TaxTMI 
TaxTMI 
2007 (2) TMI 271
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....would raise bogus bills of supply of feed on the Department without actually making them In support of these supplies, the assessee would raise fictitious purchase vouchers as if purchases have actually been made from the farmers and reflect transportation of the same to the various stores/depots of AHD in Bihar without any actual transportation being done. The fraudulent amount so withdrawn used to be drawn from bank account and thereafter divided among the various conspirators whereas in the books of account it would be reflected as if the payment has been made to the farmer-suppliers and the transporters. Shri Dipesh Chandak in this fraudulent withdrawal of fund from AHD used the following companies/concerns for raising bogus bills against non-supply of animal feed, etc.: (1) Shree Badrinarayan & Co. (2) Central Holler Flour Mills (P) Ltd. (3) Quality Chemical Suppliers (4) Maheshwari Feeds & Trading Co. (5) Ankit Industries (6) Ankit Industrial Gases (P) Ltd. (7) Laxmi Trading Company (8) Maheshwari Brothers The aforesaid fraudulent withdrawals against bogus supply of feed were made from asst. yr. 1987-88 to asst. yr. 1995-96. Bogus purchases were sho....
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....my opinion, it is the legitimate right of the public to know and feel assured that the investigation is done in the correct perspectives and that no guilty person will be spared." - Para 44. 2.2. Accordingly, the Hon'ble High Court ordered as under: "I would, accordingly, direct the Central Bureau of Investigation (CBI) through the Director, to enquire and scrutinise all cases of excess drawals and expenditure in the Department of Animal Husbandry in the State of Bihar during the period 1977-78 to 1995-96 and lodge cases where the drawals are found to be fraudulent in character, and take the investigation in those cases to its logical end, as early as possible, preferable within four months. The investigations by the State Police in cases already instituted shall remain suspended in the meantime. I would also direct the IT Department through the Chief CIT, Bihar, to initiate such action as may be considered fit, necessary and expedient under the IT Act, WT Act, etc against persons whom he reasonably thinks to be involved in the 'scam' and possess unaccountable wealth and property, and take the proceeding to their logical conclusions." 2.3. The judgment of the Hon'ble Pa....
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.... Secretariat officials, senior bureaucrats and politicians. The money so defrauded was divided among all these persons. The CBI has made sizeable recovery of the defrauded money from the possession of these conspirators by way of seizures of movable and immovable assets. 2.5. The assessee extended his full co-operation to the investigating authorities during the course of investigation. He revealed full and true disclosures of the circumstances within his knowledge in relation to the entire AHD cases to the CBI and provided documentary evidences to substantiate the same. He made a confessional statement u/s 164 Cr.PC before the 1st Class Judicial Magistrate on 20th March, 1997 at Dhanbad in which he revealed the true picture of transaction taken place with the AHD, Government of Bihar. 2.6. Thereafter, during the course of criminal proceedings the assessee made an application before the designated Court of CBI, AHD, Patna, to grant him pardon and make him an approver. The application was considered and the said designated Court of CBI has observed in its ordersheet as under: "A petition has been filed on behalf of Dipesh Chandak, one of the charge-sheeted accused in this c....
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....tement, Dipesh Chandak has revealed facts showing that he has been directly concerned and in privy of the offences covered under the case and has knowledge of entire circumstances relating to offences and every person concerned in commission thereof. The prosecution has also filed documents collected during investigation in this regard. According to prosecution, this is a case of criminal conspiracy and the evidence of Dipesh Chandak reveals that he has been directly concerned with offences and has knowledge of whole circumstances relating to it as well as about the persons concerned with it, which will be helpful and beneficial for effective trial of the case. On perusal of the statement of Dipesh Chandak and documents filed, I find that Dipesh Chandak has made statement revealing facts, basing upon which I suppose him to have been directly concerned with and privy to the offence covered under the case with knowledge about whole circumstances relating to same and the persons concerned there within the commission of the offence, in relation to present case. In the facts and circumstances and keeping in view the effective trial, I am satisfied that the evidence of Dipesh Chandak ....
