TaxTMI 
TaxTMI 
1997 (8) TMI 117
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....Rs. 50 lakhs have not been written in accounts and that he will declare Rs. 1.11 crore for the assessment years 1995-96 and 1996-97 by filing the returns and paying income-tax also. The Assistant Director of Inspection also took an oath statement from the assessee on 4-12-1995. The copies of oath statements translated in English have been placed in the paper book filed on 25-6-1997 from pages 2 to 11. 3. On the basis of search operations, the Assessing Officer issued a notice on 24-7-1996 under section 158-BC of the Act directing him to file a return for the block period of 10 years giving 15 day's time in respect of undisclosed income. After the issue of notice under section 158BC read with section 142(1) of the Act, the Assessing Officer conducted enquiries on the basis of seized materials and also called for certain other documents and papers and other related information to enable him to complete the block period assessment of undisclosed income of the assessee. The assessee filed the block period return on 7-10-1996 returning undisclosed income of Rs. 1,06,92,950 the details of which are as under : Undisclosed assets 16,18,725 Unexplained expenses ....
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....is is mentioned by the Assessing Officer in para 7 at page 8 of the impugned order. The assessee while filing the return of income for the period 1-4-1995 to 17-10-1995 did not attach the profit and loss account and balance-sheet as on that period. Though the return was filed on 7-10-1996 the details of sundry creditors were given much later and some confirmation letters were filed on 25-10-1996 when the assessment was getting time barred on 31-10-1996. According to the Assessing Officer since the time was short only a test check was made of the sundry creditors for finding the genuineness and therefore Inspectors were deputed on 30-10-1996, and they enquire with 4 creditors aggregating to Rs. 41,05,857, the names and addresses of which have been given by the Assessing Officer in pages 8 & 9 of para 7 of the impugned order. The Assessing Officer has stated in page 9 of the impugned order that the Inspectors who were deputed to enquire about the genuineness of the loans reported that the four creditors were agriculturists and did not have business activities and that their standard of living was average. The Inspectors reported to the Assessing Officer that the 4 persons voluntarily....
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....unhappy with the investigation and enquiry being done by the Assessing Officer. She, therefore, prepared a note in file C.No.1429(16)/95-96 dated 29-10-1996 directing, in para 2(iv) of the said note, the Assessing Officer to conduct enquiries and investigations in the manner directed by her. We think the entire contents of the note of the Commissioner of Income-tax, Coimbatore are very important and require to be incorporated so as to make it part of this order. We reproduce the same as under : "NOTE C. No. 1429(16)/95-96 Shri T.S. Kumarasamy, Tiruchengode. Shri M. Maniyandi, Assistant Commissioner of Income-tax, Special Investigation Circle, Salem who is the Assessing Officer in the present case, was directed vide this office D.O. letter dated 1-10-1996 to submit the draft block assessment order in the above case, which is getting barred by limitation on the 31st of November, 1996, on or before 11-10-1996 positively and to come for a personal discussion on the same date. The Assessing Officer and Shri Artabandbu Patra, Deputy Commissioner of IT, Salem were present in this office on 11-10-1996. The unsigned draft block assessment order, together with the six page ....
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....ne the following aspects :---- (a) Genuineness of the trade credits; (b) Verification of bank accounts in the name of the assessee and his family members; (c) Whether the Fixed Deposits of Rs. 1.72 crore have been made by transfer entries from any other bank account, or they have been made in cash; and source of income for the deposits. (d) The correctness of the turnover reported by the assessee obtaining the original contract award from the TNIP, as there is a possibility that a few of the cheque received from TNIP could have been encashed at some other bank/place. (e) Complete details of the various immovable properties purchased by the assessee in his name and in the names of his family members to see whether on-money was paid over and above the documents prices; (f) The adequacy of the valuation of Immovable Properties reported by the assessee to be checked, if necessary with a reference to the Departmental Valuation Cell. (g) Genuineness of the purchases, including shandy purchases; and (h) Applicability of the provisions of section 40A(3). The above significant points were required to be examine....
