TaxTMI 
TaxTMI 
2002 (8) TMI 254
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....st the appellant assessee which is pre-requisite for applicability of the provisions of Chapter XIV-B. (ii) the provisions of section 132(9A) had not been complied with and the Assessing Officer had no jurisdiction to make the assessment, in view of non compliance of the mandatory provisions of the said section; (iii) no 'undisclosed income' was detected in course of search operations and the applicability of provisions of Chapter XIV are prima facie illegal. (iv) the notice dated 9-10-1997 under section 158BC, in purduance of which assessment have been made, is invalid being vague non specific and not in accordance with the provisions of law. 2. Because none of the following additions-- ------------------------------------------------------------------------------------------------ Sl.No. Asstt. yr. Rs. Particulars ------------------------------------------------------------------------------------------------ (a) &nb....
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....bsp; bank account of Ashok Kumar HUF. (h) 1997-98 1,02,300 Unexplained income of the assessee added sub stantively shown by Smt. Ambika Devi as income from Saree business. ----------------------------------------------------------------------------------------------- ....
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....nt had submitted detailed reconciliation in relation to each and every item, duly supported by the documentary and other evidences. 7. Because the addition of Rs. 5,000 on account of deposit in SB Account of Ashok Kumar HUF is prima facie illegal: (a) as neither the Bank Account belonged to appellant firm, nor; (b) there existed any material which could go to show that the deposit in question had been made by the appellant-firm in the said account. 8.01 Because the Benarasi Saree Business was being carried on by Smt. Ambika Devi with the aid and assistance of her own funds even during the pre search period and there being no material to hold that the firm had carried this business, such income could not have been added to the income of the assessee. 8.02 Because the provisions of Chapter XIV-B cannot be invoked to assess the income already discussed in the hands of the other "person" in the absence of any incriminating material having been found during the course of search operations which may tend support to the contention of ld. Assessing Officer. 9. Because the assessment has been completed against all the principles of natural justice and the additions as comp....
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.... (Rs. 1,89,880 + 1,26,520) = 3,16,400 18,150 Nil From residential premises 2. (i) Gold 7140 gms. Nil From business premises jewellery (gross weight) (ii) Gold 417 gms. Nil &nb....
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....p; Date of receipt Weight of old ornaments ----------------------------------------------------------------------------------------------- 1 2 3 4 ----------------------------------------------------------------------------------------------- 1 . Shri Gopal Dutt Dwivedi &n....
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....sp; Chowkaghat, Varanasi. 20-8-1996 293.450 gms. ------------- 2062.960 gms. --------....
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....Lahoritola, Varanasi. 24-9-1996 148.150 gms. 4. Shri Chhotey Lal, Panchganga Ghat, Varanasi. 23-9-1996 154.500 gms. 5. Shri Ram Lalit Singh, Gilat Bazar, Varanasi. 29-9-1996 296.500 gms. 6. Shri Umesh Singh, Gilat &nb....
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....sp; 3027.150 gms. ----------------------------------------------------------------------------------------------- 5. The assessee is stated to have filed affidavit of the persons who have deposited their old ornaments for remaking and the Assessing Officer also issued notice under section 131 of the Income-tax Act and some of these persons appeared before the Assessing Officer and the Assessing Officer recorded the statement of few persons on random basis. The Assessing Officer also recorded statement of Ashok Kumar and asked him to explain how he was maintaining the books of account and how the entries were made in the books of account. The partner of the assessee-firm stated to have explained before the Assessing Officer procedure. However, the Assessing Officer was not satisfied with the explanation given by the persons who have given their old ornaments originally were available for remaking and thus, came to the conclusion that the gold weighing 509....
