TaxTMI 
TaxTMI 
2004 (11) TMI 578
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.... into by a large number of assessees resulting into claim of 100 per cent depreciation allowance on leased assets. A notice under section 158BC was issued on 22-10-1996. In response, the assessee company filed on 21-1-1997 the return of income under section 158BC for the block period declaring 'nil' undisclosed income. The Assessing Officer, thereafter issued notices under section 143(2) on various dates calling for detailed information on a number of points. During the course of proceedings under section 158BC(b), the Assessing Officer also referred to the material gathered by the department as a result of searches and investigation otherwise from a large number of parties situated at various places. Thereafter, the Assessing Officer passed on 31-7-1997 an order under section 158BC(c) of the Act. In this order, the Assessing Officer did not compute any undisclosed income for assessment years 1987-88 to 1993-94. For the remaining part of the block period undisclosed income was determined on the ground that 14 lease transactions as detailed in para 4 of the impugned order alleged by the assessee were only on paper as a result of which the assessee had falsely claimed 100 per cent de....
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....f the assets as well as the lessee. After lease agreements, the assessee issued cheques favouring the supplier. The entire amount was transferred from the suppliers' accounts to the lessees' accounts on the same day. This was effected by issue of a cheque favouring the lessee by the supplier. The lessee in turn returned back the substantial portion of the purchase consideration which was about 85 per cent in most of the cases to the assessee and in some of the cases to a finance company belonging to the assessee group. The amount refunded by the lessee to the assessee or the finance company was given the colour or security deposit. In this manner, in a circular transaction the assessee got back substantial portion of the purchase consideration on the same date. The differential amount was in the nature of compensation which had to be paid for concluding the paper transaction to enable the assessee to avail the benefit of depreciation at the rate of 100 per cent of supposed cost of the assets. 4. In para 6 of the impugned order the learned Assessing Officer has enumerated, which according to him, are the salient features and important implications of the 14 lease transactions ent....
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....ging to the lessor with the sole purpose of closing the financial transaction on the very day on which the transactions have been entered into. Subsequent to the closure of these transactions, the bank accounts of the supplier/lessees have been closed or have become inoperative. (vi) It is noteworthy that subsequent to such bank operations, the lessees have no necessity whatsoever to pay any lease rentals to the lessor during the entire period of lease and it is so reflected in their books. This can seldom happen in a genuine lease transaction. (vii) Lease is a mode of finance. In a genuine lease transaction, the lessee pays a token deposit of 10-15 per cent of the cost of the assets to the lessor and during the period of lease pays periodic lease rentals. In the transactions entered into by the assessee company and the lessees and the difference of 15 per cent is only the cost of accommodation and it can by no stretch of imagination be called as a genuine lease transaction. (viii) In the structure enumerated above, there is a transfer of fund from supplier's account to the lessee's account. In the normal leases transaction it seldom occurs that supplier transfers the purc....
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....0,80,000. Thus, the total cost of assets leased to BVPL was claimed at Rs. 1,90,80,000. In support of these transactions the assessee relied upon a number of documents such as copies of lease agreements; copies of supplier's invoices; copy of memorandum of understanding in the case of lease of Steam Boilers; installation certificates from lessees; copies of Board resolution authorizing the lessees to enter into lease transactions; copies of Chartered Engineer's certificates/affidavits; particulars of relevant bank transactions etc. According to the learned Assessing Officer, the letters were sent by Speed Post to both the suppliers at the given address but they were returned unserved by the Postal Authorities. On a reference made to the Investigation Directorate at Hyderabad it was ascertained that no firm in the name of M/s. Thomson Heat Systems ever existed at the given address. It was also ascertained that no sales tax return had been filed by the party. Similarly on a reference made to Investigation Wing at Bangalore, of the three addresses given in the documents it was found that Applied Cryogenics Technological Services (the supplier) never existed at the address of Registere....
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.... stated that the company had purchased one Veeson make Steam Boiler from M/s. Batliboi & Co., way back in 1991. The Boiler formed part of Block of assets of BVPL and BVPL had been claiming depreciation and continued to do so as a part of the Block of assets. As to the reliance placed by the assessee on the affidavit of one Shri Chandrasekhar, Chartered Engineer, Shri Suryanarayan clarified that the photographs taken by him were of the Boilers which continued to be owned and possessed by BVPL from 1991-92 and there was no question of purchase of any Boiler from M/s. Thomson Heat Systems which did not exist. The learned Assessing Officer also examined the payment aspect and found that the amounts paid by the assessee by Account Payee cheques were not presented to the Bank and on the reverse of the cheque the sum had been endorsed in favour of the assessee company by way of security deposit. At the request of the assessee an opportunity was given to the assessee to cross examine Shri T.G. Suryanarayan, Director of BVPL. In this cross examination also, Shri Suryanarayan reiterated his stand that the assets stated to have been purchased from M/s. Thomson Heat Systems never existed and t....
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....e assessee that the assessee had himself carried out physical verification of the assets and instead reliance was merely placed on a certificate from a Chartered Engineer. As a matter of fact, the assessee never conducted the physical verification which is understandable because when the assets were not there, the need of physical verification did not arise. M/s. Sri Ramakrishna Steels Industries Ltd.: 7. The assessee claimed that it purchased 2100 High Pressure Seamless Gas Cylinders from M/s. Sri Penta Engineering Corporation (hereinafter referred to as SPEC), having office at 1171, Thottipalayam, Pirivu, R.K. Pudur, Coimbatore, vide invoice No. 7115, dated 25-2-1995 and to have leased these cylinders to M/s. Sri Ramakrishna Steels Industries Ltd. (hereinafter referred to as SRSIL) on 1-3-1995. According to the learned Assessing Officer on a reference made to the DDIT (Inv.), Coimbatore, The said DDIT (Inv.) sent report vide his letter dated 12-3-1997. As per this report, Shri S. Kanakaraj, Proprietor of SPEC in his statement recorded under section 131 on 7-8-1996 admitted that SPEC was a fictitious concern and all the bill books, delivery challans, letter heads etc. were p....
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.... executives of the aforesaid companies. He signed bogus bills and also signed blank cheques. 90 per cent of the amount credited to his account was transferred to the lessee companies i.e., SRSIL, MOAL and SROL. In his statement he admitted to have done similar work for 17 other companies and confirmed that there could be some more transactions of similar nature. Shri S. Kanakaraj submitted that the lessee companies through their executives had informed them that they were having the assets in question and they would issue sale bills as if the assets were sold to him. But they never issued any sale bills as promised. 7.1 According to the learned Assessing Officer, based on the information received from Income Tax authorities in Coimbatore, Shri S. Kanakaraj had issued the bills worth Rs. 42 crores which was obviously beyond the means of a very ordinary person of monthly income of Rs. 3000. Shri V. Gopalkrishnan, Director of SRSIL reiterated his statement in his letter dated 8-7-1997 addressed to ADIT, Coimbatore. During the course of proceedings under section 158BC the assessee was confronted with this material. The assessee was requested to depute a representative to be present ....
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....e learned Assessing Officer on full enquiries carried out by his office jointly with Investigation Directorate, Hyderabad, it was ascertained that the supplier M/s. Andhra Organics Corporation never existed at the given address. Shri G. Siva Prasad Reddy, M.D. of NPL in his statement recorded by ADI (Inv.), Hyderabad on 12-3-1997 submitted that NPL did not enter into lease transaction with the assessee company. During the course of proceedings under section 158BC the assessee was confronted with these findings. The assessee relied upon the elaborate documentation which included inspection certificates, invoices, Board resolution of lessees, no lien certificate and also on the payments having been made by Account Payee cheques. The assessee also relied upon the affidavit of one Mr. S. Chandrasekaran, Chartered Engineer. The learned Assessing Officer found that NPL was an IDBI assisted company and IDBI was on the Board of Directors of the said company. IDBI as per its letter dated 4-7-1997 confirmed that there was no meeting of Board of Directors on 3-12-1993 which proved that the purported Board resolution was fictitious. Similarly, NPL could not have given a no lien certificate wit....
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....course of proceedings under section 158BC, the assessee-company requested for an opportunity to cross examine the lessee company. This cross examination took place on 21-7-1997. In the cross examination the lessee reiterated its stand. Further on 19-3-1997, M/s. NPL addressed a letter to the assessee with copy to the Assessing Officer in which NPL confirmed that it had not entered into any lease transaction with the assessee-company. The learned Assessing Officer noted that the Memorandum of Understanding dated 18-9-1993 was being relied upon by the assessee-company. He further noted that as per MoU it was lessee who was required to place order on the supplier company and the assessee-company was supposed to reimburse all such payments. This MoU was not relevant because in the present case the assessee had submitted that it had made payment directly to the supplier of the assets. The learned Assessing Officer took note of the fact that in the books of NPL there was no transaction recorded to reflect the lease agreement. The lease rental had not been debited in the books and there was also no mention of the so called security deposit to the assessee-company. With these findings the ....
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....iramal replied that he heard that for the first time. He further stated that he was informed by Shri Mahesh Gupta that every leasing transaction was legal and was done with due diligence. He, therefore, continued to believe the same to be true. However, Shri Piramal agreed to have the transaction examined once again with expert opinion. Again on 2-8-1996 further facts were brought to the notice of Shri Mahesh Gupta. The statement of Krishna Mohan was shown to him. In his reply, Shri Mahesh Gupta pointed out that as per the statement of Shri Krishna Mohan, the gas cylinders bought by MGPL were sold to DDK Industries who in turn sold the same to the assessee-company and the same were given on lease to MGPL. Thus, according to the statement, the cylinders were in existence with MGPL. The learned Assessing Officer, however, noted that in the statement Shri Krishna Mohan had nowhere stated that cylinders had been sold first by MGPL to DDK Industries. On being asked to state as to whether the assessee-company had made any physical verification of the assets leased out to MGPL, Shri Gupta replied that the cylinders had been physically verified by the Chartered Engineers or the company's e....
