TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 615
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal respondent no.1 Aarti Abhay Narottam had also expired. His sole surviving legal heir is respondent no.1(a) who has since been brought on record. The Custodian filed Report no. 03 dated 7th March, 2007 seeking directions from this Court for distribution of assets. The report discloses the income tax liability of the respondent no.1 prior to the statutory period to be Rs. 146.16 crores and the wealth tax liability to be Rs. 30.26 crores. The attached assets are stated to be worth Rs. 5 crores. However, a sum of Rs. 71.76 crores was receivable towards principal sum from M/s. Dhanraj Mills Pvt. Ltd. (DMPL) who is also a notified party. Section 11(2)(a) of the Special Courts Act provides for payment of liability of notified parties for the statutory period in priority, apropos towards the dues payable to banks or financial institutions under Section 11(2)(b). The applicants claimed to be entitled to a sum of Rs. 374,35,18,354/- being the decretal amounts due from the notified party-original respondent no.1 under three decrees. 2. The applicants had filed three suits for recovery of diverse sums of money from respondent no.1 and four other parties. These are Special Court Suit nos.7....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he securities on account of respondent no.1 and that the auditors appointed by the Court had reported oversold position as liability. It was contended that the Assessing Officer in his report to the Appellate Authority had rejected the Auditor's statement of oversold position as liability on account that respondent no.1 and the auditors had not established, by producing evidence, that securities were not held, acquired or delivered at any point of time. The Appellate Authority upheld the report of the Assessing Officer observing that oversold position does not actually represent any liability as delivery has been made through unaccounted sources. 5. In a further affidavit dated 29th August 2008 is filed by Mr. K. Vijendra Rao on behalf of the applicants, it is contended that many of the documents sought from the third respondents were not legible. The copy of the security ledger provided was not legible and it is not possible to verify or reconcile the sum of Rs. 333,23,30,172/- which is stated to have been computed on comparison of oversold stock position as on 31st March, 1991 and that on 31st March, 1992 the security ledger for F.Y. 1990-91 has not disclosed relevant facts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ablished that the Appellate Authority had made additions on the basis of the report of the Assessing Officer which had selectively picked up the oversold position and was unsustainable. Furthermore, additions made towards commission aggregating to Rs. 3.50 crores was erroneously computed and unsustainable since the said Narottam had revealed that the commission payable was between quarter to half paise to Rs. 100/-. It is therefore contended that addition of Rs. 333.23 crores on account of oversold position and Rs. 3.50 crores on account of commission and Rs. 3.91 crores and Rs. 3.83 crores respectively by way of interest from Uday Palani were not justified. 7. In A.Y. 1993-94, the interest accrued on loans to Uday Palani during 1992-93 and 1993-94 are considered as income of respondent no.1, although no such interest has been received and therefore the amount needs to be scaled down. Similarly an amount of Rs. 3.91 crores and Rs. 3.83 crores said to be interest earned from DMPL also needs to be scaled down since these amounts were not received. It is further submitted that in Miscellaneous Petition No.51 of 1998, a decree has been passed in favour of Abhay Narottam in a sum of Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly shown securities amounting to Rs. 729,38,53,583/- as a liability. In Special Case No.7 of 1993, it had been proved that securities worth Rs. 374.35 crores were not delivered to the applicant though consideration was paid to Bank of Karad. This became evident from the consent decrees passed. For these reasons, it is further contended that factual position as reflected in the Auditors' report has been ignored by the Assessing Officer and Appellate Authority and therefore tax demand was required to be scaled down. Although the Income Tax department had relied upon Janakiraman Committee Report and JPC Report on same aspect, they had rejected the findings on other aspects. Moreover, although interest is shown as accruing on loan to Uday Palani group, no such interest has been received and therefore the excess amount had to be scaled down. 10. In respect of A.Y. 1993-94 amount of Rs. 12.91 crores was considered as income without actual receipt. Amounts which were not reflected in A.Y. 1990-91 have been considered as unexplained income in A.Y. 1993-94. The applicant was not challenging tax demand but this Court was entitled to consider the application for scaling down since the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... aside the order of