TaxTMI 
TaxTMI 
2007 (11) TMI 591
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....taking cognizance of the specific grievance and arguments of both the sides in seriatim let us take note of the brief facts. Facts : 2. Both the learned Revenue authorities have narrated the facts in detail as their orders are running into 264 pages (AO's order) and 241 + 8 pages Annexure [CIT(A)'s order]. Shri Shankar Sharma and Smt. Devina Mehra are husband and wife, they are ex-employees of Citi Bank. After their resignation from the bank they turn to be share brokers. They incorporated the assessee on 27th Sept., 1994. They are directors and the main persons operating the business affairs of the assessee. The assessee is a flagship company in the group and the main business of the company is undertaking shares and stockbroking and arbitrage operations. The assessee company is member of both the premier stock exchanges of India. The facts emerging out from the assessment order are as under : "The business of the company has grown many folds in the last two years i.e., asst. yrs. 1998-99 and 1999-2000. The group has taken over a number of existing companies, in India and outside India. Shri Shankar Sharma has a ticket on London and New York stock exchanges. It ha....
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....criminating books and documents relating to unaccounted income and undisclosed transaction of 'First Global' Group were found and seized vide Panchnamas dt. 23rd March, 2001, 29th May, 2001 and 1st June, 2001 at ground and fourth floors, Crescent Chambers, Tamarind Lane, Fort Mumbai and vide Panchnama dt. 27th March, 2001 at the residential premises of the directors of the First Global Group, Shri Shankar Sharma and Smt. Devina Mehra at Flat No. 4, Scherzade Building, Off Arthur Bunder Road, Minu Desai Marg, Colaba, Mumbai and vide Panchnama dt. 17th April, 2001 at the New Delhi office of the First Global Stock Broking (P) Ltd. situated at 1st floor, 129/1, Pocket No. 40, Chittaranjan Park, New Delhi and the following books of accounts, documents were found and seized. 1 (i) Panchnama dt. 23rd March, 2001 (a) Books of accounts/documents found and seized from the office of M/s First Global Stock Broking (P) Ltd. (FGSBPL) 2, Ground Floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai vide Panchnama dt. 23rd March, 2001. (A) A-1 Loose paper file containing 118 pages (B) A-2 Loose paper file containing 71 pages (C) A-3 Loose paper file containi....
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.... taken on 23 CDs (C) Annex. 02 5 floppies (D) Annex. 03 3 dummy computer servers (E) Annex. 04 computer back up (CDR)'15 CDs. 1 (iv) Search at New Delhi office Panchnama dt. 17th April, 2001 Search was also conducted at the business premises of M/s First Global Stock Broking (P) Ltd. at 1st floor, 129/1, Pocket No. 40, Chittaranjan Park, New Delhi vide Panchnama dt. 17th April, 2001. (A) AA-1 Bunch of loose paper containing 50 pages (B) Annex. O returned back on 25th June, 2001) 1 (v) Search at residential premises of directors There was also a search at the residential premises of the assessee company's directors Shri Shankar Sharma and Devina Mehra at Flat No. 4, Scherzade Building, Off Arthur Bunder Road, Minu Desai Marg, Colaba, Mumbai on 23rd March, 2001. As no one was present and both the directors were out of India, in presence of the secretary of the building, the front door was sealed by placing prohibitory order under s. 132(3) which was lifted on 27th March, 2001 and the search was concluded on 27th March, 2001 and the following seizure was effected : (A) A-1 Loose paper file co....
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.... Losses (Rs.) 1st earliest - - - - - 2nd - - - - - 3rd - - - - - 4th - - - - - 5th 1995-96 86,328 - 86,328 - 6th 21,032 - 21,032 - 7th 41,634 - 41,634 - 8th 14,056,800 - 1,40,56,800 - 9th 116,53,820 - 1,16,53,820 - 10th 11,83,69,990 - 11,83,69,990 - 11th (Latest) 2001-02 2,56,49,510 - 2,56,49,510 - 12th Total undisclosed income of the block period Rs. Nil 13th Tax on disclosed income Rs. Nil 14th Surcharge Rs. Nil 15th Tax payable (14+15)=Rs. Nil 3. After hearing the assessee and on analysis of the seized material learned AO framed the assessment order on 13th June, 2003 and determined the undisclosed income of the assessee for the block period as under : "18 Subject to the above remarks, the undisclosed in....
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....de by the AO was bad in law and nullity being based upon proceedings under s. 158BC initiated by the AO on 18th May, 2001 while the search under s. 132(1), as per the Department's own admission was being conducted and had not been concluded. 2. Without prejudice to above contentions, the learned CIT(A) erred in not holding that the order under s. 158BC made on 13th June, 2003 was barred by limitation of time on account of the search having been conducted on or before 18th May, 2001." 6. In order to seek admission of the additional grounds learned counsel for the assessee submitted that in general assessee has already taken ground Nos. 1B.1 and 1B.2 to the effect that block assessment is null and void as much as it is time barred and also search was initiated without fulfilling the requisite conditions of initiation of search. Thus according to the learned counsel for the assessee facts are already on the record. No new facts are to be brought on record for adjudicating this ground of appeal. The assessee is only raising a specific ground on those facts. The learned counsel for the assessee submitted that these grounds go to the root of the validity of the assessment order....
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....r words, s. 158BC is attracted or comes into play after the search under s. 132 is over or completed. Elaborating his point he pointed out that had the intention of the legislature being to empower the AO to invoke the provision of s. 158BC even before the completion of the search, the provision would have been worded as where any search "has been initiated" or is to be conducted and not has been conducted. For buttressing his contention he relied upon the judgment of Hon'ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220: (1976) 103 ITR 437(SC) and contended that the bad initiation of proceedings would render the consequential order also bad in law. In the case before the Hon'ble Supreme Court the facts were that AO recorded the reasons in writing for reopening the assessment as mandatory requirement under s. 148(2) of the IT Act, but those reasons did not meet the requirement of law and, therefore, the Hon'ble Supreme Court has quashed the assessment order. Similarly the assessment order in the present case deserves to be quashed. 7. Shri Kotangale, the learned standing counsel for the Revenue while controverting the contention of learned....
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.... of National Thermal Power Co. (supra) we permit the assessee to take up this issue by way of an additional ground and the same is admitted for adjudication on merit. 9. Sec. 158BC has a direct bearing on the controversy, therefore, it is salutary upon us to take note of this section. This section reads as under : "158BC Procedure for block assessment.'Where any search has been conducted under s. 132 or books of account, other documents or assets are requisitioned under s. 132A, in the case of any person, then,' (a) the AO shall' (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form ....
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..... The Hon'ble Supreme Court in the case of Ashwani Kumar Ghosh vs. Arvind Bose 1953 SCR 1 had held that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. Similarly in the case of Qubec Raily Light & Power vs. Vandary AIR 1920 PC 181 it had been observed that the legislature is deemed not to waste its words or to say anything in vain a construction which attributes redundancy to the legislature will not be accepted except for compelling reasons. Thus it is not permissible to add words to a statute which are not there. Similarly not to ignore any words used in the provision. The emphasis of learned counsel for the Revenue was that expression "has been" is to be understood in continuing process or it can be ignored. In view of the above discussion, it is difficult for us to concur with the submissions of the learned counsel for the Revenue. The expression "has been conducted" simply cannot be ignored. The expression "has been" is explained in the dictionary The Law Lexicon by Shri Ramanatha Aiyer, which reads as ....
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....Societies Act (25 of 1961) s. 26B(2)]" Similar is the explanation in the Judicial Dictionary, 13th Edition by Shri K.G. Iyer. Thus in the light of the above explained meaning of expression "has been" we are of the view that expression "has been" used in the present perfect tense, which denotes that certain activities must have been completed before the issuance of a notice. The simple reading of the provision postulates that a search must have come to an end before the issuance of the notice under s. 158BC. 11. The next question for our adjudication is what will be the consequences if such notice has been issued prior to conclusion of the search. The learned counsel for the Revenue emphasized that it is procedural irregularity which is curable. Sec. 158BC lays down the procedure and not bestows jurisdiction in the AO. He has relied upon the decision of Hon'ble jurisdictional High Court in the case of Shirish Madhukar Dalvi (supra). 12. In order to adjudicate this question we have to understand the method of determining undisclosed income in a block assessment and scope of block assessment. Secs. 158B(b) and 158BB provide the definition of undisclosed income and its com....
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....he due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under cl. (c); (d) where the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under sub-s. (4) of s. 245D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under cl. (c) of s. 158BC, on the basis of such assessment. Explanation 'For the purposes of determination of undisclosed income,' (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of this Act without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-s. (2) of s. 32 : Provided that in computing deductions under Chapter V....
