TaxTMI 
TaxTMI 
1999 (6) TMI 47
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....ll as the learned Addl. standing counsel. 3.2. The counsel for the assessee first of all submitted that the notice required to be served upon the assessee as per the provisions of s. 158BC is analogous/within the parameter of the requirements for a notice under s. 148 of the IT Act and, therefore, the law relating to the requirements for the validity of the notice under s. 148 and the case laws thereof, are fully applicable, so far as the requirements for a valid notice under s. 158BC of the Act are concerned. 3.3. Referring to the copy of the notice dt. 12th Dec, 1996 (placed at p. 1 of assessee's paper book-a copy, certified by both the parties, was filed during the course of hearing also), The assessee's counsel submitted that the notice is vague and invalid because of the following illegalities in the notice: (i) According to the provisions of s. 282(2)(b), every notice issued, under the Act, in case of a company has to be addressed to the principal officer of the company and since the impugned notice has not been addressed in accordance with the requirement of this provision, the notice in question is vague and invalid; (ii) The notice is also silent as to the 'sta....
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....lock period given under s. 158BA of the Act and not the assessment year which are requirement for a valid notice asking for the return of undisclosed income. (iv) From the period mentioned by the AO in the notice the counsel for the assessee further submitted that as per the provisions of s. 158B of the Act the block period is to include the period upto the date of commencement of search" and not upto the "last date of search warrant executed in one's case" and therefore on this account also the AO cannot be said to have mentioned the block period/assessment year correctly. 3.4. In view of the above alleged illegalities claimed to have been committed in the notice under s. 158BC of the Act, the assessee's counsel submitted that the assessee-company was not able to understand as to whose, for which period and in which status, the return was required to be furnished. Explaining the illegalities further, the counsel submitted that since the AO has mentioned various status such as individual/HUF/firm/company/AOP/BOI/local authority in the notice, it is clear that the AO was not satisfied as to from whom he was going to ask for a return and in whose case was going to make asses....
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....he assessee is to furnish the return in the status in which notice has been issued to the assessee is required and, therefore, the assessee has no choice to claim a particular status. 3.9. The assessee's counsel further submitted that the illegalities pointed out in the notice under s. 158BC of the Act were not curable and consequently such notice cannot be cured/saved by the provisions of s. 292B of the Act and for this purpose relied on the Tribunal's decision in case of M/s Prakash Spun Pipe, in asst. yr. 1990-91 ITA No. 1014/All/1994, dt. 1st Feb., 1998, and the relevant part is contained in paras 10 and 11 of the order which is reproduced as under: "10. Referring to the view taken by the learned CIT, that the AO had condoned the defect, with reference to s. 292B of the Act, we have no hesitation in saying that this provision of law is not a panacea, pulling the AO out of any and all sort of statutory non-compliances by him. Sec. 292B only says that a return, assessment notice, summons or other proceedings shall not become invalid merely by reasons of any mistake, defect or omission in such return assessment notice, summons or other proceedings if these are in substance a....
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....ance, in confirmity with the provisions of the Act, the defect if any is cured by the provisions of s. 292B of the Act. 4.2. In support of above submissions the Addl. standing counsel has relied on the decisions in the case of Bed Chand vs. ITO (1969) 72 ITR 197 (SC) and Parameswara Ballakuraya vs. Comm. Of Agrl. IT (1987) 164 ITR 536 (Ker). 5. We have considered the rival submissions, provisions of the Act necessary and relevant for deciding the issue in hand and various decisions relied upon by the parties and after careful consideration, are of the opinion that for the decision of the dispute raised by the appellant the following 3 questions have to be decided: (i) The first question, in our opinion, for our decision is with respect to the nature/status of the notice required to be served under s. 158BC of the Act i.e. is such a notice akin/analogous and within the parameter of a notice under s. 148 of the Act? (ii) If so can the points raised by the assessee's counsel amounts to illegalities in the notice and consequently have they rendered the notice illegal, bad in law and vague? (iii) If the notice is found to be vague, can the assessment for block period be q....
