TaxTMI 
TaxTMI 
2012 (3) TMI 397
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....rounds: "1. On the facts and in the circumstances of the case and in law the authorities below erred in considering the item arising out of the search proceedings of the third party in the normal assessment of the appellant and that the relevant material having been fretted out during search u/s 132 of the act such could only bear consideration u/s 158BD of the Act and not having been done so renders the addition ab initio illegal and void. 2. On the facts and in the circumstances of the case and in law the authorities erred in adding gift of Rs. 2,00,000/- as income. The addition being erroneous and uncalled for must be deleted." 3. Apropos additional grounds, ld. counsel for the assessee contends that these are purely legal in nature and require no verification of fresh facts. Reliance is placed on Hon'ble Supreme Court judgment in the case of NTPC; 229 ITR 383, for their admission. 4. Ld. DR opposes the admission of additional grounds and contends that the assessee has raised the additional grounds after nine years without giving any plausible reasons for delay. 5. Ld. counsel for the assessee, in reply, contends that the first legal additional ground in question ....
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....ay. In one of the diaries seized from the premises of Sh. Ramnik Chawda detailed accounts of the receipts from Sh. Kapil Dev were entered. During the course of search the statement of Sh. Ramnik Chawda was recorded and he stated on oath that he received a sum of Rs. 83,00,000/- a cash from Sh. Kapil Dev during the financial year 96-97, besides a sum of Rs. 50 lacs by cheque/ draft. In respect of the amount of Rs. 83 lacs received from Sh. Kapil Dev, Sh. Ramnik Chawda stated on 6-10-97 that this amount was paid by Sh. Kapil Dev as his share of joint venture investment. He stated that two cheques of Rs. 25 lacs each were also received by him which were shown to be as loans received from M/s Dev Yogi Developers wherein Sh. Kapil Dev is a partner. The statement of Sh. Kapil Dev was recorded by the ADIT Investigation, Delhi wherein he denied the payment of any cash to Sh. Ramnik Chawda. He , however, agreed that he paid Rs. 50 lacs to M/s Dev Yogi Developers. Sh. Kapil Dev denied that he was aware of any such firm known as Shastri Ji Construction. Vide this office letter dated 10-03-2000 addressed to Sh. Kapil Dev he was required to explain the following: 'During the year under consi....
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....4057 State Bank of Mumbai 25 lacs Unfortunately the cheques bounced twice and the same remain unpaid as on date. It has been stated that these developments took place in the month of April, 1997 and Sh. Ramnik Chawda was searched in the month of September, 1997. The AR of the assessee has stated that since the assessee has already withdrawn from the partnership and was not having any dealing whatsoever with the said person, he has not paid any amount beyond Rs. 50 lacs. The contention of the assessee has been carefully considered but the same does not carry any weight in view of the fact that Sh. Ramnik Chawda has noted down the receipts from various persons on different pages and drafts sent by the assessee are entered on the dates mentioned therein then why not the amounts paid in cash and entered on the same page on different dates, be note treated as the investment of the assessee. Since Sh. Kapil Dev has not been able to explain the source of this investment, a sum of Rs. 83 lacs is treated as his investment from undisclosed sources. It may however, be stated that these cash credits have also been added in the block asstt. Of Sh. Ramnik Chawda on substantive basis ....
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....pellant has not brought any new material before me to rebut the argument of the AO that if the cheque payments recorded in the accounts of the appellant are treated as genuine, then why the cash deposits which appear in the same account on the same page and during the same period should not be treat ed as genuine. The appellant cannot treat a part of the document as correct and reject the other part as bogus. After all it is not denied that the appellant had entered into business transactions with Ramnik Chawda. If he made investments of Rs. 50 lakhs by cheques then it can be legitimately inferred that he made the cash investment of Rs. 83 lakhs also. As regards ld. counsel's plea that no evidence of these investment was found during the course of search at the appellant's premise, I do not find any merit in the plea. Ramnik Chawdawas search in 1997 and the appellant was search in 2000. After a time gap of four years, it cannot be expected that the appellant would be preserving the evidence about these transactions with Sh. Chawda which he had already disowned. The question as to why Sh. Ramnik should be making some correct and some false entries in his diary against the name of th....
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....re consequent to search carried out u/s 132 of the I.T. Act, 1961 were amended w.e.f. after 1-7-1995 and they under went a major legislative change in procedure and items of assessability by Chapter XIV-B inserted as "Special Procedure for assessment of search cases". The relevant provisions of Chapter XIV-B incorporated on the statute book w.e.f. 1-7-1995, are as under: Assessment of undisclosed income as a result of search. "158BA(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any persons, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not. [Expla....
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....aced on page 4 of the paper book. The person, from whom the alleged incriminating material was seized has been assessed by way of a block assessment u/s 158BC. The consequent addition emerging from this search material in the hands of a third party i.e. assessee was mandatarily to be completed u/s 158BD. This specific procedure of block assessment proceedings is enacted on the statute book with a clear non-obstinate clause of sec. 158BA(1): "158BA(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter." 9.4. Ld. counsel thus pleads that RC's AO, Mumbai has clearly referred to and considered the impugned search material and made this very addition in RC's block assessment order. In these circumstances, this addition, which is based on a search material, could have been considered only by way of block assessment u/s 158BC and not u/s 143(3). Rel....