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....ess. Accordingly, the Assessing Officer concluded that in the block period the assessee was having undisclosed income in a sum of Rs. 29,92,950. 7. The assessment order was challenged before us by the assessee on the grounds incorporated above. We have heard the ld. counsel for the assessee and the ld. D.R. and carefully considered the rival submissions. The ld. counsel for the assessee filed paper book (1) containing pages I to 160 during the course of the argument containing copy of the notice dated 7-7-1997 under section 158BC, copy of the assessee's letter dated 15th July, 1997, copy of the acknowledgement of return for the block period, copy of the query letter dated 18-8-1997 issued by the Assessing Officer alongwith notice under section 142(1)/158BC(b), copy of the assessee's letter dated 30-9-1997, copy of the assessee's letter dated 3-10-1997 alongwith the duly sworn affidavit of those customers, who have given the ornaments for re-making, copy of the assessee's letter dated 6-10-1997, alongwith duly sworn affidavit of eight customers, who have given the ornaments for remaking, copy of the notice dated 8-10-1997 under section 142(1) of the Income-tax Act, copy of the as....
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....176 in the paper book was not available. Therefore, the fact remains that the papers as submitted in the paper book were available with the Assessing Officer. The ld. counsel for the assessee, besides relying upon the grounds of appeal argued that there was no warrant of search in the name of assessee-firm and as such the entire proceedings vitiated. The ld. counsel for the assessee relied upon the Ajit Jain v. Union of India [2000] 242 ITR 302 (Delhi). The ld. counsel for the assessee argued that notice under section 158BC was issued in the name of the assessee and since there was no valid authorisation to search the premises of the assessee, therefore, the assessment is invalid. The ld. counsel for the assessee further argued that before issuing search warrant, the Director should have reason to believe under section 132(1)(c) that any person is in possession of money, bullion & jewellery etc. However, in this case, since there was no warrant of authorisation, therefore, there is no question of having reason to believe that the assessee was having possession of money, bullion etc. The ld. counsel has taken us to the definition of the person as provided under section 2(31) of the ....
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....nowhere mentioned that Ashok Kumar was partner in the firm. He has argued that since there was no search warrant in the name of the assessee-firm and as admitted by the D.R., therefore, no legal order could be passed under section 158BC. According to the ld. counsel for the assessee for proceeding under section 158BD, the Assessing Officer should be satisfied that there was undisclosed income belonging to any other person other than the person searched under section 132 and in this case no satisfaction has been recorded by the Assessing Officer in the order of the firm or in the order of Ashok Kumar. The ld. counsel for the assessee further argued that many correspondences were made between the assessee and the Assessing Officer but Assessing Officer nowhere stated that he is proceeding against the assessee-firm under section 158BD. The ld. counsel for the assessee further argued that even the same Assessing Officer in the case of Ashok Kumar in whose name search warrant was issued has not recorded anywhere in the assessment order that he was satisfied that the assessee-firm has undisclosed income. The ld. counsel for the assessee further argued that the case law relied upon by the....
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....ssee. The ld. counsel further argued that the assessee has maintained the register according to G.S. 12 which was maintained for more than earlier years under Gold Control Act and books of account and all the details are mentioned in the stock register. The ld. counsel for the assessee further argued that the purchases and sales vouchers are maintained along with, the vouchers of the job work of the re-making of the jewellery and all the items are found to have been mentioned in the record seized by the Department. He has further argued that in the regular proceedings for the assessment the Department has accepted income from job work in the earlier years also. He has further argued that stock register as well as cash book was seized which shows that all the entries are made of the gold jewelleries found in the premises of the assessee. He has further argued that the payments to Karigars have been found to be entered in the records. He has taken us to page 176 of the paper book where all the details are mentioned. According to the ld. counsel for the assessee, labour charges have been entered into the same prior to the search. He has referred to PB's pages 254 to 262 which are the ....
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....d upon he judgment of Allahabad High Court in Dr. S.C. Gupta v. CIT [2001] 248 ITR 782. The ld. counsel for the assessee further argued that the silver ornaments and other items of silver have been duly reconciled from the records as well as supporting vouchers, but the Assessing Officer wrongly disbelieved the same. He has further argued that the assessee has shown all these vouchers in the regular assessment and the department has not disputed the same and as such, it cannot be believed that the assessee would not have shown the same details in the return of the income at the end of the previous year. The ld. counsel further argued that the addition on account of cash Rs. 5,000 of Ashok Kumar (HUF) is illegal and unwarranted under section 158BC. The ld. counsel for the assessee further argued that the addition on substantive basis in respect of the income of Ambika Devi is illegal and cannot be added as it was not undisclosed income as contained under the definition of Chapter XIVB. The ld. counsel for the assessee further argued that each case has its own facts and relied upon CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC). 9. On the other hand, the ld. D.R. argued ....
