TaxTMI 
TaxTMI 
2007 (6) TMI 299
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....carried out by the Revenue and therefore the issues raised are identical. For the above reasons, we have heard the aforesaid appeals and C.O.s together and proceed to dispose of the same by way of this consolidated order for the sake of convenience and brevity. 2. In order to facilitate the factual and other aspects leading up to the present proceedings, we take up for consideration specifically the appeal of the Revenue in IT(SS) No. 19/Chandi/05 and the corresponding C.O. preferred by the assessee by way of C.O. No. 58/Chandi/05. In this case an assessment under section 158BD read with section 158BC of the Act has been finalized by the ACIT, Yamuna Nagar vide his order dated 19-3-2004 whereby the undisclosed income has been assessed at Rs. 4,98,650. The said assessment has since been subject-matter of appeal before the CIT (Appeals) who has deleted the entire addition. Against such deletion the Revenue is in appeal. 3. In this case the genesis of the assessment is a search and seizure operation which was carried out by the revenue under section 132(1) of the Act at the residential premises of one Shri Anil Goyal at Jagadhari (hereinafter referred to as 'dalal'). The search ....
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.... -do- -do- 9-5-1999 50,000 -do- 9 -do- Ghansham Sandeep 28-2-1999 1,00,000 -do- -do- -do- -do- 28-5-1999 1,00,000 4. The Assessing Officer issued notice under section 158BD of the Act on 15-3-2002 to the assessee and has thereafter finalized an assessment under Chapter XIV-B. The Assessing Officer noted that the aforesaid entries were not found recorded in the regular books of account of the assessee and therefore the amount of loan along with interest earned thereon represented undisclosed income chargeable to tax in terms of section 158BD read with section 158BC of the Act. The reasons which weighed with the Assessing Officer to hold so can be summarized as follows : (i)That the Annexure A-1 was found during the course of search operation from 'dalal' and the entries therein are in his own handwriting. That therefore the contents of the Annexure A-1 as disclosed by 'dalal' are to be accepted as correct. (ii)That the said 'dalal' was found to be in the business of money lending and therefore the entries recorded in Annexure A-1 corroborated the fact that his business was that of a money lending broker and thus the transactions ....
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....he issue of the merits of the addition, we have heard lengthy arguments of the rival parties vis-á-vis the Grounds of appeal preferred by the Revenue. The sum and substance of the argument advanced by Smt. Sukhwinder Khanna, the Learned Sr.DR on behalf of the Department are on the following lines:- 6. According to her the CIT (Appeals) has grossly erred in not accepting the contents of Annexure A-1 as credible evidence. Learned DR pointed out that Annexure A-1 was maintained by 'dalal' in the course of carrying on his business of finance broking which was found in the course of a search operation and therefore, the contents of the Annexure can be understood to have been recorded without any pre-mediated mind, thus enabling an inference to be drawn that its contents are true and correct. According to her, the fact that the names in Annexure A-1 were recorded in abbreviated form or the amounts were recorded in coded form cannot straightaway be taken as a justifiable reason to disregard its contents. The learned DR pointed out that consequent to the seizure of Annexure A-1, the Investi-gation Wing of the department had examined 'dalal' on several occasions and it was during ....
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....essing Officer. Reiterating that the Annexure A-1 has been duly explained by 'dalal' and having found that the same was maintained by him in the regular course of carrying on normal business, the entries contained therein are to be taken as representing the true state of affairs. The learned DR further submitted that the fact that a number of entries of Annexure A-1 stood verified, this itself was a corroborative evidence in support of the contents of the diary. The learned DR pointed out that in such situations it would be impossible on the part of the Revenue to bring on record a direct evidence of the lenders and borrowers having entered into transactions in cash. 10. The learned DR pointed out that while appreciating the evidence in question it has to be borne in mind that the same has been not voluntarily brought on record by 'dalal' but has been unearthed as a consequence of a search operation undertaken by the Department. According to her, on account of preponderance of probability and surrounding circumstances, the Assessing Officer was justified in inferring that the impugned transactions actually took place between the lenders and borrowers recorded therein, which were....
