TaxTMI 
TaxTMI 
TaxTMI 
2007 (11) TMI 591
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....ievance 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 has been alleged that Mr. Shankar Shar....
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.... 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 containing 171 pages (D) A-4 Pad containing 8 pages (E) A-5 Pad containing 3 pages (F) A-6 Pad containing 11 pages (b) Books of accounts....
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....0, 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 containing 46 pages (B) Annex. O-Locker key bearing No. 545'locker No. 551 standing in the name of M/s First Securities (operating by Shankar Sharma and Devina Mehra) 'C' Wing, Nariman Point. Further on 30th March, 2001 the locker was operated and the following seizure was effected from the locker : (i) Books of accounts/documents found and seized from First Securities (Shankar Shar....
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....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 income for the block period is computed under s. 158BB of the Act as under : Asst. yr. Returned income Assessed income including undisclosed income Undisclosed income computed under s. 158BB of the Act 1995-96 86,328 1,14,170 28,242 1996-97 21,032 3,94,058 3,73,026 1997-98 41,634 6,49,734 6,08,100 1998-99 1,40,56,800 1,76,79,665 36,22,865 1999-00 1,16,53,820 1,48,93,089 32,39,267 2000-01 11,83,69,990 1,22,43,85,448 11,06,01,548 2001-02 2,56,49,510 5,73,32,86,971 5,70,89,10,491 1.4.2000 to 23.3.2001 (broken period) Total undisclosed income 169179114 69926765 682279749 The total undisclosed income in the block period, therefore, is determined at ₹ 68,22,79,74,491 which is rounded off to ₹ 68,22,79,74,500 in terms of s. 288A of the IT Act. Assessed under s. 158BC. Issued demand notice and challan accordin....
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....ing 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 and also legal ground. For buttressing his contention he relied upon the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249: (1998) 229 ITR 383(SC). On the strength of this decision he submitted that an assessee can take a legal ground for the first time before the Tribunal even if the same was not agitated during the course of proceedings before the authorities below, provided that all facts necessary for disposal of the legal claim are already on record and no fresh investigation of fact is called for. Referring to the facts he drew our attention towards p. 5 of the assessment order wherein the AO has narrated the execution of the last Panchnama dt. 1st June, 2001. Similarly he drew our attention to the finding of learned CIT(A) recorded in para 9.3 of the impugned order, wherein the learned CIT(A) adjudicated the issue regarding framing of assessment order within the limitation. The learned counsel for the ....
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....me 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 counsel for the assessee submitted that expression "has been conducted" does not contemplate that something should have been completed. It only denotes that if any search has been conducted then notice under s. 158BC is to be issued upon the assessee. Before conclusion of the search such notice can be issued. On the strength of Hon'ble jurisdictional High Court decision in the case of Shirish Madhukar Dalvi vs. Asstt. CIT (2006) 203 CTR (Bom) 621: (2006) 287 ITR 242(Bom), he submitted that issuance of notice under s. 158BC is procedural requirement, otherwise s. 158BA bestows jurisdiction on the AO for assessing him for the block period and s. 158BB provides the computation of the income for the block period. Some irregularity in issuance of notice under s. 158BC should not be construed as resulting the assessment order invalid. With a view to propound the meaning of expression "has been" or "has" he drew our attention towa....
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....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 and verified in the same manner as a return under cl. (i) of sub-s. (1) of s. 142, setting forth his total income including the undisclosed income for the block period : Provided that no notice under s. 148 is required to be issued for the purpose of proceeding under this chapter : Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BB and the provisions of s. 142, sub-ss. (2) and (3) of s. 143 (s. 144 and s. 145) shall, so far as may be, apply; (c) the AO, on determination of the undisclosed income of the block period in accordance with this chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment; (d) the assets seized under s. 132 or requisitioned under s. 132A shall be dealt with in accordanc....
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....iscussion, 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 under : "Has been', 'When not followed by a participle is the present perfect tense of 'to be' and accordingly indicate that the state of thing has existed and may be (but not necessarily is) continuing and therefore even advocates who are not actively practicing on the date of appointment are eligible to be appointed as Judge provided he is qualified' Chandra Mohan vs. State of U.P. AIR 1969 All 230 at 234 (Constitution of India, Art. 233) Whether the expression 'has been' denotes transaction prior to the enactment of the statute in question or a transaction after coming into force of the statute, has to be gathered from the provision, in which the expression 'has been' occurs or from the other provision, in which the expression 'has been' occurs or from the other provisions of the statute. Secretary R.T.A vs. D.P. Sharma AIR 1989 SC 509, 5....
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....mining undisclosed income in a block assessment and scope of block assessment. Secs. 158B(b) and 158BB provide the definition of undisclosed income and its computation for the block period. These provisions read as under : "158B(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. 158BB Computation of undisclosed income of the block period.'(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are a....
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....rd losses under Chapter VI or unabsorbed depreciation under sub-s. (2) of s. 32 : Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-s. (2) of s. 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner : Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement; (c) assessment under s. 143 includes determination of income under sub-s. (1) or sub-s. (1B) of s. 143. (2) In computing the undisclosed income of the block period, the provisions of ss. 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to 'financial year' in those sections shall be construed as references to the relevant previous year falling in the block period including the pr....
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....ndation of the proceedings. That being so, the correctness or otherwise of the returns filed in pursuance of the notice under s. 158BC(a) has to be examined with reference to the material in the possession of the assessing authority having nexus to assessment of 'undisclosed income' which is with the assessing authority, and premise of such proceedings. If the returns filed by the assessee do not accord with the materials which are already in the possession of the authority, it can be estimated to the best judgment by the assessing authority on the basis of the material in his possession. However, the assessing authority is not conferred with power to make estimation of income de hors the material in his possession, while making regular assessment order under s. 158BB. It has to be borne in mind that proceedings under ss. 158BB and 158BC are that of undisclosed income. Therefore, the proceeding carries with it a presumption that returns filed in pursuance of such proceedings are of undisclosed income and not necessarily in accordance with the books of accounts. Its verification has to be searched outside regular books with reference to material that has been found during se....
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....apter the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995 be assessed separately as income of that block of ten previous years. The provision was introduced to streamline the procedure concerning the search matters. It is abundantly clear from the perusal of the prescription of s. 158BA that within the pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income. Such undisclosed income must come as a result of search. This section does not provide a licence to the Revenue for making roving enquiries connected with the completed assessment. It is beyond the power of the AO to review the assessments completed unless some direct evidence comes to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. Without such evidence or material the AO is not empowered to draw any presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is rule of law under which Courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such inferenc....
