TaxTMI 
TaxTMI 
2006 (5) TMI 554
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Panchnama, search was concluded on 19th Feb., 1996. No prohibitory order was placed. Our attention was drawn to third Panchnama dt. 25th April, 1996 (available at pp. 19 to 23 of the paper book). 5. The learned Authorised Representative submitted that as per Panchnama dt. 25th April, 1996, nothing was found or seized. No prohibitory order was placed. Search commenced at 4 PM and concluded at 5 PM. The learned Authorised Representative submitted that it was a mere formality. The Panchnama dt. 25th April, 1996 is not a valid Panchnama. The learned Authorised Representative stated that col. 9 of Panchnama dt. 19th Feb., 1996 is blank and it means that search was concluded on 19th Feb., 1996. Accordingly the assessment should have been completed on or before 28th Feb., 1997. 6. The learned Authorised Representative relied on the order of this Bench in the case of Madhuvana House Building Co-operative Society v. Asstt. CIT. This Bench vide order dt. 31st Dec, 2001 in IT(SS)A No. 175/Bang/1997 [reported at (2002) 76 TTJ (Bang) 948--Ed.] held that search cannot be said to have been completed on the day of last Panchnama, if there has been no search and seizure on the day of last Pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll the silver articles found were placed and sealed. On 26th Oct., 1996, 6 kg. of silver vessels were released and the cupboard was sealed again. On the same day, a Panchnama was drawn concluding the search and indicating in the said Panchnama that the cupboard containing silver articles had been sealed. On 13th Oct., 1997, the Asstt. CIT Shri Ashish Abrol who was not one of the authorized officers removed the seal and made a further order under Section 132(3) of the IT Act, releasing the said silver articles. Assessment was completed on 13th Dec, 1997. The learned High Court upheld the finding of the Tribunal that there was no practical impediment to seizure of 45 kg. of silver. It was further held that Tribunal was right in holding that proceedings on 26th Oct., 1996 could not be considered as part of the execution of search proceedings. Explanation to Section 132(3) says that a restraint order does not amount to seizure. Mr. Abrol was not an authorised officer. Validity of Panchnama is to be looked as per the provisions of Criminal Procedure Code. In the circumstances the learned High Court held that impugned assessment dt. 31st Dec, 1997 is barred by limitation. 10. The lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s valid till 6th April, 1996 and hence such date should be reckoned as the date for the conclusion of search. The learned senior counsel, then stated that assessment order passed is within limitation period on account of consideration of any of the following dates: (a) Last Panchnama drawn on 25th April, 1996. (b) Statement of Shri Rao recorded under Section 132(4) on 23rd April, 1996. (c) Date of expiration of P.O. i.e. 6th April, 1996. 15. The learned senior counsel then submitted that limitation is provided under Section 158BE. The period is to be reckoned from the last day of the month in which authorization under Section 132 is executed. Such execution may be through either Section 132(3) or 132(4). Explanation 2 to Section 158BE is for removal of doubts. Section 158BE(1) does not refer to the Panchnama. Hence the date on which statement under Section 132(4) has been recorded is relevant. 16. The learned Authorised Representative in his counter-reply admitted that there were two prohibitory orders as per Panchnama dt. 6th Feb., 1996. 17. We have heard both the parties. Special Bench in the case of Promain Ltd. (supra) has clarified the issue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er: For the removal of doubts, it is hereby declared that the authorization as referred in Sub-section (1) shall be deemed to have been executed, in the case of search, on the conclusion of search as recorded in the last Panchnama drawn in relation to any person in whose case, the warrant of authorization has been issued. 21. The CBDT vide Circular No. 772, dt. 23rd Dec, 1998 clarified the position as to why Explanation was introduced. In para 53.2 of that circular it was mentioned: To settle the controversy regarding meaning of the word 'execution' while calculating the period of limitation in Section 158BE of the IT Act, the Act has inserted a new clarificatory Explanation. An authorization is deemed to have been executed in the case of search on the conclusion of search as recorded in the last Panchnama drawn in relation to any person in whose case the warrant of authorization has been issued. 22. Thus, it is clear that Explanation is clarificatory and has been introduced to settle the controversy. If the Explanation is clarificatory in nature and has retrospective effect then Explanation so brought in the statute simply explains the law as it has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th Steel Corporation held that amendment which is clarificatory has to be construed retrospectively. 