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....r argued that the order of the I.T.A.T., Chandigarh Bench in the case of Ved Prakash Sanjay Kumar is not applicable. The ld. D. R. further argued that there was sufficient material upon which notices were issued together and as such, the satisfaction of the Assessing officer could be presumed. The ld. D.R. further argued that the onus was on the assessee to explain all the entries and discrepancies and as such the Department was justified in taking action against the assessee. The ld. counsel for the assessee in rejoinder argued that the Assessing Officer never invoked section 158BD and there is no whisper at all in any of the proceedings. The ld. counsel for the assessee argued that even in the Panchnama it was mentioned that the warrant was in the case of Shri Ashok Kumar and M/s. Vishwanath Prasad Ashok Kumar and as such, the Assessing Officer proceeded on the basis that such warrant was issued in the name of the assessee firm also, which was not however, a fact. According to the ld. counsel for the assessee, therefore, the Assessing Officer did not satisfy himself as required under section 158BD. Since the Assessing Officer proceeded on the assumption that the warrant was issue....
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....o ACIT, Central Circle-I, Varanasi who issued the showcause notice under section 158BC and subsequently, further case was transferred to the ACIT, C.C.-II. Varanasi, as such, the Assessing Officer proceeded under the assumption that there was a search in the premises of the assessee and proceeded under section 158BC without complying the requirement of section 158BD. The ld. counsel for the assessee argued that the case law relied upon by the ld. D.R. are not applicable. The ld. counsel for the assessee explained that the record and stock register are maintained according to Gold Control Act, though it is not applicable at present. In case of job work only the quantity is mentioned in the bills but in the case of purchases, the value and quantity are recorded. The ld. counsel for the assessee on that basis argued that all the vouchers are maintained on this pattern, which were also seized by the Department. The ld. counsel for the assessee prayed that the assessment order may be set aside and quashed. 10. We have bestowed our careful consideration. The entire arguments of both the representatives of the parties raises preliminary issue and issues on merits. 11. The preliminar....
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....icer having jurisdiction over the person in whose case search has been made. If the Assessing Officer having seized record with him and after satisfying himself from the seized record that there is any material revealing undisclosed income belonging to any other person other than the person with respect to whom search was made under section 132 or books of account or documents requisitioned under section 132A, then to hand over the seized material and the documents to the Assessing Officer having jurisdiction over such other person and then that Assessing Officer having jurisdiction over such other person shall proceed against such other person under section 158BD to determine the undisclosed income by following the procedure provided. Therefore, the crux of the difference between these two provisions under Chapter XIVB is that for assessment under section 158BC, the Assessing Officer is not required to record his satisfaction before proceeding to determine the undisclosed income in respect of block period. However, in the case of section 158BD, the Assessing Officer who had been handed over the seized material, documents and assets etc. by the search party will have to satisfy him....
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....er section 158BD should not be treated as mere formality but it should be the positive satisfaction that the seized material reveals undisclosed income in case of other person. The tax law has to be interpreted strictly and has to be given meaning. The above noted distinction in both the provisions under Chapter XIVB is therefore, material and has to be complied with by the IT Authorities before proceeding under section 158BD. Hon'ble Allahabad High Court in the matter of Digvijay Chemicals Ltd., has dealt with this issue and referred to the requirement of satisfaction by the Assessing Officer. It is mentioned in this judgment that there was sufficient satisfaction by the DCIT, Amritsar for handing over the books of account and documents to the Assessing Officer of the appellant and this matter has been dealt with in para 22 of the Tribunal's Order, where it has been held that the DCIT of Income-tax, Amritsar was satisfied that the undisclosed income mentioned in the seized document pertains to the appellant." Therefore, it is necessary before proceeding under section 158BD that the Assessing Officer having seized material should be satisfied that any undisclosed income belongs ....