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....n was not genuine and no cylinders were involved in it. The cylinder were still in the books of MGPL and they were claiming deprecation on those cylinders and did not form part of the lease transaction. On the strength of this material the learned Assessing Officer concluded that the transactions were merely on paper with the sole purpose of reducing tax liability of the assessee-company by claiming 100 per cent depreciation. The learned Assessing Officer also found that the Board resolution of the lessee company dated 23-3-1994 was also not a genuine document because investigation revealed that there was no Board meeting of MGPL on 23-3-1994. The learned Assessing Officer also took note of the payment aspect. He found that accounts in the name of DDK Industries and MGPL were opened in Allahabad Bank, IFB, Mumbai on 29-3-1994. That was the Bank where the assessee was also having its accounts. Both the accounts were introduced to the bank by Shri Deepak Tipnis, an employee of M/s. Nicolos Piramal India Ltd., a company belonging to Piramal Group. On 29-3-1994 the assessee-company issued a cheque favouring the supplier for Rs. 1,00,13,000. On the same date the amount was transferred t....
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....lution Control Equipment in Oil Extraction Systems and some other equipments from One M/s. Agri Commercial Products, 1/1 Ashok Nagar, Guntur 7 vide invoice No. 250, dated 4-9-1994 for a sum of Rs. 1,55,34,000 and leased them to M/s. Raghunath Cotton Mills & Oil Products Ltd., hereinafter called RCOP as per lease agreement dated 23-9-1994. In support of this claim the assessee relied upon various documents. The learned Assessing Officer found that after the search in the case of the assessee-company the department conducted further enquiries and the statement of Shri G. Venkateswaralu, Managing Director of RCOP was recorded on 16-9-1996. In this statement, RCOP denied having purchased or sold any machinery to M/s. Agri Commercial Products Ltd., Guntur and instead stated that RCOP was buying only cotton seeds and other oil seeds from this party. Shri Venkateswaralu also denied having taken any machinery on lease from the assessee-company. He further stated that RCOP did not have any Waste Head Recovery System separately and it was part of the regular solvent Extraction Plant of RCOP which had been purchased about 5 years ago on IDBI Financing. Shri Venkateswaralu, however, stated tha....
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....e date a sum of Rs. 1,32,03,900 to M/s. Piramal Texturising Pvt. Ltd. a finance company belonging to the same group, under the guise of security deposit. Thus, 84 per cent of the payment made by the assessee-company came back to a company belonging to the same group on the same date. There were no other transactions in the Bank account of the supplier and RCOP. It was also significant to note that these transactions were not reflected in the books of account of RCOP. Moreover, there was no valid commercial ground to justify the transfer of funds from the supplier's account to RCOP since there was no transaction between the supplier and the RCOP carried out except the lease under reference. In any case there was no transaction pertaining to sale or purchase of machinery between these parties. 10.1 According to the learned Assessing Officer the statement of Shri G. Venkateswaralu was recorded once again on 11-7-1997. In this statement it was stated that RCOP did not own any equipment of the nomenclature Waste Head Recovery Equipment and Pollution Control & Oil Extraction System. RCOP never sold any machinery to M/s. Agri Commercial Pro-ducts, Guntur. Board resolution dated 30-6-19....
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....s examination was acceded to and the cross examination took place in the office of ADI, Guntur on 22-7-1997. In this cross examination RCOP reiterated its stand consistently. Finally on 29-7-1997 the learned Assessing Officer received once again a letter from RCOP in which it was clarified that no material was purchased by them from M/s Agri Commercial Products and there were no separate equipments other than the Solvent Extraction Plant which had been installed much earlier than 1987. M/s. Appollo Tubes Limited: 11. The assessee claimed to have purchased Cold Farming Roll Sets made of high Carbon high chromium steel from M/s. Amity Industries, 7th Cross, Magadi Road, Bangalore for Rs. 2,36,24,437 vide invoice No. 008, dated 17-9-1994 and to have leased the same to M/s. Apollo Tubes Ltd., hereinafter referred to as ATL, having registered office at 1, Malcha Marg, Chanakyapuri, New Delhi, vide agreement made on 17-9-1994. The assessee placed reliance on various documents in support of these transactions. With a view to verify the genuineness of transaction the learned Assessing Officer addressed a letter by Speed Post to the supplier M/s. Amity Industries calling for various p....
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....a finance company belonging to the Piramal Group under the guise of Security Deposit. Thus, 80 per cent of the purchase consideration was received back on the same day. The learned Assessing Officer, however, noticed that in this case the supplier was located at Bangalore whereas the factory of ATL was located at Ranipet in Tamilnadu. The assessee was asked to furnish copies of transportation documents in support of the movement of the assets but the assessee chose to submit an explanation that the supplier was identified and located by the lessee i.e. M/s. ATL. There was also no material to suggest transit insurance of the assets during the course of transportation. As to the Board resolution of ATL dated 5-9-1994, it was found that there was no Board meeting of M/s. ATL on that date. There was also no Board meeting on that date authorizing Shri K. Sriram to open and operate bank account in Allahabad Bank, Parel, Mumbai. The Inspection Certificate was issued by Shri K. Sriram only. This certificate was totally unreliable. Purchase of goods by the assessee company itself had been proved to be bogus. Moreover, the transactions with the assessee company were not reflected in the regu....
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....KSCL was recorded and after going through the statement of Shri Radhakrishna, Shri S.R. Kailas confirmed the same. In the second statement of Shri S.R. Kailas recorded on 26-8-1996 he confirmed that the machinery allegedly supplied by M/s. Maheshwari Engineering Works were never with the group companies. He submitted that with a view to make some money as suggested by Shri Vishwanathan Ganeshan of M/s. Prime Trust Financial Services (P.) Ltd., they had signed some bundle of papers. The enquiries made at the address 7-1-61/7, Ameerpet, Hyderabad revealed that at the nearby Door No. 7-1-61/1 a workshop in the name of M/s. Maheshwari Engineering Works existed which was a proprietary concern by one Mr. Gopikrishnan Baheti. The statement of Shri Baheti was recorded under section 131 on 7-8-1996 and Shri Baheti categorically stated that his firm had not supplied or manufactured boilers or rollers for sugar works and that he had no interaction or dealing with the assessee company. A further letter was received from SKSCL on 13-3-1997 wherein SKSCL on verification of books of account denied to have entered into lease transaction with the assessee company. The assessee company was confronte....
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.... The assessee was required to furnish the details but the same were not furnished. The assessee was also requested to conduct a joint inspection of the assets but the assessee avoided it by saying they would like to find a Chartered Engineer for the purpose and the time given was too short. If the claim of the assessee was genuine then it was in assessee's interest to participate in joint inspection without any loss of time. The assessee requested for an opportunity to cross examine SKSCL and on 21-7-1997 one of the Directors of SKSCL viz., J.S.R. Prasad appeared. However, the counsel of the assessee company refused to cross-examine him as the original statement had been given by S.R. Kailas. As the assessee's counsel insisted on cross examination of Shri S. R. Kailas the date of cross examination was postponed to 28-7-1997. On that date Shri S.R. Kailas appeared for cross examination but the assessee wrote a letter seeking notice of at least three working days. The learned Assessing Officer did not consider this request to be reasonable and rejected the same. The Assessing Officer had also written a letter to SKSCL to confirm whether the assets referred to in the purchase invoice ....
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....count. Several letters sent to DSL for obtaining various information were not responded. 13.1 The learned Assessing Officer noted that in the Schedule to the lease agreement the location of the assets was mentioned at Chinchkoda Village, Madhya Pradesh. However, in the audited accounts and annual report of DSL for the financial year 1994-95 there was no mention of any factory at any place other than the factory located in District Shimoga, Karnataka. Further enquiries revealed that by virtue of an agreement dated 15-1-1994 with M/s. Thungabadhra Sugar Works Ltd., hereinafter referred to as TSWL, DSL came into functional existence. According to this agreement dated 15-1-1994, the value of the machinery transferred to DSL was Rs. 78,51,240. This valuation was done by one Shri P.C. Pandian who submitted a report about the valuation of the factory land, civil works, plant and machinery available at DSL on 4-10-1993. According to this report a list of machinery available at the factory was valued at Rs. 9,28,00,000. In this list, the assets alleged to have been sold by DSL to MGM were not reflected. The learned Assessing Officer referred to the balance sheet of DSL for the year endin....
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....verages Industries Ltd., had not created any charge or lien on the assets sold to the assessee company. In that certificate it was certified that the assets had been installed and put to use on 6-2-1995. This certificate though issued on the letter head of DSL appeared to be concerned with Deve Annapurna Foods & Beverages Industries Ltd. The certificate of Chartered Engineer, Shri P.G. Srinivas on 31-3-1995 that the assets qualified for 100 per cent depreciation can also not be relied upon because the credibility and reliability of the certificates issued by Shri PG Srinivas had already been observed in other case. 13.2 As to the account payee cheque issued by the assessee company favouring DSL, the Account in the name of DSL was opened in Allahabad Bank, Parel, Mumbai on 3-3-1995. This account was introduced by India Polo Promotion Foundation, a Trust belonging to Piramal Group. Out of the payment of Rs. 4,49,12,850 made on 3-3-1995, a sum of Rs. 3,77,26,794 was transferred to Swastik Safe Deposit and Investments Ltd., a company belonging to Piramal Group as Security Deposit which constituted 84 per cent of purchase consideration. On the same day, this amount was transferred fr....
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....s of the company. A letter was, therefore, issued to IDBI on 16-6-1997 to confirm whether the assets of RFL were hypothecated or subject to any charge. In its reply dated 3-7-1997 IDBI stated that all movable assets present and future were hypothecated and RFL had not obtained permission from IDBI for selling the assets and the transactions in question had not been reflected in RFL's annual audited accounts and other statements for the year 1994-95. A letter was issued to the Registrar of Companies. Copies of Deeds of Hypothecation registered with the Registrar of Companies, Karnataka established that the assets were never sold by RFL to the assessee company. Further, on a reference to IDBI it was found that there was no meeting of the Board of Directors held on 4-4-1994 which indicated that the Board resolution relied upon by the assessee company was false. From the Guarantee Agreements and Hypothecation Deeds made by RFL with various financial institutions it was abundantly clear that RFL could not create any charge, sale, dispose of or create any encumbrance in any manner in respect of the hypothecated assets with the financial institutions as no such permission had been obtaine....