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.... rejected. The only other alternative course left before the Department within the short time available for completing the assessment is to proceed to compute the undisclosed income on the basis of details available regarding the investments made by the assessee and the expenditure incurred by him during the block period. (ii) The Assessing Officer should collect details regarding the comparative figures in the case of a similar trader viz., Karnataka Agro Corn Products, Bangalore, who earlier supplied the product to the Government of Tamil Nadu, who is assessed by Company Circle. IV(4), Bangalore. These figures will give a basis for estimating the undisclosed income after taking into account the investments made/expenditure incurred by the assessee. [The D.C. (H.Q.), Bangalore was contacted and requested to fax the P & L Account and the Balance Sheet of this company for the Y.E. 31-3-1993, 31-3-1994 & 31-3-1995, to this office to help the Assessing Officer] (iii) The creditors balance as on 31-3-1994 is Rs. 98 lakhs. The accretion in the creditors balance for the period 1-4-1995 to 17-10-1995 is Rs. 34 lakhs. For the year ended 31-3-1995, where the turnover is as....
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....e-tax Act. The various defects in the account books seized during the proceedings under section 132 have been explained to the assessee and his representative. It was also pointed out to the assessee that there was no co-operation from his side during the assessment proceedings. Though the search was conducted in October 1995, the assessee has filed the return of income with only a Receipt and Payments Account under the block assessment scheme, only on 7-10-1996, in response to the notice issued under section 158BC as early as July, 1996. Relevant details like Profit and Loss Account and the Statement of Affairs were filed by him only subsequently. Some of the confirmation letters from creditors etc., have been filed even as late as 24-10-1996. The assessee appears to have deliberately filed the return of income and the details in the last minute of the assessment proceedings, so as to thwart any further enquiry/investigation by the department in respect of the details furnished by him. As per his own statement, the assessee makes mainly cash purchases in shandy and from agriculturists through brokers. The balance of trade creditors as on 17-10-1995 is reportedly ....
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....s turnover at the admitted rate of 3 per cent by the assessee roughly works out to Rs. 93 lakhs, as against the disclosure made under section 132(4) amounting to Rs. 1.1 crores. However, as there is no basis or evidence for the net profit rate of 3 per cent admitted by the assessee now orally, I am of the view that considering the nature of business and the circumstances of the case, the net profit, after deducting all expenditure including secret commission to certain persons would not be less than 8 per cent, especially when the State Government has made substantial increase in the contract payments to him during the relevant period. Sd/--- Dated : 31-10-1996 Commissioner of Income-tax. Sd/--- Sd. 31/10/1996 DC/SIC/SLM (Representative) Sd. 31-10-1996 Fresh Draft assessment order reed. from Assessing Officer put up. Sd 31-10-1996 ACIT Discussed and approved subject to the memo issued separately. Sd 31-10-1996 Letter to AO & DC put up. Sd 31-10-1996 Sd 31-10" ACIT 5. After getting the approval of the Commissioner on 31-10-1996 on the draft order dated 31-10-1996, final order was passed on the very same day viz., 31-10-1996 an....
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....t was bad in law and has to be declared as null and void. (4) The assessment for the block period in search cases cannot be passed without the previous approval of the Commissioner of Income-tax, Coimbatore and in this case, the Commissioner has given the approval in a mechanical manner without giving fair, adequate and effective opportunities of hearing against the proposed order of the Assessing Officer made on 31-10-1996. It was further contended that by failure to give hearing by the Commissioner before giving approval to the proposed draft order by the Assessing Officer under Chapter XIV-B of the Act amounts to violation of principles of natural justice and the impugned order therefore requires to be annulled. (5) The impugned order has been passed by the Assessing Officer without application of mind as he has taken into consideration irrelevant factors not germane to computation of undisclosed income as provided in section 158B of the Act. The assessment, therefore, impugned in the present appeal is illegal and requires to be quashed, submits assessee's counsel. Elaborating further, the assessee's Counsel submitted that the draft order was prepared o....