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....ed 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 compute true undisclosed income and the AO determined a different undisclosed income than the one returned by the assessee, the assessee will be exposed to penalty, (iii) if the assessee failed to file the return within the time-limit provided in the notice issued under s. 158BC, an interest under s. 158BFA(1) would be imposed upon the assessee. In the present case such interest has been imposed upon the assessee of more than ₹ 4 crores per month, (iv) s. 158BE provides the limitation for passing an assessment order under s. 158BC or 158BD. The limitation has to be counted from the execution of the last authorized warrant of search. If a notice under s. 158BC is issued during the pendency of search and assessment proceedings begin the Department would execute such warrant of search according to the will and that can enhance the limitation for passing an assessment order. It can be seen from the present assessment that notice under s. 158BC was issued on 18th May, 2001, search was concluded in the first week of June and the AO got the enhance....
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.... 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. The assessee wrote a letter to the AO on 28th Sept., 1998, denied the receipt of notice dt. 6th July, 1998, however, sought extension of time and ultimately filed his return for the block period on 2nd Nov., 1998. The AO passed the block assessment on 30th June, 2000 and the learned CIT(A) decided the appeal of the assessee on 28th July, 2000. The further appeal of the assessee to the Tribunal was also decided on 28th July, 2003. 22. The contention of the assessee before the High Court was that valid service of legal and valid notice under s. 158BC is a condition precedent for assumption of jurisdiction to assess the return for block period. The issue and service of notice under s. 158BC is not a procedural requirement. It was submitted that the provisions of ss. 148 and 158BC are synonymous and pari materia. Thus according to assessee the AO has no jurisdiction to assume jurisdiction on an invalid notice. In the above background of facts Hon'ble High Court has considered the issue and observed that jurisdiction to an AO bestowed from the init....
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....Hon'ble High Court has considered it as procedural irregularity only. Thus respectfully following the decision of the Hon'ble High Court we hold that it is procedural irregularity and not fatal to the assessment order. However, in view of the above discussion we direct the AO not to levy interest upon the assessee under s. 158BFA(1). In the result, in principle we reject the first additional ground raised by the assessee but subject to the direction that AO shall not charge interest under s. 158BFA(1). As far as the second additional ground is concerned the assessment order has been framed within a period of two years from the end of the month in which last warrant of authorization has been executed. The learned counsel for the assessee at the time of hearing on the strength of Hon'ble High Court decision in the case of CIT vs. Mrs. Sandhya P. Naik (2002) 178 CTR (Bom) 448: (2002) 253 ITR 534(Bom) has submitted that the Department has unnecessarily put the prohibitory orders. It could have recovered everything on 23rd and 24th of March, 2001, but only with a view to gain time Department did not choose to seize the documents and put prohibitory orders. This prohibitory o....
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.... (2005) 95 ITD 489(Del)(SB) has held that the Tribunal cannot consider and decide the issue relating to validity of search. The Tribunal has also observed that there is no provision for filing an appeal before the Tribunal against warrant of authorization issued under s. 132(1) of the Act. It further laid down even impliedly while considering the issue, on merit Tribunal cannot go into the issue whether search was initiated by the authorized officer after satisfying himself with the circumstances which can goad him for initiation of the search proceedings. Thus, in view of the Tribunal's order this preliminary ground is rejected. Ground No. 1B 26. In this preliminary ground of appeal the assessee has pleaded that assessment is time barred. This ground is interlinked with the additional ground of appeal No. 2 raised by the assessee. Hence, in view of our decision on that additional ground of appeal this ground is rejected. Ground No. 1C 27. In this ground of appeal the assessee has pleaded that learned CIT(A) has erred in upholding that AO was justified in passing the order under s. 144 r/w s. 158BC. 28. The learned counsel for the assessee while impugning the order of le....
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.... be considered at the relevant point of time while deciding the particular issue. From the list of events appended by the assessee we found that almost more than 40 notices/letters were issued by the AO starting from 17th May, 2002 upto passing of the assessment order. Therefore, in a way opportunity of hearing was granted to the assessee. On a particular issue how much effective such opportunity was, we would consider while dealing that issue. 31. Ground No. 1E : In this ground of appeal the assessee has submitted that addition in the block assessment can only be made on the basis of the evidence found during course of search and on information available or relatable to such evidence i.e. found in the course of search. The assessee has expounded the meaning of undisclosed income and scope of the block assessment. 32. Though we have already noticed the scope of block assessment while dealing with the additional ground of appeal raised by the assessee. In support of this ground the assessee has relied upon certain more judgments such as CIT vs. Shamlal Balram Gurbani (2001) 168 CTR (Bom) 506: (2001) 249 ITR 501(Bom), Rainbow Distillers (P) Ltd. vs. Dy. CIT (2000) 69 TTJ (Nag) 713:....
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.... 34. Ground No. 1G : In this ground of appeal assessee has submitted that learned CIT(A) has passed the order without application of mind. In our opinion it is a general ground of appeal, which requires no specific finding because while evaluating the particular addition we are going to consider whether it is sustainable or not and how learned CIT(A) has upheld the addition. 35. Ground No. 1H : In this ground of appeal assessee has pleaded that learned CIT(A) has erred in placing undue reliance on the allegation that there was no compliance by the assessee to the special audit proceedings under s. 142(2A) of the Act. 36. The learned counsel for the assessee while impugning the order of learned CIT(A) has submitted that entire proceedings under s. 142(2A) are fraught, hence it should be ignored as nullity in the eyes of law. On the strength of Hon'ble Supreme Court decision in the case of Rajesh Kumar vs. Dy. CIT (2006) 206 CTR (SC) 175: (2006) 287 ITR 91(SC), he submitted that before initiating proceedings under s. 142(2A) an opportunity of hearing to the assessee is mandatory. This opportunity has not been given to the assessee, hence, no cognizance of this special audit re....
