TaxTMI 
TaxTMI 
TaxTMI 
2004 (11) TMI 578
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....lting 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 depreciation allowance and accordingly the ....
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....rred 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 entered into by the assessee during the block period. We reproduce para 6 of the impugned order which reads as follows : (i) The purchase conside....
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....t 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 purchase consideration to the lessee. Can we say that the transaction is supported by genuine commercial transaction between supplier and lessee. It is understanda....
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.... 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 Registered Office. Another address referred to was situated at a Housing Colony called Thali Hudco where one Mr. Anand was residing and he told that there was one Mr. Ramakrish....
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....VPL 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 they were not in possession of BVPL. The learned Assessing Officer further held that there was nothing to support the hypothesis that the BVPL sold its Steam Boilers to....
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....r. 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 printed and used for bill trading without there being any actual sale of assets. Similarly there was a search under section 132 in the case of SRSIL and Shri V. Gopalkrishnan....
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....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 for the purpose of joint inspection of leased assets on 14-7-1997. The assessee, however, sought some time to find a Chartered Engineer for the purpose. As the assessee had al....
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....s 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 without prior permission from IDBI. Therefore, no lien certificate was also incorrect. As to the invoices of M/s. Andhra Organics Corporation, there were no further documents to prov....
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....n 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 learned Assessing Officer held that the transaction claimed by the assessee was not genuine. M/s. Miga Gas Private Limited: 9. The assessee claimed to have purchased 1615 45 Kg.....
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....nce. 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 employees. The statement of Shri Nagabhushan, Chartered Engineer was recorded on 24-7-1996 by ADI, Bangalore. Shri Nagabhushan stated that he had not conducted any physical verificatio....
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....ease 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 to the account of MGPL who in turn on the same date transferred Rs. 76,09,880 to the assessee-company in the guise of security deposit. Thus, the assessee-company got 76 per cent of the ....
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.... 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 that RCOP had paid some rentals to Haritha Finance, Madras and Anamalai Finance, Coimbatore and to no other company. The learned Assessing Officer confronted the assessee with the statement of....
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....de 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 30-6-1994 was fabricated. Even on lease agreement the signature of the Director, Mrs. G. Jayalakshmi who was the wife of Shri G. Venkateswaralu was forged. The bank account in Allahabad Bank, Parel,....
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....97 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 particulars. This letter came back unserved with postal remarks "not known". However, on one of the receipts allegedly issued by M/s. Amity Industries, the address was mentioned as 37/2, Sriram Mand....
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.... 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 regular books of account of ATL. During the course of assessment proceedings a statement was made that the transaction was in fact sale and lease back transaction by ATL. The learned Assessing Officer di....
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....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 confronted with this material. In its letter dated 17-6-1997 the assessee company submitted that SKSCL had approached them through M/s. Gold Crest Finance (I) Ltd. for lease finance. The assessee had arranged for....
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....ould 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 and lease agreement were in existence. In response SKSCL in its letter dated 9-7-1997 submitted that the Sugar Factory of the Company had been erected by M/s. Buckau Wolf (I) Ltd. and they did not acquir....
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....entioned 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 ending 31-3-1994 as available in the assessment records. According to this balance sheet, the additions made to the plant and machinery during the period 15-1-1994 to 31-3-1994 were to the extent of Rs. 3,15,31,329....
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....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 from the Swastik account to the account of the assessee company by way of loan completing the cycle of transaction. The learned Assessing Officer also noted that sale invoice in this case had been raised by the Di....
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.... 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 obtained by RFL. Mere raising of the sale bills did not imply that the sales had been actually effected and the sale was valid. RFL had been declared a sick company by BIFR. There was no specific order of the BIFR either, ....
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....t 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 the transaction was bogus. In his reply Shri Gupta submitted that he was ready to withdraw the claim of depreciation if it was found that the cylinders were not in existence. However, while filing the return of income unde....
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....ce 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 that the address was fictitious. The statement of Mr. Anwar Pasa, Managing Director of BGL recorded on 13-4-1996 revealed that the business of M/s. BGL had not started. He pleaded ignorance about the lease transaction. Regardi....
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....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 claimed the ownership but desired that the Department should find out whether the assets were existing or not at the time of lease. The learned Assessing Officer also took exception to the assessee for not cooperating in joint i....
