TaxTMI 
TaxTMI 
2002 (8) TMI 255
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.... applicability of the provisions of Chapter 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 All....
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....ble even on facts as the appellant 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 lend support to the contention of learned AO. 9. Because the assessment has been completed against all the principles of natural justice and....
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....at part compliance of the notice dt. 18th Aug., 1997, has already been made and further compliance is made of the notice and letter dt. 29th Oct., 1997. 4. Through question No.1 and questionnaire dt. 18th Aug., 1997, the assessee had 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 Jais....
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.... the assessee as well as Rs. 50,000 withdrawn by Ashok Kumar on 26th Oct., 1996, from the Bank. Thus, the AO concluded that the assessee should be in possession of Rs. 1,06,520 only. The AO further observed that the assessee has also failed to explain the cash amounting to Rs. 18,150 seized from the residential premises of Ashok Kumar and as such, held that unaccounted cash with the assessee-firm as on the date of the search was Rs. 1,89,880 + Rs. 1,26,520 + Rs. 18,150 minus Rs. 1,06,520 = 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. 5,00....
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....rcle-II, Varanasi after the change of the jurisdiction, copy of the assessee's letter dt. 6th Nov., 1997, furnished in compliance of the AO's notice dt. 29th Oct., 1997, copies of the reconciliation statement pertaining to cash and gold and silver ornaments on 3rd Nov., 1996, copy of the assessee's letter dt. 8th Nov., 1997, copy of the balance sheet alongwith the assessment orders from asst. yrs. 1994-95 to 1997-98, copy of the comparative chart of the job work receipts for making/repairing 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 ....
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..... 8. On the other hand, the learned Departmental Representative argued that there was no illegality in the search warrant. It is argued that as according to search warrant, issued under s. 132(1), the residential premises of Ashok Kumar and business premises of the assessee-firm was searched though warrant of search was in the name of Ashok Kumar. The learned Departmental Representative was directed during the course of the argument to produce the original search warrant, which he has produced 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 Dep....
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....d counsel for the assessee relied upon the order of the Tribunal, Chandigarh Bench, in the case of Ved Prakash Sanjay Kumar vs. Asstt. CIT (2000) 66 TTJ (Chd) 442, the order of the Tribunal, Allahabad Bench in the matter of Ajay Kumar Agrawal dt. 15 Jan., 2001, the order of the Delhi Bench in the case of India Seed House vs. Asstt. CIT (2000) 69 TTJ (Del)(TM) 241 (Third member case) and the order of the Tribunal, Delhi Bench in the matter of ITO vs. Ashok Kumar Agrawal (1990) 38 TTJ (Del) 189, 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 again....
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..... The learned counsel for the assessee has taken us to pp. 177 to 206 in the paper book which are the copies of the seized documents, which shows that all the sale purchase of jewellery taken for remaking have been entered into the record, which was seized by the Department. The learned counsel for the assessee has also taken us to p. 64 of the paper book, which is the reconciliation of the gold jewellery ornaments. The learned counsel for the assessee has also taken us through various documents 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 ....
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....hat the details mentioned at pp. 177 to 206 in the paper book are purchase vouchers of the gold and these purchases have not been entered into the books of account maintained in the regular course of the business. The learned Departmental Representative on a specific question asked by the Bench admitted that the purchase vouchers are not disputed. The learned Departmental Representative further argued that the order book was written from 3rd April, 1996 to 20th Aug., 1996 and it has not recorded 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 th....
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....the assessee-firm also, which was not however, a fact. According to the learned counsel for the assessee, therefore, the AO did not satisfy himself as required under s. 158BD. Since the AO proceeded on the assumption that the warrant was issued in the name of the assessee-firm also, therefore, the satisfaction as required under s. 158BD was not complied with. The learned counsel for the assessee further argued that the Tax Act has to be read as a whole and to be interpreted strictly and no equity 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....
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....this pattern, which were also seized by the Department. The learned 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 preliminary issue raised is whether the AO has recorded his satisfaction as required under s. 158BD of the IT Act before proceeding to make assessment in respect of block period 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 o....
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....have to satisfy himself that any undisclosed income belongs to any person other than the person searched under s. 132 or whose books of account or documents were requisitioned under s. 132A of the IT Act. Therefore, though it is not provided under the Act what satisfaction is to be recorded by the AO but the Act clearly provides that before proceedings under s. 158BD the AO who received the seized material and documents from the search party shall have to be satisfied that any undisclosed income belongs 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....
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....AO, to whom the records of the persons against whom notices had been issued, had been transferred, were perfectly valid and the application of the provisions of Chapter XIV-B was equally valid in their cases as well". However, with great respect to the aforesaid judgment the point of satisfaction has not been decided in this authority. Only validity of the notices were questioned. 14. That Tribunal, Chandigarh Bench in the matter of Ved Prakash Sanjay Kumar vs. Asst. CIT (2000) 66 TTJ (Chd) 442, 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 r....
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....thout complying with basic prerequisites specified in s. 158BD. We feel that the object underlying the provisions of s. 158BD is not to give unbridled power to the AO to proceed against any person without reaching satisfaction in an objective manner based on the cogent material/documents seized at the time of search. The satisfaction of the AO is not a mere formality but it should be positive satisfaction that the seized material pertains to the other person and reveals undisclosed income of that other person. 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....
