TaxTMI 
TaxTMI 
2021 (9) TMI 339
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....inafter referred to as the "Act") on 27.02.1998 for the block period from FY 1986-87 to 27.08.1996 (hereinafter referred to as the "Original Block Assessment order of 1998") wherein the AO added on protective basis Rs. 11.86 cr. on the ground that the assessee had withdrawn cash from two (2) bank accounts of M/s. Pragati Engineering Ltd. (hereinafter referred to as the "Pragati") and M/s. Kalo Engineering Works Ltd. (hereinafter referred to as the "Kalo") as undisclosed income of the assessee (refer pages 44 to 60 of paper book). 3. This Original Block Assessment order of 1998 was challenged by the assessee before the Tribunal and vide order dated 08.10.1999 (hereinafter referred to as the First Tribunal Order of 1999) the Tribunal was pleased to set aside the impugned block assessment order i.e. the original block assessment order of 1998 and directed the AO to examine the facts of the case once more after allowing the assessee an opportunity of being heard and also to take into consideration further developments in the block assessment (of SWC) and thereafter to come up with a fresh assessment order in the case of the assessee (refer page 65 of paper book) and since this opera....
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....gh Court admitted the appeal by framing the following substantial question of law by order dated 22.06.2005 (refer pages 217 to 219 of paper book). The substantial questions of law reads as under:- "i) Whether in a remand proceedings, the Assessing officer has any jurisdiction and/or authority to raise a dispute on a factual position admitted in the original assessment? ii) Whether in the fresh block assessment order passed pursuant to the order dated October 8, 1999 of the Tribunal, the Assessing officer was competent to make any new addition on a new ground which was not subject matter of controversy in the original block assessment order in respect of which the said order dated October 8, 1999 was passed? iii) whether and in any event, the Tribunal was justified in law in upholding the addition of Rs. 12.41 lakhs in the hands of the appellant and its purported findings in that behalf have been arrived at by ignoring the relevant materials (such as, findings of the Income Tax Department including its Investigation Wing) and/or by taking into consideration irrelevant and/or extraneous materials and/or are otherwise arbitrary, unreasonable and perverse? ....
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..... 12,41,00,000/- whereas sources of deposit in two bank A/c. were from SWC and its subsidies, which is clear cut finding of A.O. in the original assessment. Ignoring the findings of ADIT (inv) & his predecessor in assessment and document submitted at the time of reassessment proceeding, without any basis, is need to be deleted. (iv) The A.O. one side he made addition and other side he himself gives finding that SWCL, had siphoned off in cash through dubious methods in league with several person. This shows that the money does not belong to the assessee and belongs to SWCL and sources of deposit in two Bank A/cs. Stands well explained. As such, addition need to be deleted. We find also from the impugned order of the tribunal dated 31st March, 2005 that the tribunal has not addressed these issues in the manner that they should have been dealt with in accordance with the earlier order of the tribunal dated 8th October, 1999. For those reasons, we set aside the impugned order of the tribunal dated 31st March, 2005. As fifteen years have elapsed, we direct the tribunal to redetermine the appeal as expeditiously as possible by hearing the parties and by a reaso....
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....g to the assessee, the AO erred on four (4) counts i.e. (i) that the AO erred in ordering addition on a substantive basis whereas in the original block assessment order of 1998, the additions made was only on protective basis because substantive addition was made in the hands of M/s. SWC (ii) that AO erred in making new addition of Rs. 12.41 cr. in reassessment in place of Rs. 11.86 cr. when it was already taxed in the hands of M/s. SWC (iii) that the AO erred in adding the credit entries in two bank accounts in reassessment (M/s. Kalo & M/s. Pragati) whereas the AO in the original block assessment of 1998 made addition of cash withdrawal from these two bank accounts and taxed the entire credits in the hands of M/s. SWC (iv) that in any case, the AO erred in making the addition of Rs. 12.41 crores in the hands of assessee when the nature and source of credit entries are proved to be from M/s. SWC or its subsidiaries and consequently addition was substantially made in the hands of M/s. SWC. Therefore, according to the assessee/Ld AR, when the AO in the original block assessment order of 1998 made additions only on protective basis in the hands of assessee because substantive additio....
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.... Rs. 200 lakhs ii) M/s Kalo Engineering Works N. C. Jain (A/c No. 4882 Syndicate Bank Brabourne Rd., Branch, Calcutta) Rs. 230 lakhs P. L. Mittal (A/c No. 4915 Syndicate Bank Brabourne Rd., Branch, Calcutta) Rs. 422 lakhs M/s Dunlop India Ltd. Rs. 275 lakhs 11. And thereafter, the assessee had withdrawn net amount of Rs. 11.86 cr. which he could not explain properly. Therefore, according to First AO, even though the assessee had filed the return of income pursuant to notice u/s. 158BC of the Act and reflected an amount of Rs. 2,02,52,500/- which was shown as his undisclosed income [Rs. 170.03 lacs (share capital) + Rs. 18.50 lacs (income from share transactions) + Rs. 15 lacs (from commission) total Rs. 203.52 lacs], the amount shown by the assessee as undisclosed income has no nexus with the bank deposits in M/s. Kalo and M/s. Pragati; and further according to him, though the amount deposited in these two (2) bank accounts are from M/s. SWC which was deposited through bank accounts of Shri N. C. Jain and Shri P. L. Mittal by cheque (both being benamiders of the assessee) and since assessee has admitted of operating both bank a....