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....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 conducted in the premises of GSAL on 8-7-1997. A statement of Shri S. Bhatt, President (Finance) of GSAL was recorded and the Minutes Book of GSAL was examined. It was ascertained that there was no Board meeting on 7-7-1994. Shri S. Bhatt a....
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....een 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 Authorities. A reference was made to the Investigation Wing at Madras who reported that no one was available in the company at the given address. Further, DAFBIL belonged to one Shri Rajarathinam, Promoter of the company who was known to have indulged....
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....00 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, in the depreciation chart for assessment year 1995-96 there was no removal of any asset from the Block of assets. Shri V. Kasim Rizvi was located in Madras and his statement was recorded on 25-7-1997. He deposed that the factory was closed and....
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....ails 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 the genuineness of the Resolution but no reply was received. The assessee company placed reliance upon payment having been made by Account Payee cheque. The accounts in the name of M/s. Candy Filters (I) Ltd. and TPBL were opened at Allahabad Bank, Pa....
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....ts 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 indifferent on this aspect of the matter. The exclusive dependence on certificates only was another circumstance to indicate that the assets were only on paper and the documents were prepared to give an apparent colour of genuineness. 20. The assess....
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....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. enjoyed confidence and trust of Shri Gupta. The answers given by Shri Gupta in respect of M/s. Gold Crest Finance (I) Ltd. were very general in nature. It was admitted that there was no written agreement with the financial intermediary. Shri Gupta could not als....
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....essee 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 required fund approached the financier to fund the cost of assets fully or substantially. In the assessee's case, the lessees returned 85 per cent of the cost of asset to the assessee company on the same date. This was conveniently called security deposit. Looking int....
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....td. 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. 2,14,61,000 1995-96 Rs. 25,87,93,435 1996-97 Rs. 6,08,82,323 Total Rs. 34,11,36,758 29. The learned Assessing Officer also held the view that a further disallowance of the assessee's claim of interest payment on its borrowed capital was called for insofar as it r....
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.... 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 transactions of the assessee company were duly entered in the books of account maintained in the regular course of its business activities and there was no case of any transaction having been incurred by the assessee company outside its books of account. There was a search under section 132(1) of the Act conducted at the business premises of the assessee on 19/20-7-1996. Du....
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.... 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 section 158B(b) with retrospective effect from 1-7-1995, the learned Counsel for the assessee argued that so far as the Finance Bill was concerned, the amendment was introduced to have prospective effect. Thus, the amendment as passed by the Legislature was only prospective and, therefore, the amendment could not be given retrospective effect from 1-7-1995. Hence, any ex....
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.... 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 1997-98, in the absence of return of income it could not be said that the assessee made a claim of deduction which was not justified and represented undisclosed income. 34. During the course of hearing before us, the learned Counsel for the assessee strongly argued that the impugned order under section 158BC was required to be quashed for the short reason that there was no nexus....
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.... 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 the assessee but found and determined as a result of search under section 132 or requisition under section 132A could be assessed and, therefore, the search was sine qua non for the block assessment. In support of this contention reliance was placed on a plethora of Tribunal decisions and Court pronouncements compiled in the voluminous paper book filed by the assessee. Reference was made to the decision of the I.T.A.T. in the case of Sunder Agencies v. Dy. CIT [1997] 63 ITD 245(Mum.) that an addition under section 158BC cannot be made unless some direct evidence came to the ....
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.... 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 158BC was not a substitute to regular assessment and only an income "unearthed" as a result of search could form the basis of assessment under section 158BC. If the assessee had already filed return of income for assessment years 1994-95 and 1995-96, disclosing transactions in question, then what was undisclosed. For assessment year 1996-97, the assessee had not even claimed any depreciation or deduction of any interest. The same applied to assessment year 1997-98 also. 39. The learned Counsel objected to the method of computation of undisclosed income in the impugned order also....
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....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 to fall within the category of case decided by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 1481. In the case of the assessee company, all that the learned Assessing Officer had done was to make assumptions and proceed to hold that lease of plant and machinery by the assessee company as "sham" without even appreciating that such income as declared and earned by way of lease was being regularly held as income derived by the assessee from transactions of lease. There was a contradiction in terms inasmuch as if the transactions were bogus or sham as....
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....ng 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 assessee had not recorded the transactions in the books of account or had not disclosed the transactions. It was only upon sustained interrogation and deep scrutiny after allowing an opportunity to the assessee company that a finding could be recorded either way. In such a situation, the instant assessment was beyond the pale of Chapter XIV-B of the Act. The disallowance of the purported claim of depreciation was, therefore, wholly unjustified being not in accordance with Law. In any case, the said sum being notional amount could not be held to be undisclosed income. 43. In respect of disall....