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....the assessee in the rebuttal submitted that the decision in the case of Rajesh Kumar (supra) still holds field. It has not been overruled, hence, it is binding on all subordinate authorities. By merely a reference being made or constitution of Larger Bench does not amount that earlier position has lost its value of being binding precedent. 37. We have duly considered the rival contentions and gone through the record carefully. There is no dispute that special auditor was appointed without providing opportunity of hearing to the assessee. In view of the Hon'ble Supreme Court decision in the case of Rajesh Kumar (supra) such auditor can only be appointed after providing opportunity of hearing to the assessee. As far as contention of learned counsel for the Revenue is concerned it is true that in subsequent order the Hon'ble Supreme Court has made a reference for constitution of Larger Bench but we are of the view that unless this issue is being considered by the Larger Bench and the decision rendered in the case of Rajesh Kumar (supra) is overruled, the ratio of law laid down in the case of Rajesh Kumar (supra) has the value of binding precedent upon us. Therefore, the repor....
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....he auditor to express opinion whether the financial statements are prepared in all material respects in accordance with the identified financial reporting frame or other criteria. The work 'audit' does not refer to preparation and compilation of books of account. (viii) In case the reference made by the AO for special audit is without proper jurisdiction and bad in law, the assessment so made cannot be said to be within time by resorting to the special audit procedures." In view of the above discussion we are of the opinion that special audit report cannot be used against the assessee and no adverse inference can be drawn on the ground that the assessee failed to co-operate with the auditor. 39. We now take the ground of appeal challenging the specific additions. The first ground of appeal is 'A'. In this ground of appeal assessee has taken three sub-grounds i.e. A-1, A-2 and A-3. In A-1 the prayer made by the assessee is general, wherein it is challenging the confirmation of the addition of ₹ 3,70,99,14,512. Since we are going to take up break up of this total amount in the other grounds of appeal, therefore, this ground is being treated as general gr....
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....46,775 Payment Arch 1,13,50,000.00 Arch FGS 1,13,50,000 Arch FGS 36,034 Tele Fin. FGS 10,00,000 Bal 46,89,375.81 3,77,92, 972.81 3,77,92,972.81 M.P 1,50,00,000 Pushma 31 /3 41,70,788 The reverse side of p. 50 contains : Ashok Profit Bajrang 77,02,081.75 NITS 22,57,182.12 Friends 32,62,824.84 Sunbeam Y2K 10,15,000.00 Total 4,43,31,824.81 Sahara 1,48,20,356.93 7,33,89,270.42 While explaining contents of the backside of the p. 50 Shri Neeraj Khanna, chartered accountant, Chief Finance Officer of M/s FGSBPL stated in reply to question No. 8 vide his statement dt. 23rd March, 2001 as under : "Question No. 8'I am showing pp. 50, 54 and 117 of Annex. A-1, kindly go through the contents and explain. Ans : "Backside of the p. 50 has details of certain adjustments in profit made in M/s FGSBPL. These adjustments are by way of transferring of profit of M/s FGSBPL into certain outside concerns like M/s Bajrang Plywood Ltd., M/s NITS Infotech, M/s Friends, M/s Sunbeam Y2K etc. The total quantum of such transactions by which profits have been passed on to these entities is to the tune of ₹ 1,42,37,088. Moreover, there is more such concern by....
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.... letter dt. 14th May, 2001 which is placed on record. This also confirms the statement of Shri Neeraj Khanna, Chief Executive Officer of First Global, who has stated having transferred profits and received back the same amount in cash in response to Q. Nos. 8, 12 and 13 in his statement on the date of search i.e., 23rd March, 2001. The notebooks found and seized at the office premises of Shree Bajrang Ispat & Plywood (P) Ltd. at Mumbai office which are maintained by Shri Atul Chitalia, are written in his own handwriting. This cash bock is relating to the period from April 2000 to March 2001. Mr. Atul Chitalia on the day of search at the office premises of Shree Bajrang Ispat & Plywood (P) Ltd. at Ghatkopar (East), Mumbai had deposed in his statement dt. 2nd May, 2001 that the company is in manufacture and sale of plywood having head office at New Timber Market, Fafirdit, Raipur, Madhya Pradesh, having registered office at A-24/25, Satyam Commercial Complex, Ghatkopar (East) and factory at House No. 12-1-23, Maharani Petha, Apsara Road, Vishakapatnam. He said that no books of account of the company except a bank account No. S-598 in Dena Bank, Ghatkopar branch is maintained at thi....
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....2000 25 5,000-00 First Global Cheque 22.9.2000 25 5,000-00 First Global Cheque 25.9.2000 27 5,000-00 First Global Cheque 25.9.2000 22 20-81 First Global Cheque 25.9.2000 77,02,081.75 He clarified that a total amount of ₹ 77, 02,081 on the dates mentioned above was paid in cash to the representatives of First Global Stock Broking (P) Ltd., against receipt of cheque. This was done as per the direction of the directors. He was to get confirmation over phone but no acknowledgment of receipt was received from FGSBPL. When asked about the source of such cash payment made to the FGSBPL he said that he used to give the cash from the day to day cash collection and money received from different parties. He stated that the cheques so received from FGSBPL are deposited in Dena Bank and proceeds of the same are sent to Raipur by way of demand drafts. He once again clarified the entries written by him in the notebooks ( marked as A-1 and A-2 ) as the amount written in the notebook is to be multiplied by 100 to arrive at the actual amount e.g. ₹ 4 lacs is written as 4000=00. The mechanism employed by FGSBPL (broker) for transferring the profit is briefly discussed b....
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....anism employed by the broker for transferring profits : Similar to the nature of transactions as explained in the case M/s Shree Bajrang Ispat & Plywood (P) Ltd., the broker has altered existing entries in the books by merely changing the name of the client. On verification of stock exchange records i.e. daily list of transactions, it was found that the particular transactions originally have taken place in the stock exchange under the client code 3000. Later on, the broker changed the name of the client to Sahara India Financial Corporation Ltd. in his books . Further, all the transactions are squared up i.e there was no actual giving and taking delivery of shares, and transactions are settled only by payment of difference. Thus, the assessee initially conducts transactions in the stock exchange on its own behalf profit and subsequently these transactions are shown to have taken place on behalf of his client, SIFCL. The net effect is that the profit which has genuinely been earned by the assessee on certain transactions is subsequently transferred to SIFCL. It was also observed that the client code is left blank in certain cases in spite of regulatory authority, SEBI's direct....