26. Explanation 8 to Section 43(1) was introduced by Finance Act, 1986 with retrospective effect from 1st April, 1974. It declared that it is for removal of doubts. The learned Calcutta High Court in the case of CIT v. India Steamship Co. Ltd. observed at p. 936 as under: It is no doubt true that, ordinarily, a statute, and particularly when the same has been made applicable with effect from a particular date should be construed prospectively and not retrospectively. But this principle will not be applicable in a case where the provision construed is merely explanatory, clarificatory or declaratory. It cannot be disputed that the object of the Explanation is to explain the meaning and intendment of the Act itself. 27. Thus, it is clear that execution of warrant of authorization under Section 132(1) is to be seen in accordance with Expln. 2. 28. In view of Expln. 2 to Section 158BE, execution of search warrant is to be inferred from the date recorded in respect of conclusion of search in the last Panchnama. Panchnama is not defined in the IT Act. However, Section 10....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (a) Steel almirah kept in the ground floor (b) One cupboard in the wardrobe of first floor of house No. 23, Palace Model House, Mysore. 30. Copy of order under Section 132(3) available at p. 15A of the paper book filed by the assessee shows that personal jewellery, pawned jewellery, diary and loose papers were kept in the cupboard in the bedroom of Shri D.S. Manjunath S/o D.T.S. Rao, 23, Palace Mode House, Mysore. This prohibitory order was lifted on 19th Feb., 1996 and Panchnama was drawn on 19th Feb., 1996. Vide this Panchnama no further prohibitory order was passed. 31. Then, the last Panchnama is dt. 24th April, 1996. As per this Panchnama, nothing has been found or seized. Col. 5 of Panchnama has been struck off. Col. 5 of the Panchnama requires the following details to be given: a. Books of account or valuables found and seized b. Books of account or valuables found but not seized. 32. However, annexures have been attached to Panchnama dt. 25th April, 1996. In annexures, it has been mentioned: 33. These details suggest that this Panchnama is in respect of prohibitory order placed on 6th Feb., 1996 in respect of an almirah. Thou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....when violation of order under Section 132(3) can result into punishment with rigorous imprisonment then, communication of extension of order under Section 132(3) is a must. Hence, Panchnama dt. 25th April, 1996 is not a valid Panchnama. 38. Search comes to an end when the last Panchnama is drawn. It is date of such Panchnama which is relevant for determining the period of limitation for passing the order under Section 158BC by the AO. Accordingly, the AO is required only to find out the date when the last Panchnama with reference to last authorisation is drawn and nothing beyond that. Hence, the Tribunal can examine the date when last Panchnama was drawn. It will be relevant to quote from p. 51 in the case of Promain Ltd. v. Dy. CIT (supra): It is, however, pertinent to mention about the significance of the Panchnama. The Panchnama is a document which is prepared in the presence of Panchas (respectable local witnesses) containing the items found and seized in the course of search. So the AO must satisfy himself for the purpose of calculating the period of limitation that document in question is in reality a Panchnama. There may be a case where inventory is prepared in r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....officer also vitiate s Panchnama dt. 25th April, 1996. 40. During the course of proceedings before us, the learned Departmental Representative has filed the copy of appraisal report along with annexure. At p. 3 of such report, it is mentioned that limitation for assessment in the case of Shri D.T.S. Rao is 28th Feb., 1997. It means, the Department was of the opinion that assessment is to be passed on or before 28th Feb., 1997. 41. In view of the fact that Panchnama dt. 25th April, 1996 is not valid, then last Panchnama is dt. 19th Feb., 1996 vide which certain books of account and documents were seized. Therefore, it is the last Panchnama and according to it, the assessment order should have been passed on or before 28th Feb., 1997. 42. This Bench, in the case of Madhuvana House Building Co-operative Society v. Asstt. CIT (supra), held vide para 12 that Panchnama dt. 25th April, 1996, was not the date of last Panchnama, as there was no search or seizure. In that the assessment order was held as barred by limitation. 43. During the course of proceedings, the learned senior counsel argued that statement of late Shri D.T.S. Rao was recorded under Section 132(4) on 23rd Apr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e learned senior counsel also argued that prohibitory order was placed on 7th Feb., 1996. Such prohibitory order should have been continued for the period of 60 days without approval of the Director or CIT. It was therefore argued that such prohibitory order continued upto 6th April, 1996. The limitation period reckoned from the end of the month in which prohibitory order expired i.e. April, 1996. It was therefore submitted that order passed is within the limitation. 