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....aning 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 transactions and in that process referred to voluminous paper books filed by the assessee in connection with this appeal. We shall now briefly enumerate the gist of the submissions of the learned Counsel for the assessee in respect of each of the transactions. (1) M/s. Bagyalakshmi Vegetable Products Ltd. (B.V.P.L): 47. The learned Counsel for the assessee pointed out that in the impugned order, the learned Assessing Officer held that the supplier, Applied Cryogenics Technological Services was a fictitious concern on the basis of alleged investigation report of ADIT, Bangalore dated 10-3-1997. The ....
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....ee 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 transaction. Moreover, the assessee had also subsequently carried out the physical verification through the Chartered Engineer and this fact was brought to the notice of the learned Assessing Officer in the communication dated 7-7-1997, but the same was ignored by the learned Assessing Officer. The learned Counsel also relied upon the various letters submitted to the Assessing Officer on 14-5-1997, 30-6-1997, 7-7-1997 and 23-7-1997. 47.1 In respect of second transaction with BVPL, the learned Counsel for the assessee argued that the allegation that the supplier of the asset was not in existence was n....
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....s 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 company were authorised to do the needful. The transaction was also supported by the certificate issued by a Chartered Accountant, Mr. H. Narayan. As to the statement of Shri S. Kanagaraj, the proprietor of the supplier firm that his firm was not existing and dealing in bill trading only, the learned Counsel for the assessee argued that the assessee had no reason to doubt the genuineness of the bills issued by the supplier. The assessee could also rely on the fact that the same supplier had sold even to other parties. The lessee's denial of existence of supplier was irrelevant as the supplier himself was loca....
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....ugned 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. The lease agreement had been signed by M.D. of NPL and his signature had been attested by his own bankers. Money had actually passed from the assessee company to the supplier. These facts establish that the statements of NPL could not be relied upon as they were inconsistent. As to the Board resolution, the learned Counsel for the assessee relied upon the arguments that the said resolution was given to the assessee company by the M.D. of NPL and, therefore, the assessee was entitled to rely on the Doctrine of Indoor Management. The genuineness of the signatures on the Board resolution had been attested by th....
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....L 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 Chartered Engineer had mentioned in his statement that the MD of MGPL had approached him for issue of installation certificate.That being so, MGPL could not be ignorant of the transaction. The answers to Question Nos. 6 and 7 in the statement of Mr. Krishna Mohan dated 6-3-1996 showed that MGPL was regularly dealing with cylinders and, therefore, there was no reason for the assessee to doubt the genuineness of the transaction. As to the allegation that the supplier DDK Industries was a concern floated by M.D. of MGPL purely for bill trading, the learned Counsel argued that the existence of the supplier was not doubt....
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....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 examination. For these reasons, a request was made to the learned Assessing Officer to give another date for cross examination. During the course of hearing before us, the learned Counsel also placed reliance in this respect on the letters addressed to the Assessing Officer dated 16-7-1997, 23-7-1997 and 25-7-1997. M/s. Raghunath Cotton & Oil Products Ltd. (RCOP) : 50. According to the learned Assessing Officer, the supplier M/s. Agri Commercial Products could not be located at the given address. In this connection the learned Counsel for the assessee argued that this fact in itself could not lead to the conclus....
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....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 letters of the assessee company addressed to the Assessing Officer on 26-6-1997, 22-7-1997, 23-7-1997 and 24-7-1997. M/s. Apollo Tubes Limited (ATL) : 51. In respect of this transaction, the learned Assessing Officer held on the basis of the statement of sales tax authorities that the supplier had never filed sales tax returns and the letter addressed to the supplier dated 16-5- 1997 that the existence of the supplier was doubtful. According to the learned Assessing Officer the material on the basis of which this conclusion was reached was not furnished to the assessee for rebuttal. At any rate, non-filing of the sale....
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....ties. 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 efforts made by the assessee-company in June 2002 had revealed that the supplier, M/s. Maheshwari Engineering Works was actually registered with sales tax authorities. SKSCL had also not denied the existence of the supplier. As to the denial of SKSCL of the lease transactions, it was argued that the statement of SKSCL dated 26-8-1996 had not been furnished to the assessee company for rebuttal. At any rate, the denial was contrary to the records. It was self-serving as SKSCL did not want to accept the sale of equipment. This stand had also been taken by the Assessing Officer in the case of Goldcrest Finance Ltd. There was a bro....