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....sh through one Mr. Ashok as per statement of Shri Neeraj Khanna dt. 23rd March, 2001. Further, while explaining entries appearing on page Nos. 2 and 3 of A/5 Shri Neeraj Khanna has clarified the method of writing figures in the notepad in detail in answer to question No. 13 in his statement dt. 23rd March, 2001 that the figures are written in lakhs. For example ₹ 10 lakhs is written as 10.00. Further he clarified that the first column (in page No. 2 of Annex. A/5) indicates the date of receipt. The second column denotes the name of the party to whom cheque has been issued. The third column indicates the amount of cheque in lakhs and the fourth column indicates the cash received out of the said cheque after deducting the commission/discounting charges. In this case the entries on page No. 2 of A/5 seized material are mentioned as under : -1- -2- -3- -4- 3.2.2001 Sahara 10.00 9.625 6.2.2001 Sahara 10.00 9.625 14.2.2001 Sahara 20.00 19.250 26.2.2001 Sahara 20.00 19.250 7.3.2001 Sahara 20.00 19.250 From the instant explanation offered by Shri Neerej Khanna, Chief Executive Officer in respect of the above entries on the day of search, it is very clear tha....
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....L and SIFCL, the same mechanism of transferring of profits is being adopted by the broker and in this case too. The NSL has done share transactions with M/s FGSBPL during the period 1st April, 1999 to 31st March, 2000. During the course of investigation, it was found that FGSBPL has transferred a profit of ₹ 22,57,182 to NSL. And the said amount was shown as outstanding payable to the client as on 31st March, 2000 in the books of M/s FGSBPL. On verification of the transactions, it was found that these transactions have not resulted in any delivery of shares and all the transactions are squared up transactions in the same settlement. The fictitious entries are made by altering existing entries in the books by merely changing the name of the client. In some transactions the client code was left blank. Thus, the assessee initially conducts transactions in the stock exchange earning profit and subsequently these transactions are shown to have taken place on behalf of his client, NSL. The net effect is that the profit which has genuinely been earned by the assessee on certain transactions is subsequently transferred to NSL. The client code is left blank in certain cases in spite o....
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....of the broker. Further, 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 Friends Portfolio (P) Ltd. (FPPL) : Friends 20,00,000 (refer p. 11 of Annex. A/5) 21-2-2001 7,63,000 (refer p. 9 of Annex. A/5) 12-1-2001 5,00,000 (refer p. 9 of Annex. A/5) Total 32,63,000 On verification of ledger account of M/s FPPL in the books of FGSBPL the assessee had made payments in the financial year 2000-01, on 26th July, 2000, 28th July, 2000, 12th Jan., 2001 and 20th Jan., 2001 for ₹ 10,00,000, ₹ 10,00,000, ₹ 5,00,000 and ₹ 7,64,000 respectively. While explaining the contents of the seized material, Shri Neeraj Khanna, CFO has explained in detail on the day of search in reply to the question Nos. 8,12, and 13 stating an equivalent amount of cheque given by FGSBPL has been received in cash which was used for various purposes as mentioned on page Nos. 8 and 10 of Annex. A/5. It clearly establishes the transactions are fictitious and collusive, done with a motive to evade tax. The assessee has neither proved the genuineness of the....
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....age No. 50 of Annex. A-1 as under : (a) Shree Bajrang Ispat & Plywood (P) Ltd. 77,02,081 (b) Sahara(Pages 7 and 9, Annex. A-6, ground floor) (Rs. 66,53,894 is outstanding payable FGSBPL) 1,48,20,356 (c) NSL 22,57,182 (d) Friends 32,62,825 (e) Sunbeam Y2K 10,15,000 Total 2,90,57,444 Other entities on this page are as under : (I) Fortis ( Virta Trade) 2,56,20,480 (II) Arch Finance (Virta Trade) 98,03,225 (III) Fortis (Devina Mehra) 89,08,120 Out of the above, (a) item No. (I) Fortis (Virta Trade) ₹ 2,56,20,480 will be considered in Virta Trade & Agencies therefore, the same is excluded here. (b) item No. (II) Arch Finance ₹ 98,03,225 will be considered in Virta Trade & Agencies therefore, the same is excluded here. (c) item No. (III) Fortis (Virta Trade) ₹ 89,08,120 has already been added in Devina Mehra therefore, the same is excluded here." 16.2 In this context, the learned Authorised Representative on behalf of the appellant filed submission vide page Nos. 13 to 22 of letter dt. 13th Nov., 2003. The gist is as under : "(i) The seized papers having page Nos. 50 and 54 are handwritten pages written by the part time consult....
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....d totalled together. What was the logic behind writing in this manner ? The answer is very simple. The person writing these figures was the part time consultant of the group. He was scrutinizing the accounts with a view to get an idea of the movement of funds of the group. He was not concentrating on the normal payins or payouts, which are usually done immediately. He was basically trying to assess that the payments that were to be made out of the payout, if not made immediately would have got absorbed elsewhere and consequently the appellant would need to plan out the flow of these funds. Secondly, the losses incurred by the group in share trading through other share brokers was again a burden on the normal fund flow and hence needed to be planned. Therefore as one would see, all these figures were outflows for the group, which needed to be planned and provided. Some of them in fact would have been paid by the time the document was made. However this was an exercise in fund flow and not necessarily cash flow. Fund flow as the name suggests, considers the sources and uses and differs from cash flow, which necessarily concentrates only the actual movement of bank or cash funds. So a....
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....ques totalling ₹ 77,02,081 from the appellant on various dates. So he confirms the factum of the transaction. Then he says that Mr. Atul Chitalia has confirmed giving cash to First Global Stockbroking (P) Ltd. on the instruction of the directors, Mr. Anand Goel and other directors. Mr. Atul Chitalia has specifically stated in his statement that he had no knowledge of the transaction. His statement is totally vague and he has not even identified the person to whom he has allegedly handed over the cash. He states "the above-referred payments totalling to ₹ 77,02,081.75 has been paid in cash by me to First Global or to their representative." It is quite strange to note that such a big amount of cash has allegedly been handled by a person who is not even an employee and has allegedly handed over cash to an unknown person. Moreover, the documentary evidence given in the assessment order, nowhere points to any cash having been given by Bajrang Ispat to First Global Stockbroking (P) Ltd., the appellant. (iii) After having examined Mr. Atul Chitalia on oath, the directors of the company Bajrang Ispat & Plywood (P) Ltd. were also examined on oath. These statements hav....