46. It is assumed that prohibitory order stood lifted on 7th April, 1996. However no Panchnama has been drawn. As per Expln. 2 to Section 158BE, it is only the last Panchnama which is to be seen for the purpose of determining limitation of passing the assessment order. As per the facts on record last Panchnama is dt. 19th Feb., 1996, as there is no seizure vide Panchnama dt. 25th April, 1996 besides the fact that Panchnama dt. 25th April, 1996 is not a valid Panchnama. Hence, it is held that order passed by the AO is barred by limitation. 47. Ground of appeal Nos. 3 and 4 are against the addition of Rs. 1,37,00,502 as alleged gross receipts received by the assessee or his family members. Alternately it has been m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant authorities and securing possession of lands in favour of the society. (c) Sanction of layout plan from relevant authorities. (d) To carry out civil portion of the layout work after getting permission. (e) Laying of lines for water supply, underground drainage system, street lights, asphalting after completion of civil work. 49. Above referred entire work was to be done by the contractors and the payments were to be made by society. The AO stated that most of the work has been executed by the directors and their family members. This is evident from the fact that funds have either been drawn by bearer cheque in the name of contractor or in the names of the directors and the employees of the society. The AO collected information from encashed cheques and vouchers on sample basis and found that 97 cheques of dates from 28th Dec, 1986 to 4th Jan., 1995 have been encashed by (i) Ramesh, (ii) Manjunath, (iii) Varija Kumari, (iv) D.T. Prakash, (v) D.T.S. Rao, (vi) Srinivas Rao, (vii) Gayathri. 50. From this the AO concluded that there is diversion of funds of the society by directors and their family members at the instance of the assessee. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of society, payments made are as under: 52. Amounts disclosed by the above referred two concerns as received from society in their block return are Rs. 1,33,75,186 and Rs. 12,22,000. 53. The AO further illustrated from the statement that Shri Rao had made payments to persons for getting the work done. Such persons cannot be named. However late Shri Rao stated that these amounts were paid on the instruction of the contractor. These payments were regularized by getting vouchers from the contractors. Late Shri Rao admitted that details as mentioned in the rough sheets have not been recorded as such in the day book and hence he admitted that day book does not reflect the true nature of expenditure. The following expenses have been particularly questioned from Shri Rao as these were personal expenses but debited to contractor account: 54. All such expenses are admitted but it was stated that contractors agreed to bear such expenses. The learned AO also brought on record that late Shri Rao's case before Settlement Commission, Madras was being handled by an advocate of Madras and visits to Madras are made for this purpose. It has been agreed by late Shri Rao that he has done....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther of managing partner was examined. He was director of the society and is a disgruntled person and hence his statement cannot be relied. Copies of statements were not given but AO offered them for cross-examination only on the points on which they have given statements to AO. Such opportunity has not been availed as the assessee wanted to cross-examine on all the points as it was considered necessary for assessment of assessee and M/s M.H.B.C.S. 60. Amounts to such contractors paid by account-payee cheque or bearer cheque in their names or in the name of the person authorized by them or payments made to persons at their instance. All such payments are supported by vouchers. Some of the contractors have reported such receipts in their returns filed before search. 61. It has been submitted that documents seized from the residence of brother of Smt. Gayathri did not contain the year in respect of disbursement. Smt. Gayathri was forced to write the year in such documents. These disbursements were out of the funds entrusted to Smt. Gayathri by the assessee and his family members. Similarly contractors entrusted funds to Smt. Gayathri and disbursements were as per the instructio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he society since 1985. Shri Rao in his statement recorded in 1996 stated that first project was taken just 5 to 6 years back. Hence it was argued that transactions as appearing in loose papers are all within the period covered under block period. 