the Assessing Officer asking him to reframe the Assessment Order denovo. The deponent further states that there was no further material on record and accordingly the Assessment Order originally passed was reiterated but an addition of Rs. 12,91,64,588/- was made on account of interest receivable from M/s. Dhanraj Mills Pvt. Ltd. This addition was made on the basis of similar addition made during the assessment proceedings for A.Y. 1993-94. During the appellate proceedings, the audit report was submitted and the CIT (A) remanded the matter to the Assessing Officer directing the Auditor's report to be considered. Accordingly, the Assessing Officer had made a Remand Report concluding that they were considering unaccounted investment in oversold securities reworked at Rs. 3,33,23,30,172/- as against Rs. 219 crores worked out earlier. Hence the proposal for enhancement of Rs. 114,23,30,172/- was placed before the CIT (A) who upheld the additions thereby enhancing the income. An amount of Rs. 71,75,810/- was added on account of interest receivable from M/s. Dhanraj Mills Pvt. Ltd. which was computed at 18% as against 19%. Thus, the taxable income of Shri Narottam ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (A) was in agreement with the Assessing Officer and undisclosed investment in respect of oversold securities for A.Y 1992-93 was enhanced by Rs. 114,23,30,1722/-. There was no enhancement for A.Y. 1993-94. A small reduction was also recorded for the year 1993-94 on account of oversold securities, save and except for enhancement as aforesaid, the appeal came to be dismissed and the order giving effect to the CIT(A) aforesaid decision was then issued on 13th February, 2007. Pursuant to revision and adding of some interest on the principal amounts said to be due from (DMPL) was computed at Rs. 71,75,810/- leading to total of Rs. 356,05,74,532/-. Similarly, for the A.Y. 1993-94, the Assessment Order was passed on 27th March, 1996 assessing total income at Rs. 25,38,67,841/-. Subsequent order under section 144 read with section 250 of the Act was passed on 19th March, 2002 and a demand notice was issued in sum of Rs. 55,08,09,881/inclusive of interest under section 234A, 234B and 234C. 14. An additional affidavit of Mr.Amol Kirtane dated 11th September, 2008 has been filed in which it is contended that merits of assessment cannot be gone into under section 69 of the Income Tax Act and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....333.23 crores. It is arrived at by adding Rs. 219 crores and a further sum of Rs. 114 crores enhanced by the CIT (A). Against this, the commission sought Rs. 3.50 crores and interest receivable from Dhanraj Mills Pvt. Ltd.(DMPL) and one Uday Palani were shown at Rs. 12.91 crores and Rs. 3.91 crores respectively. In respect of the A.Y. 1993-94 the Assessment Order dated 27th March, 1996 was set aside by the CIT (A). The Assessment Order dated 19th March, 2002 assessed income at Rs. 25.38 crores. Yet another order passed by the CIT (A) on 5th December, 2006 assessed income at Rs. 26.10 crores (an increase of about Rs. 71.75 lakhs) in A.Y. 199394, as demands had arisen on account of additions which required scaling down. 18. In this respect, interest receivable from DMPL was Rs. 13.63 crores and interest receivable from Uday Palani was Rs. 3.83 crores. Mr. Sancheti submitted that the additions made were only on account of oversold securities where under the Income Tax Department claimed a sum of Rs. 211 crores as tax and also claimed on interest receivable which the Custodian had not yet received. Mr. Sancheti submitted that the additions made to the income on account of oversold sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly the difference between the sale price and purchase price could be taxed. It is not entire sale proceeds that could be taxed. He relied upon an order dated 29th September, 2007, passed in Special Court Custodian Report no.15 of 2006 relating to Harshad Mehta's case. He submitted that if there is no delivery of securities there could be no profit since it continues to be a liability. Mr. Sancheti relies upon the report of the auditor appointed by this Court apropos the unaccounted investments taken into consideration. He submitted that no such investment was found in the books of account or document or in the hands of the Custodian nor was any such investment noticed by the auditor. For the A.Y. 1991-92 it was pleaded that oversold securities amounted to Rs. 1042/crores was treated as income on account of unaccounted investment and that if such investments are available in the earlier assessment year, Mr. Narottam could have delivered the securities by using these investments and hence it should not have been a case of unaccounted investment in the relevant A.Y. 1992-93. Mr. Sancheti submitted that funds of the applicants amounting to Rs. 374 crores were received by Mr. Narott....