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....ant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and trully all material facts necessary for the assessment for that assessment year." (c) Sec. 148 of the Act: "148. Issue of notice where income has escaped assessment- (1) Before making the assessment, reassessment or computation under s. 147 the AO shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner; and setting forth such other particulars as may be prescribed and the provisions of this Act shall so far as may be, apply accordingly as if such return were a return required to be....
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....me of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with AO as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years determined ...... (2) In computing the undisclosed income of the block period, the provisions of ss. 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition." 158BC. Procedure for block assessment- Where any search has been conducted under s. 132 or books of account, other documents or assets are requisitioned under s. 132A, in the case of any person, then.- (a) the AO shall: (i) in respect of search initiated or books of account or other documents or any assets requisitione....
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....assessment the requirement of service of notice under s. 143(2) has been held to be a procedural irregularity and non-compliance of this requirement has resulted in setting aside of the assessment for proceeding from the stage of irregularity and it is so because after furnishing of a valid return the AO assumes a valid jurisdiction to proceed for making a regular assessment but as far as the other two schemes i.e. the scheme provided for 'assessment of escaped income contained in provisions of ss. 147,148 and 149 and the scheme of special procedure for assessment in search cases" as provided under Chapter XIV-B i.e. under the provisions of ss. 158B, 158BA, 158BB and 158BC etc. are concerned these go to show that: (i) object of both the schemes is same i.e. object is to tax the income which has not already been taxed. Under the former scheme the requirement is that in the opinion of the AO the income should have escaped the assessment and search is not necessary and the prerequisite conditions to assume jurisdiction to tax the escaped income limits are: (i) with respect to the quantum of escaped income as provided under s. 147(ii) and service of a valid notice under s. 148 has to b....
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....158BC(a), according to which the necessity of issuing a notice under s. 148 of the Act has been dispensed with for making an assessment for the block period which is inclusive of 10 previous assessment years. The dispensation with the requirement of issuing of a notice under s. 148 of the Act and the fact that assessment of block period includes the assessment of 10 previous years leaves one in no doubt about the purpose, nature, status and effect of a notice under s. 158BC, which according to us is, (i) to get already completed assessment falling within the block period reopened and the AO is clothed with the power to make assessment of undisclosed income for those assessment years; (ii) If assessments have not been completed then the AO gets clothed with the powers to make assessment resembling with the assessment framed under s. 147 of the Act; (iii) If return has been furnished, then the AO is clothed with the power to make assessment of undisclosed income. 6.4. The above provisions envisaged in the 2 schemes confirm beyond any doubt that: (1) Purpose of both the notices is same viz; (i) A notice under s. 148 and under s. 158BC can be issued only after fulfilment of re....
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....s not get jurisdiction to make an assessment on a particular assessee. In this view of the matter, in our opinion, the Tribunal has been right in holding that the assessment in question was not valid in law." (iv) Madan Lal Agarwal vs. CIT "It is now well settled, and we do not consider it necessary, to advert to numerous authorities in this regard cited at the Bar, that issuing of a valid notice to the assessee under s. 148 of the IT Act within the period specified under s. 149 of the Act is a condition precedent to the validity of any assessment to be made against such assessee under s. 147 of the Act. Accordingly, where no such notice has been issued or if the notice issued is not valid or the same has not been served on the assessee in accordance with law, it will not be possible to sustain the eventual assessment made under s. 147 on the basis of such notice. We may also take it that where the notice issued to an assessee is vague, it would not be possible to rely upon it to sustain an assessment made." (v) CIT vs. Thayaballi Mulla Jeevaji Kapasi In this case the Hon'ble Supreme Court referred to its earlier decision in the case of Narayan Chetty vs. ITO and held a....