64. The learned senior counsel also filed a paper book dt. 31st Dec, 2004 containing 105 pages. Vide paper book, the learned senior counsel has given the extract of personal drawings noted against late Shri D.T.S. Rao. 65. After hearing both the parties and perusing the statements of Smt. Gayathri and Shri Rao, it is clear that entries mentioned in the documents referred in paper book dt. 31st Dec, 2004 are after 1st April, 1985 and hence to be considered for the block assessment. Non-mentioning of year against some entries will have no impact in respect of accessibility of income represented by such entries. Society became active in 1985, Smt. Gayathri joined the society in 1985 and first project was also taken up after 1985. The second conclusion which we drew, is that no addition of income in the hands of assessee can be made in respect of entries in which name of the assessee or his family members are not appearing. As the learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tive Societies, Mysore to establish that funds of society were indirectly used for the benefit of the family members of Shri Rao. He drew our attention to p. 964 of the 76 TTJ at which this Bench has taken note of the fact that Government of Karnataka ordered enquiry and held that the so-called audit report is malicious and false. Action against the Asstt. Director was directed to be taken. 70. The learned senior counsel appearing for Revenue drew our attention to audit report under Section 142(2A) in the case of society available at pp. 152 to 270 of paper book containing 270 pages. At p. 192, the auditor has mentioned as under: The vouchers obtained from the contractors in respect of which we have dealt with in detail in this report are mostly pre-stamped, blank signed vouchers in which management at its discretion and to its inconvenience has filled up figures and the details furnished on the reverse of those vouchers cover payments made in two accounting years. 71. We have heard both the parties. It was admitted by Shri Rao himself that vouchers were subsequently prepared in respect of expenses incurred and noted in the documents. It will be relevant to reproduce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayments have been made at the instructions of the contractors. The contractors have denied that they have authorized Shri Rao to make such payments. Shri Rao has admittedly drawn funds for his personal matters and the argument is that he was authorised by the contractors. Such expenses have not been repaid to the contractors. If actually these were repayable, then there was no occasion for Shri Rao to have not paid back the sums. In one of the judgments, the apex Court has observed: Human probabilities are to be considered as science has not invented any instrument to test the truthfulness of the statement of a person. 73. They way in which the drawings have been used by Shri Rao suggested that some of such drawings were actually treated by him as belonging to him but in account books, such amounts were adjusted as advance to contractors. Turnkey contractors were appointed for different projects for getting the land acquired and layout plan approved. It was admitted by Shri Rao, that he himself rendered services for such purpose, as the contractors were not acquainted of politicians and bureaucrats. Late Shri Rao admitted that he passed on the money but failed to give t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and can only be related to Shri Rao. 79. Hence as per Annex. 1, amounts to be excluded are Rs. 1,03,000. 80. Annex. 2 contains the list of entries which has been repeated. 81. The learned AO in his report has submitted that amount of Rs. 3,03,000 represent duplicate entries and this amount be considered for deletion. Hence, sum of Rs. 3,03,000 is deleted. 82. The AO has offered comments in respect of two entries which should not be considered for deletion. These are: 83. Entry at S. No. 92 relates to amount withdrawn by late Shri Rao and sent through Narsing Rao. 84. S. No. 71 relates to money sent through D.S. Manjunath while entry at S. No. 327, the amount was sent on 8th Feb., through D.S.N. Rao. 85. We have seen photocopy of seized documents. Entry at S. No. 92 on the back side of p. 26 is for 7th Feb., 1992. Entries at p. 94 of the seized document tally with the entries on back p. 26. Hence, entry No. 92 at back page of 26 is duplicate entry of S. No. 327 as per comparison of both the pages. Hence Rs. 5,000 is held as duplicate entry. Similarly in respect of entry at S. No. 46 of p. 14 of document No. 17/MHBCS is stated to be duplicate of entry at S. No.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been incurred for society work. No evidence was submitted that such expenditure was really incurred. The notings in loose sheets indicate the purpose for which expenditure was incurred. We are inclined to accept the correctness of nature of expenditure as mentioned in the documents. Expenditure incurred for notification of land acquisition, advocate fee etc. are for the purpose of society and such expenses are not personal expenses. Hence, the following amounts are directed to be excluded: 92. The AO in his comments has mentioned that the contractors on oath have stated that they had not authorized late Shri Rao to incur such expenses. Hence claim of Rs. 33,64,415 cannot be allowed. 93. We have noted that against some of the expenses, specific narration has been given. Such expenses are not personal in nature. In absence of specific details, it cannot be said that all expenses in Annex. 