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.... Holler Flour Mills (P) Ltd. (3) Quality Chemical Suppliers (4) Maheshwari Feeds & Trading Co. (5) Ankit Industries/Ankit Industrial Gases (P) Ltd. (6) Laxmi Trading Company (7) Maheshwari Brothers (8) R.K. Transport. 4. Being aggrieved, the assessee preferred appeals before the CIT(A) for all the said assessment years. The CIT(A) following his own order in the case of Dipesh Chandak & Sons (HUF) for asst. yr. 1991-92, wherein detailed discussions have been made, has held that the fraudulently withdrawn sum from the AHD did not constitute income of the assessee within the meaning of s. 2(24) of the Act and, accordingly, deleted the additions made in the hands of the assessee-individual. It would be relevant to quote the relevant portion of the order of the CIT(A) in the case of Dipesh Chandak & Sons (HUF), referred to above, while deleting the addition made by the AO, as under: "The fact is that the appellant had no right to the sum of so fraudulently withdrawn and as such it cannot be treated as income in his hands since it is not in the nature of profit of any trade or business. The act of raising fake bills was in the nature of a fraud perpetrated on the ....
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....and the issue is yet to be finalized by the competent Court at different level. During pendency of adjudication the CIT(A) has erred in law by holding that the fraudulent withdrawals do not constitute income Further, the CIT(A)'s view is contrary to the view of Hon'ble Jharkhand High Court in Indraprastha Agencies vs. CIT (2004) 187 CTR (Jharkhand) 632 : (2004) 266 ITR 320 (Jharkhand) and also consistent view the Tribunal has adopted in the following cases, where it has been held that the AHD receipts constitute income: (i) ITA Nos. 380 and 381/Pat/2000, order dt. 27th Feb., 2004 (ii) ITA No. 268/Pat/1999, order dt. 13th April, 2006 (iii) ITA No. 251/Pat/2001, order dt. 26th Feb., 2002. (c) That in his statement, the assessee has admitted to have paid commission of 20 per cent against genuine supply and fake bills to the officers of AHD, Undisputedly, the facts of the case decided by Hon'ble Jharkhand High Court are identical to the assessee's case where the High Court held that the assessee has failed to prove the expenditure and as such the entire receipt is taxable as income. As the assessee in the instant case has not been able to prove the purchases/expenses accord....
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....henticity of the statement made by Sri Chandak has not been doubted even by the Hon'ble Supreme Court in their judgment in Criminal Appeal No. 1031 of 2001, dt. 17th Sept., 2004. (b) He referred to judgment dt. 15th April, 2006 in RC-5(A)/2000 delivered by Hon'ble Justice Satya Narayan Prasad, IVth AJC.-cum-Special Judge No. II, CBI (AHD) Scam, Ranchi, wherein full statement of Shri Dipesh Chandak has been incorporated in paras 282 to 329 of the order, which was in earlier occasion has been given on examination-in-chief before the trial Court. Shri Chandak had been made an approver of the Government in this case. The learned Special PP appearing on behalf of Government has also heavily relied on the statement of Sri Chandak, as is apparent from paras 471 and 722 of the impugned order, which are reproduced below: "471. On the other hand, the learned Special PP has argued much on the evidence of Dipesh Chandak (PW-56) approver, particularly paras 12.41 and 427 to show how the aforesaid accused persons, including late Dr. SB Sinha were deeply involved in the present case. It is true that exclusively their evidence of approver (PW-56) cannot be made a basis to establish the prose....
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....ases, jail sentence has been awarded. (d) In a case like this, where an assessee is not left with any money unto himself, he has already surrendered the sum fraudulently roalised, given full account of the money lying with the other persons who are parties with him to such fraudulent act and is not left with anything to suffer tax - by bringing this amount to tax in his hand, what benefit will accrue to the State, except raising a hypothetical, unreal and useless demand? The issue, therefore, has to be examined in the aforesaid parameter. (e) That s. 4 of the IT Act brings to charge income of an assessee earned during the year. In a case where money which has been fraudulently withdrawn is within the knowledge of the original owner and the original owner is pursuing recovery and the persons involved in the criminal act of fraud have already surrendered and admitted of their crime, in such a scenario how would that amount constitute the receipt which can be termed as income within the meaning of s. 5 to be brought to tax under s. 4 of the IT Act. In order to bring to tax a receipt, as already stated, an assessee should have unflinching right of ownership and disposition, contr....