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....esult of search or requisition of books of accounts or documents and such other materials or information as are available with the AO. Evidence found as a result of search is clearly relatable to ss. 132 and 132A. Similarly Hon'ble Rajasthan High Court has explained the scope of block assessment and determination of undisclosed income in CIT vs. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83: (2001) 248 ITR 350(Raj). The following observations are worth to note : "However, under the scheme of the provisions for block assessment, it is apparent that it relates to assessment of 'undisclosed income' of the assessee excluding the income subjected to regular assessment in pursuance of the returns filed by the assessee for such period. It is also apparent from the perusal of s. 158BB that the returns are also required to be filed in pursuance of the notice under s. 158BC(a) and the assessment is to be framed on that basis in the light of material that has come into possession of the assessing authority during the course of search which is the foundation of the proceedings. That being so, the correctness or otherwise of the returns filed in pursuance of the notice under s. 1....
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....e to the income of the assessee as undisclosed income. The Tribunal has deleted the addition on the ground that addition was not made on the basis of the material gathered during the course of search, rather all these informations were available to the AO at the time of regular assessment. He obtained the DVO's report subsequent to the regular assessment, therefore, addition is made beyond the scope of block assessment. The Hon'ble jurisdictional High Court upheld the deletion made by the Tribunal. 14. The Tribunal Mumbai Bench in the case of Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai) has made extremely lucid enunciation of law on the subject and we cannot do better than to extract some of the observations made in that decision; "23. There are adequate safeguards present against any possible misuse of the provision of search and seizure. Chapter XIV-B was introduced in order to make procedure of assessment of search and for requisition cases more effective. Under the provisions of this chapter the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995 be assessed separately as inco....
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....ncome for the block period. 15. The scheme of the block assessment indicates that assessee has to compute its undisclosed income for the purpose of filing a block return on the basis of seized material. If he failed to compute the true undisclosed income on the basis of the seized material and the AO determined a different undisclosed income than the one disclosed by the assessee, the assessee would be liable to penalty under s. 158BFA(2). 16. The second proviso appended with s. 158BC(1) prohibits an assessee to revise its return filed for the block period. Thus in response to a notice under s. 158BC if an assessee had filed the return of income, it cannot revise that return. 17. Sec. 158BFA(1) contemplates that if the assessee furnishes the return after expiry of the time-limit provided in the notice issued under s. 158BC(1) then assessee shall be liable to pay simple interest @ 1 per cent of the tax on undisclosed income. 18. The above chronological procedural requirement contemplates that an assessee (i) has to compute the undisclosed income on the basis of the seized material for filing the return in response to notice under s. 158BC, (ii) if the assessee failed to ....
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....erstand if assessee has a right to revise the return, in that case a preliminary return can be filed in compliance of the notice received under s. 158BC, but no such right is available in filing a block return. This is because an assessee has to compute the true undisclosed income on the basis of the seized material. Once everything is given to an assessee and it computed its income, the assessee cannot be allowed to say that he has wrongly computed the income. This may be the basic reason for not permitting an assessee to file a revised return. This is also the reason for levy of penalty under s. 158BFA(2). 21. The learned counsel for the Revenue put emphasis on the decision of the Hon'ble jurisdictional High Court in the case of Shirish Madhukar Dalvi (supra). The facts in that case are that a search under s. 132 of the Act was conducted at the premises of the assessee. A notice under s. 158BC was served upon the assessee. This notice did not mention the correct provision of the Act. It did not mention the correct block period for which the return was required to file. It did not give 15 days clear notice. After this notice the AO wrote one more letter on 17th Sept., 1998.....
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....of notice. In that background Hon'ble High Court has considered the irregularity as procedural irregularity and a curable one. 23. There is no dispute that the decisions of the Hon'ble jurisdictional High Court are binding upon the Tribunal. The Tribunal cannot take a different opinion contrary to the law laid down by the Hon'ble High Court. On careful reading of the Hon'ble High Court decision in the case of Shirish Madhukar Dalvi (supra) we find that notice in that case was also served before the conclusion of the search. Though the arguments raised before us were not raised before the Hon'ble High Court, nor the prejudice caused to the present assessee was demonstrated in that case, rather, it was expressed that no prejudice has been caused to the assessee. However, being subordinate authority we cannot afford to ignore the binding decision of Hon'ble jurisdictional High Court in the garb of above arguments or reasonings. The fact is that notice under s. 158BC was issued in that case before the conclusion of search and Hon'ble High Court has considered it as procedural irregularity only. Thus respectfully following the decision of the Hon'ble H....
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....ed within two years from the end of the month in which last warrant of authorization has been executed. Hence, this ground is also rejected. 24. Now we take up the other grounds of appeal raised by the assessee. In the memorandum of appeal the assessee has taken certain legal grounds which are preliminary grounds of appeal as well as the grounds challenging the additions on merit. In the legal grounds the first preliminary ground is that learned CIT(A) has erred in upholding the initiation of search. The assessee has submitted that there was no material with the Department which can authorize the authorized officer to initiate such proceedings against the assessee under s. 132 of the Act. According to the learned counsel for the assessee the requisite conditions for initiating search were not available in this case. 25. We have duly considered the contention of learned counsel for the assessee and gone through the written submission filed by him. The Special Bench of the Tribunal in the case of Promain Ltd. vs. Dy. CIT (2005) 95 TTJ (Del)(SB) 825: (2005) 95 ITD 489(Del)(SB) has held that the Tribunal cannot consider and decide the issue relating to validity of search. The Tri....
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....en by the AO and cleared its point of view. The impact of alleged non compliance of notices on the part of assessee would be considered by us while dealing with those issues on merit, because it is an issue which requires appreciation of evidence and the facts and the circumstances. If the document in itself is clear and leads to an authority to some conclusion then that document can be relied upon straight away, unless clarified by the assessee. But if it required some corroboration for arriving at firm conclusion and there is no explanation with the assessee then merely on non giving of explanation, addition cannot be made because the document in itself is not leading to a firm conclusion. The positive circumstances should come from the AO. In such situation the safe procedure is to ignore such documents. This ground in itself does not require any specific finding. 30. Ground No. 1D : In this ground the assessee has pleaded that assessment has been made in violation of principles of natural justice. It is again a ground which is in the form of argument and can be considered at the relevant point of time while deciding the particular issue. From the list of events appended by t....
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....at entries though are part of regular books of account and declared in the regular return but those can be reappreciated in the block assessment. In our view this construction of scope of block assessment is not in the line of authoritative pronouncement noted supra. If any income is hidden in those entries then find out in the scrutiny assessment. Of course, if during the search some material is found indicating that those entries are false and have been manipulated in a way to conceal something then it will be open for the AO to re-appreciate those entries in the light of seized material and find out the true impact. The reference on the Tribunal order in the case of C.J. Shah & Co. vs. Asstt. CIT (2001) 118 Taxman 183(Mumbai)(Mag) at p. 35 of the impugned order is also misplaced. 33. Ground No. 1F : In this ground assessee has pleaded that assessment has been made on the basis of the retracted statement. Again it is not a particular issue, rather an argument. It is an issue relating to evaluation of evidence and we will consider it while dealing the issue on merit. 34. Ground No. 1G : In this ground of appeal assessee has submitted that learned CIT(A) has passed the order ....
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.... 83 TTJ (Jd) 566. According to the assessee the Tribunal in the case of Bajrang Textiles (supra) has examined this issue and held that loose papers cannot be equated with regular books and cannot be put for special audit. The learned counsel for the Revenue on the other hand, submitted that the Hon'ble Supreme Court in a subsequent order has doubted the correctness of the decision in the case of Rajesh Kumar vs. Dy. CIT (supra) and referred this issue for reconsideration by a Larger Bench. He made a reference to the order of the Hon'ble Supreme Court in the case of Sahara India (Firm) vs. CIT (2007) 209 CTR (SC) 20: (2007) 289 ITR 473(SC). On the strength of this decision he contended that once Hon'ble Supreme Court itself doubted the correctness of the earlier decision and referred it to a Larger Bench for consideration earlier decision should not be relied upon for arriving at a conclusion that in absence of opportunity of hearing no special auditor can be appointed. Consequently the special auditor's report is required to be ignored. The learned counsel for the assessee in the rebuttal submitted that the decision in the case of Rajesh Kumar (supra) still holds fi....