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....ice of 158BC is not a procedural formality but substantive requirement to be fulfilled before the AO can proceed to make assessment of the block period or before the assessment proceedings for the block period are set into motion and consequently the service of a notice under s. 158BC gives rise to the jurisdiction of the AO to proceed with the proceedings for assessment of block period. 8.2. Having held so, the next question for our decision in with respect to the validity of the notice but since there is no codified law on the point or circumstances under which a notice could be held to be invalid, we are of the opinion that for deciding the issue relating to the validity of the notice it is necessary to consider the circumstances under which a notice can be termed as invalid or bad in law as per the law laid down in various cases relied upon by the parties and then decide the validity of the impugned notice in the light of preposition of law laid down therein. 9. We have heard the parties in relation to the submissions made for pointing out as to how the notice was illegal/invalid one and as to how it was not illegal/invalid one. 10.1. After considering the facts and ci....
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....or which the assessment should be reopened must be specified clearly. Respectfully, following the ratio of this decision, we hold that for a notice under s. 158BC to be a valid notice, the assessment year covered by the block period, in a given case, must also be specified clearly. 11.2(a) For deciding the issue relating to the existence of illegalities in notice under attack, first of all we prefer to reproduce the notice, which runs as under: "NOTICE UNDER S. 158BC OF THE IT ACT, 1961. PAN/GIR No............. Block Period: The previous years relevant to ten assessment years preceding the previous year 1996-97 and includes the period upto the last date of search warrant executed in your case (as defined under s. 158B(a) upto 3rd Sept., 1996. Income-tax Office Centra....
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.... of CIT vs. Narain Das Dwarka Das and in case of CIT vs. Kurban Hussain Ibrahimji Mithiborwala and other decisions referred to in para 3.7 of this order, we are of the opinion that the impugned notice is vague and illegal and cannot be said to be a valid notice as required under the provisions of s. 158BC. 11.4. (i) So far as the Revenue's plea that notice under s. 158BC is akin to notice under s. 142(1)(i) is concerned, we are unable to agree with the submission, because, as explained below, not only the purpose and scope of the notice under s. 142(1)(i) are altogether different from the purpose and scope of notice under s. 158BC but are limited also to say, Firstly the service of a notice under s. 142(1)(i) is not mandatory rather is optional as there is use of term 'may serve" and not "shall serve" as in the provisions of s. 158BC. Secondly, the notice is meant both for enquiry purpose as well as for furnishing of the return and; Thirdly the notice under s. 142(1)(i) can be meant for furnishing of the return for the current assessment year alone and not the previous assessment years-as in the case of notice under s. 148 or under s. 158BC. (ii) Further, so far as t....
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....of s. 158BC by the Revenue, as bad in law and vague, the assessment framed in consequence upon the assumption of jurisdiction on the basis of such notice is also bad in law and void ab initio and we hold so. The AO, however, can proceed with the proceedings from the stage of requirement of service of a notice under s. 158BC, if the law so permits. 13. Ground 9 Ground No. 9 reads as under: "That the order of the learned Asstt. CIT is against law, facts and principles of natural justice." 14. We have heard the assessee's counsel as well as the learned Departmental Representative. 14.1. The assessee's counsel has submitted that since the alleged undisclosed income of 1,53,28,020 is on account of manufacturing and trading activities of ingots outside the books of accounts, undisclosed income of Rs. 18,00,000 is on account of alleged undisclosed working capital required for carrying on the so called manufacturing and trading activities of ingots, undisclosed income of Rs. 19,99,858 (reduced from 33,99,568 after order under s. 154) and of Rs. 14,39,448 (reduced from Rs. 55,38,565 as per order under s. 154) for asst. yrs. 1995-96 and 1996-97 respectively on account of alleg....
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....by the ADI, on 8th Nov., 1996. (b) Statement recorded by AO on 11th Sept., 1997. (ii) Mr. Deepak Hada (a) Statement recorded by ADI on 10th Nov., 1996. These statement have been relied upon for attributing the loose papers marked as LP 1 to LP 31, found from the residential premises of Mr. Madan Hada, to the assessee's business and also for holding that business of M/s Arpit Steels whose proprietor was Mr. Deepak Hada related to Shri Vinod Agarwal and Sri. Vijay Agarwal at p. 10 of assessment order. (iii) Mr. Ram Singh-Statement recorded during search at the site where stock was lying, on 3rd Sept., 1996. This statement has been relied upon by the Revenue in support of claim that stock inventory with respect to scrap available at the time of search was correct inventory. (iv) Mr. Mukhtar Abbas- Statement recorded by ADI on 6th Nov., 1996. (v) Mr. Aquil Ahmed- Statement recorded by ADI on 29th Oct., 1996 (vi) Mr. Surendra Singh- Statement recorded by ADI on 14th Oct., 1996. (vii) Ram Bahadur- Statement recorded during search on 3rd Sep., 1996. (viii) Vijay Singh- Statement recorded during search on 3rd Sept., 1996. 16.2. The statement of Mr. Mukhtar ....