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....amount needs to be brought to tax in the hands of the assessee, the assessee's counsel explained that while the appellant was merely raising the bills, others were facilitating payments on the basis of such bills and the withdrawals were being shared amongst all of them. Therefore, it is not the claim of the assessee that he earned income and he has booked bogus expenditure to set off the same against such income. In fact, it was a joint operation by virtue of which the money was fraudulently withdrawn from the Government Exchequer. (j) Attention of the Bench was drawn to the statement of Shri Chandak recorded under s. 306 of Cr.PC before the Trial Court wherein he has given detailed account of share of booty amongst the various co-conspirators and expenditure incurred on gratification, etc. Out of the total fraudulent receipts, 80 per cent was distributed directly to Dr. SB Sinha and on his instructions to various other AHD officials named in the statement. Further, out of assessee's own share of booty of 20 per cent, 4 per cent was paid to the lower grade office staff of AHD. Further, 4 to 5 per cent was spent on various statutory taxes, office maintenance and settling of bill....
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.... view of the matter, the reliance on the decisions cited by the Department shall be totally misplaced. 8. We have heard the parties and carefully considered their rival submissions. We have also perused the documents placed in the paper book by either side including the other evidence available on record. Brief history of the case has been given above in this order. The main question put to us is whether a defrauded amount, the owner of which is aware of such a fraud and the Police has already identified the recipients of money, prosecution launched and defrauded sum recovered from the recipients, the assessee having already admitted the fraud, can be considered as income within the meaning of sub-s. (24) of s. 2 chargeable to income-tax under s. 4 of the IT Act, 1961 and can form the basis of computing the total income in terms of sub-s. (45) of s. 2 r/w s. 5 of the IT Act, 1961. 8.1. For this purpose, it is absolutely essential to examine the provisions of sub-s. (24) of s. 2, sub-s. (45) of s. 2, s. 4 and s. 5 and then to proceed further. Sec. 2(24) defines income as below: Sec. 2 (24) "income" includes: (i) profits and gains; (ii) dividend; (iia) voluntary con....
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....(ve) any sum chargeable to income-tax under cl. (v) of s. 28; (vi) any capital gains chargeable under s. 45; (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with s. 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule; (viii) [Omitted by the Finance Act, 1988, w.e.f. 1st April, 1988]. (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever; Explanation.-For the purposes of this sub-clause: (i) "lottery" includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called; (ii) "card game and other game of any sort" includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game; (x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund....
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....ation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India." 8.2. From the reading of the aforesaid sections, it is evident that it is the receipt which boars income character received or deemed to be received, accrues or arises or is deemed to accrue or arise in India during such year or accrues or arises to an assessee outside India during such year and is computed as per the provisions of IT Act under the heads of income as defined in s. 14 which can be brought to tax. The word "income" pre-supposes two important conditions-(i) a receipt on which the recipient should have absolute command, control and right of disposition and (ii) the transferor of such funds in the hands of recipient should have divested all rights in favour of the recipient. If the transfer of such income retains a lien or claim over such receipt, then such a receipt shall either be a loan or accommodation or illegal acquisition which can be recovered....
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....e claim of the State that the money belongs to them and not to those who have withdrawn the money. The conspirators who have fraudulently withdrawn the money do not have any ownership right on the same and, therefore, the money so fraudulently withdrawn be recovered and returned back to the State and those involved in the criminal conspiracy be criminally prosecuted for having indulged into a criminal act under the Indian Penal Code. (1) That according to the statement of the assessee recorded under s. 306 of Cr.PC and in his examination-in-chief before the various Trial Courts detailing distribution of share of defrauded money amongst the conspirators and consequential expenditure incurred during the span of 10 years, which was duly accepted as true, the assessee handed over 80 per cent of the total defrauded sum to Dr. SB Sinha and on his instructions to various other AHD officials named in the statement. (m) That further, out of assessee's own share of remaining 20 per cent of the defrauded sum, 4 per cent was paid to the lower grade office staff of AHD, 4 to 5 per cent was spent on various statutory taxes, office maintenance and settling of bills, etc. In addition to the ....