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.... accounts of the assessee are of complex nature and interest of the Revenue is involved. (ii) Simply because the accounts/documents are voluminous in nature, they cannot be said to be complex. (iii) In block assessment, undisclosed income is to be determined on the basis of assets or documents found during the course of search, which is not reflected in the regular books of accounts. So there is no requirement of audit of books of account. (iv) It is a fact that determination of undisclosed income is a difficult task which has to be judged after examination of the regular records of the assessee and items which appeared to be concealed income of the assessee. But that task cannot be said to make the books of accounts complex. (v) The AO cannot make a reference to the auditor to prepare books of account on the basis of seized records or to compute the undisclosed income of the different years. (vi) This indirectly means that the assessment was got completed through a special auditor. The objective behind directing special audit is to be audit the accounts and not to prepare the assessment. (vii) The purpose of audit of financial statement is to enable the auditor t....
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....as been reproduced. Similarly learned first appellate authority has reproduced the written submission made before him and then rejected those arguments by recording a finding in para 16.3. The discussion of the AO, submissions of the assessee before the learned CIT(A) and finding of the learned CIT(A) recorded in paras 16.1, 16.2 and 16.3 of the impugned order read as under : "16.1 The findings of the learned AO leading to the addition have been discussed at page Nos. 185 to 196 of the assessment order which are as under : 'A., Annex. A-1 seized from ground floor, Fort office as per Panchnama dt. 23rd March, 2001 reads as follows : (The relevant pages are enclosed herewith Annex. A pp. 1 to 20). Page No. 50. The extract of the page No. 50 and p. 54 are handwritten pages, and are reproduced as under. The same is annexed herewith as Annex. A-1 Goushal 1999-2000 Loss-Forties-Virta Trade 2,56,20,479.81 Loss Arch Finance Virta Trade 98,03,225 Loss Forties Devina Mehra 89,08,1....
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....n this case, Shree Bajrang Ispat & Plywood Ltd. has done share transactions with M/s FGSBPL, broker during the period 1st April, 1999 to 31st March, 2000. During the course of search, it was found that FGSBPL has transferred a profit of Rs. 77,02,081 to SBIPL. On verification of the transactions, it was revealed that these transactions are squared up i.e. where there is no intention of actually giving or taking delivery of the shares, and transactions are settled only by payment of differences. Initially, a survey under s. 133A was conducted at the office of Shree Bajrang Ispat & Plywood Ltd., A-24/25, Satyam Commercial Complex, M.G. Road, Ghatkopar (East), Mumbai for limited purpose to verify the share transactions entered by M/s FGSBPL with Shree Bajrang Ispat & Plywood Ltd. and to see whether an amount of Rs. 77,02,081 profit of First Global Stock Broking was transferred to the latter. Subsequently, on finding incriminating documents, the survey was converted into search under s. 132(1) of IT Act, 1961 on 2nd May, 2001. The documentary evidences found at the office premises of M/s Shree Bajrang Ispat & Plywood Ltd. establish the fact that they had received cheque totalling to....
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....atement dt. 2nd May, 2001 has explained that the cash transactions recorded in the diary pertain to the period 1st April, 2000 to 31st March, 2001. The right side of page indicates the cash payments and left side indicates cash receipts. He has also explained the method of writing the figures as Rs. 10 lacs is written as 10000=00 and said the other entries of cash receipts and payments are to be read in the same fashion. When he was confronted with the seized material regarding the nature of transaction with First Global Stock Broking (P) Ltd.{1A}2, 4th Floor, Crescent Chambers, Fort, Mumbai, he has stated that he is not aware of the type of transaction with the company but explained that at the instruction of the directors, Shri Anand Goel or other directors he has delivered cash immediately, equivalent to the amount of the cheque received from First Global Stock Broking (P) Ltd., the entries of which were recorded in pp. 17, 21, 25 and 27 of notebooks (Annex. A. 1) represent cash payment to them. No. Amount as per noting Particulars of noting Date Remark 17 10,000-00 Maheshwari for cheque 14.7.2000 First Global Cheque 17 5,000-00 Maheshwa....
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.... in the stock exchange under the client code 2721 that was subsequently changed to Shree Bajrang Ispat & Plywood (P) Ltd. in the books. In some cases, it was observed that the client code was left blank in the stock exchange records. These transactions were subsequently transferred to Shree Bajrang Ispat & Plywood (P) Ltd. This shows that the assessee initially conducts transaction in the stock exchange on its own behalf earning profit and subsequently these transactions are shown to have taken place on behalf of the client. All the transactions are only squared up transactions, i.e. where there is no actual giving or taking delivery of shares, and transactions are settled only by payment of difference. The net effect is that the profit which has genuinely been earned by the assessee on certain transactions is subsequently transferred to SBIPL.The client code is left blank in certain cases in spite of regulatory authority, SEBI's directions vide Circular No. SMDRP/Policy /CIR-33/2000 dt. 27th July, 2000 that all stock exchanges were required to modify their software within three months from the date of the circular, in such a way that client code becomes mandatory at the broker....
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....y had purchased and sold shares through M/s FGSBPL but did not take or give any delivery of shares as all the transactions were squared up in the same settlement. The details of payments received during the financial year 2000-01 from M/s FGSBL are as follows : Date Cheque No. Amount Bank details 7/02/2001 715253 10,00,000 Bank of Punjab, Fort Branch 8/02/2001 123631 10,00,000 Bank of India, Stock Exc. Branch 14/02/2001 123633 20,00,000 Bank of India, Stock Exc. Branch 28/02/2001 548064 20,00,000 HDFC Bank, Fort Branch 8/03/2001 123662 20,00,000 Bank of India, Stock Exc. Branch Total 80,00,000 An amount of Rs. 66,53,894 out of total sum of Rs. 1,48,20,356 was outstanding for payment by M/s FGSBPL as on 31st March, 2001. M/s Sahara India Financial Corporation Ltd. is assessed to income-tax in PAN No. AADCS8698C, Dy. CIT, Central Circle-1, Lucknow, UP. The documents recovered in the course of search which are relevant to M/s SIFCL, are discussed in detail as under : Pages 7 and 9 of notepad marked as Annex. A/6, seized from the office premises of M/s FGSBPL, ....
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....ictitious share transactions after deduction of commission/discounting charges. The date and amount paid to Sahara by First Global approximately matches with the date and amount received in cash from Sahara. The amount so received was used for various purposes as mentioned in page Nos. 8 and 10 of Annex. A/5. This establishes the fact that First Global transferred its own profits with a view to reduce profits and payment of tax. On verification of the seized material (page Nos. 6 and 8 of Annex. A/6 seized from the office premises of FGSBPL) further indicates the total commission paid to Sahara for arranging the accommodating entries totalling to Rs. 3 lacs on 23rd Feb., 2001, 28th Feb., 2001 and 7th March, 2001'Rs. 75,000, Rs. 1,50,000 and 75,000 respectively. Sahara India Financial Corporation Ltd. vide its letter dt. 18th May, 2001 has confirmed these facts in paras 4 and 5 of the letter which are reproduced as under : "4. Our purchases through M/s First Global Stock Broking (P) Ltd. did not result in any delivery as the transactions were squared of within the same settlement. 5. Our sales through M/s First Global Stock Broking (P) Ltd. did not result in any deliver....
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....ay that client code becomes mandatory at the broker level. Analysis of seized material, marked as Annex. A/5 seized from the office premises at ground floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai-1 shows the following entries against NITs Softech Ltd. NITs 20,00,000 (refer p. 11 of Annex. A/5) 6-2-2001 2,57,000 (refer p. 9 of Annex.-A/5) Total 22,57,000 On verification of ledger account of M/s NSL in the books of FGSBPL the assessee had made payments in the financial year 2000-01, on 21st July, 2000, 21st July, 2000 and 2nd Feb., 2001 for Rs. 10,00,000, Rs. 10,00,000 and Rs. 2,57,000 respectively. While explaining the contents of the seized material, Shri Neeraj Khanna, Chief Finance Officer has explained in detail on the day of search in reply to question Nos. 8, 12 and 13 stating an equivalent amount of cheque given by FGSBPL has been received in cash and the same cash was used for various purposes as mentioned in page Nos. 8 and 10 of Annex. A/5. It clearly establishes that the transactions are fictitious. The assessee has neither proved the genuineness of these transactions before the auditor appointed under s. 142(2....
