TaxTMI 
TaxTMI 
TaxTMI 
2002 (8) TMI 255
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....pter XIV-B. (ii) the provisions of s. 132(9A) had not been complied with and the AO 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-B are prima facie illegal. (iv) the notice dt. 9th Oct., 1997 under s. 158BC, in pursuance 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. Asst. yr. Rs. Particulars (a) 1997-88 24,45,055 Alleged unexplained investment in Gold ornaments weighing 5090.110 gms out of stock found during the course of search. (b) 1997-98 2,38,030 Alleged unexplained cash found during the course of search (c) 1997-98 22,313 Alleged unexplained investment in silver utensils (d) 1997-98 30,208 Alleged unexplained investment in silver coins (e) 1997-98 39,433 Alleged unexplained investment in silver bricks (f) 1997-98 20,611 Alleged unexplained investment in silver utensils (g) 1997-98 5,000 Alleged unexplained deposits ....
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....ary 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 lend support to the contention of learned AO. 9. Because the assessment has been completed against all the principles of natural justice and the additions as comprised therein are liable to be deleted. 10. Because the order is bad both on facts and in law and is not maintainable". ....
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.... been asked to explain new gold jewelleries weighing 5090.110 gms. recorded on the order book. The item No. 2 of Anne. 'A' of panchnama prepared for the business premises on 3rd Nov., 1996 and order book was found and seized which reveals that out of gold jewellery weighing 7,137 kgs the following quantity of gold are appearing in the names of the following partners: Chart A S. No. Name & address Date of receipt of old ornaments Weight 1 2 3 4 1. Shri Gopal Dutt Dwivedi, Chhotipiyari, Varanasi 03.04.96 259.150 gms 2. Shri Awadesh Kumar Dwivedi, Varanasi 04.04.96 482.580 gms 3. Shri Kailash Singh, Nariya, Varanasi 11.04.96 458.000 gms 4. Rani Devi, Hirapur, Varanasi 12.06.96 32. 180 gms 5. Kailash Chaubey, Hirapura, Varanasi 13.08.96 229.450 gms 6. Ramesh Pandey, Gurudham, Varanasi 17.08.96 308.150 gms 7. Mahendra Jaiswal, Chowkghat, Varanasi 20.08.96 293.450 gms 2062.960 gms Similar transaction has also been shown in the names of the following persons as mentioned in item No. 15 of annex. 'A' of the panchnama dt. 3rd Nov., 1996: Chart B S. No. Name & address Date of receipt of old ornaments Weight 1. Shri Govind, Dhamnagar, Varanasi....
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....Rs. 2,28,030 and made addition of this amount. Similarly, the AO found silver ornaments, silver coins, silver bricks and silver utensils in the premises of the assessee-firm and after considering the reply of the assessee made addition in a sum of Rs. 22,313, Rs. 30,208, Rs. 39,433 and Rs. 20,611 respectively on account of the above articles and treated the same as undisclosed investment. The AO also during the course of the block assessment found that the bank account in the statement of Ashok Kumar (HUF) in Oriental Bank of Commerce, Savings Bank Account No.329. Since Ashok Kumar was partner in the firm and could not prove about the creation and activity of the HUF, therefore, a sum of Rs. 5,000 was added on account of unexplained deposit in the Bank account of Ashok Kumar (HUF) and treated the same as unexplained investment made by the assessee-firm. We may state here that all the above additions on account of undisclosed income and investment were made in the asst. yr. 1997-98 i.e., in between the previous year. The search was conducted on 3rd Nov., 1996, therefore, the previous year was to be ended on the end of March, 1997. The AO also made addition of Rs. 1,02,300 in the ass....
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.... of ornaments, copies of the cheque of Rs. 50,000 encashed on 23rd Oct., 1997, copy of the bill of labour charges raised for job work, copies of the assessment orders of Smt. Ambika Devi. The learned counsel for the assessee also filed supplementary paper book from pp. 161 to 309 containing copy of the panchnama dt. 3rd Nov., 1996, copies of the relevant books of account and other documents where the old ornaments brought by the customers were entered into with reference to relevant annexures as panchnama, copies of the receipts/purchase vouchers of the old ornaments and their receipts, copy of the order book, copy of sale vouchers, copy of Karigar Bahi, copy of the bills issued by karigars for job work, copy of the stock register, copy of the cash book, copy of the ledger, copy of the affidavit of Kailash Singh, Advocate and copies of the assessment orders of the assessee and copy of the order for the block period in the case of Smt. Ambika Devi etc. The above paper books were supplied to the Departmental Representative. The assessee has given a certificate in both the paper books that all these documents were furnished before the AO. The learned Departmental Representative did no....