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....ya 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 also considered to be wrong certificate as it referred to Deve Annapoorna Food and Beverages Industries Ltd. The certificate of the Chartered Engineer, Mr. P.G. Srinivas was also not found acceptable on the ground that the same Engineer had issued certificates in many other cases without physical verification of the assets. The learned Assessing Officer also found that the manner in which the transactions were executed suggested that the same were stage managed and not genuine. During the course of hearing before us, the learned Counsel for the assessee argued that the assessee was not confronted with the material on the basis of....
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....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 assets as not an issue but whether there was a genuine transaction. RFL had been found to have raised bills in an indiscriminate manner to a number of parties. The learned Assessing Officer also found that the manner in which transactions were carried out and the movement of money paid by the assessee also suggested that transaction was not genuine. During the course of hearing before us, the learned Counsel for the assessee argued that most of the material referred to by the learned Assessing Officer had not been furnished to the assessee-company for rebuttal. Such material included various letters addressed by the learned Assessin....
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....ing 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 the Board resolution was false. The supplier Bestow did not exist at the given address and the sales tax registration Numbers did not belong to Bestow. The alleged proprietor of Bestow had also confirmed that he was only a name lender who had signed the bills only for earning commission. There was no insurance of assets in question and as a matter of fact, the assets never existed at the time of alleged purchase by the assessee. The assessee-company had also not taken any steps to verify the assets at any point of time. During the course of hearing before us, the learned Counsel for the assessee stated that the assessee was not confronte....
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....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. During the course of hearing before us, the learned Counsel for the assessee stated that the assessee-company was not confronted with the correspondence with IDBI. The learned Assessing Officer had not specified as to on what basis he came to the conclusion that GSAL had issued bills in an indiscriminate manner. The assessee was also not confronted with the correspondence between the Assessing Officer and the GSAL and the statement of Shri S.S. Bhat. The learned Counsel argued that Board resolution was duly signed by the Managing Director. The genuineness of the signatures has not been denied. By a letter dated 12-7-1997 addressed to the A....
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....ower 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 profit and loss accounts. He could also not explain as to why Security Deposit was made with a group company of the assessee. During the course of hearing before us, the learned Counsel for the assessee argued that the assessee was not confronted with the letters written by the learned Assessing Officer to DAFBIL; correspondence with IDBI and other financial institutions; enquiry report of the Assessing Officer of DAFBIL, Police complaint filed by DAFBIL on 7-4-1997 and the statement of Mr. Rizvi on 25-7-1997. The learned Counsel further argued that the contention that no one was available at the company's address and the promoters were absconding....
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....ted. 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 confirm Board resolution remained unanswered. In this case, Candy Filters who allegedly sold the machineries did not receive any consideration as the entire amount was transferred by it to TBPL which was inconceivable. During the course of hearing before us, the learned Counsel for the assessee contended that the assessee was not confronted with the enquiry report of the Department; correspondence with Candy Filters; letter from State Bank of Mysore; letters to TBPL and Bank statements. The learned Counsel argued that in any case purchase of Boiler by Candy Filters from Hemakuta was not denied or disproved by the learned Assessing Officer. The learned A....
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....re 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 carried out in the case of the assessee. The learned Departmental Representative emphasized that in the first instance, lease agreement and some other connected documents were found during the course of the search. Secondly, during the period of search, extensive enquiries were conducted by the Department and all such enquiries could be said to be relating to the search. Therefore, there was no force in the contention of the learned Counsel for the assessee that undisclosed income assessed in the impugned order was not relatable to the search carried out in the case of the assessee. 61. The learned Departmental Representative strongly relied upon the vario....
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.... 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 was also an eye-wash. If the assessee had genuinely made purchase of such colossal amounts, he would have himself satisfied that the assets of such value really existed. Not only that, after having leased the assets, the assessee would have seen to it that the assets continued to be in good shape with the lessees from time to time. 63. The learned Departmental Representative argued that various documents relied upon by the assessee company had not stood the test of enquiry by the Assessing Officer. There was elaborate discussion in the impugned order in respect of each transaction and the learned Assessing Officer had found far too many holes in the sto....