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....r, such satisfaction cannot be correctly reached, leave aside the argument whether it is required to be recorded or not." It was further held in this connection:-- "Thus, we hold that satisfaction by Assessing Officer under section 158BD has to be reached in some positive way, in black and white and on the basis of material found during search, which discloses that some undisclosed income belongs to the assessee. We may refer here to the decision of the Tribunal, Nagpur Bench, in the case of Smt. Jatan Bai Baid v. Asstt. CIT [1998] 96 Taxman 24 (Nag.), wherein it was held that in the absence of any positive satisfaction by the Assessing Officer of undisclosed income of assessee and in the absence of any reference to section 158BD in the notice issued, the impugned notice was invalid." It was further held in this connection:-- "In view of the foregoing it is clear that satisfaction of the Assessing Officer has to be evidenced by recording or by proving on the file, with reference to the material and facts, that undisclosed income in consequence of any search belongs to the assessee. The "Other person" mentioned in section 158BD comes into the picture only by virtue of su....
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....cess of the law as contemplated under the provisions of section 158BD. Since the contentions of the ld. counsel have been accepted on legal grounds, we do not propose to deal with the other grounds raised in the appeal." 15. Chapter XIV-B in the Income-tax Act has nowhere provided how the satisfaction is to be recorded. The Income-tax Act has provided under section 147 that the satisfaction has to be recorded in writing by the Assessing Officer before proceeding for re-assessment. Though such record of satisfaction has nowhere mentioned under Chapter XIVB, yet the legislature has made this distinction in both the provisions under sections 158BC and 158BD and directed that before proceeding under section 158BD, the Assessing Officer who has been handed over the record of the seized material by the Search Party will have to indicate in any form whatsoever about his satisfaction that undisclosed income belongs to such other person other than the person with respect to whom search was made under section 132. The Panchnama was prepared by the Search party in which in column No. (A), it was mentioned by the Search party that the warrant was in the case of Shri Ashok Kumar and M/s. Vis....
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....f any, consequent to that would be illegal. Though legally for proceeding under section 158BD of the Income-tax Act, the Assessing Officer will have to proceed in accordance with the procedure prescribed under section 158BC but the authorities below must have mentioned somewhere that it was a case under section 158BD. The Income-tax Appellate Tribunal, Bangalore Bench, in the matter of Microland v. Asstt. CIT [1998] 67 ITD 446 has held: "All the papers on record were merely in the name of 'P'. Therefore, as there was no valid search in the case of the assessee, the assessment made under section 158BC was invalid and void in law. There was again no indication anywhere that the assessment had been made under section 158BD." The appeal filed by the assessee is allowed. The Department as such cannot give surprise to the assessee at the appellate stage by mentioning that there was no authorisation of search in the name of the assessee-firm. The satisfaction has to be arrived at by the initial Assessing Officer before proceeding under section 158BD. It is undisputed that the Assessing Officer in the case of the assessee-firm was ITO., ward-4, Varanasi. This fact is mentioned in the....
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....eferred to above, the entire assessment order is vitiated due to non-compliance of the provisions of the law. We decide the, preliminary issue in favour of the assessee and against the Department. 17. As a result, we set aside and quash the assessment order. Though in view of the above finding, we need not decide the issues on merits of the case, since some important questions are involved, therefore, we decide the remaining issues on merits also. 18. Chapter XIVB starts with section 158B and it has provided the definition of 'Block Period' and 'Undisclosed Income'. The definition of undisclosed income is relevant in this case which is reproduced below:-- 158B(B) 'Undisclosed Income' '(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." 19. Chapter XIVB consists of sections 158B ....
