TaxTMI 
TaxTMI 
2011 (4) TMI 1356
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....no search under s. 132 was conducted 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 u....
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....ent 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 possession and had reason....
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....hat 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 warrant of authorization is issued in the name of as....
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.... 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 that warrant was issued and search was carried out as a single unit....
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....aluable 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 (supra) decided by the Hon'ble Allahabad High Court and the case of the assessee are materially different. 11. With r....
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....n 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 AO in treating 'purchase of plant and machinery and films from Delhi parties', as fictitious and/or bogus, during the block period. 3. On the....
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....was addition to the asset and was written off at 100 per cent claimed as depreciation. The amount of Rs. 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) Rs. 34,56,000 (ii) Purchase of films from Gemini Oil (P) Ltd. (Bill No. Misc. 02) Rs. 45,00,750 (iii) Purchase of films from Gemini Oil (P) Ltd. (Bill No. Misc. 03) Rs. 20,45,300 Rs. 1,00,02,050 B. Payment to Jethamal Suthar for carpentary work Rs. 4,13,071 Rs. 1,04,15,121 It was the claim of the assessee that a payment of Rs. 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 Rs. 1,00,02,050 was inadvertently debited to addition to assets and 100 per cent depreciation was claimed on the same instead of debiting and claiming the same as a revenue expenditure in connection with the business of the assessee. The book entry tre....
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....om 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 in turn i....
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....der 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 Rs. 1,39,36,300 (b) During the financial year 1994-95 (asst. yr. 1995-96) new machinery worth Rs. 1,75,00,200 (c) During the financial year 1995-96 (asst. yr. 1996-97) new machinery worth Rs, 3,65,76,454 Total Rs. 6,80,12,954 These machineries were claimed to have been purchased from the followi....
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....ted that they were not aware of 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 pa....
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..... The assessee also submitted that after lapse of 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 existe....
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....ment required Shri S.A. Lateef, the officer of the Department 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....
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....d Sudeep Mercantile 15,00,000 20. 31-1-1996 1996-97 Video World Sudeep Mercantile 29,42,000 The AO was of the view that out of the above machineries the following machineries listed in List B below did not tally with the description as given in List-A. List-B prepared by the AO is as 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 Rs. 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....
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....form of a chart filed before us. On perusal of the same, we are of the view that the stand of the assessee in this regard has to be accepted. Further we also find that the CIT(A) in his order at p. 46 para 4.3 has categorically held that all plant and machineries were found at the time of survey/search. It is the stand of the CIT(A) that existence of plant and machineries available at the business premises of the assessee are not supported by purchases from 5 Delhi 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 Depreciatio....
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....1,05,277 82,79,208 3. 1998-99 Interest on hire-purchase agreement 30,51,312 Interest on lease agreements 15,69,169 Compensatory financial charges 33,14,587 Lease rent 20,85,143 1,00,20,211 4. 1999-2000 Interest on hire-purchase agreement 33,05,128 Interest on lease agreements 33,14,587 Compensatory financial charges 18,86,160 85,05,875 5. 2000-01 Interest on hire-purchase agreements 45,55,499 Interest on lease agreements 33,23,668 Compensatory financial charges 18,18,410 96,97,577 Total financial expenses 4,08,03,042 31. The AO found that the disallowance of financial charges for asst. yr. 1996-97 amounting to Rs. 43,01,071 was made by the AO during the course of assessment proceedings under s. 143(3) which was subsequently set aside by the CIT(A) for fresh consideration in the light of submissions m....
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....f N.R. Paper & Board Ltd. & Ors. vs. Dy. CIT (1998) 146 CTR (Guj) 612has thus been thus nullified. This definition of undisclosed income has been made with retrospective from 1st July, 1995. In the present case, with blank bill books from the Delhi parties found at the business premises of the appellant company along with blank letterheads of the Delhi parties, there was prima facie evidence that purchases from Delhi parties were not genuine. The depreciation was allowed on the purchase of plant and machinery from Delhi parties in the regular' assessment. Since the payments to Delhi parties were made by crossed cheques, the element of undisclosed income relating to wrong deduction allowed on account of depreciation was existing. In view of this, appellant company was fully covered by the provisions of Chapter XIV-B of the IT Act, 1961. As per amended definition of undisclosed income under s. 158B(b), block assessment covers depreciation allowance, financial expenses and other expenses allowed in regular assessment but found to be false after search proceedings. Issue raised by appellant is thus rejected." 33. On merits of the additions made by the AO, the CIT(A) confirmed th....
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....ntion to para 3.3 of CIT(A)'s order and his conclusions on this issue and relied on the same. His further submission was that the definition of "undisclosed income" as given in s. 158B(b) of the Act was amended with retrospective effect to cover even cases where it is found as a result of a search that any allowance, deduction, or expense is found to be false. He referred to the statement of Shri Dinesh Seth, recorded on 6th Aug., 1999 at the residence and business premises of the group wherein he was unable to give the names of the persons who dealt with the assessee on behalf of the five Delhi parties. Our attention was drawn to question Nos. 15 to 32 and answers thereto, which clearly go to show that the director was unable to explain any aspect like mode of delivery, assembling etc. of the machines. Further attention was also drawn to question Nos. 71 to 75 regarding explanation with regard to existence of bill books of the two Delhi based parties who allegedly supplied machineries to the assessee. The statements in this regard are as follows : "Q. 71. I am showing Annexs. A-2 and A-3 seized from your premises. What are these ? Ans. They appear to be delivery challan ....