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....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 at any rate, so far as these statements were concerned, the same did not point to any falsity about the assessee's claim of depreciation allowance, and in none of these statements there was any acceptance or admission that the transactions were not genuine. On the contrary, all the Deponents stood by the entries as made in the books of account of the assessee company. 68. The learned Counsel for the assessee vehemently opposed the contention of the learned Departmental Representative that in view of the lease agreements and other supporting documents to the lease agreements having been found during the course of search at the premises of the assessee, there was a ....
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....e 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 had brought on record sufficient material to establish it as a fact that the assessee's transactions were not genuine. He argued that the learned Assessing Officer had held that in all the cases 85% purchase consideration was received back by the assessee. The true facts in this regard were that only in respect of three transactions viz., Niraj Petro Chemicals (NPL), Miga Gases Pvt. Ltd. (MGPL) and Bhagyalakshmi Vegetable Products Ltd.-II (BVPL-II), the security deposits were received by the assessee company. In the remaining cases, the money was paid to the Finance Companies such as Swastik Safe Deposit & Investments Pvt. Ltd., Vulcan Investments Pvt. Ltd., Legend Pharma....
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..... 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), the lease transactions were found to be duly recorded in the books of account of the lessees. Besides, in four cases, viz., Apollo Tubes Ltd. (ATL), Bangalore Gases Pvt. Ltd. (BGPL), Deve Annapoorna Food & Beverages Industries Ltd. (DAFBIL), and Tungbhadra Pulp & Boards Ltd. (TPBL) recording of transactions in the lessees' books of account had not been denied. It was only in the remaining five cases that the learned Assessing Officer had alleged that the lessees had not reflected lease transactions in question in their respective books of account. The learned Counsel argued that the assessee company had no right to dictate as to in what manner the books of account shoul....
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....r 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 contention of the learned Departmental Representative that the statements had been shown to the assessee during the course of proceedings under section 158BC was not entirely true. In many cases, the statements were not shown and in any case merely referring to the statements during the course of discussion was not sufficient. The assessee had specifically asked for copies of such statements. 73. The learned Counsel argued that there were corresponding receipts of lease rentals offered for assessment by the assessee company from year-to-year. These lease rental receipts were substantial. If it were the case of Revenue that there were no genuine lease agreements, how could the ....
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....indings 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 extent of 85 per cent either to the assessee himself or the sister concerns on the same day. In the lengthy impugned order, the learned Assessing Officer has relied upon several facts and circumstances. The learned Counsel or the assessee has challenged the impugned order both on the jurisdiction of the Assessing Officer as well as on the merits of the case. According to the learned Counsel or the assessee the disallowance of the assessee's claim of depreciation in relation to 14 lease transactions as well as disallowance from out of interest paid by the assessee on is borrowings is well beyond the ambit of the provisions of Chapter XIVB on account of absence of any evidence or mate....
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....iven 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 to insertion of Chapter XIV-B, the estimate of the undisclosed income was being made in a summary manner under section 132(5) and 132(7). Chapter XIV-B has substituted the earlier provisions of section 132(5) and with an extension of scope. 77. Soon after the enactment of the provisions of section XIV-B, a controversy arose as to whether the block assessment was a substitute of regular assessment order or the block assessment was in addition to regular assessments. This controversy or doubt has been set at rest by clarification in the Memorandum explaining the provisions of Finance (No. 2) Bill, 1998 in the following words:- "To set at rest the controversy as to whether block assessm....
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....IT [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. CIT [2000] 112 Taxman 77(Chd.) (Mag.), it was held that since during the course of search no material, no document, no books of account etc. were found which could show that the assessee had introduced his unaccounted income in the form of agriculture income, the Assessing Officer had no authority to assume jurisdiction for including in the block assessment, agricultural income as representing the assessee's income from undisclosed source. In the case of A. Sadasivam v. Asstt. CIT [2002] 255 ITR 1(Cal.), the Calcutta Bench of the Tribunal held that the computation of income of block period must be based on evidence found as a result of search and where there was no clear evidence regarding c....
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.... 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 constructed a bungalow. It was found that the assessee had incurred expenses of Rs. 4.16 lakhs. The Assessing Officer, thereafter referred the matter to the Departmental Valuer, who valued the property at Rs. 6.66 lakhs. The Assessing Officer added the difference as undisclosed income. On these facts, the Hon'ble Bombay High Court held, "the above process clearly shows that the Department had not understood the scope of Chapter XIV-B of the Act. By no stretch of imagination the impugned addition fell within Chapter XIV-B." 82. In the case of CIT v. Rajendra Prasad Gupta [2001] 248 ITR 3502(Raj.), the Assessing Officer rejected the return of undisclosed income filed by the assessee and made his own est....