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....ted: 15. The assessee claimed to have purchased 2105 High Pressure Seamless Gas Cylinders for Rs. 99,98,750 from M/s. Bestow Agencies, Bangalore vide invoice No. 915, dated 2-3-1995 and have entered into a lease agreement on 4-3-1995 in respect of the same with M/s. Bangalore Gases Pvt. Ltd., Bangalore, hereinafter referred to as BGL. According to the learned Assessing Officer, during the course of statement of Shri Ajay Piramal recorded on 29-7-96, it was brought to his notice that M/s. Bestow Agencies as well as BGL had admitted that the entire transaction was sham and there was no cylinder existing in respect of which bills were issued. In his reply, Shri Piramal requested for copies of the statements and also submitted that he would get back to the Department as soon as possible. However, the assessee company did not approach the Investigation Wing to collect the statements. In the course of statement of Shri Mahesh Gupta, CFO of Piramal Group recorded on 2-8-1996, it was brought to the notice of Shri Gupta that M/s. Bestow Agencies was a fictitious proprietary concern of Mr. Prakash Shah alias Deepak Mehta and that Shri Prakash Shah and Mr. Anwar Pasa of BGL had stated that....
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....mpany was on paper only. No books of account had been maintained nor had any meeting ever been held. This fact was confirmed by the Managing Director of BGL himself. As to the invoice issued by M/s. Bestow Agencies, the invoice contained KST and CST Registration Numbers. It had been signed by one Mairaz Ahmed. The distinctive Nos. of Cylinders were D 18362 to D 20464. A letter was sent by Speed Post at the address of M/s. Bestow Agencies as on the invoice but the same was received back with the postal remarks "No party exists". The enquiries conducted by Inspection Wing at Bangalore also revealed the same fact. Enquiries conducted with sales-tax authorities revealed that the party had never filed any sales-tax return and as a matter of fact the registration Nos. never pertained to M/s. Bestow Agencies. The statement of Mr. Mairaj Ahmed was recorded by the ADI at Bangalore on 13-4-1996 wherein he admitted to have signed as proprietor of M/s. Bestow Agencies and stated that he was merely the name lender. He further admitted to have printed bill books in the name of M/s. Bestow Agencies and signed the bill books for a commission. Regarding the address given on the bills, he admitted t....
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.... amount was transferred to the account of BGL and BGL in turn transferred on the same date a sum of Rs. 83,98,950 to M/s. Swastic Safe Deposits and Investments Ltd. a company belonging to Piramal Group. This amount was in turn transferred on the same date to the account of the assessee company. The balance 15 per cent was appropriated by BGL and other various persons. According to the learned Assessing Officer the manner in which the bank transactions were carried out was significant. 15.3 According to the learned Assessing Officer, the CFO of the assessee company in his statement recorded on 2-8-1996 and vide his letter dated 1-8-1996 agreed to withdraw the claim of depreciation if it was found that the assets were not existing at the time of executing lease agreement. In order to avail of depreciation it was the assessee who had to establish the fundamental requirements of the ownership of assets and its user. The statement made by the CFO of the company was ridiculous. On the one hand the assessee claimed that it was the owner of the assets but at the same time it was not sure as to whether the assets were in existence at the time of lease transaction. It was the assessee who....
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....rge, no sale of assets could be made without the permission of financial institutions in whose favour the charges had been created. The assessee also argued that if the seller had express warranty over the title of goods then such a sale was a valid sale. The learned Assessing Officer held that in the case under consideration GSAL did not have an express warranty. The assessee company was aware of the charges because a copy of the audited balance sheet of GSAL was in its possession. The learned Assessing Officer found that GSAL had awarded a Turnkey Project to M/s. Buckau Wolf (I) Ltd. 16.1 As GSAL was not responding to the various letters issued by the learned Assessing Officer, the learned Assessing Officer approached IDBI and explained to them that GSAL had been engaging in indiscriminate issue of sale bills to various parties, a list of which was subsequently forwarded to IDBI. A senior Officer of IDBI, therefore, sent several letters and FAX messages to GSAL but no reply was received. IDBI further mentioned that Shri Krishna Mohan, MD of GSAL was expected in their office on 28-7-1997 to file an explanation in the matter. He failed to turn up on that date. A survey was condu....
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....f Shri S. Chandrasekaran, Chartered Engineer, it only stated that he visited the plant and verified the physical existence. However, the question was not as to whether the assets were in existence but whether the said assets had at all been sold or were they capable of being sold. There was a clear prohibition of the financial institutions because the assets of GSAL had been hypothecated to them. Secondly, there was no question of genuine sale for only 15 per cent of the cost of assets. M/s. Deve Annapoorna Foods & Beverages Industries Limited: 17. The assessee claimed to have purchased from M/s. Deve Annapoorna Foods & Beverages Industries Ltd., hereinafter referred to as DAFBIL, on 10-1-1995 Vapour Absorption Refrigeration System for Rs. 94,10,390 and Energy Saving Micro Processor Base Control System for Rs. 6,46,96,800 and to have leased them back to DAFBIL on 1-3-1995 as per lease agreement. The assessee relied upon a number of documents in support of these transactions. To verify the genuineness of the transactions the learned Assessing Officer sent letters to DAFBIL at various addresses as available on record but all the letters came back unserved from Postal Authoritie....
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....ise of security deposit and on the same date this amount was transferred back to the assessee. Thus, in a circular transaction the assessee company received back 84 per cent of the purchase consideration. The refunded amount of Rs. 6,22,50,000 by DAFBIL in the name of security deposit was nothing but summation of all lease rentals to be paid as per schedule to the lease agreement over a period of 8 years. If at one go DAFBIL could pay the entire lease rentals, what was the necessity to execute sale of assets in the first instance. 17.1 The learned Assessing Officer also noted that by a reference made to the Assessing Officer of DAFBIL it was ascertained that as per depreciation chart the value of plant and machinery as on 1-4-1994 was to the extent of Rs. 58,56,410 only and additions made during the period 1-4-1995 to 31-3-1996 was to the extent of Rs. 12,73,08,431. DAFBIL came into being by a Memorandum of Understanding/Agreement dated 11-8-1994 between Annapoorna Group of Coimbatore and Shri Rajarathinam. A list of machineries available was enclosed with the Memorandum of Understanding. But the assets allegedly sold to the assessee company did not figure therein. In any case, ....
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....he cash credit account of Salarjang Sugar Mills Ltd., for which there was no evidence. M/s. Candy Filters (I) Ltd. were asked to produce particulars pertaining to purchase of machinery from Hemakuta Industrial Investments Co. Ltd., but no such details were furnished. It was also noticed that the accounts of M/s. Candy Filters (I) Ltd. had not been drawn up or finalized. It was, however, significant that the original cost of the Boiler was only Rs. 1.25 lakhs and its book value as on 12-8-1987 was only Rs. 77,000. Even the present market value of all the machineries on that date was stated to be Rs. 9 lakhs only in a letter to State Bank of Mysore. Thus, if the machinery was having a book value of Rs. 77,000 only in 1987, could it be fairly sold for Rs. 60 lakhs in 1994. For this the assessee company had no explanation except the valuation report of Shri P.G. Srinivas, Chartered Engineer. It was experienced in various other cases of lease transactions that the certificates issued by Mr. Srinivas were not reliable. 18.1 According to the learned Assessing Officer the assessee relied upon the copy of Board resolution of TPBL dated 13-2-1995. Letters were issued to TPBL to confirm th....
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....l for corporate governance. According to the learned Assessing Officer the certificates of physical verification of assets at the time of entering into the transaction relied upon by the assessee were not authentic and would be of no avail if the assets were not in existence. The assessee was duly confronted with the findings in this respect. The assessee was also asked to confirm if any physical verification of the assets was at any point of time made by the assessee himself through his employees. The assessee, however, relied upon only on the certificates of Chartered Engineers. In some cases, even the photographs of assets were enclosed. However, the fact of ownership of the assessee of such assets was not established. The assessee was harping only at the existence of assets at the time of entering into these transactions. However, the assessee's claim should have been verifiable at any point of time after the date of entering into lease transactions. The assessee could not get away by merely stating that at the time of lease transaction the assets had been physically verified. The assessee entered into lease transactions of huge amounts and, therefore, the assessee could not be....
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....ring the course of statement, Shri H.N. Shah was also asked to go through the working papers during the audit and comment if there was any reference to the issue of physical verification of leased assets. The statutory auditor replied that no such papers were in his possession. The learned Assessing Officer, therefore, concluded that the management did not carry out any physical verfication and the statutory auditor also did not raise any query regarding this aspect. Thus, the statutory auditor failed in his duty to comment or pronounce any opinion on this issue. He gave a certificate in a very routine manner which was not in conformity with fair auditing practice and required norms. 22. The learned Assessing Officer found that the assessee entered into all the lease transactions through the sole financial intermediary, M/s. Gold Crest Finance (I) Ltd., Mumbai. Shri Mahesh Gupta was asked in the statement recorded to explain how and on what parameters the intermediary was chosen. Shri Gupta replied that M/s. Gold Crest Finance (I) Ltd. was chosen because they were offering best terms and scope of service. Shri K.N. Iyer, Managing Director of M/s. Gold Crest Finance (I) Ltd. enjo....