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....of the Tribunal in the case of Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune). According to her the rigors of the Evidence Act which has been applied in the case of V.C. Shukla (supra) with respect to criminal proceedings cannot be made applicable to the income-tax proceedings as in the present case. According to her the same were inapplicable to the facts in the instant case. Regarding the decision of the Hon'ble Punjab & Haryana High Court in the case of Mohan Lal Vig (supra) the learned DR pointed out that the conclusion of the Hon'ble High Court has to be read in the background of the facts of the case. In the case before the Hon'ble High Court, there was no Seizure Memo which reflected the seizure of the 'dasti bahi' in question and therefore, it created a doubt as to whether or not the evidence in question was recovered from the business premises of the assessee or not and hence the inference that transactions reflected by 'dasti bahi' could not be used as evidence against the assessee. Pointing out that the facts in the instant case stand on a totally different footing inasmuch as there is no doubt that Annexure A-1 has been found and recovered from 'dalal',....
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....e is on the basis of the statement of 'dalal' dated 20-1-2000 with respect to entries found to be recorded in Annexure A-1 seized from him. In this connection it is submitted that the said statement is unreliable. According to the learned counsel, if one was to analyze the conduct of 'dalal' starting from the date of search and subsequently when the explanation regarding the entries in Annexure A-1 has been provided by him, the same shows contradictions and unreliability. The learned counsel pointed out that during the course of examination by the department on several occasions prior to 20-1-2000 'dalal' had categorically stated that he does not know the name of any person written in the Annexure A-1 and then in a complete turn around narrates each and every detail in one sitting running into 50 pages on 20-1-2000. Insofar as the contents of Annexure A-1 are concerned, it is argued that the material itself cannot be considered as a document evidencing actual state of affairs. Moreover, the said 'dalal' has put different signatures on different dates on the statement showing his inconsistent nature. In any case, it is argued that the name of the assessee respondent does not appear ....
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....nd nor took place in his presence. It was submitted that in statement recorded on 2-11-1999 (page 92 of the Paper Book) the 'dalal' was confronted with two receipts which were found from his house with respect to money lending. The learned counsel pointed out that both the receipts have been accepted by 'dalal' as being relatable to the money lending carried out by his wife and nephew. On this basis, it was therefore submitted that the money lending was indeed carried out by 'dalal' and cannot be attributed to the assessee in question since his name does not figure in the Annexure seized. It was thereafter argued that Annexure A-1 can at best be taken as a record of incomes of transactions of the 'dalal' himself. To support this, the learned counsel pointed out that 'dalal' has claimed that he has worked out his commission income on the basis of entries made in Annexure A-1 and such a claim has been accepted by the Assessing Officer in the assessment of 'dalal' finalized under section 158BC on 21-5-2001. A specific reference was made to the statement recorded on 4-11-1999 (page 98 of Paper Book) wherein the said 'dalal' categorically admitted that the bahi reflected his brokerage i....
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....sactions. It is, therefore, inexplicable that all of a sudden a person with such mental position gives details with regard to Annexure A-1 in a single sitting as can be seen from the statement dated 20-1-2000. In connection with the veracity of the statement of 'dalal' dated 20-1-2000 the learned counsel submitted that the names of 'Prince', 'Anuradha' and 'Santosh' found recorded in Annexure A-1 have been explained as referring to the transactions undertaken by Nand Lal Garg Group; and, such explanation has been accepted by the Revenue. However, such stand has not met with the approval of Income-tax Settlement Commission (ITSC) vide its judgment dated 9-1-2007, a copy was placed on record. It is submitted that in para 26 of its order, the Hon'ble ITSC has held as under: "26. We have considered the rival submissions. Considering the overall facts and the material, we are of the opinion that the only statement of Anil Kumar links the applicant with the three names viz. Anuradha, Prince and Santosh. We are of the opinion that the evidence is not adequate to link the findings through the ledger as that of the applicant. No other evidence is found. Under these circumstances, we hold....