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.... "Chapter XIV-B of the Income-tax Act, 1961, lays down a special procedure for assessment of search cases and provides for assessment of undisclosed income as a result of search. Under section 158BB(1), read with section 158BC of the Income-tax Act, 1961, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed in the normal regular assessment under section 143(3). This exercise under section 143(2) and (3) for regular assessment stands in contrast to the exercise of the Assessing Officer under section158BB read with section 158BC(b), where he has to asses only the undisclosed income of the block period on the basis of the evidenced found and material available as a result of search conducted under section 132 of the Act. The regular assessment is to assess the total income or loss of the previous year where a return is filed under section 139 and the Assessing Officer considers it necessary or expedient under section 143(2) to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid tax in any manner. (iv) Manish Maheshwari Vs. ACIT & Anot....
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....be deleted in assessee's case, CIT(A) has failed to exercise his jurisdiction. The appellate authority has to decide to whom the income belongs and not to carry forward the protective finding. Reliance is placed on Hon'ble Allahabad High Court judgment in the case of Smt. Hemlata Agarwal Vs. CIT (1967) 64 ITR 428 (All.) to this effect. (ii) Therefore, the assessee's fate cannot be mechanically linked with a third party proceedings, which are not in control of the assessee. (iii) The assessee retired from the said firm M/s Dev Yogi Developers w.e.f. 20-4-1997, his capital of Rs. 50 lacs purportedly returned by Shri Ramnik Chawda by two cheques. The uncomfortable relations between them are revealed by the fact that cheques issued by 'RC' bounced and assessee is yet to receive the capital itself. The search took place in the premises of 'RC' on 4/5 Sept. 1997 i.e. subsequent to the assessee's withdrawal from the said firm. Diary found from the premises of 'RC' was maintained by him in his own hand-writing and added in his block assessment u/s 158BC. It is evident from the record that relationship between 'RC' and assessee had turned sour, therefore, a post retirement statement g....
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....le of defending himself in income-tax proceedings. c. Law does not permit jettisoning the mandatory procedure of block assessment and conveniently making untenable additions in regular assessment u/s 143(3). 9.12. Diary has been seized not during the continuity of the partnership firm M/s Dev Yogi Developers but after assessee's withdrawal of participating from the said firm. The diary has been written by 'RC', his AO has preferred to make this addition by way of block assessment in his hands. No addition is contemplated by AO in the hands of the said partnership firm M/s Dev Yogi Developers or assessee. If assessee had given any cash amount to partnership firm, then the firm should have acquired some assets or maintained some record. The impugned protective addition based on assumptions, presumptions, surmises and conjectures and against the procedure prescribed by law, deserves to be deleted. 10. Ld. DR, on the other hand, contends that provisions of Chapter XIV-B do not prohibit the use of material found during the course of search of any other person in regular assessment. If the AO independently comes in possession of some material indicating that it pertained to othe....
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....) On his explanation, RC's AO in block assessment proceedings u/s 158BC was satisfied and the addition was made in the hands of RC. Thus the DIT(Inv.) Mumbai has had no satisfaction that impugned diary represented undisclosed income of the assessee and therefore, no reference was made by him to AO, Delhi for initiating block assessment proceedings u/s 158BD in the case of assessee. (iv) The impugned diary being a seized material was examined in the RC's block assessment and cash credits were added as undisclosed income in the hands of RC. The examination of seized diary and addition in the hands of 'RC' is not disputed by the department. The assessee was heard during the course of 158BC proceedings of RC. 11.1. The main question which thus arises before us is - if it all the seized material represented undisclosed income of the assessee, whether the procedure prescribed by sec. 158BD was to be mandatorily followed and having failed to do so, whether the material could be used by AO in regular assessment u/s 143(3), by going beyond - i) Chapter XIV-B; and ii) findings given by DCIT(Inv.), Mumbai. . 11.2. The legislature w.e.f. 1-7-1995 enacted a special procedure for assess....
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....d that in case of search material, the same is to be assessed by way of block assessment under Chapter XIV-B. Similar view is echoed by Hon'ble Bombay High Court in the case of Dr. M.K. E. Menon and by Hon'ble Gujarat High Court in N.R. Paper & Board Ltd. & others (supra). A similar view has been upheld by Hon'ble Supreme Court in the case of Manish Maheshwari (supra). In view of above, we are of the view that the impugned addition of Rs. 83 lacs cannot be made in the hands of the assessee on protective basis by taking recourse to sec. 143(3). Thus, the additional ground of the assessee is allowed. 11.5. The appeal is very old, filed way back in 2002. Therefore, we would like to decide the merits of the addition. It emerges from record that: (i) Assessee's stand was examined in the course of block assessment of RC, there also he denied having any connection with the diaries cash entries made in the handwriting of RC. (ii) During the course of search in RC's premises and in subsequent search of the assessee's premises, no corroborative incriminating evidence was found to suggest such cash payments or assets of said firm M/s Dev Yogi Developers. . (iii) Lower authorities ....