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....nk, Parel, Mumbai. For this purpose, both the suppliers and lessees opened account in that very branch and they were introduced to the bank by the persons and the entities in the Piramal Group. The transactions were effected in a circular manner whereby the assessee on the same date got back 85 per cent of the purchase consideration. It was an abnormal feature that all the suppliers and lessees came all the way to Mumbai for opening accounts on a particular date and within that day completed the transactions. On this issue the assessee explained that this was done for their own convenience. It was incredible to believe that such banking transactions could not have taken place in the regular bank accounts of the parties located in various parts of India, if the transactions were genuine. It was not that in their respective places the suppliers and lessees could not find banks or branches of Nationalised Banks. This practice was followed to ensure cycle of flow of funds from various accounts on the same date. 25. The learned Assessing Officer found that the transactions of the assessee did not fit in the normal financing leases. In the ordinary circumstances, the party which requi....
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....er without any intention or action of effecting genuine transaction. The assessee, therefore, could not be permitted to plead his case as legitimate tax planning. The learned Assessing Officer referred to the remarks of the House of Lords in the case of W.T. Ramsay Ltd. v. IRC [1982] AC 300 and of Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 1481. The learned Assessing Officer found that the principles laid down by Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 1481were squarely applicable to the case of the assessee company. The documents and the associated transactions were intended to have the effect of depriving the Revenue of its rightful dues. 28. In short, the learned Assessing Officer held that the depreciation claimed by the assessee of leased assets could not be allowed as legitimate deduction. He therefore, made the following disallowance from out of the assessee's claim of depreciation allwance and assessed the same as representing undisclosed income of the assessee within the meaning of section 158B(b) of the Act: Assessment Year Depreciation Disallowed 1994-95 Rs. 2,14,6....
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....erest at the rate of 15 per cent per annum. The assessee claimed such interest payments as deduction. The learned Assessing Officer calculated interest disallowable on this account for the block period at Rs. 4,38,38,143. At the same time the learned Assessing Officer held that from the amounts disallowed, the total amount of interest paid by the assessee to M/s. Swastik Safe Deposits & Investments Ltd., for the block period amounting to Rs. 94,07,602 was to be reduced. The learned Assessing Officer, therefore, made the net disallowance of Rs. 5,01,78,902 in the following manner: Asst. Year Net Disallowance (in Rupees) 1995-96 1,47,79,935 1996-97 2,48,46,679 1997-98 1,05,52,287 Total 5,01,78,902 Aggrieved by this computation of undisclosed income, the assessee is in appeal before us. 30. Shri C.S. Agarwal, the learned Counsel for the assessee pointed out that the assessee company was a very old reputed company incorporated on 10-8-1871. It was carrying on the business of manufacture and sale of taxtiles and was also engaged in the leasing business. All the trans....
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....ed in the books of account could it be said that there was any "undisclosed" income. He took us closely through the definition of "undisclosed income" as given in section 158B(b) and pointed out that during the course of search, no money, bullion, jewellery or other valuable article or thing representing wholly or partly income or property which had not been or would not have been disclosed for the purposes of Income-tax Act, was found. As to any entry in the books of account or other documents or transactions, the learned Counsel for the assessee argued that there was no question of any such entry, document or transaction not being disclosed by the assessee insofar as the lease transactions were concerned. Without disclosing these, the assessee could not have claimed any depreciation allowance and, in that case there would not have been any allegation of undisclosed income. Thus, on the facts of the case it was patent that entries in the books of account or other documents or transactions were bound to be disclosed for the purpose of Income-tax Act or else the proceedings in question would not have arisen. In relation to the insertion by the Finance Act, 2002 in the provisions of ....
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....that an assessee may or may not claim depreciation and it is not obligatory to make claim for depreciation allowance. Hon'ble Supreme Court further held that an allowance is given when it is claimed. In this view of the matter, the assessment of undisclosed income on account of alleged depreciation allowance for assessment year 1996-97 was wholly misconceived and contrary to law laid down by the Hon'ble Supreme Court. The learned Counsel for the assessee argued that for the same reason the disallowance of interest for assessment years 1996-97 and 1997-98 of Rs. 2,48,46,679 and Rs. 1,05,52,287 was totally uncalled for because unless a claim of deduction was made it could not be held that the disallowance thereof represented undisclosed income of the assessee. In fact, no interest had even been debited till the date of search relating to assessment year 1997-98 in the books of account maintained by the assessee. No profit and loss accounts or balance sheet had even been prepared, much less adopted by the shareholders in its Annual General Body Meeting as on the date search was conducted. In short, the learned Counsel for the assessee argued that for assessment years 1996-97 and 1997-....
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.... 2002-2003 85,68,000 Return filed on 31-10-2002 Total 189,925,356 From the statement of income disclosed and assessed it was apparent that the Revenue could not be justified in disallowing the claim of depreciation on the ground that it was a false claim of depreciation. It was not open to the Revenue to treat the transaction to be genuine for the purpose of assessing income from leasing of assets and to treat it false when the question of corresponding depreciation arose. In support of this contention, the learned Counsel for the assessee placed reliance on the Judgment of Hon'ble Supreme Court in the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323. The learned Counsel for the assessee further argued that if there was any loss in an assessment year the same was required to be set off for arriving at the undisclosed income. In support of this contention the learned Counsel for the assessee placed reliance on the decision of the I.T.A.T. in B.D.A. Ltd. v. Asstt. CIT [1998] 65 ITD 501(Mum.). 35. The learned counsel maintained that under the provisions of section 158BC, only the income not disclosed by th....
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....entered into certain transactions of lease which had been found duly recorded in the books of account. In respect of the amount of depreciation which had been claimed for the assessment years 1994-95 and 1995-96, there was no question that the assessee had not wholly disclosed the transaction. To make any disallowance on that basis as undisclosed income was clearly in violation of the principles of Law laid down by the Hon'ble Calcutta High Court in the case of Bhagwati Prasad Kedia (supra). 38. The learned Counsel for the assessee pointed out that in the impugned order under section 158BC the learned Assessing Officer specifically placed reliance on 86 items annexed to the impugned order. None of these 86 items could be said to be incriminating material found as a result of the search. These documents were either not found during the course of the search in the case of the assessee because they were procured from other sources or they were part of regular and official record of the assessee. The learned Counsel for the assessee referred to the Judgment of Hon'ble Delhi High Court in the case of CIT v. Ravi Kant Jain [2001] 250 ITR 1411to the effect that an order under section 1....
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....ferred to the decision of the Third Member of the Tribunal in the case of Ellenbarrie Industrial Gases Ltd. v. Joint CIT [2002] 83 ITD 111(Kol.) and specially referred to the observations at Page 149 that after having assessed lease rentals as the income of the assessee, the Assessing Officer could not allege that the entire sale-cum-lease back transaction was bogus, more so in an order under section 158BC. The learned Counsel for the assessee also pointed out that in the impugned order the learned Assessing Officer has invoked the rule laid down by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITD 1481. A transaction without substance can be regarded as 'sham'. But a transaction brought in existence for ulterior purpose does not necessarily become a sham transaction as held by Hon'ble Bombay High Court in the case of CIT v. Seksaria Sons (P.) Ltd. [1982] 138 ITR 4192at page 424. The learned Counsel for the assessee pointed out that in the case of Bombay Burmah Trading Corpn. Ltd. v. Asstt. CIT [2002] 82 ITD 531(Mum.), it has been held that the claim of allowance of depreciation cannot be dubbed as a transaction which was made for avoidance of tax t....
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....n and wholly misdirected in Law. 42. The learned Counsel for the assessee referred to the decision of Indore Bench of the I.T.A.T. in the case of Indore Construction (P.) Ltd. v. Asstt. CIT [1999] 71 ITD 128, wherein also it was held that the words used are "such other materials" and not "any other materials". Again the Bombay Bench of I.T.A.T. in the case of Harakchand N. Jain v. Asstt. CIT [1998] 61 TTJ (Mum.) 2231 also similarly observed that the words "such other materials" used in section 158BB(1) does not mean that the Assessing Officer has got unfettered powers for making rowing enquiries. The same legal position had been stated by Hyderabad Bench in the case of Essem Intra-port Services (P.) Ltd. v. Asstt. CIT [2000] 72 ITD 228, and the Hon'ble Bench held that for the purpose of assessments under Chapter XIV-B, there are two requirements to be satisfied so as to be treated as undisclosed income i.e. the factum of non-disclosure should be existing and the said non-disclosure on the part of the assessee should have been blown out as a result of search or requisition of books etc., under section 132 of the Act. In the case of the assessee-company, it was not that the assess....
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....ebited in the books of account in respect of the cash credit account. 45. The learned Counsel argued that while invoking the provisions of Chapter XIV-B, the learned Assessing Officer had committed a basic jurisdictional error. The assessee had already disclosed the lease income in its return of income of assessment year 1995-96 and had also claimed depreciation in respect of the some of the assets in its return of income for assessment year 1994-95. For these reasons, the learned Assessing Officer could not hold the claim of depreciation as falling under "undisclosed income" within the meaning of section 158B(b) of the Act. For the purpose of assessing income disclosed by the assessee from some lease transactions, the learned Assessing Officer treated the transactions as properly disclosed by the assessee. He could not treat the very same transactions as "undisclosed" for the purpose of making disallowance/depreciation under Chapter XIV-B. The learned Counsel submitted that either the transaction is disclosed or is undisclosed. It cannot be both. 46. During the course of hearing before us, the learned Counsel made lengthy submissions in respect of each of the 14 lease transa....
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....rence between the amount received less the security deposit. The assessee also accepted a reasonable return as a lessor from this transaction. As to the statements of the lessee, the learned Counsel for the assessee argued that the denial of the lessee was contrary to records. The denial was also self-serving as the lessee did not want to accept the sale of equipment. The subsequent stand of the lessee was also contrary to the various statements given by him. Since the statements of the lessee suffered from various contradictions, the same could not be relied upon by the Assessing Officer. The lessee had signed the agreement. Signature of the lessee's representative had also been verified by his own bankers. The lessee could not be permitted to say that he was not aware of what he was signing. During the course of cross examination by the assessee the lessee had also accepted that the signature on the lease agreement was his own. The allegation of the learned Assessing Officer that the assessee had not conducted any physical verification at any time was not justified because physical verification had been carried out through a Chartered Engineer at the time of entering into the tra....