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....as passed on their profit to M/s Friends Portfolio (P) Ltd. to the tune of Rs. 32,62,825. Therefore Rs. 32,62,825 is treated as undisclosed income of the assessee M/s First Global Stock Broking (P) Ltd. (5) Sunbeam Infotech Ltd. (SIL) : An amount of Rs. 10,15,000 was debited to P&L a/c of First Global Stock Broking (P) Ltd., on account of expenses of Y2K compliance in the year 1999-2000. It was stated that Sunbeam Infotech Ltd. has undertaken certain work relating to solution of software upgradation for Y2K compliance. On verification of details, it was found that the bills for Rs. 9,75,000 and Rs. 40,000 were raised by Sunbeam Infotech Ltd., on 30th Sept., 1999 and 30th March, 2000 respectively and payment was actually received from First Global Stock Broking (P) Ltd., after a lapse of nearly one year of rendering the service. This itself gives sufficient doubt regarding suspicious nature of the transactions. On verification of bank account of Sunbeam Infotech Ltd., it was seen that most of the withdrawals were made in cash immediately on deposit of cheques received from First Global Stock Broking (P) Ltd. The explanation of Shri Neeraj Khanna, Chief Finance Officer of the c....
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.... certain entities like : Bajrang 77,02,081.75 Nits 22,57,182.12 Friends 32,62,824.84 Sunbeam 10,15,000.71 1,42,37,088.71 (ii) The first three were the amounts payable to the new clients of the appellant for the credits earned by these entities in share trading through the appellant. The trading was done by them during the financial year 1999-2000. However, at that time they had informed the appellant to keep these profits as margin as they wanted to do further share trading. This is a common phenomenon and practice in the stock market. The clients at their discretion routinely ask their sharebrokers to keep their credit balances with the broker, either as margins or as deposits for future trades. This is a normal practice in the market and is done with the brokers of repute where the client has trust and feels that his money will be safe. The appellant being one of the most reputed and trustworthy broker in the Indian stock market, the clients had total trust in them. As such the payments were not made to these clients immediately as per their request and retained as credits to them in their accounts with the appellant. (ii....
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....s would be important from fund flow angle but may not be so important from cash flow angle if the net effect of the change from cash/bank funds angle is not significant. For example if there is credit sale, the figure of debtors would go up and effect fund flow but since there would not be any receipt in cash/bank, the cash flow position would not be affected. (vii) Therefore, the above exercise was basically a fund flow exercise and not a cash flow exercise. As such the figures on the backside of p. 50 represent the payments that were made or to be made by the group. (viii) The AO has relied only on the statement of Mr. Neeraj Khanna, which has, no evidentiary value as has been explained in the earlier part of our submissions. He has no corroborative evidence or material to support his averments. No unexplained cash, money, bullion, jewellery or asset has been found or seized by the Department. (ix) From the above explanation it becomes clear that backside of p. 50 and p. 54 of Annex. A/I seized from the ground floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai have the same details on them. One is handwritten, whereas the other is typed. The rationale of writing or ty....
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....learned AO and have no reference in the order. The reason being that nowhere in the statement, have the directors confirmed anything stated by Mr. Atul Chitalia. The statements taken on oath, clearly show that their cash on hand fully matched with the cash as per their books of account. It appears that the IT Department has taken the statement of Mr. Atul Chitalia under threat, coercion and duress and fearing that the statement will lose its meaning and value totally in case the same is refuted by the directors of Bajrang Ispat & Plywood (P) Ltd.; they have conveniently avoided asking any question relating to their transaction with the appellant in spite of the fact that Mr. Atul Chitalia has said that he had no knowledge of these transactions and whatever was done was as per the instructions of the directors of that company. The diary to which the learned AO has referred to, also gives the name of First Global and the amount and date of cheque. Nowhere has it mentioned cash having been dealt with. (iv) As regards the alleged mechanism employed by the appellant, the learned AO has referred to the records available with the stock exchange. But he has neither given the same to the....
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....or explanations placed before him, he was compelled by law to provide a proper hearing for this purpose; provide an opportunity to the appellant to rebut the same and provide any alternative material and cross-examine any witness whose testimony he may be relying on. No material has been given. No opportunity to cross-examine Mr. Atul Chitalia has been provided to the appellant. There is no corroborative evidence on record to show that the appellant at any point had received cash. (ix) Therefore, as per law and facts and circumstances of the case, the above addition may be set aside or deleted. b. Sahara India Financial Corporation (SIFCL) (i) We strongly deny the statement of the learned AO that during the financial year 2000-01, M/s First Global Stockbroking (P) Ltd. broker had shown certain share transactions and transferred profit to the tune of Rs. 1,48,20,356.90 to M/s Sahara India Financial Corporation (SIFCL) and created bogus loss in books. (ii) We have already dealt with the arguments of the learned AO with regard to the alleged mechanism employed by the appellant. Even the transactions for SIFCL were done in the month of July, 2000 to October, 2000, when, as ....
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.... (viii) The appellant had submitted all the details like bills, contracts, copy of account confirmation, client agreement etc. to the Dy. Director of IT (Inv.), Unit IX (3) to prove the genuineness of the transaction. The counter party has also confirmed the transaction in full and has provided all the details as per their books of accounts. Therefore, the genuineness of the transaction has been proved beyond doubt. (ix) In any case the transaction relates to the unfinished year and the learned AO has confirmed in the order that these were appearing in the books of accounts of the appellant. In this regard we wish to draw your attention to the provisions of s. 158BA(3) that state that if the income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of accounts or other documents maintained in the normal course relating to such previous years, the said income shall not and cannot be included in the block period. Such transactions have to be considered only in the regular assessment of the appellant. (x) The appellant repeatedly asked the learned AO that as per settled law, if he intended to disbelieve any ....
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....lected in the books of accounts of the appellant. As these transactions were recorded and disclosed in the books of accounts and returns filed with the Department much before the date of search, these can't be considered in the block assessment of the appellant and have to be dealt with in the regular assessment of the appellant. It is pertinent to note that the regular assessment of the appellant for the financial year 1999-2000 (the year in which the transactions took place) was completed almost simultaneously along with the block assessment and the learned AO accepted these transactions in the regular assessment. No defect has been pointed out in the books of account of the appellant for that year. (vii) The appellant repeatedly asked the learned AO that as per settled law, if he intended to disbelieve any of materials, documents, books or explanations placed before him, he was compelled by law to provide a proper hearing for this purpose, provide an opportunity to the appellant to rebut the same and provide any alternative material and cross-examine any witness whose testimony he may be relying on. No material has been given. No opportunity to cross-examine the counter p....
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....ting to the transaction for the appellant. (ii) It is a fact that the transaction was appearing in the books of account of the appellant, for financial year 1999-2000, and was disclosed in the return of income filed much before the date of search, with the IT Department for the said financial year relevant to the asst. yr. 2000-01. Therefore, as per the law, when the transactions are fully disclosed in the books of accounts or return filed before the date of search, the same can only be considered in the regular assessment and not in the block assessment. (iii) As already explained, no reliance can be placed in the statement of Mr. Neeraj Khanna. Moreover, we have already explained the seized page No. 50 being part of Annex. A/I. All the details relating to the above expenses were duly submitted to the Dy. Director of IT (Inv.), Unit IX (3) including bills, copy of account confirmation etc. A copy of the same is being submitted herewith for your reference. Delay in payment of the legitimate expenses would not make it an illegitimate expense. It has already been clarified earlier that since Y2K was a new phenomenon, the appellant wanted to be doubly sure that the problem of Y2....
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....ant's contention that the entries represent the fund flow working, does not have even legs to stand. The entries are to the extent of fraction of rupee one like "Bajarang 7702081.75", "NITs 2257182.12". The projected fund flow statement can never be prepared in terms of fraction of rupee, and secondly when the appellant has inflow and outgo of several crores of rupees every day, why a fund flow for only few selected parties ? In addition to all above, the most glaring fact is that entries in page Nos. 50 and 54 are further supported by entries in the diaries written by Mr. Neeraj Khanna, CFO of the company, and seized as Annexs. A-5 and A-6. Mr. Neeraj Khanna, author of the diaries and CFO of the company in his statement under s. 132(4), recorded during search itself admitted that the appellant is indulged in the transaction of selling profit and inflating expenses and entries in the diaries written by him represent the cash inflow and its application. Mr. Neeraj Khanna further admitted that these transactions were executed through one "Mr. Ashok" whose name is also written in jottings on page No. 50. The Department went further and surveyed the connected parties. The ....
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....00 it was not obligatory for share broker to mention client code. He took us through the written submission filed by the assessee in this regard and reproduced by the learned CIT(A) in para No. 16.2 of the impugned order. On the other hand, learned counsel for the Revenue relied upon the orders of Revenue authorities below and pointed out that if the seized material i.e. page Nos. 50 and 54 of Annex. 1 are read in the light of statement given by Mr. Neeraj Khanna, it revealed that assessee has been earning profit which was transferred to certain entities making loss. Those entities set off such profit against their losses and returned the amount back to the assessee. 42. We have carefully considered the rival contentions and gone through the record carefully. The transactions reflecting in page Nos. 50 and 54 were duly disclosed in the regular books of accounts for the concerned year. The AO is appreciating these transactions in the light of the statement given by Mr. Neeraj Khanna as well as some materials alleged to be found in the post-search enquiry. In this post-search enquiry a survey was carried out at the premises of M/s Bajrang Ispat & Plywood Ltd., which was subsequent....