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....as the search was conducted on 3-11-1996 in between the previous year and the previous year has not ended. The assessee, therefore, could claim that income or property found in the search is not undisclosed as the last date for disclosing the same has not yet passed by filing a return. The assessee also could claim that the evidence recovered would not fall in the definition of undisclosed income or that the same have been disclosed or would be disclosed. The claim of the assessee could be accepted if the assessee shows that the income or the transactions relating to such income are recorded in the books of account or documents maintained in the normal course of business on or before the search. 22. Circular No.717 dated 14th August, 1995 is issued by the CBDT on the subject of Finance Act, 1995 - explanatory notes on provisions relating to direct taxes. Clause 39.3 of this circular provides salient features of the scheme provided under Chapter XIV-B. The relevant clause is reproduced from this circular: Clause 39.3(b)(vi) "Undisclosed income: Where the previous year has not ended or the date of filing the return of income under section 139(1) for any previous year has ....
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....rmed that they had hand over their jewelleries for remaking to the assessee against the receipts. The Assessing Officer also recorded the statement of Ashok Kumar, partner in the assessee-firm during the course of the assessment proceedings, in which Ashok Kumar has explained to have maintained the books of account in the ordinary course of the business and the same contained like Roznamcha, Rokar Bahi, Ledger, Karigar Bahi, order book, stock register for gold ornaments, sales-tax register, gold purchase voucher and sale vouchers, silver jewellery, purchase voucher and silver purchase vouchers. Shri Ashok Kumar, partner, also narrated the procedure for making entries in the books of account in his statement. However, the Assessing Officer did not believe the affidavits and statement of the customers as he found discrepancy in their statements. The Assessing Officer also did not believe the statement of Ashok Kumar as he found discrepancies in the statement of Ashok Kumar, therefore, made the addition of value of 5090.110 gms. of the jewellery Rs. 500 per grams in a sum of Rs. 25,45,055 and treated the same as unaccounted stock of the assessee. The Assessing Officer noticed that the....
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....r statements under section 131 of the Income-tax Act. The Assessing Officer himself did not examine all the 17 parties, therefore, his objection that Smt. Rani Devi was not produced is of no relevance. All the bills executed between these customers were available at the time of search and seized by the Search Party and found part of the Panchnama prepared by the Search Party. The stock register, cash book, karigar bahi, G-12 register etc. were seized and also found mentioning the dealings of these customers with the assessee. All these records were seized by the Search Party. The assessee was maintaining the registers of the customers giving their articles for re-making as per Gold Control Act, which was previously applicable. All these details of the customers were recorded in the books of account and documents seized by the Search Party. The ld. D.R. argued that the nature of the transaction was different. However, it is admitted that the same are purchase vouchers entered in the books of account. His only objection is that the same are not the dealings for the purpose of re-making of the gold jewellery. It is not a case made out by the Assessing Officer. The Assessing Officer ma....
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....ment. The Assessing Officer acted beyond his jurisdiction. The reasons given by the Assessing Officer to disbelieve the statement of the customers and Shri Ashok Kumar, partner of the assessee-firm are highly imaginary and without any supportive evidence or material. The discrepancies as stated by Assessing Officer are not vital and material to reject the Explanation of assessee. The assessee has been able to prove that the gold jewellery entered in the books of account or other documents maintained in the normal course relating to the previous year. The Assessing Officer has tried to make out a case of undisclosed income on presumption and discrepancies only but he has failed to satisfy the requirement of the definition of the undisclosed income as provided under section 158B(b) of the Income-tax Act. The case of the assessee is squarely covered by section 158BA(3) of the Income-tax Act and the CBDT Circular No. 717 and as such, the said income cannot be included in the block period. 25. The Income-tax Appellate Tribunal, Delhi Bench (Third Member) in the matter of India Seed House has decided:-- "However, the assessee is able to prove from a seized paper itself that it was ....
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....authorities referred to above by the ld. D.R. are not applicable to this case. The ld. counsel for the assessee also relied upon Daya Chand's case and Ch. Atchaiah's case & Sun Engg. Works (P.) Ltd.'s case, but these cases are not applicable to the block assessment and are not applicable. Keeping in view the above discussion, the issue is decided in favour of the assessee and against the Department. Unexplained Cash:- 27. During the search and seizure operation, Rs. 3,16,400 was found from the business premises of the assessee. In the initial statement of Shri Ashok Kumar recorded on date of the search i.e. 3-11-1996, he has surrendered Rs. 1,89,880 voluntarily, but he did not include the same in the return filed subsequently. The Assessing Officer found mentioning of reconciliation of the cash on 3-11-1996 and as per pukki rokar Annexure 'A' written upto 17-10-1996, cash balance of Rs. 57,960 was found. In the kachi rokar written from 17-10-1996 to 25-10-1996. The balance of Rs. 56,520.10 was found. The assessee has given in-flow and out-flow of cash from 16-10-1996 till 2-11-1996, i.e. prior to the search. The Assessing Officer rejected the inflow and out flow of the cash a....