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....esolution was not denied. The learned Assessing Officer could not disbelieve the contents of the affidavit dated 14-9-1996 of Mr. Chandrasekaran, Chartered Engineer merely on accepting the self-serving statement of the lessee company. As to the circular nature of the transaction the observation of the learned Assessing Officer was not factually correct because, actually the cheque for Rs. 71.10 lakhs was handed over to BVPL (as part reimbursement of the amount paid to the supplier) and was received back after endorsement, which was a genuine banking transaction. M/s. Sree Ramakrishna Steel Industries Ltd. (SRSI): 48. The learned Counsel for the assessee submitted that the denial by the lessee of the lease transaction and the statement of the lessee that its executives had signed the blank papers only was contrary to records and self-serving because the lessee did not want to accept the sale of equipment. The lessee also received money in its bank accounts from the supplier. In the course of examination the lessee accepted the signatures on the lease agreement and the M.D. also accepted his signatures on Board resolution. He also accepted that the Chief Executives of the compa....
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....ing to the learned Assessing Officer the supplier M/s. Andhra Organics Corporation did not exist at the given address. He arrived at this conclusion on the basis of local enquiry conducted and investigation made by the Investigation Wing at Hyderabad. However, neither the report of local enquiry nor the report of Investigation Wing was furnished to the assessee for rebuttal. The certificate of registration granted to the supplier by the Assistant Commercial Tax Officer, Nempally Circle was the conclusive evidence of the supplier's existence. Further, the learned Assessing Officer himself mentioned in the impugned order that this party had raised bills to other parties also all over India and that Mr. Reddy of NPL had also confirmed that NPL had dealings with this party in past also. As to the denial of transaction by NPL and the letter written by NPL to the assessee company on 19-3-1997 stating that it had not entered into any lease transaction with the assessee, the learned Counsel argued that the denial of NPL was contrary to records and it was a self-serving denial made by NPL which stand had also been taken by the learned Assessing Officer in the case of Goldcrest Finance Ltd. ....
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....se of MGPL on 6-3-1996, the M.D. of MGPL had admitted that all the transactions were on paper and there was no asset taken on lease from the assessee company. The learned Counsel for the assessee pointed out that this statement of MGPL and the report of Investigation Wing at Bangalore relied upon by the learned Assessing Officer had not been furnished to the assessee for rebuttal. As to the statement of M.D. of MGPL that the transaction had been entered with the assessee company only for accommodation purposes, that statement too had not been furnished to the assessee for rebuttal. At any rate, the denial of MGPL was contrary to records. It was self-serving as MGPL did not want to accept the sale of equipment. This stand was also contrary to the various statements given by MGPL. The learned Counsel pointed out that MGPL had confirmed vide their affidavit dated 23-3-1996 and confirmation letter dated 12-9-1996 that the assets in question had been leased. Money had actually passed from the assessee to the supplier. MGPL had signed the lease agreement which fact has not been disputed. MGPL could not get away by merely saying that they were not aware of what they were signing. The Char....
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....ting on the specified date. As to the 76% of total sale consideration being returned on the same date, the learned Counsel for the assessee argued that this was a commercial transaction agreed upon amongst all the parties. The payment of security deposit could not negate the fact that particular purchase consideration had been paid by the assessee company. As to the address given by the supplier in the bank account at the time of opening of the bank account, it was argued that the assessee company could not have known that the lessee had given the fraudulent address. However, it was the bank's responsibility to take proper documents supporting the address of the account holder. As to the argument that the assessee company had not accepted the offer of joint inspection, the learned Counsel pointed that no such letter for joint inspection of assets in respect of this transaction had been sent to the assessee company. As to the assessee not availing of opportunities of cross examining MGPL, the learned Counsel pointed out that the cross examination was fixed on 28-7-1997 (Thursday) evening. Further, the statement of MGPL was not furnished to enable the assessee to conduct the cross ex....
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....mpany Secretary of RCOP. RCOP had stated that the Board resolution was genuine and, therefore, the assessee company was entitled to rely on the Doctrine of Indoor Management. As to the statement of sales tax authorities at Guntur that M/s. Agri Commercial Products was not registered with them and the registration number did not belong to the State of Andhra Pradesh, it was argued that the report of enquiry made with sales tax authorities was not furnished to the assessee company for rebuttal. As to the substantial part of purchase consideration being returned on the same date, it was argued that it was a commercial transaction agreed amongst the parties concerned. As to the transaction appearing in the bank accounts of RCOP at Mumbai, not appearing in the books of account of RCOP, the learned Counsel argued that it was a failure or lapse on the part of RCOP and it could not be held out against the assessee. As to the contention that the assessee company had not accepted the offer for joint inspection, it was argued that the assessee company had not refused joint inspection. During the course of hearing before us, the learned Counsel for the assessee also placed reliance on the lett....
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....ot been specified. At any rate the transaction could not be considered as not genuine just because ATL had not recorded the transaction in their books. During the course of hearing before us the learned Counsel for the assessee also relied upon the letters addressed to the Assessing Officer, dated 14-5-1997, 16-7-1997 and 23-7-1997. M/s. Shree Kailas Sugar & Chemicals Ltd. (SKSCL): 52. According to the learned Assessing Officer, the supplier M/s. Maheshwari Engineering Works did not exist at the given address. There was also no sales-tax registration of the supplier nor had any return been filed with sales tax authorities. It was argued that the particulars of summons issued to the supplier and investigation conducted by Investigation Wing at Hyderabad and enquiries with local sales tax authorities had not been furnished to the assessee-company for rebuttal. The learned Counsel argued that these facts relied upon by the learned Assessing Officer did not lead to the inference that the supplier did not exist or had not sold the equipment to the assessee-company. Furthermore the enquiries were made at the address 7-1-61/1 whereas the address of the supplier was 7-1-61/7. The eff....
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.... convenience of all parties. During the course of hearing before us, reliance was also placed on the letters of the assessee company to the Assessing Officer dated 14-5-1997, 17-6-1997, 15-7-1997, 22-7-1997, 23-7-1997 and 28-7-1997. M/s. Deve Sugars Limited (DSL): 54. In this case, the assessee claimed that the assets had been sold to them by DSL and thereafter, the assessee leased back the assets to DSL. The learned Assessing Officer did not accept this contention of the assessee on various grounds. The location of the assets was mentioned in the lease agreement as Madhya Pradesh whereas there was no factory of DSL in Madhya Pradesh. DSL had acquired all its assets from Tungbhadra Sugar Works Ltd., but in the agreement between Tungbhadra Sugar Works Ltd. and DSL, the assets in question did not form part of the agreement and there was also no evidence that the same had been subsequently acquired by DSL. The transaction had not been recorded in the books of DSL. Since no records were available at DSL's office and DSL had also not responded to enquiry letter, the learned Assessing Officer concluded that the board resolution was fabricated. No lien certificate issued by DSL was ....
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....actions were not genuine. The modalities were adopted as the same were found to be convenient and acceptable to both the parties. Reliance was also placed on letters dated 14-5-1997 and 23-7-1997. M/s. Ready Foods Limited (RFL): 55. In this case also, the assessee claimed to have purchased and leased back the assets from/to RFL only. The learned Assessing Officer held that the transaction was not genuine on several grounds. Although RFL had acknowledged receipt of letters from the Assessing Officer, it did not reply. RFL was known to be a fraudulent party and its promoter was absconding. It had also not filed returns of income after the assessment year 1993-94. the promoter of RFL confirmed by its letter received on 19-6-1997 that no sale of assets had taken place. The assets in question were hypothecated with IDBI and no permission was taken from IDBI for sale of assets. IDBI had also confirmed that there was no Board meeting on the date of Board resolution relied upon by the assessee-company. Apart from IDBI, RFL being sick company and the permission of BIFR was also required which had not been taken. The certificate of Chartered Engineer was irrelevant because existence of....
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....ere was still a commercial advantage for RFL as it enjoyed continuous use of equipment and was also left with a monetary difference between the amount received and the Security Deposit paid. The learned Counsel for the assessee pointed out that in this case, the learned Assessing Officer also did not doubt the physical verification of the assets or existence of the assets. That being so, the genuineness of the transaction could not be questioned merely because of the subsequent statements of RFL. The learned Counsel for the assessee placed reliance on its letters dated 14-5-1997, 6-7-1997 and 23-7-1997 addressed to the learned Assessing Officer. M/s. Bangalore Gases Limited (BGL): 56. In this case, the learned Assessing Officer held that the Certificate of Incorporation of BGL was fabricated. The balance sheet of BGL as on 31-3-1994 was fraudulent since BGL did not exist at that time and there was no Auditor existing as mentioned in the balance sheet. The Chartered Engineer, PG Srinivas had stated that he had not visited the factory of BGL and he had not physically verified the assets. The Managing Director of BGL had also confirmed that BGL was merely a paper company. Hence ....
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....e assets in question from/to GSAL. The learned Assessing Officer, however, held that the Board meeting dated 7-7-1994 approving the lease was never held. The assets were hypothecated with IDBI and the same could not be sold to the assessee-company without the permission from IDBI. This fact should have been known to the assessee company since it had the annual accounts and reports of GSAL in its possession. GSAL had been found to have signed bills to various parties in an indiscriminate manner. In the statement recorded on 8-7-1997, Mr. S.S. Bhat had confirmed that no sales tax had been paid on the sale and the transaction was not reflected in the monthly sales-tax return filed before the State Government. The learned Assessing Officer also found that GSAL had recorded the transaction in its books of account in a manner not consistent with the regular accounting practice. The transaction was stage managed and 85 per cent of the purchase consideration was received back on the same date by a financial company of the assessee group. As to the certificate issued by the Chartered Engineer, the learned Assessing Officer held that GSAL had not confirmed the visit by the Chartered Engineer....
