income was filed by the assessee on23rd Nov., 1995under s. 139(1) of the IT Act and all the transactions, relating to the said year were duly recorded in the books of account. In such a situation, in our opinion, the learned Dy. CIT was not justified in enhancing notional ALV of the property under the head "income from house property" and treating the same as an undisclosed income. It is not, where the learned AO found that the assessee has either not disclosed the income received by it or has not entered in its books of account any transaction, relating to the "income from house property". We further find that there is no justification to enhance the income from the house property notionally by estimating the element of interest on the advances received against rent. In view thereof, the addition made of Rs. 17,17,263 is totally untenable and is unjustified which cannot be held to be undisclosed inc....
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....y. CIT in the impugned order that the said loss is not a genuine loss. Thus, relying upon the findings recorded by the Tribunal in ITA Nos. IT(SS) 324/Del/1997 and ITA No. 5326/Del/1998, we hold that the Dy. CIT was not justified either on facts or in law to hold that the said sum is the undisclosed income of the assessee-company, liable for assessment under Chapter XIV-B of the IT Act. We also hold that the assessee has been able to establish that it has suffered the loss in the course of business and had to be set off against the capital gains, which had duly been offered by it in the return of income. 6.8 In view of the voluminous evidence as has been brought on record, we do not find any justification whatsoever to hold that the learned Dy. CIT was justified and correct in law in disallowing the loss of Rs. 1,76,52,477 on the sale of shares of HDC Ltd., for the asst. yr. 1995-96 and holding the same to be the undisclosed income of the assessee. In fact, as there had been no rebuttal from the side of the Revenue on the submissions made by the assessee, we hold that the undisclosed income computed by the learned Dy. CIT of Rs. 3,31,20,258 is totally untenable and is wholly unj....