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....ent recorded of Shri Gunjan Handa Sd/- Asstt. CIT 22nd Sept., 1997-Shri M.L. Jain and Shri Govind Agarwal C.A. attends. File reply discussion continued adjourned for 23rd Sept., 1997. Sd/- Asstt. CIT 23rd Sept., 1997- Shri M.L. Jain, A.R. appeared and filed reply regarding cash statement of all the cases of Monga Group. Heard-Discussed. Sd/- Asstt. CIT (ii) Extract from Assessment order- "Regarding cross-examination of Shri Ram Singh, Shri Madan Hada and Deepak Hada, the assessee insisted that Shri Deepak Hada and Madan Hada should be cross-examined simultaneously. Though this demand was not fair and reasonable yet in the interest of justice the same was conceded and by mutual consent 17th Sept., 1997, was fixed for cross-examination. Regarding cross-examination another demand was made for supply of copies of all Panchnamas details and annexures of Shri Madan Hada which is not fair. If this demand is viewed in light of the demand of cross-examination of Shri Madan Hada and Shri Deepak Hada together, it amply shows the intention of the assessee that it, in fact never wanted to cross-examination and only wanted excuses. In the case of cross-examinatio....
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....have no option but hold that the undisclosed income referred to in the arguments of the assessee has been determined as a result of assessment order which is completely in violation of principle of natural justice, the next question for our decision is that should the assessment be quashed? 20. After having held the assessment order to be in violation of the principle of natural justice the next question for our decision is that, should the assessment be quashed? 20.1. It is now settled law that Tax authorities entrusted with the power to make assessment of tax discharge quasi-judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. A taxing officer is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but that does not absolve him from the obligation to comply with the principles of natural justice. It must, however, be remembered that the rules of natural justice are not constant; that are not absolute and rigid rules having universal application, AIR 1969 SC 198. One of the rules which constitutes a part of the princ....
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....o an opportunity to cross-examine Haji Usmankutty before any finding could be arrived at by the STO that the returns filed by the assessee were incorrect and incomplete so as to warrant the making of the best judgment assessment and since no such opportunity had been given to the assessee, the High Court quashed the order of the ST authorities and remanded the case to the STO for making fresh assessments according to law after giving an opportunity to the assessee to cross-examine Haji Usmankutty. The facts in Civil Appeal No. 575 of 1972 are almost identical, save that instead of Haji Usmankutty, certain wholesale dealers were sought to be cross-examined in that case and the opportunity to cross-examine them was denied by the ST authorities. Since the High Court quashed the orders of assessments of both cases, the State preferred an appeal by special leave in each case challenging the correctness of the view taken by the High Court. (iii) It was on the aforesaid facts that the Hon'ble Supreme Court has held that the act of STO in refusing to summon the wholesale dealer for cross-examination by the assessee clearly constituted infraction of the right conferred on the assessee by....
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....s duty has been extended also to the authorities holding administrative enquiries involving civil consequences or affecting rights of parties because, as pointed out by this Court in A.K. Kraipak vs. Union of India (1970) 1 SCR 457 : AIR 1970 SC 150 "the aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice" and justice, in a society which has accepted socialism as its article of faith in the Constitution, is dispensed not only by judicial or quasi-judicial authorities but also by authorities discharging administrative functions. This rule which requires an opportunity to be heard to be given to a person likely to be affected by a decision is also, like the genus of which it is a species, not a inflexible rule having a fixed connotation. It has a variable content depending on the nature of the inquiry, the framework of the law under which it is held, the constitution of the authority holding the enquiry, the nature and character of the rights affected and the consequences following from the decision. It is, therefore, not possible to say that in every case the rule of audi alteram partem requires that a particular specifi....