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....ficer, however, did not accept the genuineness of the transactions. The letters written to DAFBIL had come back with the remarks of postal authorities "left", "not traceable" etc. The assets in question had been hypothecated with IDBI and, therefore, No Lien certificate issued by DAFBIL was false. The IDBI had also not received any notice for the Board meeting and, therefore, no reliance could be placed on Board resolution. The assessment records of DAFBIL along with its return of income for the assessment year 1995-96 did not reveal any sale from the block of assets. The balance sheet of DAFBIL for 31-3-1995 showed the sale of asset which was lower than the amount of purchase consideration disclosed by the assessee-company. Documents of DAFBIL relating to acquisition and lien of assets also did not reveal any sale to the assessee-company. The assets owned by DAFBIL were allegedly destroyed in a fire for which a Police complaint was made on 7-4-1997 along with the list of assets destroyed. The assets allegedly sold to the assessee-company did not appear in such list of assets destroyed. Mr. Rizvi, Director, DAFBIL could not explain as to why the lease rent was not debited to the pr....
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....on had been hypothecated. As to DAFBIL not debiting the lease rent to Profit & Loss account, the learned Counsel for the assessee argued that the fact of the matter was that payment of lease rent was denied by Mr. Rizvi. The learned Counsel for the assessee also referred to the letters addressed to the learned Assessing Officer dated 14-5-1997 and 23-7-1997. M/s. Tungbhadra Pulp & Board Limited (TPBL): 59. According to the learned Assessing Officer the enquiry revealed that the Boiler in question was purchased by one Hemakuta from the original owner Salarjung in 1985-86 after obtaining approval of State Bank of Mysore to which it was hypothecated. However, the approval of State Bank of Mysore was subsequent which showed that the asset could not have been sold to Hemakuta. As to the supplier Candy Filters, they did not furnish particulars relating to purchase of assets from Hemakuta. It showed that it was a paper transaction. The total market value mentioned in the letter of State Bank of Mysore while granting approval was Rs. 9 lakhs. The book value was Rs. 77,000 only. The same could not be purchased at an exorbitant value of Rs. 60 lakhs. The letters written to TBPL to conf....
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....se". These words though inserted by the Finance Act, 2002, have been given retrospective effect from July 1, 1995. Further, as per the provisions of section 158BB(i), the undisclosed income of the block period is to be computed in accordance with the provisions of the Act on the basis of evidence found as a result of search. In the case of the assessee, all the lease agreements in question were found during the course of the search and had been duly shown in the Panchanama dated 20-7-1996. The Assessing Officer had mentioned in the impugned order under section 158BC that the search commenced on 19-7-1996 but the same was continued until 22-9-1996. There was, however, a statement of Shri Mahesh Gupta recorded on 30-9-1996 signifying that the search continued up to 30-9-1996. The evidence found during the enquiries conducted atleast during the period 19-7-1996 to 30-9-1996 was, therefore, found as a result of search. Such evidence led to the conclusion that depreciation allowance claimed by the assessee was false. There was, therefore, a direct nexus between the findings of the learned Assessing Officer in the impugned order under section 158BC and the search under section 132 carrie....
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.... any independent enquiry about the genuineness of the parties. The manner in which the transactions were routed was with a view to ensure that the amounts paid by the assessee came back to him on the same date. If the assessee could be refunded 85% of the purchase consideration, what was the justification of the parties having entered into these transactions at all? In most cases, the suppliers of the assets did not receive anything and they transferred the entire money to the Account of the lessees. This showed that the suppliers were not in existence at all. In none of the cases the assessee produced the suppliers. This also established that there was no genuine sale of any asset to the assessee. If that were so, the claim of the assessee of depreciation allowance was false. 62. The learned Departmental Representative argued that there was no force in the contention of the learned Counsel for the assessee that the denial by the lessees was contrary to records. The fact of the matter was that the so called records were collusive documents relating to the transaction which were never intended to be physically carried out. Reliance placed on the certificate of Chartered Engineers....
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....e clear that the assessee was all set to claim depreciation if there were no search. The learned Assessing Officer was, therefore, entitled to include the amount of such depreciation allowance though not claimed as undisclosed income in the block assessment. 66. During the course of hearing before us, the learned Departmental Representative also filed a brief chart enumerating the grounds on which the learned Assessing Officer treated the assessee's claim for depreciation to be false. Various particulars relied upon by the learned Departmental Representative in this chart have all been enumerated by us while referring to the impugned order under section 158BC in respect of each of the 14 transactions. 67. Shri C.S. Agarwal, the learned Counsel for the assessee in his rejoinder stated that for all practical purposes, the search was completed by the 20th July, 1996. Thereafter, only the statements of Shri Ajay Piramal and other senior employees of the assessee company were recorded on different dates. Merely because these statements were labelled to be under section 132(4), it could not be said that the search under section 132 indeed continued up to 22-9-1996 or 30-9-1996 and ....
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....on 158BC, the learned Assessing Officer had not confined himself to any particular period. He had relied upon the material which was available with the Department even before the search and also on further enquiries made or caused to be made by the learned Assessing Officer long after September, 1996. In the impugned order, the learned Assessing Officer had nowhere specified as to what statements were recorded or what facts were found specifically during the alleged period of search i.e., 19-7-1996 to 22-9-1996. He argued that the fact of the matter was that so far as the search in the case of the assessee was concerned, the Department drew blank and no material adverse to the assessee was found at the premises of the assessee company. Therefore, all other material relied upon by the learned Assessing Officer in the impugned order was extraneous material which could not be utilized or relied upon in the impugned order under section 158BC. 70. The learned Counsel for the assessee argued that in the impugned order under section 158BC, the learned Assessing Officer had mainly relied upon suspicion, surmises and conjectures and in none of the 14 cases the learned Assessing Officer h....
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....fficer had accepted such contentions of the lessees without demur. The learned Counsel argued that out of 14 lease transactions, 4 transactions in the case of Deve Sugars Ltd. (DSL), Ready Foods Ltd. (RFL), Gold Star Alloy & Steels Ltd. (GSAL) and Deve Annapoorna Food & Beverages Industries Ltd. (DAFBIL), the transactions were purchase-cum-lease back transactions. Obviously, in such cases it was the seller who remained in possession of the plant and machinery all the time. In such circumstances, in order to establish that such asset existed of which the assessee company became the owner, the lease agreements and other supporting documents were the most important evidence. In respect of other 10 transactions also, the assessee had relied upon a large number of documents which could not be brushed aside by merely calling such documents as an eye-wash or documents of accommodation. As to the entries in the books of account of the lessees, the learned Counsel pointed out that in 5 cases viz., Bhagyalakshmi Vegetable Products Ltd.-I (BVPL-I), Bhagyalakshmi Vege-table Products Ltd.-II (BVPL-II), Miga Gases Pvt. Ltd. (MGPL), Ready Foods Ltd. (RFL) and Gold Star Alloy & Steels Ltd. (GSAL),....
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....Ltd. (TPBL), one employee of the assessee company, Mr. Sunil K. Adukiya visited the lessee's premises on 4-4-1997 and gave the Inspection Report along with photographs of the assets. TPBL also vide their letter dated 23-4-1997 confirmed the existence of leased assets. In the remaining three cases also, the findings of the learned Assessing Officer was based on mere suspicion, surmises and conjectures. From the fact that the assets in question were not enlisted in the list of assets as per the takeover agreement or in the list of assets destroyed by fire, it could not be concluded that these assets had not physically existed at all. The learned Counsel reiterated that so far as the physical existence of assets was concerned, the assessee had brought in on record ample material to establish the same. 72. The learned Counsel argued that the assessee was not confronted with most of the material relied upon and referred to in the impugned order under section 158BC. The assessee was not supplied with copies of statements recorded behind the back of the assessee nor was the assessee supplied with a copy of the enquiry reports of various investigating agencies of the Department. The con....
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....ot set off huge losses incurred by the assessee-company against undisclosed income computed under section 158BC. He pointed out that in the case of the assessee-company, business loss far exceeded the amounts of depreciation claimed and it was not a case where the assessee would have otherwise filed returns of income declaring substantial income chargeable to tax but for the depreciation in question claimed by the assessee-company. 75. We have carefully considered the rival submissions. In this case, the learned Assessing Officer has held that the 14 lease transactions of the assessee existed on paper only and did not represent any genuine transactions. He has arrived a these findings on the basis of extensive enquiries contended by himself as well as the Investigation Wing of the Department at various places holding that the suppliers of the leased assets were not traceable in many cases and the lessees in many cases admitted that the transactions were in the nature of accommodation only. The learned Assessing Officer has also found it hard to accept that the purchase considerations paid by the assessee to the suppliers by any of Account Payee Cheques should come back to the ex....
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...., the income recorded on or before the date of search or requisition in the books of account or other documents maintained in the normal course relating to such previous years will not be included in that block." [212 ITR (St.) 306]. The salient feature of Chapter XIV-B is that "undisclosed income" of a person shall be assessed as the income of a block period consisting of previous years relevant to 10 assessment years preceding the previous year in which the search was conducted or requisition was made and also period of current previous year up to the date of the search or the requisition. The undisclosed income of the block period has to be taxed at a flat rate of 60 per cent as given in section 113. The order of assessment for the block period is to be passed within one year from the end of the month in which the last authorization of the search under section 132 or the requisition under section 132A was executed in case where the search is initiated or requisition made before 1st of June, 1997. In cases where a search was initiated or requisition under section 132 was executed on or after 1-7-1997, a time limit of two years has to be reckoned with instead of one year. Prior....
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....erials or information as are available with the Assessing Officer. . . . ." The meaning of "such other materials" has been considered at length in the decision of ITAT, Mumbai Bench in the case of Sunder Agencies v. Dy. CIT [1997] 63 ITD 245and the Hon'ble Bench held that Legislature has used the words "such other materials" and not "any other materials". Hence, "such other materials" means the materials found as a result of search or requisition. This view has been followed in a plethora of decisions made by various Benches of the Tribunal. ITAT Indore Bench in the case of Indore Construction (P.) Ltd. v. Asstt. CIT [1999] 71 ITD 128; Bombay Bench in the case of Harkchand N. Jain v. Asstt. CIT [1998] 61 TTJ (Mum.) 2231 and Hyderabad Bench in the case of Essem Intra-port Services (P.) Ltd. v. Asstt. CIT [2000] 72 ITD 228have arrived at the same interpretation as in the case of Sunder Agencies (supra). In the case of Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 67 TTJ (All.) 2472, the Allahabad Bench held that in the absence of evidence in the seized record, it could not be held that the assessee had made cash purchase outside the books of account. In the case of Tarun Goel v. Asstt.....