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.... assigning any reasons. The argument of the ld. D.R. had been that Ashok Kumar, partner has surrendered cash of Rs. 1,89,880 at the time of statement on 3-11-1996, therefore, the same cannot be reconciled now, The ld. DR. argued that the same statement would be the basis of addition in the hands of the assessee in the block period. The ld. D.R. relied upon the judgment of Allahabad High Court in the case of Dr. S.C. Gupta, in which it was held:-- "Held, that a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. This burden was not even attempted to be discharged. The order of the Tribunal was based on facts and no question of law arose from it." There is no dispute about the legal proposition that the statement made voluntarily could form the basis of the assessment. However, the Hon'ble High Court further held that the burden law on the assessee to establish that the admission made in the stat....
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....covered and seized from the residential premises of Ashok Kumar. The Department itself has admitted that Rs. 18,150 was recovered from the residential premises of Ashok Kumar, as such, the same cannot be connected with the transaction of the business activity of the assessee-firm and as such cannot be made the basis for making addition in the hands of the assessee-firm. The recovery from the residence of Ashok Kumar cannot be treated as undisclosed income of the assessee. As a result, we find that the entire addition in respect of the unexplained cash deserves to be deleted, which we do accordingly and delete the addition. This issue is also decided in favour of the assessee and against the Department. Un-explained investment in silver ornaments, silver coins, silver brick and silver utensils:-- 29. The Assessing Officer found that silver ornaments weighing 8.212.9 kgs. as unexplained at the time of search. The assessee claimed to have made purchase, on 2-11-1996 in the quantity of 8050.000 and sales of 77.000 on 22-10-1996 vide bill No, 144. The assessee has tried to explain the difference by this explanation. The details are mentioned at page 61 in the paper book. However, ....
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....r has disbelieved as no evidence of loan was found at the time of search. The assessee has filed all the details before the Assessing Officer. We have already taken up this point at the stage of the decision in respect of gold jewellery and we were of the view that according to section 158BA(3), if the transaction relates to such income recorded on or before the date of the search in the books of account or documents maintained in the normal course relating to such previous year then such income cannot be included in the block period. It was a case when search was conducted before the end of the previous year. The assessee has produced all the bills of purchases and furnished the details of the loans in respect of silver brick and utensils but the Assessing Officer has not made any enquiry into the matter and disbelieved the same as no voucher was found at the time of search. The definition of undisclosed income has not been satisfied in this case. On the other hand, the assessee has been able to explain the above items from the reconciliation which is supported by various bills and details. In the absence of any enquiry by the Assessing Officer, no addition could be made in the ha....
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....d and made the addition on substantive basis in the hands of the assessee-firm and on protective basis in the hands of Smt. Ambika Devi. We are unable to agree with the view of the Assessing Officer. Once Smt. Ambika Devi had shown income from Saree business in her return for the assessment year 1996-97, prior to the search, the same cannot be termed as "undisclosed income". We are repeating again that for undisclosed income, the Assessing Officer will have to establish that the assessee would not show the same income in his hands for the purpose of this Act. However, in this case, Smt. Ambika Devi has already shown the same income in her hands prior to the search in the assessment year 1996-97. The search party did not find any evidence during the search that the assessee-firm was doing the business of sarees. In the earlier assessment year 1996-97 under section 143(3), the Department accepted the business activity of the assessee-firm to be manufacturing sales, purchases, silver and gold ornaments etc. Even in the regular assessment in 1997-98, the same business activity was accepted, more so the Assessing Officer in the Block assessment order also at page 2 has mentioned that: ....