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....and have also been termed as fair play in action. Audi alteram partem is one of the fundamental principles of natural justice. A quasi-judicial or administrative decision rendered or an order made in violation of the rule of audi alteram partem is null and void and the order made in such a case can be struck down as invalid on that score alone- Maneka Gandhi vs. Union of India AIR 1980 SC 597, Gangadharan Pillai vs. Asstt. CED (1978) 8 CTR (Ker) 352 : (1980) 126 ITR 356 (Ker) at pp. 365 to 367. In other words, the order which infringes the fundamental principle, passed in violation of audi alteram partem rule, is a nullity. When a competent Court of authority holds such an order as invalid or sets it aside, the impugned order becomes null and void-Nawabkhan Abbaskhan vs. State of Gujarat AIR 1974 SC 1471 at p. 1479. In the light of these decisions, the additions made by the AO in violation of the principles of natural justice had to be set aside as void only insofar as the additions by way of cash credits alone were concerned, which were separable from the other additions in the order that were not challenged." 20.2(c). In case of Swadeshi Cotton Mills (P) Ltd; in case of Men....
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....articles or things, etc. and is present during the course of search. (b) According to the provisions of sub-s. (8) the authorised officer has power to retain the assessee's documents for a period not exceeding 180 days from the date of seizure unless the reasons for retaining the same are recorded and approval of CCIT/CIT/DG/DDI is sought, (c) As per the provisions of sub-s. (9A), if the authorised officer has no jurisdiction over the person referred to in cls. (a), (b) and (c) of sub-s. (1), then he has to hand over the assessee's books of account or other documents or assets to the ITO having jurisdiction over such person within a period of 15 days and in no case can retain the same after expiry of a period of 15 days. (ii) In view of the aforesaid provisions the assessee's counsel has tried to derive a proposition that, (a) if the authorised officer ceases to have power or jurisdiction to examine a person or to record the statement of a person connected with the matter relating to the person searched or for the purpose of IT Act, effecting the case of such person or in the context or in relation to the case of the person in whose case search has been conducted, immediat....
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....ents recorded by the ADI and the advice/directions/instructions given from time to time by him which is against the settled principle of law because to make the assessment is absolute domain of the AO. He therefore, submitted that assessment with regard to the aforesaid undisclosed income has to be quashed. In support of this submission, the assessee's counsel relied on the decisions in case of Sirpur Paper Mills Ltd. vs. CWT (1970) 77 ITR 6 (SC) and Kirtilal Kali Das & Co. vs. CIT (1999) 64 TTJ (Mad) 77 : (1998) 67 ITD 573 (Mad). 23. The learned Departmental Representative on the other hand, in addition to supporting the assessment order submitted that the statement in question were recorded by the ADI (Inv) HQ, Kanpur in pursuance to the commission issued by the AO but when asked, to led evidence in support of this submission by the Bench, the learned Departmental Representative instead of furnishing evidence in this regard produced a copy of the letter addressed by the AO to the Dy. Director of IT (Inv), Calcutta calling for certain information from him. No evidence whatsoever, in support of the claim that the statement referred to by the assessee's counsel in his arguments w....
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....he statements were recorded as a result of commission issued by the AO is also not supported by any evidence, in spite of specific query raised by the Bench. 26.2. In these circumstances we have to hold that the ADI (Inv), HQ Kanpur had neither jurisdiction over the assessee's case nor was authorised to carry on the functions of an AO and consequently, he was not authorised either to record the statement of any person or to help the AO in framing the assessment, by way of collecting evidence in this respect. 27. As far as jurisdiction of authorised officer referred to in s. 132 of the Act is concerned we would like to consider relevant provisions as contained in s. 132 and are as under: "132. Search and seizure.- (1) Where the Director General or Director or the Chief CIT or CIT or any such Jt. Director or Jt. CIT as may be empowered in this behalf by the Board, in consequence of information in his possession, has reason to believe that : (2)....... (3)....... (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jeweller....