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.... gathered by the Department and whether on the basis of such evidence it can be held that assessee has made manipulation in its books of accounts and that can only be unearthed because of the search. The first evidence in the possession of the Department is the statement of Mr. Neeraj Khanna. Mr. Neeraj Khanna is the alleged Chief Financial Officer of the assessee company, whereas according to Mr. Neeraj Khanna he was only a part time consultant. As far as any disclosure made during the course of search under s.132(4) is concerned we are of the view that no doubt the disclosure or admission made under s. 132(4) of the Act during the search proceedings is an admissible evidence but not a conclusive one. This presumption of admissibility of evidence is rebuttable one and if an assessee is able to demonstrate with the help of some material that such admission was either mistaken, untrue or under misconception of facts, then solely on the basis of such admission, no addition is required to be made. It is true that admissions being declaration against an interest are good evidence, but they are not conclusive and a party is always at liberty to withdraw the admissions by proving they ar....
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....isclosed in the books of accounts and were subject-matter of the regular return. Mr. Neeraj Khanna may be a well qualified person but even for an expert it is quite difficult to understand and give specific reply in such type of situation. 45. The learned AO while rejecting the contention of assessee on retraction of Mr. Neeraj Khanna's statement has observed that in answer to question No. 2 Mr. Khanna has disclosed the detail of the concerns and names of the directors of these concerns. He also disclosed the types of books of accounts maintained by the group as well as place where they are kept. According to the AO, Mr. Neeraj Khanna has also stated the exact position of the net brokerage as per seized page No. 56 of Annex. A-1. With the assistance of learned representatives we have gone through all these objections reproduced by learned CIT(A) at pp. 57 and 58 while dealing with the issue under the head "Retraction of the statement of Mr. Neeraj Khanna in para No. 14 of the impugned order". The few circumstances pointed out by the learned AO are of no consequence because being a tax consultant, Mr. Neeraj Khanna has to prepare the return of the group as a whole. Thus he is....
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....er cent of the value of the transactions carried out in the stock exchange resulted in delivery for the years 1998-99 and 1999-2000 respectively. If that be the scenario at all India level how the assessee in isolation can be expected to take delivery of shares in each transaction. This is not a circumstance which can suggest that assessee has manipulated its entries in the books of account and therefore, those entries require reappreciation and an addition is to be made in the block assessment. This fact is further to be seen in the light that assessee is a broker and sometime had just booked the "Sauda" on earning some profit immediately sold. There cannot be any physical delivery of the shares in such "Sauda". 47. The next circumstance pointed out by the AO is that the assessee initially conducted transactions in stock exchange on its own account, earned profit and subsequently these transactions are shown to have taken place on behalf of the client. For this reason the AO took the aid of non mentioning of the client code in the transaction. The assessee has pointed out that at the relevant period it was not mandatory to make a mention of the client code. If that be the pract....
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....tunity etc. are to be adhered even in the income-tax proceedings, i.e. upon whom the onus is for explaining the particular circumstance etc. The AO is disbelieving the books of accounts maintained by the assessee duly disclosed to the Department in the original return. In such circumstances it is the AO who has to bring the positive evidence exhibiting the fact that whatever has been disclosed to the Department in the original return was false. On the basis of the generalization that in case M/s Bajrang Ispat & Plywood, this material was found thus all other entries are to be treated as the false, cannot be accepted in the law. 50. The learned first appellate authority has further observed that assessee contended that entries reflecting in pp. 50 and 54 are fund flow working. It is emphasized by the assessee that it was never a case of the assessee. The assessee submitted that these are jottings made to see the flow of funds for transactions that had happened or were under process. In the light of the above discussion we are of the view that learned Revenue authorities below have erred in confirming the addition. This ground of appeal is allowed and the addition of Rs. 2,90,57,4....
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....there was a reason to believe that the assessee has deliberately made these entries for showing the sale of 1,42,525 shares of HFCL to its sister concerns in the month of March, 2000 so as to divert the profit arising out of the sale of these shares in the market to its sister concerns. To examine this issue and verify the genuineness of the entries made by the assessee, they were given several opportunities to explain their case. As HFCL was a listed issue, the purchase and sale in these shares have to be made through the stock exchange. And if these are not made through the stock exchange then there are certain rules and regulations of the SEBI as well as the concerned stock exchange where the information has to be furnished in a certain manner and within a certain time. Despite giving several opportunities, the assessee have not come forward to explain the factual position regarding these transactions and whether the transfer of these shares from the assessee company to its sister concern was through the stock exchange or it was an off market transaction. In the event of this transaction being an off market transaction, the assessee should have furnished all the details and the ....
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.... income. The Hon'ble jurisdictional High Court in (2000) 163 CTR (Bom) 432: (2001) 247 ITR 448(Bom) (supra) has considered an identical aspect. In that case an assessee had constructed a bungalow and incurred an expense of Rs. 4,16,000. These expenses were disclosed in the regular return of income, subsequently search was carried out and the learned AO referred the valuation of the bungalow to the DVO. The DVO determined the value of the property at Rs. 6,66,000. The learned AO added the difference to the income of the assessee as undisclosed income. The Tribunal has deleted the addition on the ground that addition was not made on the basis of the material gathered during the course of search, rather, all these informations were available to the AO at the time of regular assessment. The learned AO obtained the DVO's report subsequent to the regular assessment, therefore, addition is made beyond the scope of the block assessment. The Hon'ble High Court has upheld this order of the Tribunal. Similarly in this case the transactions of the sale and purchase of the shares were completed before the search. These have duly been disclosed to the Department by the assessee as we....
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....te No. of shares Rate@ Amount in Rs. 1 Mohan Fiscal Services (P) Ltd. 3/3/2000 1,42,550 1,050 149,677,500 2 UD & MD Agencies 3/3/2000 1,42,500 1,050 149,625,000 3 Vruddhi Confinvest India (P) Ltd. 3/3/2000 1,42,450 1,050 149,572,500 4 Naulakha Financial Services (P) Ltd. 3/3/2000 1,42,700 1,050 149,835,000 5 Virta Trade & Agencies (P) Ltd. 3/3/2000 1,42,525 1,050 149,651,250 6 Panchal Components & Appliances (P) Ltd. 3/3/2000 1,42,675 1,050 149,808,750 7 Top Gear Leasing & Finance (P) Ltd. 3/3/2000 70,125 1,050 73,631,250 8 First Global Stock Broking (P) Ltd. 3/3/2000 1,42,750 1,050 149,887,500 1,068,275 1,121,688,750 (Annexed herewith please find xerox copies of client-wise Sauda settlement and xerox copies of loose paper seized from Annex. A-1, ground floor, Fort office 102-105). The abovereferred group concerns have in turn sold to First Global Stock Broking (P) Ltd @ 1,060 per share. Thereafter, First Global Stock Broking (P) Ltd. has sold @ Rs. 1,060 per share to th....
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....the abovereferred transactions in spite of several opportunities given to the assessee. The assessee failed to explain whether the shares were sold in stock market or outside. If the shares were sold outside whether the transactions have been reported to the stock exchange etc. In the light of the abovereferred discussion, it is clear that the sale to FIIs was not in private placement but an open sale at a price which was almost 50 per cent of the prevalent market price and thus, the share transaction has resulted in accrual profit in crores of rupees. In the same fashion 22,260 shares of HFCL and 72940 shares on own account of the assessee company has also resulted in accrual of profits in crores of rupees. In this way the total transaction has been concluded at 9,25,750 shares in an open sale at a price almost 50 per cent of the prevalent market price. The difference between the market price and the sale price requires to be treated as undisclosed income of the assessee hence, the profit of Rs. 96,27,80,000 has been computed on the sale of abovereferred 9,25,750 HFCL shares : The assessee has not explained these transactions before the Investigation Wing, before the auditor ap....
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....ould have been earned and not which has been earned. Hence, the addition of Rs. 96,27,80,000 is not at all justified and the same may be deleted. (iv) Without prejudice to the above contention, we wish to state that the learned AO failed to appreciate that out of the impugned shares, only 5,92,950 shares were allocated to FIIs at the book building price of Rs. 1,050 plus transaction charges including interest component. This was the rate at which all the 70,00,000 shares were allocated by the company HFCL. The entire transaction has been confirmed by the FII purchasers also. The balance shares have been sold later in the stock market at the prevailing rate as per the details furnished earlier. Therefore, the learned AO is not at all justified in making addition of Rs. 96,27,80,000. (v) We submit that the learned AO failed to appreciate the fact that the appellant was fully co-operative with the IT Department. This can be verified from the fact that the appellant had filed all the details relating to the above transaction vide their letters dt. 14th May, 2001, 21st May, 2001, 11th Oct., 2001 and 3rd June, 2002. Apart from that the entire transactions were duly recorded and ref....