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....uced the same and we have perused the same. The search warrant was issued in the name of Ashok Kumar; however, it was directed that the residential premises of Ashok Kumar and business premises of the firm M/s Vishwanath Pd. Ashok Kumar be searched. Therefore, it is clear that there was no authorisation in the name of the assessee-firm and as such, there was no search warrant in the name of the assessee-firm. The learned Departmental Representative on the basis of the search warrant argued that though s. 158BC is not applicable, but the AO could proceed against the assessee-firm under s. 158BD of the IT Act. There is no need to have warrant of search in the name of the assessee. The learned Departmental Representative further argued that the entire chapter XIV-B is applicable. The learned Departmental Representative further argued that there was no dispute that incriminating documents were found at the time of search from the premises of the assessee-firm. The learned Departmental Representative relied upon the judgment of Allahabad High Court in the case Digvijay Chemicals Ltd. vs. Asstt. CIT (2001) 167 CTR (All) 299 : (2001) 248 ITR 381 (All) and judgment of Madras High Court Sak....
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...., order of the Tribunal, Allahabad Bench in the matter of Ashok Kumar Jaiswal vs. ITO dt. 17th July, 1992 However, the learned counsel for the assessee during the course of argument fairly conceded that in view of the statement of the learned Departmental Representative that there was no search warrant in the name of the assessee-firm, the order in the case of Narendra Kumar Jain of Lucknow Bench may not be applicable. The learned Departmental Representative however, argued that the AO issued notice to all of them together after the search and as such the AO was satisfied in proceeding under s. 158BD. The learned Departmental Representative further argued that the AO has legally proceeded against the other persons i.e. the assessee-firm according to law. The learned Departmental Representative further argued that there is no requirement under s. 158BD of the IT Act for the AO to record his satisfaction before issuing notice or in the assessment order. The learned counsel for the assessee on merits argued that all the gold ornaments are recorded in the books of account. According to him, even the AO has mentioned at page 4 of the order as well as in the questionnaire dt. 18th Aug., ....
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....nts in the paper book to show that all the gold jewellery entered into the records prior to the search including the sale purchase etc. and comparative chart was submitted to the satisfaction of the AO. According to him, the proceeding of the search was in the mid of the year and regular return was filed subsequently and no difference or defect was found therein which would go to show that the assessee has entered all the gold jewellery before search and as such, it was not a case of block assessment. The learned counsel for the assessee further argued that the cash was entirely reconciled from the books and the copy of reconciliation statement is filed at pp. 59 & 60 of the paper book and are supported by documentary evidence also. The learned counsel for the assessee further argued that though Ashok Kumar gave his initial statement and surrendered the cash of Rs. 1,89,880, but he has retracted from his statement and explained that his earlier statement was wrong as he was away from the shop for the last many days and as such he was not aware of the exact cash available at the business premises of the assessee. He has retracted and proved by documentary evidence to the satisfactio....
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....ed the source of purchases in the books and the Departmental Representative further argued that all the new jewellery was found. The learned Departmental Representative relied upon Fakir Mohmed Haji Hasan vs. CIT (2001) 165 CTR (Guj) 111, Daya Chand vs. CIT (2001) 167 CTR (Del) 446 : (2001) 250 ITR 327 (Del),CIT vs. K.T.M.S. Mahamood (1997) 140 CTR (Mad) 282 : (1997) 228 ITR 113 (Mad), and Chuharmal vs. CIT (1988) 70 CTR (SC) 88 : (1988) 172 ITR 250 (SC) Dr. S.C. Gupta vs. CIT. The learned Departmental Representative further argued that no description of jewellery has been mentioned in the bills referred to above from pp. 177 to 206. The learned Departmental Representative further argued that the AO has disbelieved all the persons who have given their old ornaments to the assessee for remaking and as such, the assessee has made up the theory after thought. The learned Departmental Representative further argued that in the stock register the items given to the karigars have not been mentioned and no description is given. He has further stated that no earlier payment was shown to the karigars. The learned Departmental Representative further argued that the vouchers are afterthought....