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..... Pragati there was cheque deposit totaling Rs. 575 lakhs from Shri N. C. Jain and Rs. 657 lakhs from Mr. P. L. Mittal. Thereafter the AO noted that both these persons were mere name lenders of the assessee and the person behind both of them were the assessee himself. Thus, he held that Shri N. C. Jain and Shri P. L. Mittal (share brokers) were benamiders of the assessee and both their bank account nos. 4882 and 4915 in their respective names in Syndicate Bank, Brabourne Road Branch were in fact operated and transacted by the assessee. Thereafter, the AO noted after perusal of the block assessment of M/s. SWC that M/s. SWC had invested Rs. 89.02 cr. through its subsidiaries for acquisition of six (6) Guwahati based companies and the money was given to Shri N. C. Jain and Shri P. L. Mittal. (Refer 77 of PB, internal pg 10 of the impugned second reassessment order of 2002). Thereafter the Second AO notes that the bank accounts of M/s Kalo & M/s Pragati (bank account of 4973 and 4974 Syndicate Bank, Brabourne Road, Branch) are different from that of the bank account in the same branch in the name of Shri N. C. Jain(Account No. 4882) and Shri P. L. Mittal (Account No.4915). And thereaf....
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....ation, continuing further we note that, according to the Second AO, the assessee has not been able to prove that the credits in the two bank accounts of Shri N. C. Jain and Shri P. L. Mittal are from M/s. SWC. And since both these persons are benamiders of the assessee, therefore, according to AO, the cheque deposited in two bank accounts of M/s. Kalo and M/s. Pragati cannot be said to be from M/s. SWC and therefore, the amount credited in M/s. Kalo and M/s. Pragati to the tune of Rs. 12.41 cr. needs to be treated as unexplained and so he treated it as undisclosed income of the assessee. And it is interesting to note that the AO observes at this juncture i.e. this finding of his is without prejudice to any issue in any other case. Thereafter, the AO noted that the cash withdrawals from the accounts are application of income and as such addition of the same on protective basis was not warranted. Moreover, according to him, in the case of M/s. SWC, it is seen from the block assessment order that there was no substantive assessment of the amount of Rs. 11.86 cr. as such in the hands of M/s. SWC. Therefore, he was pleased to add the amount of Rs. 12.41 cr. on substantive basis in the h....
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....ssment in which the addition of Rs. 11.86 lakhs has been made in a substantive manner, itself stands set aside for reframing purpose, in fitness of things, the addition of the amount in the hands of the present assessee also on a protective basis should require a fresh examination. We therefore, set aside the impugned block assessment and direct the AO to examine the facts of the case once more after allowing the assessee an opportunity of being heard and also to take into consideration the further developments in the block assessment and thereafter to come up with a fresh assessment order in the case of the assessee."[Emphasis given by us] 15. From a careful reading of the above order of the First Tribunal Order of 1999 it is noted that while setting aside the assessee's original block assessment of 1998 back to the AO, it was directed that the AO has to examine the facts of the case once more after allowing the assessee an opportunity of being heard and also to take into consideration the further developments in the block assessments and thereafter to come up with a fresh assessment order in the case of the assessee. 16. However, it is important to take note that the afores....
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....ssment order dated 30.03.2000. Therefore, it is clear that not even one rupee addition or one rupee deletion has been made by the AO in reassessment of block period of M/s. SWC. In such a scenario, the Tribunal's direction to the AO need to be carefully appreciated i.e. "to take into consideration the further developments in the block assessment (it is implied that it is of M/s. SWC) and thereafter to come up with the fresh assessment order in the case of the assessee." Thus when we appreciate the direction of the Tribunal in the first order of 1999 we note that AO was directed while framing the fresh assessment order of assessee to take into consideration further development in the case of M/s SWC in whose hands the substantive assessment of Rs. 11.86 crores was made by the AO in the original round of block assessment. However we note that the second AO himself has admitted that there is no alteration in the hands of M/s. SWC meaning that no addition/deduction i.e. in other words no further development in the hands of M/s SWC in the second round. So, necessary corollary is that when in the reassessment order of M/s SWC no changes/developments is there, then as per the specific dir....