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....the case of N.R. Paper & Board Ltd. (supra), held that only undisclosed income as defined in section 158B has to be assessed under Chapter XIV-B. On reference by the CIT, the Hon'ble Gujarat High Court held that the Tribunal had committed no error in rejecting the reference application of the CIT. 81. In the case of CIT v. Vinod Danchand Ghodawat [2001] 247 ITR 4481(Bom.), the Assessing Officer completed the block assessment at a total undisclosed income of Rs. 24,66,850 as against the return declaring undisclosed income of the block period at Rs. 10,54,383 only. The addition made by the Assessing Officer on account of Gold Ornaments, investment in bungalow and household expenses were deleted by the Tribunal. On appeal by the Revenue, the Hon'ble Bombay High Court held that the Tribunal was justified in deleting the additions on account of Gold ornaments and Silver articles and utensils which had already been declared by the assessee in the return of wealth which had been duly accepted. The Hon'ble Bombay High Court held, "in the circumstances, Chapter XIV-B has no application to the facts of the case." Further, during the course of search it was found that the assessee had cons....
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....see do not accord with the material 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 section 158BB." 83. In the case of Bhagwati Prasad Kedia v. CIT [2001] 248 ITR 5621(Cal.), during the block assessment, the assessee was called upon to explain the advance taken from a company. The assessee had filed the confirmation letter of loan from the company. The Assessing Officer held that the said loan was a fictitious loan liable to be included as undisclosed income of the assessee during the block period. On assessee's appeal, the Tribunal held that it made no difference whether the material was found during the course of search or was brought on record subsequently or whether it had connection with the material available or found in the course of search. As long as the loan can be treated as undisclosed income it could be assessed under Chapter XIV-B. On assessee's appeal, the Hon'ble High Cour....
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....ing Officer appointed special auditors after the return of undisclosed income at Nil for the block period had been filed by the assessee. The Assessing Officer completed the block assessment on the basis of the report of the special auditors. The Tribunal came to the conclusion that the case was in the nature of a mere change of opinion, particularly, on the basis of the report of special auditors who had given a different colour to the existing facts and was not relatable to any seized material. On Revenue's appeal, the Hon'ble Delhi High Court held that the Assessing Officer was not proceeding within the scope of exercising jurisdiction of Chapter XIV-B. The Hon'ble High Court inter alia observed: "The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence....
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....ed on transactions which, by no stretch of imagination can be said to be undisclosed transactions falling under section 158B of the Income-tax Act, since the transactions in question were disclosed in returns which were the subject-matter of regular assessment. The same ought to have been assessed in the regular assessment and not in the block assessment. We, therefore, affirm the conclusions or findings recorded by the Tribunal with respect to those transactions referred to in other questions sought to be canvassed, may be for additional different reason recorded herein." 86. From the discussion in the foregoing paragraphs, it is quite clear that while making an order under section 158BC, the learned Assessing Officer does not have the same jurisdiction that he has while assessing the income of an assessee under the general provisions of the Act. We find that an order under section 158BC can be made only in respect of undisclosed income while in an assessment order under general provisions, the Assessing Officer can assess all income chargeable to tax under the provisions of the Act. We further find that the preponderance of judicial opinion is that in an order under section 15....
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....f the search in the case of the assessee. The learned Departmental Representative emphasized the amendment to section 158BB(1) by the Finance Act, 2002 with retrospective effect from 1-7-1995 to the effect that the undisclosed income shall be 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 available with the Assessing Officer and relatable to such evidence." The learned Departmental Representative argued that further materials or information relatable to the evidence found during the course of search constituted valid basis for the computation of undisclosed income under section 158BC in the case of the assessee. Secondly, the learned Departmental Representative argued that in this case, the search under section 132(1) commenced on 17-7-1996 and the same was continued up to 22-9-1996 or 30-9-1996, if the statement of Shri Mahesh Gupta on that day was taken into consideration. According to the learned Departmental Representative any enquiry made during this period could at least be said to be relating to the search in the ....
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.... the ordinary course of conduct of business which would have been disclosed by the assessee as and when called upon or required to do so cannot be designated as materials or information found as a result of search. This aspect is duly supported by the various decisions of the Tribunal and the Judgments of High Courts including the jurisdictional High Court enumerated by us in the foregoing paragraphs. In the case of N.R. Paper & Board Ltd. (supra), the Hon'ble Gujarat High Court have at page 742, pointed out that the process under Chapter XIV-B did not disturb the assessments already made, of the previous years, and was only intended to "sniff out what had remained hidden and would not have been disclosed by the assessee". In the case of Shamlal Balram Gurbani (supra), the Hon'ble Bombay High Court held that income disclosed by firm in its audited balance sheet could not be treated as undisclosed income for purpose of block assessment. In the case of Ravi Kant Jain (supra), the Hon'ble Delhi High Court have held that the scope and ambit of Chapter XIV-B is limited to "materials unearthed during search". In the case of Essem Intra-port Services (P.) Ltd. (supra) Hyderabad Bench of t....
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.... it clear that we do not say that such an evidence has to be conclusive. It should be of such nature and quality as to be reasonably considered to be an evidence against the assessee. In the absence of such evidence other materials or information referred to in section 158BB do not come into play. This is the interpretation to the words "such other materials or information" given in the various decisions cited by us. In the impugned order, the Assessing Officer has not brought on record any materials or information found during the course of the search in the case of the assessee himself that might bring the assessee's case in an adverse light. As to the materials found during the course of the search, the learned Counsel for the assessee has categorically declared, "No incriminating material was found or detected" and this contention has not been refuted during the course of proceedings before us. During the course of the search, statements of Managing Director, Shri Ajay G. Piramal, Shri Mahesh Gupta and Shri V.C. Vadodaria were recorded. There appears to be no direct or indirect admission of the falsity of the assessee's claims in these statements. The Department has also not br....
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....have stated earlier or other serious irregularity also? Ans. : Yes, I would be concerned about any serious irregularities. Q.8 : Whether, so far, any irregularities in leasing have been noticed or reported to you? Ans. : The first time I came to know of the likelihood of any irregularity that may have taken place was from the income-tax search party. Q.9 : Let me inform you that your company i.e., Morarjee Mills has purchased industrial gas cylinders during financial years ended 31-3-1995 and 31-3-1996 from M/s. D.D.K. Industries and M/s. M.M. Industries, Bangalore and these cylinders have been leased to one of the Bangalore based company M/s. Miga Gas Private Limited (MGPL) which is managed by one Mr. Krishna Mohan from Bangalore, M/s. D.D.K. Industries and M.M. Industries are proprietary concerns of same Mr. Krishna Mohan who happens to be M.D. of M/s. MGPL. During a search and survey action under sections 132 and 133(a) carried out in March, 1996 on residential and commercial premises of Mr. Krishna Mohan and his concerns. Mr. Krishna Mohan has confirmed on oath at Bangalore under section 132/131 that the whole transaction of the sale of Cylinders on his part and lea....
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....nted out that an order under section 158BC is not a substitute of assessment under the general provisions of the Act and only an undisclosed income found as a result of the search under section 132(1) can be the subject-matter of an order under section 158BC. 92. In the impugned order, the learned Assessing Officer has also referred to and placed reliance upon the Judgment of Hon'ble Supreme Court in the case of McDowell & Co. Ltd. (supra). In our considered opinion the ruling given in the case of McDowell & Co. Ltd. (supra) cannot be invoked and relied upon in an order under section 158BC. As we have seen the assessment of undisclosed income as defined in Chapter XIV-B has to be based on specific discovery during the course of the search either of 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 which has not been or would not have been disclosed for the purposes of the Act, or any expense, deduction or allowance claimed which is found to be false. The operation of the ruling given by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. (supra) is in altogether differ....
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....Pages 1 to 139 of his order. So, for brevity, they are not being reproduced here. However, I do not agree with the conclusion arrived at, which constitutes Pages 139 to 167, for the following reasons. 2. What is to be seen in the case is as to whether the facts which came to light pursuant to the search conducted under section 132 of the Income-tax Act, could come to light in the proceedings relating to regular assessment and whether such facts were brought to light as a result of the enquiries made in the course of the said search. Evidently, such facts could not possibly be brought to light in the course of proceedings relating to the regular assessment. They were discovered only consequent to the search under section 132. The so-called lease agreements were unearthed only as a result of the search operations carried out by the Department against the assessee. It was only due to enquiries made regarding the genuineness of the lease agreements, that the Department could establish that in fact the lease agreements were mere paper work and were not genuine. 3. On the one hand, the assessee contends that nothing incriminating was found and the entire facts were available in the....
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....ration reverted to the assessee itself or to Associate Company belonging to Group of Companies of the assessee. Noticeably, the payment and reclamation of the bulk of the purchase consideration was simultaneous, for which purposes, bank accounts were opened at the bank of the assessee in the names of the supplier of the assets, as well as the assessee itself. Lease Agreements having been executed, cheques in favour of the supplier were issued by the assessee. Pertinently, the transfer of the entire amount from the Suppliers' accounts to those of the lessees came about on the very same date, by way of issuance of cheques by the lessees to the suppliers. On their turn, the lessees channelled about 80 per cent of the purchase consideration to the assessee in most of the cases. In some of the cases, such channelisation was to a Company belonging to the assessee's Group of Companies. This refund was given the garb of security deposit. Evidently, therefore, 85 per cent of the purchase consideration was funnelled back to the assessee on the same date, in this tortuous manner. It was in the nature of compensation that the differential amount had to be paid for concluding the paper transact....