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....ty could follow. The learned counsel further argued that since learned Departmental Representative argued that all the gold jewellery were purchases and the same were not given for remaking would go to show that it was not a case of undisclosed income/investment as the learned Departmental Representative admitted this fact. The learned counsel for the assessee argued that the AO has made the addition at p. 18 of the, assessment order in respect of the gold weighing 5090.110 gms. on account of unaccounted stock. However, the learned Departmental Representative admitted that it was accounted for as purchases therefore, we feel that the appeal of the assessee is liable to be allowed. The learned counsel for the assessee further argued that all the vouchers from pp. 177 to 206 in the paper book were seized by the search Party and the same were entered into the books of account as well as in the karigar register. The learned counsel for the assessee further argued that the order book, karigar bahi, cash book etc. were seized in which all the entries in respect of which additions have been made have been shown. The learned counsel for the assessee further argued that all the entries are ....
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....eriod under Chapter XIV-B of the IT Act. Before proceeding to decide the merits of the appeal, we feel it appropriate to decide the above preliminary issue first. 12. Chapter XIV-B inserted by Finance Act, 1995 w.e.f. 1st July, 1995 provides special procedure for assessments in search cases. Sec. 158BC of the IT Act provides special procedure for block assessment. Where any search has been conducted under s. 132 of the IT Act or books of account other documents or assets are requisitioned under s. 132A of the IT Act. In the case of any person, the AO shall serve a notice to such person requiring him to furnish within such time, not being less than 15 days and thereafter after providing opportunity and serving a notice shall pass the assessment order in respect of seized incriminating material recovered during the course of the search operation. However, another provision under s. 158BD of the IT Act provides procedure for the assessment in respect of undisclosed income of any person other than the person searched. It provides that where the AO is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made under s. 132 of ....
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....elongs to any person other than the person searched. The difference is created in these two provisions of law under the same chapter XIV B that it should be the objective satisfaction of the AO and that satisfaction of the AO has to be on the material found during the search and the AO will have to identify that such seized material which reveals the undisclosed income of other person other than the person in whose case search has been made under s. 132(1). In case under s. 158BC the search is to be conducted on the basis of warrant of authorisation, which is issued by the different authorities like Director General or Director under s. 132 in consequence of information in their possession and after recording the reasons to believe that any person would not produce the books of account or documents, unless search is conducted. Therefore, in cases of search under s. 132 in which assessment under s. 158BC is to be made, the Department was having information and that prior to issue of warrant of authorisation, the Department would also be having reasons to believe that the person in whose respect warrant of such authorization has been issued would not be producing the books of account....
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....while dealing with the similar questions involved in this appeal as well as the question in case where the AO is the same is the case of the person searched and such other person has held in the head note: "Search and seizure—Block assessment proceedings under s. 158BD—Before proceeding, against B under Chapter XIV-B on the basis of search made on A where the AO conducting search and in possession of material seized is the same in the case of B, the AO has to arrive at a positive and objective satisfaction on cogent material to be recorded in black and white, that the material seized in search of A disclose undisclosed income of B—in this case, on the basis of search at the residential premises of partners of assessee-firm, proceedings for block assessment were initiated against assessee-firm without recording the requisite satisfaction under s. 158BD—Proceedings were therefore, void ab initio." 'We feel that even if the arguments of the learned Departmental Representative that satisfaction is not required to be recorded in writing, are accepted, yet some positive satisfaction on the part of the AO is enjoined by the provisions of s. 158BD. We feel that such satisfactio....
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....n. We feel that the provisions of s. 158BD, incorporated in Chapter XIV-B dealing with special procedure for assessment of search cases, have to be construed strictly, as the same provide a launching pad for the AO to assume jurisdiction and proceed against a person other than the searched person, so as to rope him within the provisions of Chapter XIV-B. We feel that the AO has to make himself sure of the correctness of the seized documents by proper examination and unless the AO is fully satisfied that such documents disclosed undisclosed income of another person, he shall not proceed against such other person on the basis of such documents and that too without bringing them on record." It was further held in this connection: 'We hold that the notice issued by him straightaway to the assessee-firm under s. 158BC is void ab initio. We feel that the said provisions have been incorporated in the Act for being followed in the spirit in which they have been enacted and any violation thereof by the AO leads to illegality which is fatal to the assessment proceedings and this illegality cannot be remedied by restoring the matter to the file of the AO. Accordingly, we quash the assessm....