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted that the order of the Special Court dated 11th April, 2008 in Report No.3 of 2007 is evidence of the fact that the amount released in favour of the Income Tax department would be subject to scaling down and the department giving an undertaking to bring back the amount. He therefore submitted that the application for scaling down should be considered in that light with particular reference to position of the oversold securities. 23. Mr.Sancheti in the alternative submitted that even if it is presumed that the securities were delivered, only the difference between sale and purchase price was liable to be taxed. The entire amount could not have been taxed in any year. He further submitted that this is borne out by the order of the Special Court in the order under Custodian Report No.15 of 2006 and in case of SBI(supra). Furthermore, since no delivery had been effected, there could have been no profit and, therefore, it would continue to be a liability. In this respect reliance was placed on the report of the auditor filed in the matter, the contention being that since amount is unaccounted investment and is basis of the Income Tax Assessment Orders, no such investment is found i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opening position of the securities in the books of respondent no.2 in the year ended 1991 and 1992 as reported by the Assessing Officer dated 28th December, 2006. The department had not disclosed the record on the basis of which opening position was extracted in order to formulate the position of oversold securities. 26. Mr.Sancheti relied upon the analysis of table of 'oversold position' and incorporated in paragraph 4.5 of the said affidavit to explain how the securities ledger did not disclose the oversold position in case of 16 entries and how in the case of two entries the conclusions that there was over selling were incorrect. In three cases the figures did not match. Thus, to the extent of Rs. 11,94,12,113/- there was either no over selling or the figures were not matching. Moreover, the securities ledger did not reveal entries in support of a value of Rs. 176,96,74,652/-. He therefore submitted that the increase in the oversold position as projected by the Income Tax department cannot be sustained. In effect, it is submitted that in respect of interest addition on account of the Uday Palani group, no amount can be payable. Likewise in the case of unexplained credit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies is a misnomer and actually it is a decrease. 30. Referring to the observations in the Appellate order Mr. Sancheti submitted that the appeal was filed against the re-assessment Order. The original order of assessment was dated 30th March, 1995. The assessing officer had made an addition of Rs. 219 crores as unexplained income on account of oversold securities. Additions made in the A.Y. 1993-94 were set aside by the CIT(A). Assessment was to be carried out afresh after considering the audit report of the Auditors appointed by the Special Court. In the reassessment proceeding the Assessing Officer retained the addition of Rs. 219 crores and in appeal the assessee had not challenged this addition and that which has led to a presumption that the appellant accepts that in respect of oversold securities delivery had been made by buying these securities. It was also found that in the immediately preceding assessment year an addition of Rs. 1042 crores had been upheld. The appellate order went on to hold that in the facts and circumstances of the case oversold position does not represent any liability as delivery had been made through unaccounted sources. There is absolutely no justi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 144 of the Income Tax Act., when an assessee commits any one of the defaults mentioned therein. The section enjoins that on any or more of these defaults happening the assessing officer after taking into account all the relevant material, which he might have gathered, shall, after giving the assessee an opportunity of being heard, make best judgment assessment. In this case too, the assessing officer, while framing the best judgment assessment, has kept the above legal provisions and judicial pronouncement on the subject as the guiding factor." 33. In the concluding portion, after dealing with the gist of the additions bulk of it being a sum of Rs. 333 crores deponent states as follows ; "The copy of the Assessment Orders dt. 30/3/1995, 19/3/2002, the order of CIT(A) dt. 5/12/2006 and the order giving effect to the order of CIT(A) dt 13/2/2007 is enclosed as Exhibits 'A', 'B', 'C' and 'D' respectively. It can be seen from these orders that the additions are made on the basis of facts on record and have stood the test of first appeal. It can be further seen that Audit report as ordered by the Honorable Special Court has also been considere....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., collusion and miscarriage of justice has not been met because the transactions in oversold securities were required to be completed. He submitted that the applicant has not established that the transactions were complete and therefore, there would be no miscarriage of justice. In this behalf he referred to paragraph 44 of the judgment of the Supreme Court in DCIT vs. SBI (supra). 