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....et price' transaction cannot exist. The shares in question had no market price as on the date of the transaction. (xii) While the AO dishonestly says that he is relying on the evidence of the Enforcement Directorate (ED) in this matter, the facts are as follows : (a) The ED has claimed that they were investigating this transaction at the sole instance of the IT Department. (b) The ED has confirmed in an affidavit dt. June, 2003 that they have not been able to find any evidence of the appellant having received any undisclosed moneys in this transaction. (c) The appellant will rely on various documents, affidavits, Court records etc. to evidence the same. (xiii) The Enforcement Directorate after extensive investigation of more than 2 years on this issue has never filed any charges against the appellant having received any amount over and above, what has been recorded and reflected in the books of accounts of the appellant. The learned AO is put to strict proof to confirm whether the Enforcement Directorate has filed any case in the Court against the appellant, of having received this alleged difference amount of Rs. 96.27 crores. (xiii) In support of the above, ....
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..... (xvii) The learned AO has also referred to the stock exchange confirmation of the trades in HFCL scrip as on 3rd March, 2000. But that was with regard to the old shares of HFCL, which were already listed on the exchange. As on 3rd March, 2000, the new HFCL shares had not even originated from the company, leave apart the tradability aspect of it. The shares allocated by HFCL in private placement were transferred to the demat accounts of the parties on or around 24th March, 2000. Therefore, one could not compare the market price of the old listed shares as on 3rd March, 2000 with the new unlisted shares. (xviii) Page No. 203 mostly gives the facts, which are not in question. On p. 204 however, the learned AO contends that the credit facilities were given by the Global Trust Bank to the eight companies without official sanction from corporate office. Firstly this is an internal matter of the bank. The bank sanctions the facility. Whether they had taken sanction of their higher authority or not is none of the appellant's concern. (xix) As regard the 2,37,600 shares of HFCL we wish to submit that these have been sold in the market to the FIIs at the prevailing market rate....
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....earned AO once again harps on the allegation that the assessee has not explained these transactions before the Investigation Wing, before the auditor or before the AO. This is again false to the core as we have already stated in our submissions that numerous letters explaining the transactions were written to the Investigation Wing as well as to the learned AO. The issue of special audit has already been dealt with in detail in our earlier submission in the matter.' 18.2 The learned Authorised Representative vide letter dt. 31st Dec., 2003 further submitted as under : 'Please refer to the hearing held on 24th Dec., 2003 wherein the issue relating to the addition of Rs. 96 crores as undisclosed income relating to the 10,68,275 shares of HFCL private placement of new unlisted shares was discussed. In this regard, we have been instructed by our clients to state that without prejudice to our submissions in the matter already submitted vide our letter dt. 13th Nov., 2003, we submit that the FIIs to whom the total of 5,92,950 shares were transacted on the DVP basis are the FIIs who are taxed for their income earned in India and are duly taxed in India for those incomes. ....
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....lated transaction cost. These DVP transactions are specifically permitted by SEBI. One of the arguments of learned Revenue authorities is that assessee has violated certain procedure laid down by SEBI and RBI, but in our opinion those violations would not ipso facto lead that assessee had earned this income. The Enforcement Directorate has not been able to come with any charge against the assessee having received any amount beyond what has been disclosed by the assessee through the official channels. It is important to note that once the shares were delivered to these FIIs they immediately made the payment through the custodian bank and assessee has already shown the commission income and other income related to these transactions. The learned AO as well as learned CIT(A) by making a reference to some small irregularities concluded that assessee had received the shares at issue price of Rs. 1,050 and sold them at that very price instead of selling them at a price of Rs. 2,100 per share approximately. Where on the other hand, the contention of the assessee is that it has only earned brokerage income which has already been disclosed to the Department in the regular return of income. ....
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....hich the additions have been made by the AO. I am of the opinion that below listed documents seized from the premises of the appellant are not dumb documents because those are having acceptable and explainable narrations. The alternative argument of the appellant that the seized paper has the jotting of unknown origin and is in unknown handwriting does not come to its help for the reason of clear provisions under s. 132(4A) of the Act, as discussed in detail under para 14(vii) of the appellate order. It would not be out of place to mention here that the rigorous and strictness of marshaling the evidences as per the Evidence Act, 1872 are not applicable to income-tax proceedings as discussed in detail under para 14 of the appellate order. It is further seen that such documents have neither been explained during assessment proceedings nor in appellate proceedings. Therefore, there is no change in the status of additions with reference to these documents. Here again, just to keep the volume of appellate order manageable, I discuss all such acceptable documents together, which were neither explained during assessment proceedings nor during appellate proceedings, with brief narration....
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.... 242 A-10/35 351 to 353 471,158 -do- 31 242 A-10/37 353 to 355 48,875 -do- 32 242 A-10/38 356 to 358 833,209 -do- 33 242 A-10/39 360 to 362 840,282 -do- 34 243 A-10/40 363 to 365 880,472 -do- 35 243 A-10/41 366 to 368 882,414 -do- 36 243 A-10/43 369 to 370 851,683 -do- 37 243 A-10/45 372 to 374 432,613 -do- 38 243 A-10/46 375 to 377 9,411 -do- 39 244 A-10/48 378 to 380 116,896 -do- 40 244 A-10/49 381 to 383 492,216 -do- 41 244 A-10/51 384 to 386 164 -do- 42 244 A-10/56 387 to 389 14,478,668 -do- 43 244 A-10/57 390 to 342 2,611,667 -do- 44 245 A-10/58 393 to 395 7,649,050 -do- 45 245 A-10/62 396 to 398 363,321 -do- 46 245 A-10/69 399 to 401 10,044 -do- 47 245 A-10/70 402 to 404 322,980 -do- 48 245 A-10/89 405 to 407 1,220,095 -do- 49 246 A-10/90 408 to 410 6,128,204 -do- 50 246 A-10/91 411 to 413 1,402,426 -do- 51 ....
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.... 252 A-1/107 517 to 519 5,000,000 Paper has acceptable narration with name, date and amount. Remained unexplained. 73 252 A-1/108 to 117 520 to 522 405,000 Seized papers pertains to receipt of amount from various parties, claimed to be entered in regular books, but could not be properly reconciled and not evidenced for genuineness u/s 68 of the Act. 74 253 A-1/44A 547 to 549 2,427,000 Seized document has name of scrip, share sold, and amount of profit. Paper remained unexplained. 75 254 A-1/44 B 550 to 552 1,523,000 -do- 76 254 A-1/44 C 553 to 555 576,886 Seized paper has acceptable narration with amount, and remained unexplained. 77 254 A-1/46 559 to 561 7,648,778 Seized document with acceptable narration, name of the person and Mobile No. etc., remained unexplained. 78 252 A-1/13 to 15 31 to 36 526 to 540 5,252,000 Seized document with acceptable narration not explained. 79 253 A-1/2 541 to 543 200,000 Seized document with acceptable narration not explained. 60. Apart from these above 79 entries there are other additions. The firs....
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....ly a major addition of Rs. 8,51,00,000 has been made on the basis of rough jotting appearing at p. 13 of Annex. A9 and an addition of Rs. 8,89,00,000 appearing at p. 15 of Annex. A10. At serial No. 91 assessee is impugning an addition of Rs. 1,44,78,668 based on a rough jotting reflected at p. 56 of Annex. A-10. At serial Nos. 107 and 122 the assessee is impugning addition of Rs. 17,65,00,000 made on the basis of rough jottings appearing at page No. 6 and 7 of Annex. A-11 and an addition of Rs. 21,90,00,000 based on rough jotting appearing at p. 37 of Annex. A-1. Similarly an addition of Rs. 3,88,41,000 has been made on the basis of rough jotting appearing at p. 44D of Annex. A-1. 62. With the assistance of learned representatives we have gone through the record carefully as well as the seized material placed before us in voluminous paper book. As far as the addition impunged at serial No. 1 amounting to Rs. 1,25,03,393 is concerned, as noticed earlier while extracting the finding of AO this addition is made on the ground that certain entries were revealed on reconciliation of the data fed in the computer. The AO concluded that in certain entries " master not found" and computer....
