TaxTMI 
TaxTMI 
2011 (4) TMI 1356
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....cted on the appellant company in its individual corporate capacity. In the absence of such a search on appellant company, no assessment can be framed under s. 158BC. Hence, the block assessment order dt. 28th Sept., 2001 is liable to be quashed. 8. The assessment order dt. 28th Sept., 2001 passed under s. 158BC(c) r/w s. 143(3) is further illegal, since no notice under s. 143(2) was issued to the appellant company prior to passing the impugned block assessment order." 2. Ground No. 8 was not pressed and the same is dismissed as not pressed. As far as ground No. 7 is concerned, the facts material for adjudication of the same are as follows : The assessee is a company in the business of multimedia and its activities are related to providing various services to its clients i.e. editing, graphics, dubbing etc. for new advertisement films supplied by the clients. M/s Radan Multimedia Ltd. is proprietor of sound recording and video processing studio styled as "Magikraft" operating from 8, Dhanraj Mahal, Apollo Bunder, Mumbai-1. The company was incorporated on 1st May, 1986 and its old name was Radan Tapes & Tubes Ltd. A search and seizure action under s. 132(1) of the I....
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....an event the framing of assessment in the individual name of "M/s Radan Multimedia Ltd." is invalid and the assessment is liable to be quashed on this ground. Though ground No. 7 is not broad enough to cover the plea sought to be raised by the learned counsel for the assessee, we deem it fit to consider the same for the reason that the said plea being a legal plea which can be considered and decided on the basis of material on record. 4. In the decision of the Hon'ble Allahabad High Court in the case of Smt. Vandana Verma (supra) it has been held as follows : "In view of the provisions of s. 132 of the IT Act, which specifically lays down the conditions precedent for authorizing any officer to enter and search the premises that he had information in his possession in consequence of which he has reason to believe that the person concerned is in possession of money, bullion etc. and only then, he will sign the warrant of authorization. In the instant case, undisputedly, warrant of authorization under s. 132 of the IT Act was issued in the joint name of Mudit Verma and Vandana Verma and as such, the authority who signed the warrant had information in his possessio....
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....rightly held that assessment could not be framed in an individual capacity but it should be framed either as AOP or as BOI." 5. The learned counsel for the assessee submitted that it could be argued on behalf of the Revenue that the word "and" does not appear in the description of persons in whose names warrant of authorization was issued in the present case, whereas in the case decided by the Hon'ble Allahabad High Court in the case of Smt. Vandana Verma (supra), the warrant of authorization was issued in the names of two persons "Mudit Verma and Mrs. Vandana Verma" and, therefore, the case of the assessee is distinguishable. In this regard learned counsel for the assessee relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Dr. Mansukh Kanjibhai Shah vs. Asstt. CIT (2010) 41 DTR (Ahd)(Trib) 353, wherein the facts were that the authorization was issued in the name of "K.N. Shah Charitable Trust, Mansukh Bhai K. Shah". The Hon'ble Tribunal held as follows : "The warrant of authorization was also executed upon the bank manager of Indian Overseas Bank in respect of several bank accounts of the trust. Thus no wa....
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....assessment because the warrant of authorization under s. 132 of the Act is invalid because it was issued in the name of "Cargo Group concerns". It was in this context that the Hon'ble High Court held that CIT(A) could not have considered the issue of validity of assessment on the ground that the search under s. 132 of the Act itself was invalid because of the warrant of search not being in the name of the assessee. The Hon'ble High Court further on merits made the observation that such defects will not vitiate the order of assessment. 7. Further reliance was also placed on the decision of the Bangalore Bench of Tribunal in the case of Embassy Classic (P) Ltd. & Anr. vs. Asstt. CIT, ITA Nos. 811, 976 & 938/Bang/2009, asst. yr. 2005-06 order dt. 22nd July, 2010, wherein the Tribunal has held as follows : "We considered the issue. The Allahabad High Court in the case of CIT vs. Smt. Vandana Verma (2009) 227 CTR (All) 388: (2009) 31 DTR (All) 214 was in fact examining the case where a joint warrant of authorization was issued. Both the persons mentioned in the warrant were living in the same premises. It was in such circumstances, the Hon'ble Court held tha....