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....the case of the assessee. The Hon'ble Delhi High Court in the matter of Ajit Jain vs. Union of India has held: "Search and seizure—Block assessment—Condition precedent for block assessment—Valid search—Search can be made only in case of information which results in reason to believe that person in possession of money or other asset will not disclose it for income-tax purposes—Intimation simpliciter by CBI that cash was found in the possession of individual—Individual having a reasonable explanation 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 Asho....
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....-4 Varanasi, who was having jurisdiction over the assessee-firm. Therefore, there is no question of his satisfaction at all as required under s. 158BD of the IT Act. 16. We have perused the original assessment record, in which Asstt. CIT, CC-I, Varanasi on 7th July, 1997, issued notice under s. 158BC(a) against the assessee-firm and no satisfaction as required under s. 158BD is found to have been mentioned. Similarly, in the block assessment order of Shri Ashok Kumar dt. 27th Nov., 1997, the same AO, Asstt. CIT, CC-II, 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 com....
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....ns must be satisfied, to treat income as 'Undisclosed Income' i.e. (1) It must be in the form of money, bullion, jewellery other valuable articles or things or should constitute income or property based on any entry in the books of account of transaction. (2) It should be clear that the assets or entry in the books represents income or property which have not been disclosed or would not have been disclosed for the purpose of this Act. 21. Sec. 158BA provides for assessment of undisclosed income as a result of search and 1518BA(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 si....
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....income added substantively in the hands of the assessee of Smt. Ambika Devi. There is no dispute that first requirement is satisfied as search was conducted on 3rd Nov., 1996, and the previous year has not expired. Let us examine whether it is a case of undisclosed income or the assessee is entitled to the benefit of s. 158BA(3) of the IT Act. Unexplained investment in Gold Ornaments/Jewellery: 24. The AO has dealt with this issue and issued questionnaire dt. 18 Aug., 1997, whereby the assessee has been asked to explain gold jewelleries 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....
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....der that the gold jewellery is found mentioned in the records of the assessee and the books of account prior to the date of the search, how the same can be treated as undisclosed income. All the details of 17 parties who have handed over their gold ornaments for remaking were found mentioned in the records, which were seized by the search party. The assessee has filed 14 affidavits of the different customers at the initial stage and also filed one more affidavit of Shri Kailash Singh, Advocate on 22nd Oct., 1997, to prove the dealings with these 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 A....
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.... with the karigars in its record prior to the search, therefore, it is unbelievable that any undisclosed income was discovered during the search operation. The very purpose of the Chapter XIV-B is frustrated in this case in view of the entries made in the books of account and other records of the assessee, which were also seized and scrutinized. by the Department. We have already indicated that search was made prior to the expiry of the previous year and the assessee has shown all the details in the regular assessment also, therefore, no presumption 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 ....
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....d against the assessee. The petition of the assessee was dismissed. The facts are clearly distinguishable. The learned Departmental Representative also relied upon the judgment of Allahabad High Court in the matter of Pushkar Narain Sarraf. This case is also distinguishable on facts. The learned Departmental Representative also relied upon (1986) 49 CTR (SC) 379 : (1986) 157 ITR 67 (SC), in which it was held that the entries of the books of account is not determinative of the question whether the assessee has earned profit or not. This case is also 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 bl....
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.... from M/s Roopanjai Swarn Kala Kendra against sale and trade tax. Certain expenses are also shown. That the account on 2nd Nov., 1996 cash sale of gold ornaments (161.130 gms) in a sum of Rs. 83,787.60 is shown. The remaining small details are also mentioned with regard to the petty sales and cash recovered from M/s Roopanjai Swarn Kala Kendra. The major items are the sales of gold ornaments in a sum of Rs. 82,316 and Rs. 83,787.60. The AO believed that only gold weighing 5090.110 gms was to be explained, though the entries in the stock register were 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 A....
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....880 in his initial statement on 3rd Nov., 1996, but in the same statement, Ashok Kumar partner has specifically stated that he was not sitting in the shop for the last ten days and therefore, he is not aware of the cash details. We have already stated above that though Ashok Kumar has surrendered cash of Rs. 1,89,880 but subsequently, Ashok Kumar had been able to explain the inflow and outflow of cash. The major difference was of the sales made on 1st Nov., 1996 and 2nd Nov., 1996. Ashok Kumar has explained that he was not sitting in the shop for the last ten 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....
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....AO has made any enquiry from any of the dealers from whom the purchases are made by the assessee. The details of the bill were produced before the AO. No reasons were given by the AO that the assessee would not disclose some purchases in the return for the purpose of IT Act which is a condition precedent to treat the same as undisclosed income. Once the bill is produced, such presumption should not have been drawn by the AO against the assessee. The assessee has shown the purchases in the regular assessment and no defect was found by the Department. The assessment 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 fou....
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....the account did not belong to the assessee-firm. No evidence is found that the assessee-firm has deposited this amount in the account of Ashok Kumar (HUF). Admittedly, this account in the name of Ashok Kumar (HUF) did not belong to the assessee-firm, therefore, the AO himself contradicted by his own observation from the observation made in the case of Smt. Vimla Devi and Gajendra Kumar. The entire addition is made without any basis and is liable to be deleted. We accordingly delete the addition in the hands of the assessee-firm. This issue is also decided in favour 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 sh....