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....xplanation to the above, the same is considered as the undisclosed profit on sale of shares and added to the income of the asst. yr. 2001-02 (broken period) Rs. 62,90,00,000. 42.1 In this context, the submission of the learned Authorised Representative as per page No. 43 of letter dt. 8th Dec., 2003 is as under : '(i) The learned AO has made this addition on conjectures and surmises on the basis of rough jottings of unknown origin and handwriting. These appear to be rough jottings that are of unknown origin and are in unknown handwriting. We are therefore unable to comment on these with any degree of certainty. The Income-tax officials in the course of searching the premises have not made any noting as to the place/ office/ desk and from whom the particular papers were recovered making it impossible for us to comment on unknown papers in unknown handwriting. The company had hundreds of employees and dozens of traders and dealers. There is not even a note or statement on whether the paper is at all related to the company or is the personal matter of person writing or deals with trades or outstanding positions or market information or ALBM or BLESS or FII trades or local....
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....count a cash of Rs. 5 crores and Rs. 1 crore in BSC respectively. The AO just narrated these accounts and then made addition on the basis that assessee failed to give any explanation. According to the assessee these jottings are rough jottings. They have come from unknown origin and are from unknown handwriting, hence, cannot be treated as undisclosed income for want of any proof. With regard to the addition made on the basis of notings available in p. 71 we find that AO has made an addition of Rs. 35.47 crores, which has partly been deleted by the learned CIT(A) and the assessee made the following submissions before the learned CIT(A) : "24.4 In this context, the submission of the learned Authorised Representative as per page Nos. 10 and 11 of letter dt. 30th Nov., 2003 in brief are as under : '(i) These appear to be rough jottings that are in the handwriting of appellant's consultant Mr. Neeraj Khanna. The appellant has contacted Mr. Neeraj Khanna and has sought his help in deciphering the papers as the appellant is in no position to understand the rough jottings made by a third person and cannot know as to what was in his mind at the time of writing these jottings ....
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....of Rs. 17,56,59,925 with the appellant. In the lower part of the said para, he has added an amount of Rs. 13,93,59,525 on the pretext that the source of having received these funds from RNA group has not been explained to the learned AO, whereas he has already stated the fact of the appellant having received Rs. 17,56,59,525 from the RNA group towards investments. This is a mala fide addition made with a view to make a high pitched assessment to harass the appellant and put a non-existent financial burden on the appellant'." We further noticed the details of making additions of Rs. 1,18,73,000 on the basis of notings appearing in p. 95 of Annex. A1. This addition has been made on the ground that this much amount has been given to Virta Trading Agencies (P) Ltd. The assessee had filed copy of the account of Virta Trading Agencies in its books of accounts. The learned first appellate authority confirmed the addition on the ground that the assessee failed to make the compliance of audit direction of the Department given under s. 142(2A). Thus we have gone through all the additions and the seized material exhaustively. The additions have been confirmed primarily for the reason t....
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....cular entry. We are of the view that it is for the AO first to establish that some documents were found at the time of search, which goad the authority to reach at logical conclusion and the entries appeared in those documents are not reflected in the regular books of accounts of the assessee, only then the assessee can be put to explain. The AO has to first point out that this entry relates to a particular transaction, which assessee has not disclosed in the regular books of accounts. Hence, outcome of it would be considered as undisclosed income of the assessee. If the assessee failed to explain this to the satisfaction of the AO then that can be added as income of the assessee. On exhaustive perusal of the impugned orders we find that the learned Revenue authorities have ignored the submission of assessee that all these transactions have duly been disclosed in the regular books of accounts. The AO has made the addition only on reappreciation of the transaction or on the basis of drawing adverse inference. We have already observed on the strength of Hon'ble Supreme Court decision in the case of Rajesh Kumar (supra) as well as on the strength of the Tribunal's order in the....
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....umstances we allow this ground of appeal and delete all the additions disputed in serial Nos. 1 to 141 of ground No. 4B(1) of the grounds of appeal. 65. Ground No. 3 : In this ground of appeal the assessee is impugning the addition of Rs. 61,87,500, which has been made on the ground that one Shri Ahmed Shamsuddin had arranged the remittance of 1,25,000 dollars to M/s First Global Mauritius Ltd. on behalf of the assessee. 66. The brief facts of the case are that the Enforcement Directorate had received an information that assessee had arranged 1,25,000 dollars, which was remitted to M/s First Global Mauritius through hawala channel. In this connection the Enforcement Directorate had recorded statement of one Shri Ahmed Shamsuddin, who in his statement has pointed out that he made the payment on behalf of the assessee. For this reason the addition has been made and the learned CIT(A) has confirmed the addition. 67. With the assistance of learned representatives we have gone through the record carefully. The Department was not able to lay its hand on any of the documentary evidences. The AO is simply harping upon the statement of Shri Ahmed Shamsuddin, which has been recorded....
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.... 2. The appellate proceedings in your case against block assessment order are going on. During appellate proceedings I came across the following documents, seized as documents of Annex. A-6 during search action, which have not been considered during block assessment by the AO. (i) Page No. 5 of A-6 : The page contains details of various expenses/gratification of Rs. 2,07,846 along with the dates and acceptable narration. (ii) Page No. 6 of A-6 : This page contains the details of various transactions of Rs. 41.515 lacs, in acceptable narration along with the dates. (iii) Page No. 7 of A-6 : This page again contains the details of various transactions of Rs. 72.935 lacs, in acceptable narration along with the dates. The xerox copies of the pages are enclosed herewith for your ready reference. 3. It is to be mentioned further that these pages are pertaining to pad No. 5 written and maintained by Mr. Neeraj Khanna. 4. You are required to explain the notings on these papers and why not these papers be considered for the enhancement of the block assessment to the extent of amount of transactions written in the impugned papers. 5. The explanation should reach....
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....rch, 2001 Garma (Loan) 5.00 Amount as per pad Amount Rs. Lacs Explanations 5.00 5.00 This appears to be a loan of Rs. 5 lacs received by Virta Trade & Agencies (P) Ltd. from Garma Trexim (P) Ltd. The amount is duly reflected in the books of Virta Trade & Agencies (P) Ltd. 1st March, 2001 Top Gear 10.00 Amount as per pad Amount Rs. Lacs Explanations 10.00 10.00 This appears to be a loan of Rs. 10 lacs received by Top Gear Leasing & Finance (P) Ltd. from Garma Trexim (P) Ltd. The amount is duly reflected in the books of Top Gear Leasing & Finance (P) Ltd. 5th March, 2001 Panchal 5.00 Amount as per pad Amount Rs. Lacs Explanations 5.00 5.00 This appears to be a loan of Rs. 5 lacs received by Panchal Components & Appliances (P) Ltd. from Garma Trexim (P) Ltd. The amount is duly reflected in the books of Panchal Components & Appliances (P) Ltd. 3rd March, 2001 Panchal 5.00 Amount as per pad Amount Rs. Lacs Explanations 5.00 5.00 This appears to be a loan of Rs. 5 lacs received by Panchal Components & Appliances (P) Ltd. from Garma Trexim (P) Ltd. The amount is duly reflected in....
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.... the said payment is duly reflected in the books of the assessee. 16th March, 2001 Bang 4.00 Amount as per pad Amount Rs. Lacs Explanations 4.00 4.00 This appears to be a payment that was to be made by M/s Shankar Sharma to Bang Equity Broking (P) Ltd. as margin money against its trading account with Bang Equity as of that date. However the appellant has finally paid an amount of Rs. 15,12,946.28 on 17.3.2001 vide cheque No. 024101 of Bank of India. The copy of account of Bang Equity in the books of M/s Shankar Sharma is enclosed that shows that the said payment is duly reflected in the books of the assessee. 19th March, 2001 Bang 20.00 Amount as per pad Amount Rs. Lacs Explanations 20.00 20.00 This appears to be a payment that was to be made by M/s Shankar Sharma to Bang Equity Broking (P) Ltd. as margin money against its trading account with Bang Equity. However the date appears to be wrongly written on the rough jotting. Appellant has paid an amount of Rs. 20,00,000 on 24.1.2001 vide cheque No. 027791 of Bank of India. The copy of account of Bang Equity in the books of M/s Shankar Sharma is enclosed that shows that th....
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.... 5.00 Hiren 4.00 2.50 Jhaveri Hiren 3.00 Neeraj 2.00 Jhaveri 15.00 The appellant could not submit any explanation for the first 4 entries of the impugned seized paper. For the last 5 entries of Top Gear, Panchal and Vruddhi, the appellant submitted that these are appearing on page No. 3 of Annex. A-5 which has already been considered by the AO in the block assessment. On verification of the impugned page No. 3 of Annex. 'A-5', the contention of the appellant is found to be correct. Meaning thereby, the following entries have already been considered by the AO and, therefore, those are not considered in the enhancement under reference. Top Gear 10.00 Panchal 5.00 Panchal 5.00 Panchal 10.00 Vruddhi 5.00 Total 35.00 However, the appellant could not submit any explanation for the entries mentioned in the name of Ashok Jhaveri Rs. 22.221 lacs and further entries worth Rs. 29 lacs in the name of Jhaveri, Hiren and Neeraj as jotted on the impugned seized paper as produced above. In view of the above facts, the enhancement based on the seized paper No. ....