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....d in the financial year 1999-2000 or till the end of October, 2000, it was not necessary to mention a client code while executing a trade. That was precisely the reason that the dealers at the broker level used to treat this fact casually and use to either leave this column blank or mention any other frequently used code, in order to save time if at the time of trading they were not sure of the client code of the actual client, as hundreds of trades are normally done each day. This was customary in all the brokerage firms at that point in time till October, 2000. This being the case, no reliance can be placed on the client code mentioned by the broker in the trading terminal. (viii) On the other hand, the directors of the company having accepted the contracts, bills and the payments and having given confirmation of the copy of account, have confirmed the entire transaction. The IT Department had deliberately not confronted them on this issue, as they would have very much confirmed the transaction as being genuine, as they had confirmed the same to the appellant in the month of April, 2001. The appellant repeatedly asked the learned AO that as per settled law, if he intended to dis....
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....r. Neeraj Khanna. In this regard, we wish to submit that the learned AO has separately dealt with and added Annex. A/5 and Annex. A/6 as undisclosed income on pp. 214 to 220. Therefore, we will deal with the same while dealing with those additions. (vi) Here we wish to state that no reliance can be placed on the statement of Mr. Neeraj Khanna for the reasons stated in our submissions earlier. SIFCL has confirmed the factum of transaction as well as the receipt of the cheques for the same. The details mentioned in pp. 7 and 9 of Annex. A/6 are details of cheques given to SIFCL, which are tallying with the details of cheques given in the upper para of p. 191 of the assessment order. (vii) As stated earlier, the Annexs. A/5 and A/6 will be dealt with separately. However, for the moment, we can say that these appear to be rough jottings written in the handwriting of Mr. Neeraj Khanna and appear to have some rough jottings for some fund flow exercise and appear to contain details of some cheque receipts or cheque payments. We deny that it is in anyway a record of cash receipt or cash payment. Explanation of each and every rough jotting mentioned above, will be given while dealing with....
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....client. (iii) More than 85 per cent of the transactions on the stock exchanges do not result in delivery as these are squared up transactions duly permitted as per rules and regulations laid down by the regulator SEBI and the stock exchanges. This aspect has been discussed in detail under the addition related to SIFCL. (iv) As already stated, no reliance can be placed on the statement of Mr. Neeraj Khanna for the reasons above stated. Annexures A/5 and A/6 are rough jottings in the handwriting of Mr. Neeraj Khanna and appear to have some rough jottings for some fund flow exercise and appear to contain details of some cheque receipts or cheque payments. We deny that it is in anyway a record of cash receipt or cash payment. Explanation of each and every rough jotting mentioned above will be given while dealing with those Annexures separately. (v) The appellant had submitted the details of bills, contracts, copy of account confirmation and client agreement to Dy. Director of IT (Inv.), Unit IX (3) on 19th April, 2001. We are enclosing herewith a copy of the same for your reference. (vi) In any case the learned AO has himself stated in the order that the transactions are duly recor....
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....ce. (iii) 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 party has been provided to the appellant. There is no corroborative evidence on record to show that the appellant at any point had received cash. (iv) On the basis of law and the facts and circumstances of the case, the above addition may kindly be set aside or deleted. e. Sunbeam Infotech Ltd. (SIL) : (i) The learned AO has, in the assessment order himself confirmed that an amount of ₹ 10,15,000 was debited to P&L a/c of the appellant. The learned AO has verified that the bills of ₹ 9,75,000 and ₹ 40,000 were raised by Sunbeam Infotech Ltd. on 30th Sept., 1999 and 30th March, 2000 and that the payment was duly received by the party. Therefore, he has confirmed and verified everything....
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....y the seized document Nos. 50 and 54 and further supported by survey action and evidence gathered during post-search investigation. It is further seen that Mr. Neeraj Khanna, the CFO of the company accepted the fact that the appellant is indulged in the transactions of selling its profit and purchasing the losses to evade the taxes and to generate the concealed income. The statement of Mr. Neeraj Khanna has been dealt with in detail in the earlier part of the appellate order. It is also noticed that the Annexs. A-5 and A-6 which were written by Mr. Neeraj Khanna were also seized during search operation which represent the entries of "cash" as against the impugned transactions of sale of profit and inflated expenses. Mr. Neeraj Khanna admitted the entries in those documents regarding sale of profit and inflated expenditure. It is unfortunate that the appellant is not ready to accept even the most apparent and glaring facts and omissions on its part and unnecessary keeps on dragging the issue, for which it has no case at all. The seized paper Nos. 50 and 54 are absolutely clear in these terms that the jottings/notings therein represent the cash entries of the appellant. Th....
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....is ground of appeal is dismissed." Before us learned counsel for the assessee reiterated his arguments and pointed out that basically addition has been confirmed on the basis of the statement of Mr. Neeraj Khanna, alleged Chief Financial Officer recorded at the time of search, coupled with the statement of Mr. Atul Chitalia, person in charge of M/s Bajrang Ispat & Plywood Ltd. He also pointed out that learned first appellate authority has made a reference of Annexs. A-5 and A-6. i.e. Mayur Spiral Pad found at the time of search, wherein certain notings had been made by Mr. Neeraj Khanna. 41. The learned counsel for the assessee in brief submitted that all these entries were duly reflected in the books of accounts of the assessee cannot be subject-matter of the block assessment. The entries were for the period when it was not mandatory to mention the client codes, therefore, the AO has erred in inferring that client code was not reflecting and in a way assessee used to initially conduct transaction in stock exchange on its own account, earned profit and subsequently these transactions are shown to have been taken place on behalf of the client. The learned counsel for the asse....
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....ount, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian IT Act, 1922 (11 of 1922), or under this Act. 132(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed' (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested." 44. Let u....
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.... these documents. In that case Mr. Neeraj Khanna is a third person. The evidence given by him may be a good factor for probing the issue further and can be a corroborative piece of evidence, but solely on the basis of this statement, addition in the hands of assessee cannot be made, more so, the statement of Mr. Neeraj Khanna was not a voluntary statement. It is to be seen in the context it was taken. The assessee is a major shareholder of M/s Tehalka dot com, who had carried out sting operation that led to the resignation of the Defense Minister at that point of time. According to the assessee the instructions were from the higher ups. We may not concur with this submission of the assessee because there is no material to substantiate but we cannot lose sight to conceive the circumstances developed in our surroundings and available in the society. Mr. Neeraj Khanna while retracting his statement submitted that he was not allowed to take rest for a continuous period of 30 hours. A large number of documents were found and seized. These are loose papers. It is practically impossible for a person to give specific reply at a given point of time without consulting the details. More so, w....