37. Mr.Chatterji further submitted that when the Assessment Order wascarried in appeal, the Assessee had personally appeared before the CIT (A) and the assessment was completed on "best judgment" basis as contemplated in the decision of the Supreme Court in CIT vs. Amritlal Bhogilal & Co [AIR 1958 SC 868] and J.K. Synthetics Ltd. vs. Additional CIT [105 ITR 344 Allahabad.] Mr.Chatterji further submitted that unaccounted investment in oversold securities of Rs. 219 crores on which tax would be around Rs. 109.50 crores at the rate of 50% was accepted by the assessee in the appeal. In this behalf he invited my attention to the observations in the appellate order which reads as follows : "The assessee must have acquired the said securities, which have admittedly sold, from unaccounted sources. It may be n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consideration is received only when delivery is made and therefore, in the case of oversold securities since consideration has been received, delivery must have been made In this behalf Mr.Chatterji submits that no suit has been filed claiming non-delivery of oversold securities and the assessee must have acquired securities from unaccounted sources and had sold the securities. It is contended that the applicant has not been able to prove these sources or legitimate purchase of these oversold securities. 39. Mr.Chatterji further submitted that the applicant could not show that transactions in unsold securities were complete. Unaccounted investment in securities were sought to be focused upon. My attention was invited to the observations in the appellate order of the CIT (A) dated 5th December, 2006 under the caption of enhancement of income wherein Mr.Chatterji invited my attention to the observations that enhancement of the income has been proposed on account of liability shown in the balance sheet on account of oversold securities that for the A.Y. 1992-93, the final report of the Assessing Officer dated 29th November, 2006 had made following observations : "The Auditor was as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l basis on such advance. It was contended by Mr.Narottam before the Assessing Officer that he was maintaining accounts on cash basis and interest on accrual basis cannot be taxed. This submission was rejected by the Assessing Officer on the ground that said Narottam was not maintaining regular books of accounts and therefore there was no consistent method of accounting. He further concluded that papers seized from the premises showed that he is calculating interest on accrual basis. 41. Mr. Chatterji then submitted that in respect of interest receivable from DMPL, the additions made was on the basis that Narottam has advanced a sum of Rs. 71,85,81,040/- to DMPL and filed a petition before the Special Court for recovering of that amount for recovery at 18% per annum. The Special Court allowed the petition and decreed payment of interest at 19% per annum. In view of this order, accrual of interest cannot be doubted and the Assessing Officer has taxed accrued interest at 18% though the Court had awarded interest at 19%. In this behalf Mr.Chatterji relied upon decision of the Supreme Court in CIT vs. Shivaprakash Janakraj & Co. Pvt. Ltd. [222 ITR 583] which dealt with aspect of "real ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the financial year. Mr. Chatterji submitted that the assessee had appeared before the department but had not offered any explanation. The Assessing Officer had therefore proceeded to make additions by speaking orders in accordance with deeming provisions of section 69 to 69D and the onus was upon assessee to establish the source of funds. It was contended that introduction of the deeming provisions was to be considered in case of such eventuality and therefore this aspect must be borne in mind while determining whether or not scaling down was justified. 44. Mr Chatterji had also stressed upon the fact that there was no nexus between the three suits in which the applicant had obtained decrees and the amount ought to be treated as income. These suits were in relation to securities of the UTI and 11 Government of India bonds and were not included in the table contemplated in paragraph 4.5 of the appellate order and that included in the annexure to the Remand Report. It was therefore sought to be contended that the securities on the basis of which addition of income has been made were different from the income on the securities when the suit was filed and therefore there was no nexu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and is only surmise. The securities in relation to income so added were based on those mentioned in order of the CIT (A). The order of the CIT (A) who is the Appellate Authority confirms that such additions based on cogent reasons and documents and not assumptions. The list of securities was also considered. He reiterated that the assessee had accepted that there was unaccounted investment in oversold securities. 