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....pect that such books of account, other documents, money, bullion, jewellery or other valuable articles or things have been kept and are to be found in Sadhana Rayon House, 2nd Floor, Dr. D.N. Road, Fort, Mumbai." 10. In the decision of the Hon'ble Allahabad High Court in the case of Smt. Vandana Verma (supra) the warrant of authorization was in the names of "Mr. Mudit Verma and Mrs. Vandana Verma". We have already seen that the Hon'ble Allahabad High Court while deciding this issue had laid great emphasis on the expression "and" and had come to the conclusion that the warrant was issued in the joint names of Mr. Mudit Verma and Mrs. Vandana Verma. In the present case however, the entities involved are three limited companies. There is only a "comma" after the names of each of the companies. Admittedly these companies had common office premises. In such circumstances we are of the view that it cannot be said that the warrant of authorization is in the joint names of three companies. The warrant of authorization in the present case is a common warrant in the case of the three companies. Thus the facts in the case of Smt. Vandana Verma (supr....
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....e persons in-charge of business namely partners and directors of the business concerns, were authorized to be searched. We, therefore, find no merit in the assessee's ' challenge against the validity of assessments." The above observations of the Hon'ble Kerala High Court are clearly applicable to the facts of the present case since the three companies had a common office. For the reasons given above we reject the arguments of the learned counsel for the assessee that the block assessment order in the present case is invalid. Ground No. 7 raised by the assessee is accordingly dismissed. 12. We will now deal with the merits of the addition made by the Revenue authorities, which are challenged by the assessee in ground Nos. 1 to 6, which read as follows : "1. On the facts and in the circumstances of the case, apparently the learned CIT(A) erred in holding that the appellant company was fully covered by the provisions of Chapter XIV-B of the IT Act, 1961, and that the AO was right in assuming he had jurisdiction under provisions of the said chapter. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the ....
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....or vehicles ₹ 73,849 (3) Furniture and fixtures ₹ 96,938 (4) Plant and machinery ₹ 1,18,07,154 15. The amount of ₹ 1,04,15,121 was addition to the asset and was written off at 100 per cent claimed as depreciation. The amount of ₹ 1,04,15,121 claimed as depreciation comprised of the following items, i.e. : A. (i) Purchase of films from Gemini Oil (P) Ltd. (Bill No. Misc. 01) ₹ 34,56,000 (ii) Purchase of films from Gemini Oil (P) Ltd. (Bill No. Misc. 02) ₹ 45,00,750 (iii) Purchase of films from Gemini Oil (P) Ltd. (Bill No. Misc. 03) ₹ 20,45,300 ₹ 1,00,02,050 B. Payment to Jethamal Suthar for carpentary work ₹ 4,13,071 ₹ 1,04,15,121 It was the claim of the assessee that a payment of ₹ 4,13,071 was made to Jethamal Suthar for carpentry work pertaining to the making of furniture etc., and instead of being debited to the addition to furniture has been inadvertently debited under the head 'purchase of films'. Similarly the purchases of films from Gemini Oil (P) Ltd. amounting to ₹ 1,00,02,050 was inadvertently debited to addition to assets and 100 per cent depreciation was claimed on th....
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....As can be observed from the claim as made above by the assessee for depreciation as well as deduction on account of purchase of films and hire-purchase charges, the purchases were from M/s Gemini Oil (P) Ltd. and M/s Sudeep Mercantile (P) Ltd. who in turn had purchased the machineries from Delhi based parties, whose details are as follows : (a) M/s New India Electronics, 21, Archana, Bhagirath Palace, Delhi-100006. (b) M/s Video World, Red Fort Road, Jama Masjid, Delhi-100006. (c) M/s Sonic Communication, Fatehpuri, New Fountain, Delhi-100006. (d) M/s International Data Products, Near Red Fort, Chadani Chowk, Delhi-100006. (e) Ravi Telecast Co., Connaught Place, New Plaza, New Delhi-110001. 20. In the course of assessment for asst. yr. 1997-98, the AO noticed that M/s Gemini Oil (P) Ltd. and M/s Sudeep Mercantile (P) Ltd. are concerns having the same registered office address. Therefore, a survey under s. 133A of the IT Act was conducted on 23rd March, 1999 in the office of M/s Radan Multimedia Ltd., Aradhana Rayon House, Dr. D.N. Road, Mumbai, wherein it was found that M/s Radan Multimedia's chairman is Ashok Seth, its Vice President is Mr. Dinesh Seth, his brother, who ....