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....ord maintained in the regular course of business. It is reiterated that insofar as the assessee is concerned, there is no corroborative evidence available with the Revenue that the entries alleged to have been explained by 'dalal' as belonging to the assessee are true. In the course of submission the learned counsel has relied upon various decisions viz. V.C. Shukla's case (supra), Addl. CIT v. Miss Lata Mangeshkar [1974] 97 ITR 696 (Bom.), Bansal Strips (P.) Ltd. v. Asstt. CIT [2006] 99 ITD 177 (Delhi), Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune)(TM). 17. In reply, the learned DR reiterated that the DDIT was competent to record the statement dated 20-1-2000 inasmuch as it was recorded in continuation of the search proceedings conducted on 14-9-1999 and filed a sequence of events starting with the date of search and upto the date of recording the statement of 'dalal'. The learned DR admitted that the DDIT had issued summons under section 131 in response to which the statement in question has been recorded. The learned DR argued that, in any case, a DDIT is authorized to record the statement of a person under section 131(1A) to make enquiries/investigation ....
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....cause of the specific provisions of the Prevention of Corruption Act cannot be so rejected in the income-tax proceedings. 18. Regarding the order of Income-tax Settlement Commission in the case of Nand Lal Group of cases, the learned DR submitted that the issue in the case of the present assessee stands on a different footing than in the case before the Income-tax Settlement Commission. According to her in the case of Nand Lal Group 'dalal' had claimed to have maintained accounts in benami names which were being denied by Nand Lal Group. In the case of the assessee it was not so. There are no benami names. 18.1 The aforesaid arguments of the assessee and the Revenue relate to the merits of the addition deleted by the CIT(Appeals). In the Cross Objection (C.O. No. 58/Chandi/05), the assessee has challenged the validity of assumption of jurisdiction by the Assessing Officer by issuance of notice under section 158BD read with section 158BC of the Act. We find it appropriate to record hereinafter the rival submissions on this issue. 19. The plea of the assessee is that the proceedings initiated by issuance of notice under section 158BD dated 15-3-2002 are unsustainable in law ....
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...., 4-11-1999 and 20-1-2000 are without authority of law. In fact, consequent to the search on 'dalal', which stood concluded on 14-9-1999 itself, the DDIT could not invoke section 132(4) to record the statement of the 'dalal'. Thus the statements which have been recorded by DDIT by issue of summons under section 131 are to be ignored as the same are illegally procured. If the statements are ignored, there does not remain any material whatsoever to implicate the assessee under the provisions of Chapter XIV-B of the Act. Reference was invited to the decision of the Tribunal in the case of Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 67 TTJ (All.) 247 regarding the nature of statements recorded by the authorized officer after conclusion of search and its relevance for making a block assessment. Notwithstanding the aforesaid, it is pointed out that the statement recorded in the month of January, 2000 also becomes suspect considering the conduct of the 'dalal' in the past and in this connection, the earlier submissions have been relied on. In the course of submissions the learned counsel has relied upon various decisions viz. Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341 (SC), Amity ....
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.... only a situation where the Assessing Officer of the searched person and the 'other person' are different, whereas the situation herein is different. In this connection in nutshell the stand of the Revenue is that the jurisdiction in this connection has been correctly assumed by the Assessing Officer. 21. We have considered the rival submissions carefully. We find it expedient to consider and adjudicate the validity of issuance of notice under section 158BD of the Act at the outset. This is for the reason that if the issuance of notice under section 158BD by the Assessing Officer is found to be invalid, that aspect being an incurable jurisdictional defect would lead to cancellation of assessment order itself. Thus, this aspect, which goes to the root of the matter is therefore, considered at the outset. 22. Before we proceed to dilate on the issue concerning the validity of action under section 158BD we find it appropriate to refer to the scheme and the purport of Chapter XIV-B dealing with the procedure for making assessment in the cases of search which has been inserted in the Act by the Finance Act, 1995 consisting of sections 158B to 158BH with effect from 1-7-1995. Under....
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....pter XIV-B, as is evident from the text of the relevant provisions contained therein, is the emergence of undisclosed income as a result of a search under section 132 or a requisition under section 132A of the Act. The existence of a search action under section 132 or a requisition under section 132 is thus a condition which enables the Assessing Officer to invoke the procedure of assessment prescribed under section 158BC of the Act. Generally, it is only the person with respect to whom search under section 132 or a requisition under section 132A is made that is subjected to the procedure of block assessment prescribed under Chapter XIV-B of the Act. The only exception to this is contained in section 158BD of the Act. Section 158BD of the Act seeks to provide for assessment of undisclosed income in terms of the procedure prescribed under Chapter XIV-B in the case of a person other than the person who is put to search under section 132 or a requisition under section 132A of the Act. It is this section which is the source of controversy before us. Needless to say, the operation of section 158BD enables the Assessing Officer to put a person who has been subjected neither to search und....