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....borately in preceding para while adjudicating the additions based on Annexs. A-5 and A-6 and, therefore, I rely on all my arguments advanced there, for the purpose of this enhancement of the assessment under reference. In view of the detailed discussion held above, the AO is directed to enhance the assessment of the appellant company by Rs. 84,51,500." 69. We have duly considered rival contentions. It emerges out that the assessee has pointed out that some of the entries were rough jottings, which could not be explained as it was not possible to link them up with real transactions. The learned CIT(A) has proceeded on the presumption that those pages were in the handwriting of Mr. Neeraj Khanna. It was clarified that the pages listed in the Annexs. A5 and A6 were in the handwriting of different persons. The jottings made related to certain expenses and other transaction. The explanation was furnished wherever the details could possibly be found out. As already explained some of the entries had been considered by the AO and separate additions had already been made. The learned CIT(A) persisted with the observation that the pages under consideration were in the handwriting of Mr....
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....ng the appeal. The addition is beyond the scope of block assessment. The entries were duly reflecting in the regular books. Thus this ground of appeal is rejected. 72. Ground No. 2 : In this ground of appeal the grievance of Revenue is that learned CIT(A) has erred in deleting the addition of Rs. 41,56,09,408. 73. We have gone through the record carefully. The learned CIT(A) has deleted this addition on the ground that the addition has been made on the basis of seized documents which represent the bank entries only. These entries have duly been disclosed to the Department in the regular assessment. According to the learned CIT(A) the assessee cannot be compelled during the block assessment to get verified each and every entry in the regular bank account which is part of its regular books of accounts. The relevant findings of learned CIT(A) read as under : "With reference to the submission of the appellant it is pertinent to decide whether verification of each and every transaction in the bank account appearing in the regular books is the subject-matter of block assessment or not. It is an established law that the proceedings of regular assessment and block assessment are i....
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.... computed excessive loss or has not underpaid the tax in any manner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block period and not the income or loss of the previous year which is only done in the normal regular assessment under s. 143(3). In a large number of cases we find that the above distinction is not kept in mind by the AO. It is for this reason that we have spelt out the difference between the regular assessment and the block assessment under Chapter XIV-B of the IT Act.' In view of the detailed discussions held above, in my opinion the matter under reference does not fall under Chapter XIV-B of the Act. The seized documents represent the bank entries only which has been explained by the learned Authorised Representative to the AO. The appellant cannot be compelled during block assessment to get verified each and every entry in the regular bank account which is part of its regular books of account. The AO has liberty to do so under regular assessment or under other provisions of the Act. Secondly, the learned Authorised Representative did not deny for getting it verified except that for asking more time. Thirdly, the seized d....
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....refully considered the findings of the AO and submissions of the learned Authorised Representative along with other material available on record. The addition is based on paper seized from the premises of the appellant during search action and inventorised as page No. 95 of Annex. A-1. On perusal of the paper, it is seen that the document has some rough working "(163.10 x 34100), Rs. 3,337 thereafter some jottings like 1094 -> 18,75,00,000, below that some figure like 2,74,67,163.30. There is no relationship among the figures mentioned on the document. The document does not have any narration at all except figures. In my opinion, it is a dumb document. I do not think that any person can explain such documents. It is an established law, that any loose paper can be accepted as evidence under income-tax proceedings only if it has acceptable and explainable narration. Secondly, the AO himself mentioned that 1094 is the bank account of the appellant appearing in regular books of account. Only on the basis of conjectures and surmises he cannot conclude that it appears to be an unexplained credit in the said bank account. The AO must bring something cognizant on record before giving....
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....dreds of employees and dozens of traders and dealers. There is not even a note or statement on whether the paper is at all related to the company or is the personal matter of person writing or deals with trades or outstanding positions or market information or ALBM or BLESS or FII trades or local institutional trades or trades of other members of stock exchanges or which period/date or which stock exchange it pertains to. This is a dumb document. (iv) Therefore, the same cannot be treated as undisclosed income. The addition of Rs. 16,15,14,277 may be deleted. (v) The learned AO has made this addition on conjectures and surmises. No material relied upon by the learned AO has been provided and no opportunity to rebut the same has been given to the appellant. No show cause notice has been served on the appellant on this point. Therefore, the addition is not sustainable even from the natural justice point and may kindly be deleted.' 49.2 Here again, the addition is based on seized paper No. 101 without any acceptable narration with some codes like 464974, 464847 etc. The document has some jotting like Yahoo.com, thereafter in right corner of the paper the jottings are like....
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....he same cannot be treated as undisclosed income. The addition of Rs. 1,66,00,000 may be deleted. (iii) The learned AO has made this addition on conjectures and surmises. No material relied upon by the learned AO has been provided and no opportunity to rebut the same has been given to the appellant. No show cause notice has been served on the appellant on this point. Therefore, the addition is not sustainable even from the natural justice point and may kindly be deleted.' 55.2 On perusal of the impugned seized document No. 65, I reached to the conclusion that it is a dumb document. The document does not have any acceptable and explainable narration. It appears to be some rough work, without indicating any logical inference. BSE <--------- Angel LKP Client account Bank balance *Century +70 Prabhu Lata 166 Lacs' I do not think any conclusion can be drawn with such documents. It is absolutely clear dumb document, and any addition based on such document is not justified by any standard. In view of the above facts, the impugned addition is deleted." ....
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....d AO on p. 222 as well as the submissions of the assessee. The discussion made by the learned CIT(A) in para 60 of the impugned order exhibiting the finding of AO, as well as submissions of the assessee and finding of the learned CIT(A) read as under : "60. Ground Nos. 184 to 186 relate to an addition of Rs. 50,68,455 on page No. 222 of the assessment order. The findings of the AO leading to the addition are as under : '5. Annex. A-1 page Nos. 55, 56 & 57 The total brokerage details on these pages are as under : Pg. 55 1738753 Pg. 56 1693096 Pg. 57 16,36,606 Total 50,68,455 As the assessee has not submitted any explanation regarding the brokerage on these pages, hence the amount of Rs. 50,68,455 is treated as undisclosed and added to the income of the asst. yr. 2001-02. (broken period) Rs. 50,68,455.' 60.1 In this context, the submissions of the learned Authorised Representative as per page No. 39 of letter dt. 8th Dec., 2003 are as under : '(i) These appear to be the brokerage reports prepared by the retail arm of the company FGSBPL and is part of the MIS reports prepared for analysis by the management. The paper i....
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....ed Representative as well as the other material available on record. The additions are based on seized document Nos. 55, 56 and 57 of Annex. 'A-1'. The seized papers have the jottings with acceptable narration, regarding brokerage income of the appellant. I made an attempt to reconcile the figure of jottings with the figure of books of accounts as claimed by the appellant. It is seen that most of the figures are not tallied. However, on close perusal of page Nos. 55 to 57, it is noticed that the total of page Nos. 56 and 57 has been carried forward on page No. 55. In other words, the page No. 55 is the final page indicating cumulative brokerage details of Rs. 17,38,753. The AO has considered all these three seized papers independently and made the addition of Rs. 50,68,455. It is an admitted fact that documents have been seized from the premises of the appellant which remained unexplained during assessment proceedings as well as appellate proceedings. For the reasons discussed in detail while adjudicating the various grounds of appeal in the earlier part of the order and particularly with reference to that the impugned seized document remained unexplained, I confirm the ....
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....ugh jottings of unknown origin and in unknown handwriting. For many of such documents he submitted that those are the dumb documents. I tried to verify the seized documents with reference to the submission of the appellant whether those are the dumb documents. On verification of entire seized material the following documents were found to be dumb by me. The below listed documents on the basis of which additions have been made by the AO do not have any narration. It is an established law that any seized document which does not have any acceptable narration cannot be the base for addition on account of undisclosed income. To keep the volume light of the appellate order, I discuss all such dumb documents together herebelow with reference to the additions in the assessment order and delete the additions based on such dumb documents. Dumb documents Sr. No. Page No. of Asst. order Ref. seized document Ref. ground No. Amount of addition Remark (in brief) 1 211 A-1/109 107 to 109 564,999 Some figures on the right corner of computer generated sheet, without any narration. 2 213 A-2/65 136 to 138 3,311,000 Hand written sheet containing....