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.... bullion, jewellery or other valuable articles or things. (iii) In view of the provisions of sub-s. (8) the authorised officer is entitled to retain the assessee's seized material for a period of 180 days and in case he wants to retain the same material for more than 180 days he has to record reasons and seek the approval of the CIT/Chief CIT. (iv) Contrary to the provisions of sub-s. (4) if the authorised officer has no jurisdiction over the person in whose case search has been carried on as a result of authorisation under s. 132(1)(a), (b) and (c) then the seized material as well as the assets have to be handed over to the ITO having jurisdiction over the person in whose case search has been conducted, within the period of 15 days from date of search and thereupon the power which the authorised officer has jurisdiction to exercise in view of provisions of ss. 8 and 9 are to be exercised by the ITO. 27.2. The reference to the jurisdiction over the person in sub-s. 9(A) is in relation to the jurisdiction to frame the assessment because of the reference for handling over the seized material, is to the ITO meaning thereby that since the provisions states that the seized mate....
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....Act, who was an authority (Asstt. CIT) not referred to in the provisions of sub-s. 9A 29.2. Under these circumstances we are of the opinion that such an Act has vitiated the assessment and the same has to be declared void ab initio for want of jurisdiction. 29.3. Even otherwise, recording of statement of Mr. Madan Hada by the said officer (ADI) on 8th Nov., 1996, leads to show that till that date the documents were retained by the authorised officer, which was in violation of provisions of s. 132(9A) and, therefore, the reports as a result of examination of such unlawful retention of record of the statement recorded cannot be made the basis of the assessment. 30. Coming to the question as to whether the ADI had power to perform the functions of an AO, so far as the case of present assessee is concerned, we have to look to the provisions of s. 116 and 120 of the Act, and after indepths study of the same it is gathered that: (i) The provisions of s. 116 of the Act have prescribed the different authorities who are to exercise the powers performing the functions as conferred on every one of them by virtue of the provisions of s. 120 of the Act and therefore, it is incumbent....
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....d the jurisdiction over the assessee's case. 33. Next question is that should the assessment be quashed as bad in law? 33.1. Further, in-depth analysis of the provisions reveals that each one of the IT authority has to exercise his powers/jurisdiction over the different or any other person or class of persons and to carry on the functions assigned to it and, since the functions assigned or to be carried on under the Act, as is now settled law, by a quasi-judicial authority is to exercise the powers and perform the functions conferred on it independently without getting its mind/conclusion/approach influenced by advice/instruction/direction or any other kind of interference by any of the other authority the order passed in contravention of such settled law is a nullity and void. If it is not so then the concerned authority will not be able to exercise its powers and perform the functions conferred on it judicially and there is likely to be a complete chaos due to inter reference by others i.e. by the higher authorities, and therefore, it seems to be this reason that the Hon'ble Courts have held the orders passed by a quasi-judicial authority on the basis of advice/instruction/....
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....nch decided the assessee's plea that the assessment had been vitiated due to the AO having been influenced and carried away by the directions/instructions issued by the ADI(Inv.) through the appraisal report and held as under: "Further, the enquiries by the AO for making the assessment of income are quasi-judicial proceedings and the act of framing the assessment is quasi-judicial proceedings and the act of framing the assessment is quasi-judicial act. It is a trite law that a judicial or quasi-judicial authority should act independently and that there shall not be any interference, nor any advice, opinion, instructions, directions can be given to any IT authority in such proceedings, etc. by any stranger/outsider even if such stranger/outsider is higher or highest authority in the hierarchy of the Department. If an order is passed or a decision is rendered by an IT authority in such semi-judicial proceeding at the behest of or upon the directions or instructions of any superior officer or authority then such an order/decision is illegal and a nullity in law because it shall be deemed in law that such an other authority who directed or issued orders/instructions to the lower aut....