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....rsons involved in the criminal act of fraud have already surrendered and admitted of their crime, in such a scenario, such amount cannot constitute income within the meaning of s. 5 to be brought to tax under s. 4 of the IT Act. In order to bring to tax a receipt, as already stated above an assessee should have unflinching right of ownership and disposition, control and user. Here in this case, everything belonging to the accused is under attachment of the State, who is claiming ownership over the money and the ownership over the money is not refuted or denied by the appellant. In such a case, we are in agreement with the contention of the assessee's learned counsel that if still another wing of the State wants to tax that amount which belongs to it, that will amount to taxing an amount which belongs to the State and not to the appellant. 8.5. Further, from the statement of the assessee before the CBI, whose statement has been accepted by several authorities as true and full disclosure, the distribution of fraudulent fund and expenditure on gratification during the span of 10 years has become evident. 80 per cent of such fraudulent withdrawal has been straightway given to one Dr....
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....ing counsel has relied upon some judicial pronouncements in support of the Department's stand. But those decisions, in our opinion, have been rendered on different set of facts than the present one before us. (i) In the case of CIT vs. Piara Singh (1980) 17 CTR (SC) 111 : (1980) 124 ITR 40 (SC), the assessee was engaged in the business, though illegal, of smuggling. Therefore, the very concept of earning income is totally different. In the case of the assessee, he was not engaged in any business, legal or illegal, but his activity of withdrawing sum fraudulently from the AHD without making any actual supply of animal feed was the result of systematic conspiracy with other officials of AHD to defraud the State. Further, the ownership of money earned out of smuggling in the case of Piara Singh vested with that person, whereas in the case of the assessee, it has been admitted that the State has claimed to be owner of the fraudulently withdrawn sum. (ii) In the case of Little Oak Pharmaceuticals vs. Asstt CIT [IT(SS)A. No. 2S/Pat/1998, order dt. 21st Dec., 2002], the assessee therein all along claimed that purchases made by it and supplies made to AHD were genuine and expenditure....
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....e house property duly acquired vide a conveyance deed was not registered, the rental income accruing therefrom is not taxable in his hand. The Court held that whether legal or beneficial owner, it would not take away the right of the assessee to remain in possession of the property and to realize and receive the rents and profits therefrom to appropriate the entire income for its own use. In the case before us, the ownership of the defrauded fund was claimed and accepted to be of the State and not of the assessee. In the said case the sale was not denied by the vendor although registered deed was not executed. Whereas in this case, the amount was withdrawn fraudulently from the State Exchequer and the State is pursuing to recover its money. Therefore, the facts and circumstances of both these cases are clearly distinguishable. (v) Similar was the position in the case of CIT vs. Poddar Cement (P) Ltd (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC). In that case also, the dispute was about the ownership of the house property and income therefrom. For the reasons stated in (iv) above, this decision of Hon'ble apex Court is not applicable to the case of the assessee. (vi) In the....
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....med on loans of Rs. 58,301 in asst. yr. 1987-88, Rs. 82,766 in asst. yr. 1988-89 and Rs. 2,21,576 for asst. yr. 1990-91. The learned senior standing counsel of the Department during the course of argument did not emphasis much on these disallowances being petty in nature. However, after hearing the assessee and consulting the evidence on record, we do not find any infirmity in the order of the CIT(A) on this issue. The disallowances, therefore, stand deleted. 11. The next ground was against the direction of the CIT(A) to adopt the share income of the assessee from M/s Quality Chemical Suppliers in asst. yrs. 198788 and 1988-89 which was not pressed by the Department during course of hearing. The same is, therefore, not considered and the order of the CIT(A) on this issue stands confirmed. 12. The learned senior standing counsel did not pres~ the ground regarding chargeability of interest under ss. 139(8) and 215 of the Act for asst. yrs. 1987-88 and 1988-89 also. That being so, we confirm the order of the CIT(A) on this issue. 13. In view of the above, the Revenue's appeals for asst. yrs. 1987-88, 1988-89 and 1990-91 in the case of Dipesh Chandak (Indv.) stand dismissed. ....