47. Mr. Chatterji denied that the contentions of the revenue were an after thought as sought to be contended by Mr. Sancheti. Adverting to the contention of Mr.Sancheti that the oversold securities should be restricted to Rs. 51 crores, Mr. Chatterji submitted that securities forming part of the addition of Rs. 333 crores was differential amount between A.Y. 1991-92 and 1992-93 as reflected in the chart annexed to the Remand Report. Mr. Chatterji in the course of arguments clarified that the term "nexus" referred to in paragraph 44 of the judgment of the Supreme Court in SBI (supra) is in the context of paragraph 15 of that judgment which is quoted below for ease of reference : 15........."unless it was demonstrated and established by the banks that there is a nexus bet....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... III [1978 ITR 401 (Vol.115)] (vi) Principal Commissioner of Income Tax vs. NRA Iron & Steel (P) Ltd. [(2019)103 Taxmann.Com 48 (SC)]. (vii) Bharat Sanchar Nigam Ltd. Ors. vs. Union of India [AIR 2006 SC 1383 ] (viii) CIT vs. Shivaprakash Janakraj & Co. Pvt. Ltd. [222 ITR 583] 50. Mr. Sancheti in rejoinder submitted that the revenue's contentions were based on the conclusion of the Supreme Court recorded in paragraph 44 of DCIT vs. SBI (supra). The revenue had dealt with only submissions made by the applicant in paragraph A(4) of the applicants written submission. The order of CIT being the final order in relation to additions for oversold securities inter alia records at page 124 as follows : "The Appellate order passed by the CIT(A) at Pg. 103 (which is final order) in relation to the additions for the oversold securities in the previous 1991-92 assessment year, inter alia records at Pg. no. 124 that "it is also found that in the immediately preceding assessment year (F.Y. 1990-91 ; A.Y . 1991-92) addition to the tune of 1042 crores in this account has been upheld in the first Appeal" Mr. Sancheti had submitted that the reference in this paragraph to the assessment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the Special Court under the present Act has no power to sit in appeal over the orders of tax authorities, tribunals or courts. The claims relating to tax liabilities of a notified person are, along with revenues, cesses and rates, entitled to be paid first in the order of priority and in full as far as may be. 34. While we respectfully agree with the finding that the Special Court cannot sit in appeal over the assessment of taxes by the tax authorities, we would like to qualify the Court subsequent observations relating to payment in full of all assessed taxes under section 11(2)(a). There is undoubtedly no question of any reopening of tax assessments before the Special Court. There is also no provision under the Special Court Act for proof of debts as in insolvency. The provisions in the Special court Act for examination of claims are under Section 9-A. A claim in respect of tax assessed, therefore, cannot be reopened by the Special Court. The liability of the notified person to pay the tax will have to be determined under the machinery provided by the relevant tax law. The extent of liability, therefore, cannot be examined by the Special Court. 35. But the Special Court can....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessment proceedings 54. The other two aspects to be considered are whether there is fraud or collusion. I have not heard the applicants making any allegation of fraud or collusion, that leaves only miscarriage of justice in the assessment proceeding, if any, to be identified. In paragraph 26 of the judgment the Supreme Court holds that scaling down should only be done in serious case of miscarriage of justice or where tax assessed is so disproportionately high in relation to the funds in the hands of the Custodian so as to require scaling down in the interest of claims of banks. 55. The contention of the applicants in Miscellaneous Application is that Janakiraman Committee in its report covering the statutory period has observed that the account of the respondent no.1 was commonly used for siphoning funds, one of the methods being to enter into sale transactions in the name of Bank of Karad whereas the counter party purchasers would issue banker's cheque favouring Bank of Karad. The proceeds, however, would be credited to the account of respondent no.1 and utilised by the parties such as Hiten Dalal, T.B.Ruia and M/s.Dhanraj Mills Pvt. Ltd. for their own purpose. In t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in appeal over assessment of tax liability of a notified party and that a claim of tax assessed cannot be reopened by the Special Court and the extent of liability cannot be examined by the Special Court. It reiterated that "tax due" means "tax as finally assessed" and the tax liability can be properly construed as one arising out of transaction in securities during the statutory period i.e. form 1st April, 1991 to 6th June, 1992. Priority is given under section 11(2)(a) to such tax liability for the aforesaid statutory period but the Special Court can decide how much of the