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....t conditions precedent in such cases, for taking recourse of block assessment in terms of section 158BD require the Assessing Officer to record a satisfaction that any undisclosed income belongs to any person other than the person with respect to whom search is made under section 132 or a requisition is put under section 132A of the Act. Secondly 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'. It is further noted by the Hon'ble Supreme Court that only upon the happening of the aforesaid that the Assessing Officer having jurisdiction of the 'other person' shall proceed under section 158BC against such other person. With the above discussion, a premise, which can be safely deduced, is that the satisfaction as contemplated under section 158BD is to be of the Assessing Officer of the person who has been put to search or requisition under section 132 or 132A respectively. Another premise which can be safely deduced from the decision of the Hon'ble Supreme Court is that the requirement of recording of such satisfaction is a mandatory condition. At this stage we ....
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....p this plea of the revenue in detail a little later in our order. 24. Other aspects of section 158BD which are of relevance in the instant case are as follows. Firstly what is the nature of satisfaction contemplated under section 158BD. Secondly as to whether any time limit has been prescribed, under the Act for recording such satisfaction and consequent invoking of section 158BD and, if not so provided specifically, can the same be read into the Statute by implication ? Both these issues are of relevance to decide the controversy on hand. 25. We may now examine the issue relating to time limit for initiation of proceedings under section 1158BD of the Act. As we have noted earlier under the scheme of provided for issuance of notice under section 158BD of the Act. Section 158BE, which details the time limits, is helpful only to ascertain the time limits fixed for completion of block assessment. Sub-section (2) of section 158BE provides the period of limitation for comple-tion of block assessment in the case of the "other person" referred to in section 158BD of the Act. Thus, the plea of the revenue is that a notice under section 158BD of the Act can be issued by the Assessing ....
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....er section 158BC of the Act. The definition of 'undisclosed income' in clause (b) of section 158B read with section 158BB enables an inference that the Assessing Officer on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other materials or information as is available with him, proceeds to determine the undisclosed income in the manner prescribed under section 158BC of the Act. In the course of the assessment of the searched person, the Assessing Officer is in a position to examine and analyze the various material unearthed as a result of search and after considering the result of the relatable enquiries if any conducted by him, he forms an opinion as to what constitutes undisclosed incomes thereof. On the basis of such an exercise the Assessing Officer proceeds to finalize an assessment under Chapter XIV-B determining the undisclosed income of the person searched under section 132 or put to requisition under section 132 of the Act. It is also at this stage, the Assessing Officer upon discovering the existence of an undisclosed income is in a position to decipher as to whether such undisclosed income, belongs to th....
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....materials seized under section 132(1) or requisitioned under section 132A to the Assessing Officer of the person who is referred to in clause (a), (b ) or (c) of section 132(1) of the Act i.e. the person who has been put to search or a requisition under section 132A of the Act. This is the first instance where the Assessing Officer who has the jurisdiction over the person put to search under section 132 or requisition under section 132A comes into picture and he is required to make an assessment for the block period computing the undisclosed income under Chapter XIV-B of the Act. In order to frame such assessment, the said Assessing Officer is authorized, in terms of section 158BC, to issue notice to the person who has been put to search under section 132 or requisition under section 132A requiring him to furnish a return of undisclosed income for the block period as defined under Chapter XIV-B. At this stage when the said Assessing Officer proceeds to make an assessment of undisclosed income he comes in possession of the evidence and the material found as a result of search under section 132 or a requisition under section 132A and which has been handed over to him by the authorize....
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.... result of search and makes enquiries relatable to such evidence and acquires a satisfaction that an undisclosed income belongs to a person other than the person with respect to whom search was made under section 132 or a requisition under section 132A was made. Again at this stage, the Assessing Officer is competent to proceed against such other person by issuing notice under section 158BD read with section 158BC of the Act after recording the necessary satisfaction. Similarly if the person so identified is not within the jurisdiction of the said Assessing Officer, then the Assessing Officer after recording the satisfaction proceeds to transmit books of account, other documents or seized material to the Assessing Officer having jurisdiction over such person. In the scheme of Chapter XIV-B, it is discernible that the recording of satisfaction that any undisclosed income belongs to "other person" is the point which triggers the subsequent invoking of section 158BD. In both situations, the material on the basis of which such satisfaction is to be arrived at is within the domain of the Assessing Officer of the person put to search under section 132 or to a requisition under section 13....