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....ors as per the list and details given by the assessee. (ii) On a query from us, the Assessing Officer clearly admitted that the matter was being disposed by him from time to time with the Commissioner of Income-tax, Coimbatore and that therefore, Range D.C. appeared before the Commissioner on 28-10-1996 and certain instructions were given to him as per the note dated 29-10-1996 of the Commissioner in file C. No. 1429(16)/95-96. It was the contention of the Assessing Officer that he completed the assessment without being influenced by the directions of the Commissioner and, therefore, the assessment is perfectly valid and does not require to be cancelled as contended by the assessee's counsel. (iii) Regarding the hearing to be given by the Commissioner before giving approval to the draft order, the Sr. Departmental Representative submitted that it was merely on administrative act and the law also did not postulate giving of any hearing to the assessee before giving approval to the draft order passed by the Assessing Officer. According to the Sr. Departmental Representative, impugned order was therefore perfectly valid and no case made out by the assessee's ....
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....have elaborately recorded elsewhere above do not reveal the detection of any undisclosed income (for short UDI) pursuant to search operations under section 132 of the Act conducted on 17-10-1995. The assessee filed the return of the block period on 7-10-1996 declaring UDI of Rs. 1,06,92,950 which also included the sum of Rs. 50 lakhs as unexplained expenses on the basis of his own admission in answer to question No. 16 recorded in the oath statement by the ADI on 25-10-1995, copy of the English translation of the said oath statement of the assessee has been placed at pages 2 to 11 of the paper book, filed by the assessee's counsel on 25-6-1997. The UDI declared by the assessee in the return was inclusive of Rs. 50 lakhs from out of the expenditure of the block period aggregating to Rs. 1.70 crores. We do not know how the expenditure recorded in the account books though not supported by proper evidence can be UDI as defined in section 158B(b) of the Act. However, we refrain from expressing any opinion in this regard as the assessee himself had admitted in his oath statement on 25-10-1995 under section 132(4) before the ADI that the same is UDI and even in the return filed after ....
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.... with section 142(1) of the Act calling upon the assessee to file the return of the UDI of the block period was issued on 24-7-1996, that is to say; after nearly 8 months of the conclusion of the search operations. The Assessing Officer instead of waiting till the last date of the limitation period (31-10-1996) ought to have completed the assessment of the UDI of the block period after the expiry of 15 days period as prescribed in section 158BC of the Act. The Assessing Officer could have acted diligently conducting enquiry by issuing further notice under section 143(2) and completed the block period assessment, even under section 144 of the Act as provided in section 158BC(b) of the Act. But he did not do so and waited till the fag end of the limitation period prescribed in section 158BE of the Act. The addition of Rs. 1.68 crores in the impugned order is thus wholly arbitrary and preposterous addition purely based on assumptions and inferences on the basis of the report given by the I.T. inspectors after making enquiries with the 4 creditors only from out of 43 creditors, without putting the report of I.T. Inspectors and the evidence gathered by them to the assessee for answer an....
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....oans. The Assessing Officer by doing so is blowing hot and cold in same breadth. This itself is not only a good reason for deleting the impugned addition of Rs. 1.68 crores but even declaring the assessment illegal. 16. The enquiries by the Assessing Officer for making the assessment of income are quasi-judicial proceedings and the act of framing the assessment is quasi-judicial act. It is a trite law that a judicial or quasi-judicial authority should act independently and that there shall not be any interference, nor any advice, opinion, instructions, directions can be given to any IT authority in such proceedings etc. by any stranger/outsider even if such stranger/outsider is higher or highest authority in the hierarchy of the department. If an order is passed or a decision is rendered by an income-tax authority in such quasi-judicial proceeding at the behest of or upon the directions or Instructions, of any superior officer or authority then such an order/decision is illegal and a nullity in law because it shall be deemed in law that such an order/decision is not of that quasi-judicial authority but of some other authority who directed or issued orders/instructions to the low....
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....l not interfere with the judicial or quasi-judicial functions." (iii) The Hon'ble Supreme Court again in the case of Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 at pages 7 & 8 have clearly stated as under : "The power conferred by section 25 is not administrative : it is quasi-judicial. The expression 'may make such inquiry and pass such order thereon' does not confer any absolute discretion on the Commissioner. In exercise of the power the Commissioner must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice : he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Section 13 of the Wealth-tax Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of the officers of the department in matters administrative but not quasi-judicial." 17. In the instant ease, the Commissione....