tax liability will be discharged from the monies in the hands of the Custodian. There is no material change in the legal position. SBI (supra) reiterates that if the assessment is based on "proper material" the Special Court may not reduce the tax claim and pay it out in full. 58. The Special Court may examine whether the taxes so assessed are grossly disproportionate to the properties of the assessee in the hands of the Custodian while applying of Wednesbury Principles of Proportionality and accordingly the Special Court may scale down the tax liability. Further it reiterates that the Special Court must hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of funds. In specific terms the special Court was directed to give finding on the following two issues; 1. Whether there is any nexus between the decretal amount and the income included in the assessment of the notified person for the statutory period ? 2. Whether the decrees are with regard to the oversold securities, and if so, whether there is any duplication of amount while scaling down the tax liability ? The principles having been thus laid down in HSM (supra) and as specified in SBI (supra) when these instances are applied to the facts in the instant case, one has to consider whether the application for scaling down meets that requisite criteria. ➢ Firstly whether the assessment in question was a "best judgment" assessment. ➢ Secondly whether there has been fraud, collusion or miscarriage of justice in the assessment and generally. ➢ Thirdly whether the amount assessed is so highly disproportionate when compared to the amounts of the assessee in the hands of the Custodian ➢ Fourthly whether there is a nexus between the amounts advanced by the banks and the amounts assessed as income of the notified party and ➢ Lastly whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer and the Assessment Order was not only upheld but was even enhanced by the amount of oversold securities. 63. The conclusions arrived at in the present case by the appellate authority are based on the Remand Report and on the previous record pertaining to the prior assessment year. In particular, the approach of the tax authorities in having made reference to the sum of Rs. 1042 crores. Assessed during the year 1991-92 and the conclusion that the entire amount of Rs. 719,29,91,843/- being treated as income is obviously on the basis of best judgment but inherent in the process leading to the aforesaid conclusion, I am of the view that erroneous and questionable standards were adopted. On one hand the Special Court appointed Auditors report has been relied upon for some facts yet the conclusion of the auditor that the amounts reflected in the accounts pertain to liability has not been accepted /dealt with. The tax department was unable to accept the conclusion of the auditors, that the amount in the account of Abhay Narottam were only liabilities. There is no explanation forthcoming from the department nor has it has been urged by the revenue as to why the conclusion of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....92-93 he accepts the fact that the auditor had reported that transactions were carried out by the same banks, same party on the same date in the same securities resulting in abnormal profit and losses. It also reports unusual transactions. In some cases there were very high fluctuation in the rates and securities which were sold without adequate purchases resulting in oversold position of stock. There were mismatches in dates between the financial transaction and entry appearing in the securities ledger maintained by the Bank of Karad for the assessee. According to the auditors the reason for mismatch of the date was because the bank wanted to avoid showing a negative stock position. With particular reference to the oversold position of stock, the auditor found that Rs. 7,193,853,583/-was shown as current liability. This was an unusual item in the balance sheet, that the assessee had sold security without adequate opening stock and adequate purchases to effect the sale and security oversold appeared in the balance sheet may be arising due to not giving effect to free delivery of securities in the books of accounts. The auditors concluded that the result declared on the basis of ove....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ties amounting to Rs. 719,38,53,583/- as on 31st March, 1992 viz. in A.Y. 1992-93. 68. This matter was discussed with the Auditor who had explained to the Assessing Officer that the assessee was engaged in trading of Government securities, sometimes they were short sold i.e. sold in excess of what was physically held and later on the assessee acquired securities to square off the transaction but such oversold securities related to transactions where sales were made to parties and consideration received but no securities were delivered till 31st March, 1992 or even thereafter. The Auditor was apparently queried as to how such transactions had been accounted for in the final accounts and it was revealed that over sold securities were taken as liability in the balance sheet. The Auditor had stated that such acquired securities were not acquired nor delivered and only entries in the bank book were made. In the meanwhile the assessee did not produce any evidence that securities were held or acquired and delivered. The auditor had not made any categorical remark in this behalf and normally full consideration of any goods and services is received only against immediate delivery or delive....