5 represented the expenses for the work of society. If one takes into account the nature of some of the expenses, it cannot be ruled that Late Shri Rao incurred expenses for the work of society out of the funds withdrawn. Before us, the learned Departmental Representative stated that onus is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeal is against addition of Rs. 12,63,400 as unexplained investment in shares of M/s Chaitanyya Food Products Ltd. 101. During the course of search, documents relating to investments made by Shri D.T.S. Rao in M/s Chaitanyya Food Products were found. Enquiries were made from M/s Karnataka State Financial Corporation and it was found an investment of Rs. 12,63,000 was made in the name of family members and associates. Cash receipts issued by M/s Chaitanyya Food Products were found. The assessee submitted the following Explanation: M/s Chaitanyya Food Products Ltd. is a company promoted and managed by Shri Jayadevaraya Urs. The company was in financial crises. The assessee lost all interest to revive the company after the death of Mr. Jayadevaraja Urs. The assessee filed a copy of letter written by Shri Jayadevaraja Urs. in which it has been stated that there has been no allotment of shares. The assessee is not having copy of balance sheet of the company and it should be provided to the assessee to rebut the evidence. 102. The above Explanation has been rejected by the AO. As per AO, the onus was on the assessee that investment has not been made by him. 103. Duri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee in the capacity of director. In this letter, Shri Urs informed: (a) There is no allotment of shares to 31 persons as per the letter sent by the assessee. (b) There was no application for allotment of shares. (c) The alleged allotment violates the provision of the Companies Act as by alleged allotment, the share capital exceeds the authorized capital. 107. A letter dt. 11th Sept., 1991 signed by Shri D. Jayadevaraja Urs and addressed to advocate, who issued notice on behalf of alleged shareholders shows that the managing director of M/s CFP Ltd. stated that none of the clients mentioned in the notice of advocate are shareholders. Copy of this letter has been addressed to official liquidator. 108. The assessee has also filed a copy of letter dt. 27th Sept., 1991 from the office of Registrar of Companies in which it was intimated that the alleged shareholders were not shareholders and hence notice of general meeting has not been given to them. 109. Karnataka State Financial Corpn. vide order dt. 1st Aug., 1987 under Section 29 of SFC Act, 1951, directed the taking over of assets of M/s CFP Ltd. Land, Building and transformer along with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ition in respect of receipts of funds from contractors for the purpose of performing marriage of his daughter in 1990, assessee tried to explain that he was not having funds and therefore contractors provided the funds. In case funds were not there, then such a position should be true in respect of funds in individual capacity and HUF capacity. But this was not so. There has been no record or evidence to suggest the use of HUF funds for advancing the loans. Hence the AO was justified in making the addition. 116. The seventh ground of appeal is against addition of Rs. 3,00,000. 117. Seized document from the residence of Smt. Gayathri showed that a sum of Rs. 3 lakhs was advanced to Shri A. Ashok Anand on 18th Dec, 1989. The document showed that amount was handed over by Shri Ramesh. On enquiry it has been found that the said sum has been handed over to Shri Ashok Anand through Shri B. Ramesh out of the funds of M/s M.H.B.C.S. Hence, the same was added in the hands of assessee. 118. During the course of proceedings before us, the learned Authorised Representative stated that a blank stamp paper was seized on which there was an endorsement that a sum of Rs. 3 lakhs was borrow....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Payments of income-tax reflected in the books of Annex. 3 Detailed amounts spent out of the funds given by Late Shri Rao Annex. 4 Expenses incurred as per instructions of the contractor for society work--Annex. 5 Balance Expenditure incurred where personal is not mentioned in loose sheets--Annex. 6 Expenditure incurred where the year is not available in 64,35,282 5,18,000 3,33,000 68,000 2,40,500 33,36,415 44,95,915 49,95,915 19,39,367 19,39,367 13,56,130 loose sheets Balance 5,83,237 Nil Document 6 Rs. 10,000: Amount given to D.T.S. Rao through Manjunath for release of files. Rs. 25,000: Amount to KEB officials (illegal) Rs. 50,000 Rs. 1 lakh Rs. 1 lakh Rs. Amount has been paid by D.T.S. Rao to some politicians in Delhi. Received from Shri Ramesh Paid to Shri Ramesh 20,000: Given to G.T. Prakash Rs. 25,000: Given to D.T.S. Rao, Bangalore Rs. 25,000: Given to Shri Revanna Siddiah, IPS Rs. 30,000 Rs. 20,000 Flight ticket purchased for Singapore by the advice of Shri Manjunath Money given to D.T.S. Rao to Madras Rs. 30,000 : Given to D.T.S. Rao for Bangalore trip....