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....me in the case of the searched person. Can there be a situation whereby a notice under section 158BD of the Act can be issued at any time ? The answer to our mind is clearly 'no'. In fact we are conscious that the Legislature has not specifically put a time frame as to within what period of time a notice under section 158BD is required to be issued. However, in view of the aforesaid discussion it can be inferred from the Scheme of Chapter XIV-B that a limitation can be read into the Statute in this regard. The Apex Court in the case of Manish Maheshwari (supra) has explained the nature of proceedings under Chapter XIV-B. According to the Hon'ble Apex Court provisions contained in Chapter XIV-B are drastic in nature and has "draconian consequences". The implementation of such proceedings has therefore to be based on strict rules of interpretation. At this stage we may also refer to the judgment of the Hon'ble Gujarat High Court in the case of Khandubhai Vasanji Desai v. Dy. CIT [1999] 236 ITR 73 . The Hon'ble High Court of Gujarat was considering a group of petitions challenging the constitutional validity of the provisions of section 158BD of the Act. Although the period of limitat....
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.... throw up an undisclosed income and must also enable him to conclude that such undisclosed income belongs to a person other than the person with respect to whom search under section 132 or requisition under section 132A has been made. The satisfaction so contemplated under section 158BD, being a jurisdictional aspect is required to be objectively arrived at by the assessing authority. The satisfaction contem-plated is not merely a subjective satisfaction but is required to be based on the material seized under section 132 or requisitioned under section 132A of the Act. The Assessing Officer is required to sift, examine, analyse and investigate the material before him and only on the basis of the result thereon a satisfaction has to be recorded that any undisclosed income belongs to any person other than the person with respect to whom search under section 132 or a requisition under section 132A of the Act is made. This aspect finds support from the reasoning enunciated by the Hon'ble Delhi High Court in the case of Amity Hotels (P.) Ltd. (supra) wherein it has been held that satisfaction is required to be preceded by necessary investigations and not that the investigation are requi....
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.... satisfaction or non-adhering to the pre-requisites contained in section 158BD is an illegality which would vitiate the entire consequential proceedings. This clearly emerges from the reading of the judgment of the Apex Court in the case of Manish Maheshwari ( supra). 29. Now with the aforesaid background we come back to the facts of the instant case. Certain important dates which are of relevance are as follows. A search under section 132(1) was carried out in the case of the 'dalal' on 14-9-1999. A notice under section 158BC was issued to 'dalal' requiring him to file return of income declaring undisclosed income for the block period on 5-5-2000. The assessment under section 158BC was finalized by the Assessing Officer on 21-5-2001. Subsequently in the case of the assessee before us a notice under section 158BD was issued on 15-3-2002 calling upon the assessee to file return of income of undisclosed income for the block period. The first plea of the assessee is that the satisfaction purported to have been recorded on 15-3-2002 before issuance of notice under section 158BD is invalid for the reason that the same has been recorded belatedly. Secondly that such satisfaction was r....
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....agar Range, Yamuna Nagar in exercise of powers conferred by sub-sections (1), (2) and (3) of section 120 read with the relevant notification which permits ACIT, Yamuna Nagar to exercise jurisdiction and perform functions of Assessing Officer in respect of persons mentioned in the Annexure to the said order. This list contains 133 names and it is claimed by the revenue that the name of the assessee appears at Sr. No. 30 which is an entry, which reads as under:- S. No. Name & complete address of the assessee Status 30. M/s. Dashondhi Ram Krishan Chand, Pansari Bazar, Jagadhri Firm 31. It is further made clear in this order that it takes effect from 13-12-2001. Factually speaking we are satisfied that the ACIT, Yamuna Nagar acquired jurisdiction to act as an Assessing Officer in the case of the assessee only with effect from 13-12-2001. With this background now we may proceed to consider as to whether the satisfaction note dated 15-3-2002 recorded by ACIT, Yamuna Nagar can be said to be the satisfaction as contemplated under section 158BD of the Act. 32.Firstly the said satisfaction is much after the date of assessment of undisclosed income in the case of the p....