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....ement, then it will reveal that such statement was not voluntary disclosure. He highlighted that directors were not available. He was kept under a continuous investigation for more than 30 hours. The moment the directors reached they were arrested on 19th April, 2001 on criminal complaint filed by the Department. He further prayed that his further statement should be taken in the company of his advocate. These circumstances and the background under which such circumstances have developed do indicate that his statement was not a free and voluntary one. Thus in view of the above discussion, in our opinion learned Revenue authorities below have erred in placing their implicit reliance on the statement of Mr. Neeraj Khanna. 46. The next circumstance pointed out by the learned AO for making this addition is that on enquiry from the stock exchange it revealed that the purchases and sales did not result into delivery. The assessee has pointed out that it is in the business of share trading. Most of its transactions were squared up transactions. On the strength of the data regarding delivery pattern in stock exchange, downloaded from the all India Stock Exchange the assessee pointed out t....
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....Plywood. The AO gave a reference to the diary, that is found from Bajrang Ispat & Plywood. Nowhere in this diary specifically written that cash has been returned and handed over to a particular person of the assessee. Thus the AO as well as learned CIT(A) have failed to appreciate the true inference flowing from the evidence gathered from M/s Bajrang Ispat & Plywood. 49. There is one more dimension. Some evidence was found in respect of M/s Bajrang Ispat & Plywood, that very evidence has been applied in respect of all other transactions. No doubt the provisions of Evidence Act are not strictly applicable in the income-tax proceedings but one has to consider which provisions are not applicable. The strict mode of proof required under the Evidence Act is not applicable in the income-tax proceedings. For example if somebody produced a sale deed, the vendor, vendee or the witness of the sale deed are need not to be produced before the authorities. It is not mandatory to record their statement for proving the fact that this sale deed was executed. Similarly if somebody produces a will it is not necessary to produce the witness for attesting or proving the signature of the attester. The....
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.... the impugned order and which reads as under : "During the time of search, the back up of computer data was taken on CDs from the premises of the assessee. Among other things, the analysis of the data revealed that the assessee M/s First Global Stock Broking (P) Ltd. had passed certain entries in its accounts and shown the sale of 1,42,525 shares of HFCL on 10th March, 2000 to its sister concern M/s First Global Finance (P) Ltd @ ₹ 1,060 per share when the market price of these shares during that period was around ₹ 2,000. M/s First Global Finance (P) Ltd had in turn, sold these shares in the market on 1st April, 2000, 4th April, 2000 and 11th April, 2000 when the sale prices of these shares were ₹ 2,029, ₹ 1,914 and ₹ 1,349 respectively. Thus, in this transaction M/s First Global Finance (P) Ltd. earned a profit of ₹ 12,34,04,659. The source of this information is the printout from these CDs whose copies are annexed as Annex. B. Prima facie the whole transaction between the assessee and its sister concern appeared to be stage managed. In the month of April, 2000, the audit of the books of accounts of the assessee for asst. yr. 2000-01 was....
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....resentative relied upon the orders of the Revenue authorities below. 55. We have duly considered the rival contentions and gone through the record carefully. According to the assessee shares of HFCL numbering 1,42,525 were allotted in the private placement by M/s HFCL. These shares were duly reflected in the books of accounts of the assessee. We find from the record that shares were shown in stock as on 31st March, 2000 by the subsidiary company, thus, the shares could only be sold by the subsidiary company and not by the assessee. The profit could be taxed only in the hands of the subsidiary company which has actually been done because the subsidiary company has shown all these transactions in the books of accounts and disclosed the profit on sale of these shares in the regular return. The learned AO as well as the learned CIT(A) has added this amount in the income of the assessee only on the ground that assessee should have earned this profit. They have not disbelieved the transaction itself, nor they found that these transactions are false. In our opinion the learned CIT(A) has wrongly appreciated the scope of block assessment and has wrongly observed that simply because transa....
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....ly concluded that assessee has sold 9,25,750 shares. He took the average price of HFCL shares at the relevant time at ₹ 2,100 per share, multiplied this to the total number of shares sold by the assessee and then gave credit of the sale price i.e. ₹ 1,060 per share alleged to have been received by the assessee and shown in the books. He worked out the difference of sale price at ₹ 96,27,80,000 and made the addition. The AO has discussed this issue at pp. 197 to 207 of the assessment order. The finding of the AO has been reproduced by learned CIT(A) at p. 120 in para 18, the relevant finding of the AO reads as under : "___It is noticed that you had purchased certain shares of HFCL from your group concerns and sold these to various FIIs, friends and staff members on 3rd March, 2000 @ ₹ 1,060 whereas the prevalent market rate on that day was between ₹ 2,100 to ₹ 2,211. These shares were initially allotted to your group concern by way of private placement by the company (HFCL) itself and this fact was confirmed by M/s HFCL during the course of post-search enquiry vide their letter dt. 27th April, 2001. (The relevant pages are enclosed herewith ....
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....9,25,750 shares of HFCL would be ₹ 96.27 crores by taking at lowest rate of ₹ 2,100 prevalent on the date of sale i.e. 3rd March, 2000. These transactions have been confirmed by you vide your letter dt. 14th May, 2001 addressed to Dy. Director of IT (Inv.)-IX(3), Mumbai. Since the assessee was totally non-co-operative with the IT Department, the undersigned is left with no alternative but to rely upon the information gathered from the Enforcement Directorate, FERA Memorandum No. T-4/143/SDE/AKB/B/2002 (SCN) dt. 31st May, 2002 issued by Special Director, Enforcement Directorate, Janmabhoomi Chambers, 1st Floor, W.H. Marg, Mumbai revealed as under : As per provisions of ss. 13 and 18 of the Securities Contract (Regulation) Act read with relevant laws and bye laws of Bombay Stock Exchange, the transactions that can take place outside the stock exchange are only 'SPOT' transactions. The assessee has not furnished the broker note and corresponding bills or any evidences for 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 wer....