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....ving been claimed by the assessee, it was the assessee who was to prove such facts. Moreover, even the assets were found non-existent. Admittedly, no physical verification thereof was conducted by the assessee, which casts much doubt on behalf of the assessee. Still further, the lessees themselves stated that there were no such assets in existence. The agreements and supporting documents relied on by the assessee were clearly collusive, having been fabricated and engineered so as to achieve the illegal and ulterior motives of claiming 100 per cent depreciation on non-existent assets. So, it is evident that the alleged transactions were nothing but sham one. This surreptitious and clandestine nature thereof was discovered by the Department only as result of the search conducted by it, in which the so-called lease agreements were found and seized. 7. So far as regards the alleged cheque payments, they do not aid the assessee, since a major portion thereof reverted to the assessee and the assessee parted with a meagre 15 per cent as compensation/cost for making these spurious and ersatz arrangements, which were merely a facade to cover the malintents and to thereby illegally claim ....
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....case of The Morarjee Goculkas Spg. & Wvg. Co. Ltd. v. Dy. CIT Spl. Rg. 34, Mumbai, involving Block Period 1-4-1985 to 18-7-1996, we are of the opinion that the following points of difference are required to be referred to the Third Member and for the purpose we direct that the file be put up to the Hon'ble President. Points of difference: "1. Whether on the facts and in the circumstances of the case and in law, the learned Assessing Officer had jurisdiction and justification in including the depreciation allowance in the computation of undisclosed income in the order under section 158BC of the Income-tax Act? 2. If the answer to question No. 1 is in the affirmative, whether grounds of appeal Nos. II to IV raised by the assessee are required to be remitted to the Division Bench, for adjudication thereupon." Third Member Order Per Shri R.P. Garg, Vice President On difference of opinion between the Members of Mumbai Bench, the President, ITAT has referred the following points of difference for my opinion as Third Member: 1. Whether the lease agreements and other documents connected thereto seized from the business premises of the assessee constitute evidence of undis....
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.... had already initiated inquiry in respect of the lease transactions and it appears that the search in the case of assessee was carried out with a view to unearth further evidence/material and on the basis of inquiry and investigation was, otherwise, carried out by the department and the Assessing Officer could not come to the conclusion that the assessee's claim for depreciation should be rejected and the assessment of undisclosed income on that basis cannot be made under section 158BC of the Act, as according to him, an order under section 158BC is not a substitute of assessment under the general provisions of the Act and only an undisclosed income found under section 132, can be subject-matter of an order under section 158BC. He concluded in para 93 of his order by observing that the undisclosed income assessed in the impugned order by the learned Assessing Officer does not fall in the domain of an order under section 158BC for want of nexus with any evidence or material found during the course of the search in the case of the assessee and, therefore, it falls in the domain of the assessments that may be made under the general provisions of the Act. He has devoted a large part of....
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....es came about on the very same date, by way of issuance of cheques by the lessees to the suppliers; that on their turn, the lessees channelled about 80 per cent of the purchase consideration to the assessee in most of the cases, that in some of the cases, such channelisation was to a company belonging to the assessee's Group of Companies, that this refund was given the garb of security deposit, that evidently, therefore, 85 per cent of the purchase consideration was funnelled back to the assessee on the same date, in this tortuous manner, that it was in the nature of compensation that the differential amount had to be paid for concluding the paper transaction in order to enable the assessee to avail the depreciation at the rate of 100 per cent of the supposed cost of assets, and that the evidence found as a result of search indicated in no uncertain terms that the depreciation allowance claimed by the assessee was not there at all to be claimed. In fact, there was no transaction comprising sale and purchase at all and that such transactions are only paper transaction, having no real existence at all and evidently, no valid commercial transaction came about between the suppliers and....
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....iation for assessment year 1996-97 is also misconceived and contrary to law. It is submitted that for the assessment year 1997-98 also the return had not become due on the date of search and therefore the claim of depreciation and interest of Rs. 1,05,55,287 thereon was not undisclosed income of the assessee. It is further submitted that no indiscriminating material was found at the time of search on the basis of which it cannot be validly concluded that there was an undisclosed income or that the transaction relating to assets leased were not duly entered in the books of account. Nowhere there is a finding recorded that the depreciation was a case of a false claim. The fact, however, is that the income disclosed by the assessee, representing lease income from the said transaction, for each of the assessment years, represented income not from any source other than lease income. Therefore, it cannot be said that the depreciation claim was false because it remains undisputed that the assessee company has earned income from leasing of assets, on which depreciation has been claimed. Secondly, the depreciation has been claimed for assessment year 1994-95 and 1995-96 and the transaction ....
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....itors were furnished in the regular assessment itself and it was held that the department was not entitled to question them in the block assessment. It was observed that the block assessment is not a substitute for regular assessment and they should be considered in the regular assessment and not in the block assessment. The Revenue's case be submitted is that the assessee had entered into certain transaction of lease which though have been found duly recorded in the books of account including the income by way of lease money was received and yet it proceeded to hold that the depreciation, which has been claimed or which may be claimed, cannot be allowed as deduction and as such the depreciation claim, is the undisclosed income of the assessee. The depreciation has been claimed for assessment years 1994-95 and 1995-96 which is an evidence that the assessee had recorded the transactions, which is otherwise admitted to have duly been entered in the books of account in respect of assets leased. It is, therefore, submitted that the Assessing Officer has failed to appreciate there can be no warrant in law to hold that such a transaction, which has been disclosed and is thus beyond the p....
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....ogus and it was held to be sufficient to make the addition under this Act. Reliance is also placed on the cases of CIT v. Ajay Kumar Sharma [2003] 259 ITR 2401(Raj.) and the assessee in the case of CIT v. Elegant Homes (P.) Ltd. [2003] 259 ITR 2322(Raj.), which are the cases of cash credit which was found to be bogus on the basis of material seized in the search. He further submitted that the Assessing Officer had made available the statements to the assessee as is evident from various documents referred in assessee's paper book Vol-1 by giving reference to various pages of questions and answers thereto. 7. Rival contentions raised by the Ld. Counsel of assessee Shri C.S. Agarwal and the learned Advocate Shri Boota Singh were considered and the case records and the various precedents relied upon gone through. 8. Block period for which the assessment is to be made under Chapter XIV-B means the period comprising previous years relevant to ten assessment years preceding a previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and also includes in the previous year in which such search was conducted or requisition made, t....
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....dence or the evidence has already come on record or has been disclosed by the assessee in the assessment proceedings, then that evidence cannot the said to be have been found as a result of search and in that case, the material or information available with the Assessing Officer and relatable to such evidence could also not help in computing undisclosed income. The search in this case was undertaken on 19th and 20th July. The statement of three officials of the assessee company was recorded and in these statements no incriminating material was there which could be termed as evidence on the basis of which the undisclosed income could be computed. Certain documents in the form of lease agreement etc. were seized at the time search, but entries based on those documents were already found recorded in the books of account of the assessee, in the sense that the lease rent income on the basis of such lease agreements have been recorded in the books of account, as income of the assessee and the depreciation and interest with regard to the very lease transactions have been claimed as a deduction. Lease agreements may be an evidence by itself but there is nothing in those agreements which co....
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....ind. 'Such' represents the object as already particularized in terms which are not mentioned, and is descriptive and relative word, referring to the last antecedent'. Again the word used in the section are 'as are available' the expression 'available' has been defined to mean in Black's Law Dictionary, Sixth Edition as 'present or ready for immediate use'." 11. Observation given by the Mumbai Bench in the case of Harakhchand N. Jain v. Asstt. CIT [1998] 61 TTJ (Mum.) 2231 are also to this effect : "The words "such other material" used in section 158BB(1) does not mean that the Assessing Officer has got unfettered powers to override the rules of evidence so as to make hypothetical and ad hoc additions". It was held that the Assessing Officer cannot make roving enquires in respect of assessments completed without any information or material in possession during the block period. 12. Hyderabad Bench of the Tribunal in the case of Essem Intra-port Services (P.) Ltd. v. Asstt. CIT [2000] 72 ITD 228taken similar view on the interpretation of such material by observing that- "Chapter XIV-B lays down special procedure for assessment in search cases. The special procedure set....
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.... be filed contain those details, assessee gets away from the clutches of non-disclosure in respect of that income or property etc. because those materials are already available even in the absence of any recourse to search operations under section 132." 13. The statement of Shri Mahesh C. Gupta was recorded on 30th September, 1996 can be taken into consideration only when it was recorded during the course of search. No evidence has been brought on record that the search was continued till 30th September, 1996. On the contrary, the last punchnama drawn is dated 20th July, 1996 and after that date there was no prohibitory order made by the search authority, and therefore, in view of Bombay High Court's decision in the case of CIT v. Mrs. Sandhya P. Naik [2002] 253 ITR 5341it is not possible to extend the search in that case even by passing restrain order under section 132(3) for namesake when the same is not required to be done. No evidence or material has been brought on record to this effect that something was required to be done after 20th July, 1996 or that the search extended was to be extended 30th September, 1996 as claimed by the learned DR. 14. In the case of Elegant H....
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....f shown, that does not prohibit the Assessing Officer to tax that amount in the block period, if that amount has not been taxed in the regular assessment. When the cash credits are not taxed in the relevant assessment years, that can be treated as undisclosed income and can be taxed after search in the block period. This case is also on the similar line as was in the case of Elegant Homes (P.) Ltd. (supra). These two decisions, therefore, in my opinion, are of no help to the Revenue in advancing its case for disallowing the depreciation for which, as aforesaid, there is no material found as a result of the search. 17. It would also be interesting to note that inquiries/investigations have been started even before the commencement of search and the statement of Shri Ajay G. Parimal which was recorded on 20th July, 1996 revealed that these inquiries were made and evidences were collected before the search. The relevant question Nos. 7, 8, 9 and 10 to 13, in this regard are quoted by the Accountant Member in his order in paragraph 91 to conclude that the material has been collected before the search was conducted with regard to these lease transactions. The material, if any, was....