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....only comes into play only when the order of assessment is required to be made in the case of a person covered under Chapter XIV-B of the Act. Therefore, the inference of the revenue that the assessing authority in the case of the assessee is to be understood as ACIT, Yamuna Nagar automatically is not justified. If it were to be so, then there is no rationale for the order dated 13-12-2001 (supra) issued by the competent income-tax authority whereby the ACIT, Yamuna Nagar has been authorized to exercise jurisdiction and perform the functions of an Assessing Officer under Chapter XIV-B of the Act with respect to the assessee. Ostensibly, the said order is governed by the statutory provisions provided in Chapter XIII-A and XIII-B of the Act. Thus, the revenue is not justified to argue that there was no Assessing Officer to whom the satisfaction along with the search material could be transmitted in terms of section 158BD and that the jurisdiction over the assessee under Chapter XIV-B automatically vested with the ACIT, Yamuna Nagar, i.e. Assessing Officer of 'dalal'. Thus the said plea does not help in the case of the revenue that the requirements of section 158BD stood complied. On t....
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.... As regards entries of other persons and concerns no adverse inference is taken in the case of the assessee as these persons are identifiable. Moreover, in view of the fact that Shri Anil Kumar Goyal was a broker in the money lending business and document marked as 'A-1' has been maintained by him in the regular and normal course of business. Therefore, due cognizance is being taken separately in the case of lenders by initiating proceedings under Chapter XIV-B of the Income-tax Act, 1961." 34. We have examined the above contention raised on behalf of the revenue. A perusal of the aforesaid note shows that there is no averment or a finding by the Assessing Officer that the transactions which have been explained by the 'dalal' as belonging to certain persons are undisclosed transactions in the hands of the respective parties. Evidently there is nothing on record to show that any verification exercise was carried out by the assessing authority before recording the aforesaid satisfaction for the purpose of section 158BD. The only observation of the Assessing Officer is that the persons and concerns explained by 'dalal' are identifiable. The mere identity of the parties recorde....
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....ever the same cannot be considered as a valid satisfaction contemplated under section 158BD of the Act. In fact it has been vehemently argued by the learned DR that Annexure A-1 and the subsequent statement of 'dalal' have been put to verification regarding the transactions of lending of certain parties other than the assessee which have taken place through banking channels. It is thus submitted that Annexure A-1 was authentic and reflected true state of affairs. This aspect can at best provide a reason to the revenue to probe further and make deeper investigations to arrive at the true state of affairs. However, the same by itself cannot be enough to deduce that the transactions which are explained by 'dalal' construe undisclosed income of the other person contemplated under section 158BD i.e. the assessee before us. We, therefore, conclude that the aforesaid note does not fall within the parameters of section 158BD regarding recording of satisfaction. This vitiates the assumption of jurisdiction by the Assessing Officer by issue of notice under section 158BD of the Act dated 15-3-2002. 35. In addition to the above, we may also refer to the notice issued under section 158BD of ....
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.... a reference to the concerned search conducted. What we are trying to bring out is that the infirmities and shortcomings that have been noticed by the Hon'ble Supreme Court in the notice issued under section 158BD are also very much prevalent in the notice issued under section 158BD in the instant case. 37. We may also make an observation regarding the ambivalent and casual manner in which notice under section 158BD has been issued in the instant case. As noted earlier the jurisdiction permitting the ACIT, Yamuna Nagar to exercise jurisdiction and perform functions of Assessing Officer in regard to the assessee was by way of an order dated 13-12-2001. This order is common order containing 133 names wherein Item No. 30 has been explained as that of the assessee. We have also reproduced the said entry at para 29 of our order elsewhere. The status of the assessee is mentioned therein as a 'firm' whereas admittedly the assessee in question is an 'individual' who has a proprietory concern by the name of M/s. Dasondhi Ram Kishan Chand. Coupled with the fact that the notice under section 158BD dated 15-3-2002 does not even specify the status of the assessee, it only shows a casual appr....