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....d in the assessment order itself. (ii) As has been explained by us above, while dealing with the seventh ground of appeal that when the transactions are recorded and reflected in the books of accounts and the return of income filed before the date of search, the same can't be dealt with in the block assessment proceedings and can only be dealt with in the regular assessment for that particular year. (iii) Without prejudice to the above, the learned AO failed to appreciate that the addition of ₹ 96,27,80,000 shall amount to addition on account of notional income. Nowhere has the learned AO placed any material on record to show that the appellant has received this amount of ₹ 96.27 crores. Therefore, the addition made without establishing that the appellant had received ₹ 96,27,80,000 over and above the sale consideration of ₹ 98,12,95,000 on sale of 9,25,750 shares of HFCL, which is already recorded in the regular books of accounts shall amount to taxing the income that could have been earned and not which has been earned. Hence, the addition of ₹ 96,27,80,000 is not at all justified and the same may be deleted. (iv) Without prejudice to the abov....
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....ted, in the normal course of their business, by their custodians. (ix) As can be seen, all these FIIs come from US and UK and these FIIs as mentioned by tax authorities are full tax paying FIIs, in India, unlike ones from tax havens like Mauritius etc. FIIs such as Putnam, GMO, AIM-Invesco are some of the largest fund managers in America and the UK. They manage $100-400 billion each, and are household names. (x) All the transactions that these FIIs have entered into, are reflected in their tax returns in India, as well as in their transaction records with global custodians. A full legal, audit, tax and compliance trail exists for these transactions. (xi) In any event, the shares purchased by the FIIs, as also all other 70 lac shares allotted in the private placement, were all unlisted at the time of the said transaction. These could not be traded on the stock exchanges and were not fungible with the listed HFCL shares trading on the stock exchanges. Therefore, the question of a 'below market 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....
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.... entire transaction once again and had even filed FII confirmation giving full trail of the transaction including its price, quantity, value etc. and also the fact that those FIIs and had reflected the said transaction in their returns filed with the IT Department. (xvi) On p. 202 of the order, the learned AO had referred to the RBI letter dt. 11th Dec., 2001. The letter clearly states that the permission if any is to be taken by the FIIs. The appellant as a broker is not required to take any permission. Moreover, the learned AO has suppressed RBI letter dt. 10th Dec., 2001 that states "Further, in terms of para 1(5) of Sch. 2 of FEMA 2000, a registered FII is also permitted to purchase shares and convertible debentures of an Indian company through private placement/arrangement, subject to the ceilings specified." However, this issue is not relevant from income-tax assessment point of view and has been discussed here by us to counter the misleading averments of the learned AO. (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....
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....nd regulation of Securities Contract Regulation Act will apply. However, we submit that the above contracts are outside the purview of s. 13 of the Securities Contracts (Regulation) Act, 1956, and need not be a spot transaction, inasmuch as the trades were through or with a member of a recognised stock exchange. Legislature has advisedly not placed a requirement of trading on a stock exchange (as misinterpreted by the AO) but only a requirement that the trade, whether on or off market, must be between members of recognised stock exchanges, or through or with a member. It permits a trade through or with a member, on both counts the transactions being totally legal, it being admitted by the AO that FGSBPL was a broker. The entire basis of the disallowance on this account was wrong and illegal on the face of it. (xxiv) In any event, an alleged breach of stock exchange bye-laws cannot result in an item of income being treated as undisclosed. (xxv) At the end of p. 206, the learned 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 al....
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....o the extent of ₹ 84,72,76,000. In the result, the appellant gets relief of ₹ 11,55,04,000." 58. We have duly considered the rival contentions. There is no dispute to the facts that all these shares were unlisted shares. The learned CIT(A) accepted this fact. It appears that the learned Revenue authorities have misconstrued and misinterpreted the transaction itself. The transaction deals with the purchase of unlisted new shares of HFCL issued on a private placement basis by HFCL. The foreign institution/investment companies can participate in this issue of private placement of equity shares on delivery vs. payment (DVP) basis. These FIIs are UK and USA based. Their dealing guidelines do not allow them to participate on non DVP transaction. Thus they entered into an MoU with the assessee to facilitate the transaction. According to those MoU these FIIs expressed their interest in getting allocation issue at the overall cut off price plus related 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 t....
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..... The additions based on seized documents having acceptable narration; but not explained during assessment proceedings as well as appellate proceedings. In the preceding para I decided the issue with reference to the seized dumb documents not having acceptable narration and not explained by the appellant during assessment proceedings. Here below I deal with the documents having acceptable narration, still not explained before AO as well as before me. With reference to such documents, the AO made the addition for the reason that those were not explained during assessment proceedings. During appellate proceedings, the learned Authorised Representative submitted that those papers appear to be having rough jottings of unknown origin and is in unknown handwriting. The learned Authorised Representative also argued that those are in the nature of dumb documents and has nothing to do with the appellant. Here again, I perused the entire seized material on the basis of which 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.....
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....,932 -do- 17 238 A-9/15 309 to 311 39,980 -do- 18 238 A-10/12 312 to 314 1,828,984 -do- 19 238 A-10/13 315 to 317 1,142,737 -do- 20 239 A-10/14 318 to 320 299,379 -do- 21 240 A-10/23 324 to 326 703,443 -do- 22 240 A-10/24 327 to 329 734,638 -do- 23 240 A-10/25 330 to 332 577,002 -do- 24 241 A-10/26 333 to 335 578,466 -do- 25 241 A-10/27 336 to 338 345,648 -do- 26 241 A-10/28 339 to 341 344,561 -do- 27 241 A-10/29 342 to 344 132,837 -do- 28 241 A-10/30 345 to 347 1,515,015 -do- 29 242 A-10/34 348 to 350 12,356 -do- 30 242 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 3....
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....as complete narration in absolute terms. Paper appears to be for some unexplained investment. Remained unexplained. 72 252 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 addi....
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....x. 1. Similarly a major addition of ₹ 8,51,00,000 has been made on the basis of rough jotting appearing at p. 13 of Annex. A9 and an addition of ₹ 8,89,00,000 appearing at p. 15 of Annex. A10. At serial No. 91 assessee is impugning an addition of ₹ 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 ₹ 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 ₹ 21,90,00,000 based on rough jotting appearing at p. 37 of Annex. A-1. Similarly an addition of ₹ 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 ₹ 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 e....