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) were the same. During that year there were no transactions as contemplated in the previous assessment year. Perusal of the tabulated annexure shows 34 securities, their oversold position as on 31st March, 1992 in terms of values, oversold security as of 31st February, 1991 and increase in oversold position. The increase was noted only in four cases that of Sec 11.5% IDBI 2011, Sec 6.75 any, Sec 7.5% IDBI 1997, Sec 6.75% ICICI 2000. 71. The Remand Report relies upon opening and closing balances of all oversold securities and finds that in a number of securities the oversold position has gone up during the financial year 1991-92 i.e. A.Y. 1992-93 and concludes that during the previous year under consideration, transactions of the aforesaid nature took place in these securities and therefore concludes that increase in liability on account of oversold position in these securities is indicative of The Remand Report relies substantially on the accounts of the auditor. This in my view cannot be overlooked. In the decision of Special Court dated 29th September, 2007 in Custodian Report no. 15 of 2006 the Special Court held that in support of the plea of miscarriage of justice five items....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f investment in my view, the second test of miscarriage of justice is satisfied, more so because if there is no delivery pursuant to sale transaction there could be no profit and it would be a liability. Although this aspect is emphasized by the auditors, this has not been accepted by the Income Tax department. Analysis of the auditors report and as interpreted by the Assessing Officer makes it evident that there is nothing to show that delivery had been effected or that securities had been purchased, as otherwise this would be attached assets in the hands of the Custodian. In this light of the matter since no investment have been found in the books of account or documents no such investment are presently with the Custodian nor were any found by the special auditor read with the fact that in the prior year Rs. 1042 crores was stated as income on account of unaccounted investment, the Assessment Orders clearly are questionable and in any event does not pass the test of an assessment based on proper materials. Miscarriage of justice in my view is clearly evident. 73. As far as the third question whether the amount assessed is disproportionate to the amounts of the assessee in the ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. It is in this context that the Supreme Court observed that the assessee is under legal obligation to prove receipt of share capital premium to the satisfaction of the Assessing Officer and it would justify addition of the amounts to the Income of the assessee. In my view the ratio of this judgment bears no relevance to the facts at hands. We are concerned with treatment of monies in the hands of the notified parties who is a broker dealing with shares and securities. There was no question of any share capital or premium on share capital being involved. 76. Mr. Chatterji has submitted that in paragraph 39 of DCIT vs. SBI (supra) the Supreme Court had observed that banks have a right to attach property as on date of notification and for which decrees have been obtained and if the banks claim that the amount claimed is wrongly included in income, the banks are required to shows nexus between decreed amount and amount which is included in the income of the notified parties. In the present case it was submitted by Mr. Chatterji that there was no nexus. I am of the view that submission on behalf of the department has proceeded on the incorrect presumption that nexus should be establ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onclusion only on the basis of probability since the above quoted paragraph reveals that assessee or Auditor had not given any detailed trading account for the securities and therefore it was not possible to workout the exact figure of investment. The conclusion however is that the difference between opening and closing balance would mean that during the previous year under consideration transactions took place in those securities and in the opinion of the DCIT the increase in liability is "indicative of unaccounted investment in the respective securities". A summary is then provided. The basis of taxation is premised on the securities said to have been oversold which itself has been arrived at without reference to a trading account. No assistance has been derived from the Auditor's report for the revenue to work out these details. In the light of the aforesaid I am inclined to accept the submission on behalf of the applicant that the disclosure made is selective and the annexure to the Remand Report cannot be said to be final one on the subject besides the application of the amount under Suit no. 8 being 25.81 crores related to 11.5% GOI 2008. The basis of listing out the secu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilable in the next year for dealing with securities. Mr. Chatterji's submission proceeded on the basis of comparison of each individual security but that overlooks the obvious. It is well known that securities can be sold on day today basis and what is relevant is the source availability of funds and not the name of the securities. 