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....n for such possession—No "information" for purposes of s. 132 search based on such information and consequent block assessment were not valid—IT Act, ss.132 & 158BC" It was further HELD: "The mere fact that the petitioner was in possession of the said amount could not straight away lead to the inference that it was his undisclosed income." The AO in the case of the assessee has also mentioned in the opening of the impugned assessment order that: "In pursuance of warrant of authorisation under s. 132(1) of the IT Act, the search and seizure operation was conducted on 3rd Nov., 1996, at the business premises of the assessee-firm and residential premises of Ashok Kumar & others. It appears from the above facts and circumstances that the search party as well as the AO have proceeded against the assessee-firm under s. 158BC of the IT Act under the assumption that valid authorisation under s. 132 to search the premises of the assessee was also issued in the name of the assessee-firm, which is factually incorrect. Since there was no authorisation under s. 132 in the case of the assessee-firm, therefore, the search if any, consequent to that would be illegal. Though legally f....
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...., Varanasi has nowhere mentioned about this satisfaction about undisclosed income of other person than the person searched under s. 132 of the IT Act, rather similarly, the AO mentioned about the search in pursuance of the warrant of authorisation under s. 132 as is recorded by the AO in the case of the assessee-firm. The learned Departmental Representative tried to make out an altogether new case for the Department at the appellate stage under s. 158BD but the arguments of the learned Departmental Representative are not substantiated from the record. The AO has not complied with the statutory provisions of s. 158BD in this case, which resulted into illegalities committed by him. It is nowhere clear from the assessment record, panchnama or the assessment record whether the AO at all has proceeded under s. 158BD. Therefore, there is no question of his recording satisfaction as required under s. 158BD. Keeping in view the above discussion and the authorities referred 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 ....
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....18BA(3) provides that "where assessee proves to the satisfaction of the AO that any part of income referred to in sub-cl. (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 for any previous year has not expired and such income or transaction relating to such income are recorded on or before the date of search or requisition in the books of account or other documents maintained in the normal course relating to such previous year, the said income shall not be included in the block period". Sub-s. (3), therefore, takes care of special situation. There could be a situation where part of the income contained in the block period relates to the assessment for which the previous year has not ended or on which date of filing of the return has not expired. The same is the case before us as the search was conducted on 3rd Nov., 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 ....
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....s weighing 5090.110 gms. recorded on the order book. It was stated that these gold articles were found mentioned against the names of 17 customers, which is incorporated in this order also. The assessee replied the same. The assessee initially filed 14 affidavits of these customers and for one customer, Shri Kailash Singh, Advocate, affidavit was filed on 22nd Oct., 1997. The remaining two affidavits were not filed as the gold articles were already returned to Smt. Rani Devi and other customer, Ganesh Prasad Munjul appeared before the AO and was examined under s. 131. The AO recorded the statement of some of these customers on random basis under s. 131 of the IT Act. All the customers affirmed their dealings with the assessee and also affirmed that they had handed over their jewelleries for remaking to the assessee against the receipts. The AO 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....
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....hese customers. The remaining two affidavits could not be filed as the articles belonging to Smt. Rani Devi were already returned on 18th Oct., 1996 i.e., prior to the search. The details are mentioned in the paper book at p. 176 and the same tallies in the weight also. Another customer, Shri Ganesh Prasad Manjul, had already appeared before the AO and was examined under s. 131 by the AO. The AO also admitted to have examined eight persons out of these 17 parties on random basis under s. 131 of the IT Act. All these customers have admitted their dealings with the assessee in their affidavits as well as in their statement under s. 131 of the IT Act. The AO 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 mentioning the dealings of these customers with the assessee. All these records were seized by the search party. The assessee was maintaining the ....