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....osed profit on sale of shares and added to the income of the asst. yr. 2001-02 (broken period) ₹ 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 institutional trades or trades of other members of stock exchan....
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....7; 5 crores and ₹ 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 ₹ 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 and as t....
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....377; 17,56,59,925 with the appellant. In the lower part of the said para, he has added an amount of ₹ 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 ₹ 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 ₹ 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....
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....g the particular 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 o....
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....ts and circumstances 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 ₹ 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....
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....he above. 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 ₹ 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 ₹ 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 ₹ 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 rea....
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....mount Rs. Lacs Explanations 5.00 5.00 This appears to be a loan of ₹ 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 ₹ 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 ₹ 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 ₹ 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. 8th March, 2001 Panchal 5.00 Amount as per pad Amount Rs. L....
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....r 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 ₹ 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 ₹ 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 the said payment is duly reflected in the books of the assessee. As regards your observation that these pages are pertaining to pad No. A/5 written and maintained by Mr. Neeraj Khanna, we wish to clarify that the pages relate to Annex. A/6 and that the rough p....
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....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 ₹ 22.221 lacs and further entries worth ₹ 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. 6 is calculated as under : 1. Sahara 0.75 2. Car payment 0.75 3. Garma 0.015 4. Garma 5.00 5. Entries in the name of Jhaveri, Hiren & Neerai 29.00 Total : 35.515 The assessment is enhanced by ₹ 35.515 lacs on account of the above seized document. 62.4 Now, I come to the seized document No. 7 of Annex. 'A-6'. The jottings on the documents are as under : Date Description Amount 1/3/2001 BAL 42.935 7/3 Sahara 20.00 13/3 Bang 5.00 16/3 Bang 4.00 19/3 Bang 20.00 Total 7....
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....e 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. Neeraj Khanna. He accepted that page No. 5 was already considered by the learned AO. He also accepted certain entries on p. 6 as explained. For the remaining figures jotted in the loose papers he confirmed addition of ₹ 35.51 lacs with reference to entries on p. 6 and ₹ 49 lacs with reference to entries on page No. 7. The total amount confirmed comes to ₹ 84.515 lacs. The learned CIT(A) further repeated the observation that the author of the pages was Mr. Neeraj Khanna and that he had admitted that the assessee had indulged in transactions of sale of profits, buying of losses and inflating expenses. The learned AO has considered all the sheets in....
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....annot 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 independent. The essence of special procedure for block assessment under Chapter XIV-B is to provide for an assessment of the undisclosed income detected as a result of the search without affecting the regular assessments made or to be made. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessment covering the previous years falling in the block period. Under the proceedings of Chapter XIV-B, the AO is not empowered to verify each and every transaction appearing in the regular books of account of the appellant. He can do so only if he has the relevant seized mate....
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....he 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 documents does not indicate anything with reference to undisclosed income. In view of all above, the impugned addition of ₹ 41,56,09,408 is deleted." On due consideration of this finding of learned CIT(A) we do not find any error in it, hence, this ground is rejected. 74. Ground No. 3 : The grievance of the Revenue in this ground is that learned CIT(A) has erred in deleting the addition of ₹ 18.75 crores. The learned CIT(A) has extracted the finding of AO recorded on p. 230 of the assessment order while making this addition. The finding of AO, submission of the assessee as well as the finding of the learned CIT(A) are appearing in para....
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.... 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 such findings. Otherwise also each and every credit in the bank account appearing in regular books of the appellant is not the subject-matter of Chapter XIV-B of the Act, as discussed elaborately while adjudicating ground Nos. 231 to 233. In view of the discussions held above, the impugned addition is deleted." On due consideration of above facts and circumstances we are of the view that the bank account has already been disclosed to the Department and the addition on account of entries appearing in this account cannot be made in the block assessment and learned CIT(A) has rightly appreciated the facts and circumstances, hence ....
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....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 below : Reached 71' Remaining In my opinion, it is a dumb document. I do not think that any person can explain such document with any certainty. It is an established law that any loose paper can be accepted as evidence under income-tax proceedings only if the document has acceptable and explainable narration. On close perusal of the document, it appears to be a rough paper, because the figures are not written in any symmetry. Some jottings are vertical and some jottings are horizontal. The AO was not justified in making additions on the basis of such dumb document. In view of the discussions held above, the impugned a....
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....le 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." On due consideration of the above finding it is clear that addition has not been made on the basis of some documents from where some logical inference can be drawn. The learned CIT(A) thus has rightly deleted the addition. 77. Ground No. 6 : In this ground the Revenue has pleaded that learned CIT(A) has erred in deleting the addition of ₹ 9,92,92,806 out of ₹ 11,27,92,806 by holding that such addition cannot be made for the purpose of Chapter XIV-B of the IT Act. 78. The brief facts of the case are that AO has made an addition of ₹ 11,27,92,806 on the ground that during the course of search certain details of remittance to one Calcutta party by way of a demand draft were found. Such remittances were made during the ....
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....₹ 50,68,455 is treated as undisclosed and added to the income of the asst. yr. 2001-02. (broken period) ₹ 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 is self-explanatory. We with a view to show through test check, that these brokerage amounts are appearing in the books of the appellant, have taken the amounts relating to the sub brokers of the appellant. The amount of brokerage shown in the statement is for the month to date and not for a particular day. As such p. 57 is reflecting brokerage upto 13th day of the month whereas p. 56 is reflecting brokerage upto 14th day of the month and p. 55 is reflecting brokerage upto 15th day of the month. Therefore p. 55 is showing cumulative brokerage figure upto 15 working day of the month and is inclusive of the brokerage given on p. 56 and p. 57. The daywise brokerage calculation of the three sub brokers is being enclosed herewith to sh....
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....independently and made the addition of ₹ 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 addition of ₹ 17,38,753 as indicated on seized page No. 55. The addition of ₹ 33,29,702 is deleted." 81. With the assistance of learned representatives we have gone through the record carefully. The learned CIT(A) confirmed the addition of ₹ 17,38,753 out of the total addition of ₹ 50,68,455. We have considered this issue while dealing with the assessee's ground of appeal i.e. ground No. 4B(i). At serial No. 30 of this ground the assessee in its appeal is impugning this addition of ₹ 17,38,753. This addition has been made on the basis of notings appearing at pp. 55 to 57 of Annex. A1. We have considered this issue and deleted the addition. Basically the addition was made on account of bro....