79. The entire case of the applicant in the case was that securities were not delivered. This aspect has already been dealt with in the judgment of this Court in Suit nos. 7, 8 and 10 of 1994 and it is evident that there was no occasion for the applicant to identify the securities in respect of which such nexus is to be established. The Revenue's submission that the nexus contemplated should be directly between the funds advanced and specific securities inter alia relying upon the Remand Report suffers from an inherent fallacy inasmuch as this submission proceeds on the basis that funds in question were utilised for purchase of securities. The entire case of the applicant and in the suits on the basis of which decrees were obtained on admission is that amounts were advanced but securities were not purchased or delivered. In the present case ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsold securities, the basic premise that the asssessee "must have acquired securities" is in the realm of probability. Having considered all the aspects canvassed before me, I have no doubt that the demand of the Income Tax department is required to be scaled down on account of the fact that there has been miscarriage of justice in the assessment proceeding and the tax assessed is disproportionately high in relation to the funds available and to that extent it is necessary to scale down liability to be paid in priority following the principles laid down in HSM (supra) and SBI (supra). The applicable tests laid down in the judgment of HSM (supra) and SBI (supra) in my view have been satisfied. It is obvious that this Court cannot examine the extent of liability to tax but considering that the decrees have been based on admission and an admission in law is best evidence of the debt I am of the view that the banks must receive funds towards the decree from the notified party. 83. I now proceed on the basis of the ruling in HSM (Supra) that while scaling down, the principle of proportionality be employed. de Smith, Woolf & Jowell on Judicial Review of Administrative Action 1995, obser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng power, known to law is the doctrine of proportionality.― 18. Proportionality is a principle where the court is concerned with ― the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of decision-making consists in the attribution of relative importance to the factors and considerations in the case. The doctrine of proportionality thus steps in focus true nature of exercise - the elaboration of a rule of permissible priorities." 19. De Smith states that proportionality involves balancing test ― ― and necessity test. Whereas the former (balancing test) permits ― scrutiny of excessive onerous penalties or infringement of rights or Interests and a manifest imbalance of relevant considerations, the latter (necessity test) requires infringement of human rights to the least restrictive alternative." 86. Although the decisions have their genesis in the field of administrative law, proportionality principle can be applied in the instant case as recognised by the Supreme Court in HSM (supra). Judicial intervention in a discretionary decision would be justifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e said to be Rs. 199,38,96,650/- for assessment year 1992-93 and Rs. 11,69,24,483/- for assessment year 199394. In that view of the matter I find that the total amount claimed towards tax for the assessment year 1992-93 and 1993-94 is Rs. 211,08,21,133/-. As against this the decretal amount is Rs. 374,35,18,354/- On the basis of the 36:64 ratio between the two amounts scaling down should be restricted to 64% of the amount that has been paid over to the Income Tax department pursuant to various orders on various dates commencing from 18th June, 1996 till 26th March, 2013. A total of Rs. 77,15,19,522.71 has been disbursed in five installments as per the table set out in Exhibit "C" to the Custodian report contents of which are set out below; Sr No Released to IT Under Section 11(2)(a) Order Date Date of Release Amount (Rs) 1 12.12.1995 42,71,575.71 2 13.02.2002 10.08.2002 15,064.00 3 21.01.2004 25.03.2004 22,32,883.00 4 04/11/08 11.06.2008 75,00,00,000.00 5 30.09.2011 26.03.2012 1,50,00,000.00 Total 77,15,19,522.71 88. There is no dispute of the fact that the total amount paid over 77,15,19,52,217/- and in my view the applicant would....