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.... the present case that the invoking of section 158BD is vitiated, we therefore are of the opinion that the subsequent assessment framed by the Assessing Officer vide order dated 19-3-2004 under section 158BD read with section 158BC is liable to be quashed as lacking in jurisdiction. We hold so. 40. Since the assessment stands quashed, the dispute regarding the addition made thereon thus, is rendered academic in nature. So however, rival parties have made submissions even with regard to the merits of the addition. In order to ensure completeness and in deference to the views of the parties, we proceed to evaluate the efficacy of the addition made by the Assessing Officer. The rival contentions in this regard have already been noted by us in the earlier paragraphs. 41. To recapitulate, a red bahi was seized on 14-9-1999 in the course of search on the Dalal which is referred to as Annexure A-1. This Annexure is in the form of a Diary containing amounts and names in abbreviated forms of digits and initials. The investigation conducted by the Revenue to demystify and comprehend the entries in the said Diary revealed that certain parties, including the assessee in question, had ind....
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....is in the handwriting of 'dalal'. Looking at the manner in which the Diary (i.e. Annexure A-1) has been maintained, it is safe to deduce that the entries recorded therein are only within the exclusive knowledge of its scribe as to what and to whom do they pertain. Therefore, before such an evidence is considered to fasten any tax liability on third party, i.e. the assessee before us, it becomes imperative to ensure its authenticity and correctness. According to the Revenue, the said Diary (Annexure A-1) has been maintained in the regular course of business by 'dalal' and can be equated to a book of account. Since it has been recovered during a search under section 132(1) of the Act, its contents carry the presumption under section 132(4A) and are to be taken as true and correct. 43. In our considered view the impugned evidence is not sufficient to charge the assessee with any tax liability. The test of regularity of recording of transactions cannot by itself be a guarantee regarding its correctness and trustworthiness. The probative value of such evidence is to be tested on the basis of an independent and corroborative evidence. The entries in the Diary, cannot be taken as corre....
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....nsibly there is no such evidence available with the Revenue which can establish that the entries in the Annexure A-1 represent honest and real transaction; so as to inform that the assessee actually transacted in money lending as per the entries recorded in Annexure A-1. 45. Another reason for us to highlight the importance of corroborative evidence is the fact that the impugned Annexure A-1 could not be understood without the help of Dalal for it contained entries which were meaningful only to him. Therefore, the statement tendered by the Dalal regarding the entries which seek to implicate a third party i.e., the assessee, is required to be supported by an independent and corroborative evidence. At this stage we refer to the argument of the Ld. D.R. based on the decision of the Hon'ble Punjab & Haryana High Court in the case of R.P. Vashisht (supra). It is submitted that since the Annexure was found in the course of search it cannot be presumed that Dalal would have recorded the transaction in the name of the assessee for no rhyme or reason. Therefore, the entries made in such diary are presumed to be correct unless otherwise proved. We have carefully perused the above decis....
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....oning which prevailed in the case of R.P. Vashisht (supra) cannot be applied in the present case. 46. Two specific evidences have been used by the revenue. First is the Diary (i.e. Annexure A-1) and second is the statement of Dalal, the scribe of the Diary. Insofar as the Annexure A-1 is concerned, the entries recorded therein do not, by itself, convey any meaning to any person other than the scribe himself. Therefore the only specific evidence i.e. meaningful and which requires scrutiny is in the shape of the statements of Dalal. This evidence is alone required to be scrutinized and evaluated as to whether it supports the inference drawn by the Assessing Officer that the assessee has indulged in transactions of money lending outside the books of account. 47. In this background we have scrutinized and examined the statements of the Dalal recorded by the Investigation Wing. Much has been argued by the rival representatives with regard to the veracity and admissibility of the statement given by Dalal. The Investigation Wing of the department through DDIT, Ambala has recorded statements of 'Dalal' on various dates viz. 14-9-1999, 30-9-1999, 2-11-1999, 4-11-1999 and 20-1-2000. Th....
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....ations. Similarly in the statement recorded subsequently, he replied that he had never advanced any money himself and that the transaction was done by the parties themselves. He further stated that he used to write his commission in the ledger (Annexure A-1) and recorded the names of the lender and borrower as told by the concerned parties. We may now refer to the most significant statement of Dalal recorded on 20-1-2000. During this examination conducted by DDIT, Ambala he has given a long list of names running into 40-45 pages. He has identified the parties in the Annexure A-1 and provided the complete details, viz. names, addresses of the lenders, borrowers and the amounts transacted, etc. A significant aspect of the said statement is that he again confirmed that he was not involved in the actual transaction of money. For not having rendered the aforesaid explanation during previous occasions, he stated that after perusing the photocopies of Annexure A-1 he recalled the names of the parties. Further, 'Dalal' was also examined by the Assessing Officer in the course of the impugned assessment of the assessee and a copy of such statement has been placed at pages 161 to 163 of the P....