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....entrated his arguments on the main issue and did not contest other minor issues specifically. That being so, these grounds for all the assessment years under appeal have rendered infructuous and hence dismissed. 17. In the result, the appeals by the Department in the case of Dipesh Chandak & Sons HUF stand dismissed. ITA No. 197/Pat/2001; asst. yr. 1993-94 (Ankit Industrial Gases) 18. In this appeal by the Department, the first ground reads as under: "1. That the CIT(A)-II, Patna, was not justified in deleting the addition of Rs. 19,89,15,960 being the claimed sale proceeds of yellow maize to M/s Badri Narayan & Co., proprietary concern of Dipesh Chandak & Sons (HUF), since the assessee had failed to prove the purchases of yellow maize in its hands." 18.1. In his statement before the CBI under s. 306 of Cr.PC, Shri Dipesh Chandak revealed the following facts: "The income-tax officials had seized the bank accounts of Shri Badri Narayan & Co. in the year 1992 and out of fear of further seizure, I arranged for all fake purchases to be routed through M/s Ankit Industrial Gases (P) Ltd., one of our other company. In the papers, I have shown all purchases from this comp....
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....sp; 2,65,747 -------- The AO for lack of challan disallowed the claim and added the said amount to the income of the assessee. The CIT(A) deleted the addition with the following observation: "Before me, the Authorised Representative has filed the copy of certificate of eligibility for exemption of tax under the Bihar Finance Act, 1981 and the Central Sale-tax Act, 1956 issued by the Commercial Taxes Department in which deferment of sales-tax payment was allowed for five years commencing from 1st April, 1990. The Authorised Representative submitted that the above liabilities were deferred liabilities as per the above circular issued by the Commercial Taxes Department, Government of Bihar. It was pleaded that such deferred amount of liabilities should not be disallowed under s. 438 of the IT Act as also clarified in Board's Circular No. 496 dt. 25th Sept., 1987 [(1988) 68 CTR (St) 109] and Board's Circular No. 674, dt. 29th Dec., 1993 [(1994) 116 CTR (St) 9] reproduce....
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....IT(A), in violation of r. 46A of the IT Rules has entertained this fresh evidence without affording any opportunity to the AO to examine the same. As a matter of principles of natural justice, he ought to have sent these documents to the AO and call for report. That not being done, the order of the CIT(A) on this issue suffers from nullity. On the given facts, we deem it proper to restore the matter back to the file of the AO with a direction to verify the documents filed before the CIT(A) and further documents, if any, may be filed by the assessee before him. The assessee is also directed to co-operate with the AO in this regard. With these directions, we dispose of the matter as above. 23. This appeal of the Department is partly allowed for statistical purposes. ITA Nos. 443 to 446/Pat/2004; asst. yrs. 1987-88 to 1990-91 (Dept. vs. Quality Chemical Suppliers): 24. The first common ground in the appeals for asst. yrs. 1987-88 to 1990-91 relates to treatment of receipts out of fodder scam in the hands of the assessee. We have already held in the Departmental appeals in the case of Shri Dipesh Chandak (Indv.) that Shri Dipesh Chandak is the concern and not his other entitie....
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....bsp; - U.B.I., Bokaro - 21,48,274.14 --------------------------------------------------------------- 1989-90 41,25,813.76 U.B.I., Ranchi 8,71,630.68 - U.B.I, Bokaro - 32,54,183.08 --------------------------------------------------------------- 1990-91 30,20,246.42 O.B.C., Kolkata - 3,20,350.00 U.B.I., Bokaro 26,99,896.42 --------------------------------------------------------------- The AO made the impugned additions in the han....