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.... the order of assessment dt. 31st March, 1999 passed under s. 143(3) of the Act for asst. yr. 1997-98. 21. Though the survey was done on 23rd March, 1999 and order under s.. 143(3) of the Act was passed on 31st March, 1999 for asst. yr. 1996-97, search under s. 132 of the Act was conducted only on 7th Aug., 1999. During the course of search action in the office premises of Shri Dinesh Seth, Director of M/s Radan Multimedia Ltd. (the assessee herein) three blank and brand new bill books of New India Electronics and M/s Video World were found and were seized as Annex. 'A2' to 'A5' to the Panchnama. 22. The assessee company claimed purchases of plant and machinery/capital goods for its studio styled as 'Magikraft' from following parties from Delhi as under : (a) During the financial year 1992-93 (asst. yr. 1993-94) new machinery worth ₹ 1,39,36,300 (b) During the financial year 1994-95 (asst. yr. 1995-96) new machinery worth ₹ 1,75,00,200 (c) During the financial year 1995-96 (asst. yr. 1996-97) new machinery worth Rs, 3,65,76,454 Total ₹ 6,80,12,954 These machineries were claimed to have been purchased from the following five Delhi....
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.... any such concerns i.e. New India Electronics and Video World and Ravi Telecast or any other concern dealing and recording of electronic equipments. (b) The assessee company had never claimed any transport expenditure in their P&L a/cs for the alleged transport of plant and machinery/ capital goods worth crores of rupees from Delhi to Mumbai. (c) No delivery challans showing physical delivery of the plant and machinery were found during the course of search action at the business premises of the assessee company. (d) No evidence showing the payment of octroi was found during the course of search action for transport of the plant and machinery/capital goods from Delhi to Mumbai. Even the assessee has never claimed any octroi payments in their P&L a/cs. (e) No insurance expenditure for insuring the plant and machinery worth of crores of rupees was found during the course of search action. (f) No correspondence of any kind was found to have been made by the assessee company with the five Delhi based parties regarding purchase of plant and machinery, the terms and conditions for purchase of such plant and machinery/capital goods, mode of payments, the system of delivery to be foll....
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.... seven years, it was not possible for it to hunt the 5 Delhi based parties with whom the assessee did not have any subsequent transactions. The assessee also submitted that the cheques for payments were crossed cheques and not bearer cheques and that no bearer cheques were issued. The assessee also explained that it had not debited any transport charges for carrying plant and machinery as suppliers themselves supplied the same at assessee's business premises. It was contended that the assessee as purchasers of machinery cannot be made answerable for a wrong address on the bill or for wrong telephone numbers printed on the bills of the suppliers of machinery or that the assessee did not have transport bills. Since delivery was given at assessee's business premises there was no delivery challan with the assessee. It was also argued that the purchases cannot be designated as bogus merely because correspondence did not exist. The more important contention was that on physical verification of inventory all the machineries were found in the assessee's business premises. It was submitted that on physical verification, the existence of the assets having been established merely ....
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....partment to be present. The assessee requested that identification would become simpler if the same was made as per the list of purchases of machineries submitted to the Department by the assessee year-wise. The inventory made by the Department being incomplete it was specifically brought to notice of the Department i.e. Dy. Director of IT, Inv. Unit-VIII(2), that certain items of machineries which existed remained to be physically verified by the Department, as the same were not included in the list/inventory prepared by the Department. This was brought to the notice of the IT Department vide assessee's letter dt. 16th Sept., 1999 filed with the office of the Dy. Director of IT, Inv. Unit-VIII, on 17th Sept., 1999. The Department deputed its officer to verify the plant and machinery which it had omitted to include in the inventory of machineries made at random. A detailed check of the machineries existing was again made and the Department found and confirmed its mistake in the matter and a final list was annexed to assessee's affidavit dt. 21st Sept., 1999 which was accepted by the Department. The said list was after due verification based on year-wise purchase of machiner....
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.... follows : List-B Sl. No. Item as mentioned in the List 'A' above Description of the item as per bill Items claimed as identifiable in the survey inventory dt. 6-8-1999 Description of the item in the inventory Remarks (A) (B) (C) (D) (E) (F) 1. Bill dt. 13-10-92 of Sonic Comm. appearing at serial No. 1 Production editor (Netacam) comprising of key board, interface modules, display monitor, one tone, record pay back adaptor valued ₹ 19,13,000 Item at serial No. 16 of page No. 29 Sony remote control for umatice player make-editing-BVE-600/V/FG /10/46/1984 The description in Col. (c) differs with description in Col. (E) 2. Bill dt. 14-10-92 of New India Electronics appearing at serial No. 2 CVR-65 Betacan SP professional studio editing recorder, PAL systme with dynamic tracking-2 numbers Item at serial No. 15 on page No. 30 Sony edit recorder-play back of video make-micro 1202/BVW-60 The description in Col. (C) differs with description in Col. (E) Component 3. Bill dt. 15-10-92 of Ravi Telecast Co. appearing at serial No. 3 Component post production vision mixer with 12 inputs, BVEI/P2/ colour films and black 7 bus mix effects, croma key and ....