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....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 Court held that the Assessing Officer was not entitled to question in block assessment the loan which was a subject-matter of regular assessment. The Hon'ble High Court inter alia observed as under:- "On a composite reading of the said three parts of the Explanation it is crystal clear that the Legislature thought it fit to make a distinction between the block assessment and the regular assessment. As has been held by the Division Bench in Shaw Wallace and Co. Ltd.'s case [2001] 248 ITR 81(Cal.) that there are three types of income within the meaning of the said Act of 1961, i.e., incomes which are offered for taxation, incomes which are shown in the return but deductions have been claimed wrongly and undis....
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....ecial 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 found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly relatable to sections 132 and 132A." 85. The Hon'ble Bombay High Court have in a series of Judgments held the same view. In the case of CIT v. Dr. M.K.E. Memon [2001] 248 ITR 3103, the assessee admitted undisclosed income of Rs. 75.60 lakhs in the return of income under section 158BC for the block period. The Assessing Officer, however, made an estimate for the entire block period at Rs. 2.33 crores. The Tribunal deleted the addition made by the Assessing Officer to the undisclosed income admitted by th....
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....fficer 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 158BC, the Assessing Officer can subject to special rates of tax under section 113, only the undisclosed income that he determines as a result of search. It is not correct position in Law that while completing an order under section 158BC, the Assessing Officer can make assessment of the entire undisclosed income that comes to his notice during the course of the proceedings under section 158BC. He can make assessment of only that undisclosed income which has a direct nexus with the search proceedings in the case of the assessee. 87. During the course of hearing before us, the learned Counsel for the assessee categorically declared that during the course of search proceedings under section 132, in the case of the asse....
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.... 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 case of the assessee. 88. The learned Counsel for the assessee in his rejoinder, argued that in a search under section 132, the entire official record of a businessman is bound, or most likely, to be found at the premises. There was nothing special about the lease agreement and connected documents having been found at the premises of the assessee. Had these agreements and other documents not been found at the premises of the assessee, the Revenue could have had some case. On the contrary the fact that these have been found at the premises of the assessee only strengthens the case of the assessee that there was no undisclosed income. As to the enquiry being conducted by the Department during the period from 17-7-1996 ....
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..... 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 the Tribunal held that when certain information and details are already recorded in the books of account maintained in the regular course of business, based on which return of income would be filed in normal course, that very same information and details cannot be re-examined in the course of block assessment. We, therefore, do not agree with the contention of the learned Departmental Representative that the lease agreements in question and other connected documents having been found at the premises of the assessee during the course of search under section 132(1), the jurisdiction was conferred upon the learned Assessing Officer to assess undisclosed income in respect thereof. For one thing, none of these documents in them....
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....or 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 brought on record any particular document found during the course of search that might cast a reasonable doubt against the assessee. In the impugned order, the learned Assessing Officer has referred to the annual accounts of the lessee companies found at the premises of the assessee. According to the Assessing Officer, on a careful study of these annual accounts and reports, the assessee should not have been wisened in some cases that the alleged assets had already been hypothecated by the lessees with some financial institutions and, therefore, No Lien Certificate signed by such lessees should not have been accepted or relied upon by the assessee and, as such, the transaction in question should not have been gone through. Th....
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....ngalore, 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 leasing of those cylinders to MGPL has been a total sham. The complete modus operandi of this plain financial deal and payment of kick back and commission to him has been also conferred by him in his statement. Mr. Krishna Mohan has surrendered Rs. 50 lakhs earned by way of commission from such transaction with you and other parties also and he has accepted that cylinders have been sold on bills only for non-existence cylinders. There has been no physical sale of cylinders. Ans. : Thank you. This is news to me which I heard for the first time. Q.10 : Since the above contention of Mr. Krishna Mohan also relates to your company since it is a party to the transaction which is stated as fictitious ab initio, do you know what are its repercu....
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....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 different sphere. We, therefore, hold that the reliance on the Judgment of Hon'ble Supreme Court in the case of McDowell & Co. Ltd. (supra) can be placed only in the orders of assessment under the general provisions of the Act and not in an order under section 158BC. 93. In short, we hold 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 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. During the course of hearing before us, the learned Counsel for the assessee made considerable s....