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....he Act including in the sum of Rs. 1,06,92,950, the sum of Rs. 50 lakhs also as a UDI though it represented unvouched expenditure in relation to the contract activities. We once again say that the assessee has not been able to satisfy us by leading cogent legally acceptable evidence as to how and why he is not bound by his own oath statement and testimony though retracted subsequently on 31-10-1996. It is well known that the Income-tax Officers are not Police Officers and they do not use or resort to unfair means or third degree methods in recording oath statements and therefore whatever is confessed and admitted before them during the course of search operations or during the course of any proceedings before them then we think such statements, admissions and confessions are binding and cannot be retracted, unless and until, we repeat, unless and until it is proved by legally acceptable evidence that such admission, confession or oath statement was involuntary or tendered under coercion or duress. No such circumstances existed or proved to have existed. In saying so we are supported by the observation of their Lordships of the Supreme Court in the case of Surjeet Singh Chabra v. Un....
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....r bank accounts. It is the arguments of the assessee's counsel that if such cost is to be included in the income of the block assessment then it will result in double assessment of the same amount, once in the block assessment upto 17-10-1995 and the other in the regular assessment upto 31-3-1996 on the same assessee. These aspects according to him find a place in the statement of affairs as on 17-10-1995 computed by the Assessing Officer at page 13 of the impugned order on the basis of which the undisclosed income was adopted in the block period as a method for working out the capital. We are sure that the Assessing Officer will in the interest of justice delete from the income to be assessed for the regular assessment for the assessment year 1996-97 the cost of such assets if the same have already been included in the statement of affairs as on 17-10-1995. We think that the assessee might not be fully conscious and wholly conversant with the new provisions of making of assessments in search cases enacted in Chapter XIV-B of the Income-tax Act and he might have agreed at the time of search to offer as income the cost of these assets and perhaps he did not distinguish between t....
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..... It is not known what report was submitted by the Inspectors. But one thing is sure and certain that the Assessing Officer prepared a draft assessment order on 31-10-1996 running into 15 typed pages and then went from Salem to Coimbatore, a distance of nearly 200 kmtrs. taking the assessee and his C.A. with him, placed the draft order prepared on 31-10-1996 before the Commissioner on 31-10-1996, got the approval from the Commissioner of Income-tax, Coimbatore on 31-10-1996, rushed back to Salem from Coimbatore covering 200 kmtrs., retyped the draft order on three different type writers (as is evident from the different types of the typewriters) prepared demand notice, challan and completed other formalities on 31-10-1996 itself and even served the impugned assessment order as well as the demand notice, challan etc. on the assessee on that very same day, that is to say, on 31-10-1996. Very strange and curious but it did happen in this case. As narrated to us by the Assessing Officer who was all along present in the Court Hall at the time of hearing of this appeal assisting the learned Departmental Representative of the Income-tax Department, we hope these strange happenings will no....
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....he undisclosed income of the block period. In exercise of powers under sections 142 and 143(2) and (3) the Assessing Officer, therefore, could call for such bank accounts, books of accounts, vouchers, etc. which he considered necessary for the purpose of determining the undisclosed income of the assessee. There is no specific embargo on the powers of the Assessing Officer under Chapter XIV-B relating to special procedure for assessment of search cases which prohibits him to make enquiries and serve notice on the assessee under sections 142 and 143(2) and 143(3) of the Income-tax Act, 1961. 3. Under section 158BG the order of assessment for the block period cannot be passed without the approval of the Commissioner. Though the Commissioner cannot interfere with the quasi-judicial functions of the Assessing Officer, but in order to satisfy himself before giving approval the Commissioner is entitled to look into the seized material and find out how that material has been utilised by the Assessing Officer. The Commissioner is not required to accord approval on the proposal submitted by the Assessing Officer in a mechanical or superficial manner, or refuse approval. The approval....