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....bmissions. In this appeal we are concerned with the block period 1st April, 1989 to 7th Aug., 1999. The assessment years involved would be therefore asst. yrs. 1989-90 to 1998-99 and broken period from 1st April, 1999 to 7th Aug., 1999 the date of search. The assessee was incorporated on 1st May, 1986 and its old name was Radan Tapes & Tubes Ltd. The new name was approved by Registrar of Companies w.e.f. 28th Dec., 1995. The said company was filing its IT returns for various assessment years after its incorporation. The returns were filed as nil returns upto the asst. yr. 1992-93. Commercial production of the company commenced on 14th Oct., 1992 i.e. during the asst. yr. 1993-94. 39. The IT return for the asst. yr. 1993-94 was filed by the assessee on 30th Dec., 1993. A copy of the said return forms part of the compilation at pp. 742-743 of paper book IV filed by the assessee before us. The computation of income is at p. 744. At p. 745, the depreciation chart has been annexed along with the computation of income. Depreciation on plant and machinery had been claimed by the assessee at Rs. 35,48,216. The assessment for the asst. yr. 1993-94 was completed under s. 143(1)(a) dt. 25t....
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.... to be redone after giving reasonable opportunity to the appellant to prove its fresh claims made at the time of appeal hearings. The AO was also directed to apply his findings in the course of block assessment to the facts in the year under consideration. The position as on the date of hearing as informed by the learned counsel for the assessee was that the AO made the addition once again and the same was confirmed by CIT(A) and the assessee is in appeal against such orders before the Tribunal. 43. The IT return for the asst. yr. 1997-98 was filed on 1st Dec., 1997. A copy of the return forms part of the compilation at pp. 758 and 759. A copy of the audited balance sheet and P&L a/c as on 31st March, 1997 was also filed with return of income. The assessment for the asst. yr. 1997-98 was completed under s. 143(3) on 29th March, 2000. There was no disallowance of depreciation or financial charges in this assessment year. The assessee claimed depreciation on Plant and machinery of Rs. 1,16,79,197. Finance charges had been claimed at Rs. 82,79,208. 44. The IT return for the asst. yr. 1998-99 was filed on 30th Nov., 1998. A copy of the return forms part of the compilation at pp. ....
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....e already been narrated in the earlier paras. The first issue that has to be examined is as to whether it can be said that the impugned additions could be made in an assessment under Chapter XIV-B of the Act. To answer the above question, we have to examine the relevant provisions of Chapter XIV-B of the Act, regarding determination of undisclosed income. 48. "Undisclosed income" has been defined in the Act as follows : "158B. In this chapter, unless the context otherwise requires,' (b) 'Undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false." The underlined (italicized in print) portion in the definition of "undiclsoed income" was added by the Finance Act, 2002 which has amended the definit....
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.... a false claim of any expense, deduction, or allowance under the IT Act. The aforesaid amendment now makes it possible to disallow any expense or deduction or allowance claimed under this Act, which is found to be false. The expression "found to be false" is very important. It is only when as a result of search evidence is found which shows that the expenses, deduction or allowance claimed under the Act is found to be false can it be said to be undisclosed income notwithstanding the fact that it had already been disclosed to the Department either by disclosing in the return filed prior to search or in the form of entries in the books of accounts prior to search. To this extent the proposition laid down by the Hyderabad Bench of Tribunal referred to above stands modified. The question therefore is as to whether evidence found in the course of search and such other evidence and material relatable to evidence found in the course of search established that the claim of the assessee for allowance of depreciation and finance charges was bogus. Further the amendment to s. 158BB with retrospective effect from 1st July, 1995, by adding the words ''and such other materials or informa....
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....st instance, 'evidence' found as a result of search or requisition of books of account or other documents that may constitute the basis of computation of undisclosed income. That 'evidence' may not be conclusive to arrive at the finding of undisclosed income and the AO may supplement it with 'materials' or 'information' that he may gather or that may be otherwise available with him at the time of computation of undisclosed income of the block period. The expression 'relatable' appearing in s. 158BB(1) permits the AO to bring material on record as may be required for computation of undisclosed income in relation to 'evidence' found as a result of search. All materials or information gathered by the AO or received by the AO in the process of computation of undisclosed income on the basis of 'evidence' would constitute materials or information 'relatable to such evidence'. Any undisclosed income discovered by the AO entirely on the basis of material or information gathered by him on his own without there being any relationship whatsoever with an evidence found as a result of search, cannot form part of undisclosed inco....
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....usiness premises of the assessee. In this regard we have already recorded our finding on the existence of the machineries in the earlier part of this order. In these circumstances it cannot be said that any expense, deduction or allowance claimed under this Act has been found to be false as a result of evidence found as a result of search. When the machineries are physically found and not found to have been not used for the purpose of business of the assessee, depreciation or finance charges relatable to those machineries cannot be disallowed in a block assessment. The evidence found in the course of search and post-search enquiries in our view only supplement the findings in the survey under s. 133A of the Act which took place prior to the search. The findings in the survey could at best throw suspicion on the value of the machineries on which depreciation was claimed by the assessee. It could at best be said that the machineries were purchased at a lesser value and a higher value has been assigned to these machineries based on the bills of 4 Delhi based parties so that the assessee could claim higher rate of depreciation. However there is no evidence found as a result of search o....