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....nts 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 assessee's regular books of account, whereas on the other hand, the assessment order is said to have been passed in violation of the principles of natural justice, as certain statements were not made available to it, which adversely affected its case. Once the entire evidence, with the help of which the assessee could establish the genuineness of the lease transactions, was available with the assessee, these statements recorded in the course of search, can hardly be said to be adverse to the assessee. 4. With effect from 1-6-2002, as per section 158BB(1), the undisclosed income is to be computed in accordance with the provisions of the Act on the basis of evidence found as a result of search or requisition of books of account or "other" documents and such....
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....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 transaction in order to enable the assessee to avail the depreciation at the rate of 100 per cent of the supposed cost of assets. 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. Factually, the lessor did not pay any purchase consideration to the supplier and correspondingly, the supplier also did not receive any sale consideration. In fact, there was no transaction comprising sale and purchase at all. No asset can be parted with for a consideration of 15 per cent of the cost thereof. Such transactions are only paper transactions, having no real existence at all. This is fortified by the normal commercial conduct that lessees and suppliers do not open sta....
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....arch 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 100 per cent depreciation. No independent enquiries were made with regard to the genuineness of the parties. No suppliers were produced, clearly pointing to the fact that actually there was no sale transaction. The denial by the lessee was also as per the record and not contrary to it. In fact, the documents were collusive ones and were merely paper transactions amounting to nothing but eye wash. It is not palatable that the assessee, if it had acted bona fide in the alleged purchases, would have satisfied without actual physical inspection of the assets. Likewise, after lease of the assets, if genuine, the assessee would have kept track thereof and would not have casually replied that they were not its responsibility. The documents relied on by the assessee were n....
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....n 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 undisclosed income of the assessee and can be considered to have been found as a result of search so as to entitle the Assessing Officer to assume jurisdiction to treat the depreciation allowance claimed by the assessee as representing undisclosed income of the assessee company in the impugned order under section 158BC. 2. In case the answer to 1 above is in the negative, whether on the facts and in the circumstance of the case the Assessing Officer has the jurisdiction to include the amount of depreciation allowance claimed by the assessee in the computation of undisclosed income for the purpose of Chapter XIV-B of the Act. 2A. The facts in brief are that there was a search under section 132 conducted at the premises of the assessee company on 19-7-1996. It is stated to be finally concl....
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....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 his order to record the gist of the findings given and materials and information relied upon in support of such findings in the impugned order under section 158BC as well as elaborated arguments of the learned Counsel for the assessee in rebuttal. He, however, did not propose to go into the merits of the case made out against the assessee for the reason that the same do not pertain to the domain of proceedings under section 158BC and found it sufficient to say, for the purpose of this appeal the undisclosed income assessed in the impugned order is required to be deleted for the reason of having fallen outside the scope and ambit of the provisions of section 158BC. 4. The Ld. Judicial Member on the other hand held that all the lease agreements in question were discovered during the course of search and they stand in the Panchnama dated 20-7-1996. The search commenced on 19-7-1986 and the statement of Shri Mahesh Gupta was rec....
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....ll 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 the lessees. According to him, upon having discovered the Lease Agreements and other connected documents during the course of search, the Department carried out extensive enquiries relating to the search on the basis of the aforesaid evidence discovered during the course of search, that it was on these inquiries having been conducted that the real intention of the assessee came to the fore; that as such, the undisclosed income assessed was directly relatable to the search carried out in the case of the assessee; that in view of the above appalling circumstances, it cannot be gainsaid that the elaborate inquiry procedure was carried out during the course of search, and was bearing a most direct connection therewith. The Department was, therefore, rightly of the view that the assessee would not have disclosed the impugned income. In these facts, it cannot be said that the addition has been made on the basis of material not relata....
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....aim 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 of lease was duly disclosed in the books of account maintained by it. No claim of depreciation for assessment years 1996-97 and 1997-98 till the date of search nor depreciation was debited in the books of account. Therefore, the assessee on the date of search may or may not have the claimed the depreciation. Again in none of the cases, the lessees have even allegedly denied having entered into such lease transaction. Whereas it has only been alleged by the Assessing Officer that the lessees have denied signing of the lease agreements or have signed without knowing the purpose of it and later on concluded that it is a paper transactions. It was further submitted that many of such purported statements had not been confronted to the assessee for its rebuttal nor the copies thereof furnished. Relying on the decision of the Tribunal in the case of Sunder Agencies v. Dy. CIT [1997] 63 ITD 245(Mum.) it is submitted that section 158BA doe....