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....hi based parties and that it was not clear as to how those plant and machineries came into possession of the assessee. Thereafter, the CIT(A) has gone on to hold that ownership of the machinery should be proved by the assessee to claim depreciation. We in the circumstances have to hold that physically all the machineries were found at the time of survey/search. The AO has not dealt with the above explanation of the assessee. The AO thus disallowed the claim for depreciation in the various assessment years comprised in the block period and treated the same as undisclosed income for the block period. The following chart gives the depreciation so disallowed and treated as undisclosed income : Asst. yr. WDV Depreciation @ Depreciation disallwoed 1993-94 1,39,36,300 (purchased during financial year 1992-93) 25% 34,84,075 1994-95 1,04,52,225 25% 26,13,056 1995-96 78,39,169 25% 19,59,792 1996-97 58,79,377 25% 14,69,844 1997-98 44,09,533 25% 11,02,383 1998-99 33,07,150 25% 8,26,787 1999-2000 24,80,363 25% 6,20,090 2000-01 18,60,273 25% 4,65,068 1995-96 1,75,00,200 (purchased in f. y. 1994-95) 25% 43,75,050 1996-97 1,31,25,150 25% 32,81,287 1997-....
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....s also cropped up during the proceedings under s. 158BC, the disallowance was being made on substantive basis in the block assessment. Further, the AO observed that disallowance of ₹ 53,21,021 was made by the AO during the course of assessment proceedings under s. 143(3) for asst. yr. 1998-99. This assessment was contested by the assessee before appellate authorities and the appeal for the year was pending. According to the AO, the seized papers revealed that the financial charges are claimed in relation to bogus purchases of plant and machinery and therefore not allowable. Therefore, the disallowance of financial charge for asst. yr. 1998-99 at ₹ 53,21,021 was also made in the block assessment under s. 158BC. However, since the addition was made on substantive basis during the course of assessment under s. 143(3), disallowance was being made in the block assessment on protective basis. 32. Before CIT(A) the assessee raised issues with regard to validity of the impugned additions made in a block assessment proceeding under Chapter XIV-B of the Act on the ground that no material was found in the course of search. On this objection CIT(A) held as follows : "Blank b....
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....e assessee has raised grounds 1 to 6 which we have already set out in the earlier paras of this order. 34. We will take up for consideration ground No. 1 with regard to validity of the additions made under Chapter XIV-B of the Act raised in ground No. 1 referred to above. 35. On the above ground the learned counsel for the assessee submitted that in asst. yr. 1996-97 in the course of assessment under s. 143(3) of the Act, the AO in order to verify the claim of purchases from 5 Delhi parties conducted a survey on 23rd March, 1999 and all the evidence, purchase vouchers of machinery and books of accounts were before the Department. On the basis of survey proceedings the addition was made by the Department in for asst. yr. 1996-97 for assessment order. All these facts were known to the Department at the time of survey and this fact is mentioned in the remand report of the AO filed before CIT(A) which is at p. 430 of Vol. II (para 31) and the assessment order under s. 143(3). No addition can be made in the block assessment on the basis of documents which are already seen by the IT authorities and which are not found during the course of search. It was also admitted by the AO in the b....
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.... are these lying at your office ? Ans. I have no idea. It is possible the party might have left them here. Q. 73. I am showing you Annexs. A-4 and A-5 seized from your premises. What are these ? Ans. They appear to be delivery challan and invoice book of Video World. Q. 74. Why are these lying at your office ? Ans. I don't know how it has come here. Q. 75. You have purchased goods from New India Electronics and Video World and have claimed depreciation thereon. The only evidence you have regarding transactions with these two concerns is their sale bills. The blank sale bill books of these concerns have been seized from your office. Is it possible that you yourself have prepared these bills ? Ans. I state that if these bills were found from my office then the only reason is that they may have been left behind by the parties due to an oversight. It is often seen that many people forget their bags, diaries, bill books, wallets which they collect subsequently in case they remember otherwise remains at our office. Q. 76. Do you want to say anything ? Ans. In addition to my answer to question 75, I have to state that above invoices books were not. found in my possession or i....