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....sumption could be drawn against the assessee that the assessee would not disclose the dealings with the customers and karigars in its return for the purpose of the IT Act. The scope of s. 158BC is to assess undisclosed income not recorded in the books or documents maintained in the ordinary course of business relating to previous year. Since all the entries were found to have been mentioned, therefore, it was beyond the scope of s. 158BC to take out discrepancy in the statement of the customers to make addition by way of undisclosed income which might be the subject-matter of regular assessment. The AO acted beyond his jurisdiction. The reasons given by the AO 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 AO 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 AO has tried to make out a case of undisclosed income on presumption and discrepancies....
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....o distinguishable on facts and is not applicable. The learned Departmental Representative also relied upon (2002) 175 CTR (Bom) 651 : (2002) 256 ITR 20 (Bom), which is with regard to penalty, maintenance of the books of account and is not applicable as distinguishable on facts. We have already held that the assessee has been able to prove that all the entries are made in the books of account and documents maintained in the ordinary course of the business relating to the previous year, therefore, the case of the assessee would not fall within the definition of "undisclosed income". Even, otherwise, these authorities are not in respect of block assessment and as such, the authorities referred to above by the learned Departmental Representative are not applicable to this case. The learned counsel for the assessee also relied upon (2001) 167 CTR (Del) 446 : (2001) 250 ITR 327(Del) and (1996) 130 CTR (SC) 404 : (1996) 218 ITR 239 (SC) & (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC), 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. Unexp....
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....e found of 7134.780 gms. of gold ornaments. The remaining items were the gold ornaments sold on 1st Nov., 1996 and 2nd Nov., 1996, which is reconciled from the cash reconciliation. If the Department has accepted the sales on 1st Nov., 1996 and 2nd Nov., 1996 of gold ornaments on the cash available out of these sales should also have been believed by the Department. The only objection of the AO had been that the cash inflow and outflow are not supported by documentary evidence is itself contradictory from the above facts. The assessee has given all the details of the reconciliation and given the details from where cash came into but the AO has failed to make out any investigation on this issue and rejected the case of the assessee without assigning any reasons. The argument of the learned Departmental Representative had been that Ashok Kumar partner has surrendered cash of Rs. 1,89,880 at the time of statement on 3rd Nov., 1996, therefore, the same cannot be reconciled now. The learned Departmental Representative argued that the same statement would be the basis of addition in the hands of the assessee in the block period. The learned Departmental Representative relied upon the judg....
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....en days, therefore, his retraction from the earlier statement was quite normal and supported by evidences of the sales which were admitted by the Department. The assessee has been able to explain the discrepancy in the cash from the reconciliation, which is supported by the documents and as such in our considered view, no addition could be made on the basis of statement of Ashok Kumar by which he has surrendered cash of Rs. 1,89,880. The assessee has been able to prove the reasons for retractions from the earlier statement, which is also found supported from the explanation given by Ashok Kumar in his initial statement as well as from the explanation given in the reconciliation before the AO. The AO has also made addition of Rs. 18,150 in respect of unaccounted cash recovered 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 ca....
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....sment is framed after the end of previous year i.e., the end of March, 1997 at the time everything was available with the AO, therefore, the AO should have made enquiry into the evidences filed by the assessee instead of rejecting the explanation of the assessee summarily. Similarly, for silver coins bill was produced, details were furnished before the AO but he did not make any enquiry about the purchases, rather he has disbelieved the purchases as no payment was made. There is no bar to purchase the goods on credit. As far as silver brick and silver utensils are concerned, the AO has disbelieved as no evidence of loan was found at the time of search. The assessee has filed all the details before the AO. 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 s. 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 h....
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....vour of the assessee against the Department. Unexplained income of the assessee added substantively shown by Smt. Ambika Devi, Assessee from saree business. 31. The AO made the addition of Rs. 1,02,300 in the Block asst. yr. 1996-97 on substantive basis in the hands of the assessee. This income was shown by Smt. Ambika Devi in her return in tine asst. yr. 1996-97 as income from Saree business. The AO disbelieved 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 AO. Once Smt. Ambika Devi had shown income from saree business in her return for the asst. yr. 1996-97, prior to the search, the same cannot be termed as "undisclosed income". We are repeating again that for undisclosed income, the AO 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 asst. yr. 1996-97. The search party did not find any evidence during the search that the assessee-firm was doing the business of sarees.....