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....ts of the case once fore after allowing the assessee an opportunity of being heard, and also to take into consideration the further developments in the block assessment and thereafter to come up with a fresh assessment order in the case of the assessee". This finding of fact as found by the First Tribunal order of 1999 that substantive assessment of Rs. 11.86 cr. has been made in the hands of M/s. SWC and protective assessment of it is made in the hand of assessee has not been challenged by the Revenue/AO before the Hon'ble High Court or any application/Miscellaneous application was filed by the Revenue/AO before this Tribunal to rectify if any mistake of fact/law existed, so it becomes final. Thirdly, even the second AO on one hand says that in the set aside proceeding of M/s. SWC reassessment was framed without any alteration. So, the question is that if there was no substantive assessment/addition of Rs. 11.86 crores in the hands of M/s SWC in the second block assessment of M/s. SWC then the same amount would have been reduced to that extent, from the second/block reassessment order of 30.03.2000 in the case of M/s. SWC which is not the case of the Second AO and so the finding o....
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....r reason to say that the amount credited/withdrawn by the assessee from M/s Kalo and M/s Pragati was added substantially in the hands of M/s SWC is that AO's order (First/Original Block Assessment of 1998) of making protective assessment in the hands of assessee has not been questioned by the CIT/PCIT by exercising power u/s 263 of the Act after the original assessment order was passed by First AO as early as on 27.02.1998. And it is common knowledge that after search u/s. 132 of the Act take place, the ADIT (Inv) files his Investigation Report taking into account, the seized material from all the searched persons/entities which throws light on the discovery of the unearthed undisclosed income of searched persons/entities and if the AO deviates from crucial aspects/facts the Ld. Pr. CIT/CIT would be expected to have stepped into by exercising his revisional jurisdiction u/s 263 of the Act, which has not happened in this case. So the First AO's action of only making protective assessment of Rs. 11.86 Crore is more probable in the overall facts of the case and in all probability therefore, the same was added on a substantive basis in the hands of M/s SWC which fact could not have bee....
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....to the bank account of M/s Kalo & M/s Pragati. This finding the AO held in his own words at page 77 of paper book/page 11 of the impugned second reassessment order of 2002, "the assessee has referred to the statement of the assessee recorded u/s. 131 on 18.02.1998 and assessee has given a chart in support of the contention that the money came to the bank account of M/s. Kalo and M/s. Pragati from M/s. SWC and its subsidiaries. But the same does not show whether the money came from M/s. SWC and subsidiaries and the same money was given to the two (2) concerns namely M/s. Kalo and M/s. Pragati". Here, the expressions used by the Second AO to deny the claim of the assessee is to be noted 'whether the money came from M/s. SWC and subsidiaries and the same money was given to the two (2) concerns namely M/s. Kalo and M/s. Pragati '. Meaning even though the assessee produced the relevant bank statement, flow charts and statement recorded by Investigation team immediately after search u/s. 131 of the Act in 1998, the AO brushed aside them all on the specious plea as to 'whether the money came from M/s. SWC and subsidiaries and the same money was given to the two (2) concerns namely M/s. Ka....
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....oint out that currency of sovereign when is in possession of a person, that person is the owner of it against the whole world or Right in Rem in respect of the property in the currency/money, however, the moment it (currency/money) is deposited in bank account, the property in the money passes to the depositee/bank in this case and what the depositor owns thereafter is debt, which is also known as obligation, chose-in-action or actionable claim. The right in rem which the depositor has in the money is replaced by a right in personum against the depositee. The reason is that in case of money, possession and property go together with every change in possession, property in money passes from one person to another. Money, therefore, cannot ordinarily be followed; and even in exceptional cases, which the common law recognizes, it could be followed only so long as the relation of creditor and debtor had not superseded the right in rem. (Refer 1973 MPLJ 481 Hon'ble Justice G. P. Singh order in Shri Balkrishan Muchhal Vs. Controller of Estate Duty). So once money/currency is deposited in a bank account, the money loses its identity and mixes with other deposit in the bank and the right in ....
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....own words "This money coming through Shri N. C. Jain and Shri P. L. Mittal has come from Shaw Wallace & Company or its subsidiaries" and thereafter the AO asks the assessee to prove that the credit entries in the two (2) bank accounts are from the sale proceeds of undisclosed shares as claimed by the assessee in his disclosure statement. So, the case of the AO/department in the Original assessment was that the money/credit in Shri N. C. Jain & Shri P. L. Mitta was from M/s. Shaw Wallace Company or its subsidiaries. And since the amount transferred by M/s. Shaw Wallace Company and its subsidiaries were taxed in their hands on substantive basis, and in the hands of assessee protective assessment was made in respect of cash withdrawal from these two (2) bank accounts of M/s. Kalo and M/s. Pragati to the tune of Rs. 11.86 cr. 21. Thereafter, the Ld. AR drew our attention to page 154 to 182 of paper book to corroborate the fact that the money has been transferred to M/s. Kalo and M/s. Pragati are from Shri N. C. Jain's account and from Shri P. L. Mittal's account. We find that it is an admitted and proved fact which has been accepted by the assessee that Shri N. C. Jain and Shri P. L....