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....0th Nov., 1994. The same was revised on 15th March, 1995. A copy of the revised return forms part of the compilation at pp. 746-747 of paper book IV filed by the assessee before us. The assessment for the asst. yr. 1994-95 was completed under s. 143(3) of the IT Act, 1961 on 30th Oct., 1996. The assessee had claimed depreciation of ₹ 62,15,627.65 on plant and machinery as per the depreciation chart filed along with the computation of total income, copies of which are at pp. 748-749 of the assessee's paper book. The claim of depreciation on plant and machinery was allowed by the AO in the order passed under s. 143(3) of the Act. 41. The IT return for the asst. yr. 1995-96 was filed on 30th Nov., 1995. A copy of the said return forms part of the compilation at pp. 750 and 751. A copy of the audited balance sheet, P&L a/c as at 31st March, 1995 together with tax audit report was also filed along with the return of income. The assessment for the asst. yr. 1995-96 was completed under s. 143(3) of the IT Act, 1961 on 27th Feb., 1998. The assessee had claimed depreciation on plant and machinery at ₹ 85,07,205.49. The same was allowed in the order passed under s. 143(3) of....
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....en claimed by the assessee at ₹ 87,82,392. The assessee had claimed deduction on account of finance charges paid to Alpic Finance (lease rent), Stock Pole (hire-purchase payment) and IDBI (compensatory finance charges) in all totalling to ₹ 54,21,081. In the order of assessment under s. 143(3) of the Act, the AO disallowed depreciation of ₹ 86,81,527 and interest of ₹ 2,16,457. The AO relied on findings of asst. yr. 1996-97 while making the aforesaid additions. 45. For asst. yr. 1999-2000 the return of income was not due as on the date of search viz., 7th Aug., 1999. In terms of the provisions of s. 158BB(1)(d) of the Act, where the due date of filing the return of income under s. 139(1) of the Act has not expired, the undisclosed income has to be computed based on the entries made in the books of account or other documents maintained by the assessee in the normal course of search (sic'business), before the date of search. Admittedly such entries in the books of account regarding depreciation as well as finance charges existed in the case of the assessee. 46. It can be seen from the above narration of the facts of disclosure of the claim for depreciati....
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....me in s. 158B(b) with retrospective effect from 1st July, 1995. 49. Explanation to s. 158BA(2) inserted by the Finance (No. 2) Act, 1998 with retrospective effect from 1st July, 1995, reads as follows : "Explanation : For the removal of doubts, it is hereby declared that' (a) the assessment made under this chapter shall be in addition to the regular assessment in respect of each previous year included in the block period; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period. (c) the income assessed in this chapter shall not be included in the regular assessment of any previous year included in the block period." 50. The provisions of s. 158BB(1) of the Act lay down the computation of undisclosed income of the block period. The same reads as follows : "158BB. Computation of undisclosed income of the block period.'(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a resul....
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....able with the AO and relatable to such evidence" has further widened the scope of making assessment of undisclosed income. 52. In Mange Ram Mittal vs. Asstt. CIT (supra), the Tribunal examined the scope of the above amendments to the various provisions of Chapter XIV-B of the Act, for making block assessments, in the following words : "The computation of undisclosed income of the block period in a block assessment must be related to evidence found as a result of search proceedings. The Finance Act, 2002, by the amendment to s. 158BB with retrospective effect from 1st July, 1995, added the words 'and relatable to such evidence' : the undisclosed income has to be computed on the basis of evidence found as a result of search and/or other materials or information relatable to such evidence. At the same time it cannot be concluded that 'undisclosed income' to be computed under the provisions of s. 158BC should be confined to the evidence found during the course of the search. Even after the amendment by the Finance Act, 2002, with retrospective effect from 1st July, 1995, there is scope to let in other materials or information gathered by the AOs during the c....
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....to block assessment under the provisions of s. 158BC." 53. We shall now proceed to examine the sequence of events to find out, if there was evidence found as a result of search and whether such other material or information relatable to the evidence found in the course of search was gathered by the AO to disallow depreciation on plant and machinery and the finance charges. In the course of assessment for asst. yr. 1997-98, the AO noticed that M/s Gemini Oil (P) Ltd. and M/s Sudeep Mercantile (P) Ltd. are concerns having the same registered office address. The AO further noticed that all items supplied to Radan Multimedia Ltd. by Gemini Oil (P) Ltd. and Sudeep Mercantile Ltd. were purchased from four Delhi based parties. Therefore, a survey under s. 133A of the IT Act was conducted on 23rd March, 1999 in the office of M/s Radan Multimedia Ltd., Aradhana Rayon House, Dr. D.N. Road, Mumbai, wherein it was found that M/s Radan Multimedia's chairman is Ashok Seth, its Vice President is Mr. Dinesh Seth, his brother, who in turn is director of Gemini Oil (P) Ltd. Thereafter, the AO found that the 5 Delhi based parties from whom the machineries on which depreciation as well as fi....