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....at the assessee had indulged in money lending transactions in cash outside the books of account. 49. Further, in reply to another question, during cross examination done during the impugned assessment proceedings (refer page 162 of the Paper book filed by the Revenue) 'Dalal' stated that the name of the parties in Annexure A-1 are written by him as told by the parties who indulged in money lending. This also supports the inference that the recording in Annexure A-1 are not on the basis of the first hand knowledge of Dalal. In other words, it can be safely deduced that the charge made out by 'Dalal' against the assessee is not on the basis of his personal knowledge. Under these circumstances we feel that the evidence brought on record by the Revenue does not carry its case any further. The evidence in question is not amenable to be taken as true and correct to implicate the assessee with any tax liability under Chapter XIV-B of the Act. 50. Much has been argued by the either parties regarding the manner of maintaining of Annexure A-1 by Dalal. The Revenue has contended that the said Annexure was maintained in the shape of a ledger and as a record of broking transactions and is....
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....reme Court noted that the truthfulness of the entries in the diaries was not proved by any independent evidence. Hence it was held that the prosecution could not prove its case. In this context the Hon'ble Supreme Court examined the expressions "books of account", "course of business", and "regularly kept" as appearing in section 34 of the Evidence Act, 1872. The above discussion is sufficient to deduce that the reasoning adumbrated in the said decision is only in the context of the wordings of the relevant sections of the Prevention of Corruption Act, 1988. Ostensibly such reasoning cannot be imported into the income-tax proceedings. It is a quite well settled proposition that the strict rules of evidence are not applicable to the income-tax proceedings. So therefore the principles laid down in the case of V.C. Shukla (supra) do not help in resolving the controversy before us. The principle that we have found useful to resolve the controversy before us has been discussed by us in elsewhere in our order. 51. We may also refer to the manner in which the evidence in the shape of Annexure A-1 has been considered by the assessing authority of 'dalal' from whose possession such evide....
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....gned by the Learned DR for admission of additional evidence with reference to the grounds of appeal raised by the Revenue. The learned DR referred to the provisions of Rule 29 of the Appellate Tribunal Rules, and submitted that the said evidence was collected after the completion of assessment in the case of assessee. The additional evidence is, (i) an examination report/opinion of Laboratory of the Government Examiner of Questioned Documents, Shimla regarding the Diary of 'Dalal'; and (ii) affidavit of 'Dalal' dated 27-10-2004. The learned DR has urged that the documents/evidence "go to the very root of the material" and the same ought to be admitted. The learned DR has argued that the evidence has bearing on the stand of Assessing Officer that the contents of the Diary are authentic. 54. On the other hand, the learned counsel appearing for the respondent assessee has opposed the prayer of the Revenue for admission of aforesaid additional evidence. The primary objection of the respondent is that in a case of assessment covered by Chapter XIV-B of the Act, it is not permissible for the Revenue to bring on record further evidence which the Assessing Officer collected post assessm....
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....he existing provisions relating to block assessments. Such an attempt will be a colourable device to defeat the provisions enacted by the Legislature and the Tribunal obviously cannot subscribe or accede to the plea urged by learned DR to admit the said evidence. We do appreciate the constraint placed on the department by the existing provisions of Chapter XIV-B to complete assessment hurriedly within the specific period on the basis of whatever evidence is available within that period with the Assessing Officer and at the same time not being in a position to reopen the assessment, as provided in that Chapter so as to consider any further evidence collected against the assessee in his case or connected cases. However, the Tribunal is bound by the existing provisions of law and it cannot act in a way so as to supplement law or remove the lacunae, if any, therein. 3.5 In view of the foregoing position, the prayer of the department to admit the aforesaid evidence as additional evidence is turned down." 56. We find that the situation before us is akin to what was before the Tribunal in the case of R.K. Syal (supra). Moreover we find that the evidence in the shape of forensic repo....