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....n 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 pale of Chapter XIV-B of the Income-tax Act. He further submitted that the distinction should be made between a 'fact' and 'inquiry' in light of decision of the Supreme Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 7131. The fact that the assessee had entered into lease transaction was already disclosed in the books of account by declaring the income from leased assets and also claimed the depreciation thereon. This is not a new fact which was found in the course of search. No other material could be considered for the purpose of Chapter XIV-B unless it be relatable to such evidence. The statements shown to the assessee during the assessment proceedings which may have a bearing, came on record only after the search. The learned counsel for the assessee therefore submitted that the Assessing Officer was not justified in disallowing the depreciation and interest relatable to the lease transaction, when he himself h....
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....ant 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, the period up to the date of the commencement of such search or, as the case may be, the date such requisition. Therefore, the assessment for the block period under chapter XIV-B can be made of the undisclosed income only up to the date of commencement of search or the date of the requisition and not of the period thereafter. Section 158BA provides for assessment of undisclosed income as result of search for the block period and computation of income and the computation of undisclosed income for the block period to be made as per the provisions of section 158BB and assessment has also to be made under section 158BC of the block period. The "undisclosed income" for which the assessment is to be made, is defined in section 158B(b) which include money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuab....
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....oks 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 could establish that assessee had undisclosed income. On the contrary, disclosure of income has been made by the assessee in the books and return of income pursuant to these very lease agreements. The department has no doubt collected the material subsequent to raid, but that may not be very material and relevant for framing the assessment under Chapter XIV-B of the case because of the mandate given under section 158BB it has to be the income computed on the basis of evidence found as a result of search and not otherwise. If any material is collected by the Revenue after the search, that may not give authority to department to make the computation of undisclosed income under section 158BB or assessment under section 158BC of the Act. Reference in this connection may be had to the decision of Jodhpur Bench of Tribunal in the case of Chitra Devi v. Asstt. CIT [2002] 77 TTJ 640 wherein it is held that "Further the addition was made on the basi....
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....ort 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 out in Chapter XIV-B is a separate set of rules, by itself. For the purposes of this Chapter, the terms 'undisclosed income' is defined. The definition of the term 'undisclosed income' is given in an 'inclusive' manner, but it is again made clear under section 158B(b) that 'disclosed income' includes money, bullion, jewellery etc., only if they represent income or property which has not been or would not have been disclosed for the purposes of this Act. Therefore, we find that even though 'disclosed income' is defined in an 'inclusive' manner, the scope and extent of the term 'undisclosed income' for the purposes of this Chapter is contingent upon the fact that the undisclosed income should be borne out of material representing income or property which has not been or would not have been disclosed by the assessee for the purposes of this Act. When certain information and details are already furnished in the returns of income or statements accompanying t....
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....s 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 Homes (P.) Ltd. (supra) before the Jaipur Bench of Rajasthan High Court, cash credit addition was made by the Assessing Officer in assessment under Chapter XIV-B of the Act, which was deleted by the Tribunal on the ground that entry shown in the regular books of account and therefore, it cannot be stated that income was undisclosed income of the assessee. This finding of the Tribunal was vacated by the High Court by upholding that the Tribunal has committed an error in holding that the entries were found in the regular books, and therefore, it cannot be treated as undisclosed income of the assessee, because, the same was contrary to the provisions of Chapter XIV-B and the undisclosed income was found on the basis of material seized, and therefore, should be treated as undisclosed income of the assessee, as per the scheme of special assessment. In the body of the judgment of the High Court, it is noted that the admitted fact was the search was carried on at th....
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....egard 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 thus collected either before the search or it has been collected after the search proceedings were over. There is no material on record to suggest that any evidence has been collected in this case by the Revenue during the course of search or as the result of the search, on the basis of which the computation of undisclosed income under section 158BB or under section 158BC could be made. The assessment made under section 158BC is thus not within the ambit of Chapter XIV-B of the Act and it is required to be vacated. In these circumstances, as observed by the learned Accountant Member, it is not necessary on this respect, at this stage, to go into the merits of the case made out by the assessee in the impugned order, which would be for the department to make the best use of material so gathered before the search as well as after search proceedings. Insofar as this assessment is concerned, it would be sufficient to say that undisclosed income, the assessed in the impugn....