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....assessee by the AO for whatever reason may be. We, therefore, delete the addition of Rs. 8,71,630.68 in asst. yr. 1989-90. 26. Coming to additions made on account of bank deposits out of normal transactions made on protective basis in the hands of this assessee, we find that for the same bank deposits, protective assessments have been made in the case of Shri Dipesh Chandak. The assessments framed in the case of Shri Dipesh Chandak were set aside by the CIT(A) for re-decision in respect of these bank deposits for asst. yrs. 1987-88, 1988-89 and 1990-91. In set aside assessments, the AO struck on his earlier stand in making the additions except for asst. yr. 1990-91 wherein the deposits of Rs. 3,20,350 with OBC, Kolkata have been accepted as explained. For the bank deposits with UBI, Bokaro, the AO has made identical observations in the assessment order in respect of Shri Dipesh Chandak and for our convenience we quote below the observations made in asst. yr. 1987-88 vide order dt. 27th March, 2002 as under: "Notice under s. 142(1) of the IT Act 1961, was issued to the assessee on 5th Oct., 2001 to explain the deposits. The assessee submitted the details of deposits vide his l....
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....larity in the books of account or other documents submitted in support of such bank deposits. It is also not disputed that the account payee cheques issued by Bokaro Steel Plant were deposited in the said bank account. Considering all these documents and the order of the CIT(A) in the case of Shri Dipesh Chandak, we do not find any justified reason to interfere with the order of the CIT(A) passed in the case of Quality Chemicals Suppliers for asst. yrs. 1987-88, 1988-89 and 1990-91 deleting the additions of Rs. 7,49,508.86, Rs. 21,48,274.14 and Rs. 26,99,896.42, respectively. 28. There remains one more addition in respect of bank deposits of Rs. 32,54,183.08 made in the hands of the assessee (Quality Chemicals Suppliers) for asst. yr. 1989-90 on protective basis. The AO made the addition on the ground that the impugned bank deposit was unexplained. The CIT(A) considered the explanation of the assessee and evidence produced before him, which were identical to those of asst. yrs. 1987-88, 1988-89 and 1990-91 in the case of this assessee, deleted the addition. As already stated above, substantive assessment has been made for the same addition in the hands of Dipesh Chandak. Therefo....
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....1987-88 to 1993-94 (Quality Chemical Suppliers vs. Department): 31. The common grounds for all the asst. yrs. 1987-88 to 1993-94 raised in these appeals of the assessee relate to treatment of AHD receipts in the hands of the assessee on substantive basis as against protective basis done by the AO. For the sake of convenience, we quote below these grounds from asst. yr. 1987-88: (1) That the learned CIT(A) acted arbitrarily and against the law in having assessed the receipt of Rs. 34,00,000 from AHD in the hands of the assessee on substantive basis on doubtful presumption, whereas the assessment in the case of the assessee was framed on the assessee on protective measure and substantive in the hands of Shri Dipesh Chandak, partner, and hence this change of view is not only uncalled for but also bad in law. (2) That further the learned CIT(A) misguided himself in having differed from the view of his predecessor holding that the receipts from AHD do not constitute income of Shri Dipesh Chandak within the meaning of s. 2(24) of the Act relying on Tribunal order in the case of Indraprastha Agencies, inasmuch as the facts of that case are distinguishable to the facts of the pres....
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....th Dec, 2004 also. In view of the above facts, the claim of the appellant firm is found correct. There is mistake apparent on record in case of appellant firm. The receipts from AHD amounting to Rs. 2,15,17,895 have already been taxed in the hands of Shri Dipesh Chandak. Therefore, this addition is deleted in case of appellant firm." 31.2. We have already held in the Departmental appeals in the case of Shri Dipesh Chandak (Indv.) that Shri Dipesh Chandak is the concern and not his other entities in respect of the impugned receipt out of fodder scam. The learned senior standing counsel of the Department also concentrated his argument on pressing the issue that the receipt should be taken as income in the hands of Shri Dipesh Chandak only and not on other entities. That being the position and for the reasons discussed by us above in the case of Shri Dipesh Chandak (Indv.), the action of the CIT(A) in having treated the impugned receipt in the hands of M/s Quality Chemical Suppliers for asst. yrs. 1987-88 to 1991-92 is quashed. In view of our above decision, the additions of AHD receipts in the hands of this assessee of Rs. 34,00,000, Rs. 29,83,830, Rs. 9,00,000, Rs. 26,10,471 a....