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....itted facts that the assessment under appeal has been framed on the basis of various statements recorded after the conclusion of the search by the ADI (Inv), HQ Kanpur, who at that time had neither jurisdiction over the assessee's case nor was acting as authorised officer and respectfully following the decision of Hon'ble Supreme Court in case of Sirpur Paper Mills Ltd. vs. CWT and of Tribunal. Madras Bench in case of Kirtilal Kalidas & Co., we hold that the assessment under appeal has been vitiated and is not sustainable in law requiring vacation we hold accordingly. 34. Having quashed the assessment for block period dt. 30th Sept., 1997, on the legal grounds itself though it is not necessary to decide the appeal on merits but in the interest of justice, we are of the opinion that the merits of the appeal should also be decided and, therefore, we proceed to decide the various issues, relating to merits, raised by the assessee in Ground Nos. 4.1 to 4.8, 5,6 and 7. 34.1. All the aforesaid grounds are against the determination of assessee's undisclosed income of various assessment years, falling within the block period and the details of undisclosed income determined by the Rev....
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....to the business activities as well as the construction activities and the details relating to investment in the construction of building were part of the books of account. The cost of construction of the factory building as per assessee's record was Rs. 33,99,643 as is evident from the depreciation chart furnished along with return for asst. yr. 1993-94 and is available at p. 23 of assessee's paper book. The assessee's books of accounts were duly audited and return of income for asst. yr. 1993-94 was accompanied by the audited balance sheet as well as valuers report for the cost of construction of the building. 35.2. The assessment for asst. yr. 1993-94 as per assessment order available at pp. 32 and 33 of the assessee's paper book was completed on 10th April, 1995, under s. 143(3) of the Act in which the cost of construction shown by the assessee was accepted because the depreciation has been allowed, as claimed by the assessee and is as per depreciation chart available at p. 23 of the assessee's paper book wherein the assessee had claimed depreciation on Rs. 33,99,643 being the cost of building. The depreciation on building in asst. yrs. 1994-95 and 1995-96 also has been al....
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.... to the Valuation Officer,. Allahabad on 29th July, 1997. The Departmental Valuer vide his report dt. 16th Sept., 1997 communicated vide letter/TT/97-98/Vo/All/234 has estimated the cost of construction at Rs. 37,42,000. The copy of the valuation report of the Departmental Valuer was given to the assessee and it was required to explain the reasons as to why the cost of construction estimated by the Departmental Valuer at Rs. 37,42,000 may not be treated as reasonable investment in place of Rs. 33,99,643 disclosed in the books of account. The unexplained investment in the cost of construction comes to Rs. 3,42,357. The assessee in its reply dated nil has raised objections that the reference was not made validly. Most of the objections are general in nature. The procurement of material at cheaper rate is not substantiated. The main object of the assessee is for allowance of self-supervision charges for construction of factory building at the rate of 7.5 per cent against 9.1 per cent being allowed in very many cases. The directors of the assessee-company have no experience in civil construction. They do not have proper infrastructure and appliances to carry out the civil and ....
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....s allowed rebate of 10 per cent then the difference between the cost of construction declared by the assessee and the one determined by the Valuation Officer will be negligible and since the value determined by the Valuation Officer is only an estimate where-as the cost of construction declared by the assessee is on the basis of complete details maintained in the regular course of business activities, the same is liable to be ignored. In support of his submission the assessee's counsel has relied on the Tribunal's decision in case of Smt. Parvin Bai dt. 29th Feb., 1996, and in case of M/s Uma Brothers dt. 18th Feb., 1996, on the valuation report in case of other assessee where the Valuation Officer has allowed rebate on account of self-supervision @ 9.1 per cent to 10 per cent as well as on another decision of Tribunal, Madras Bench in case of Baby Land Hostel vs. ITO 31 ITJ 136." 36.2. The learned Departmental Representative on the other hand in addition to supporting the order of the AO has, as per synopsis filed during the course of hearing submitted as under: "Unexplained investment in factory building Rs. 3,42,374 asst. yr. 1993-94- The difference between the cost of inv....
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..... 37.3. Even otherwise, the issue having become final as a result of completion of assessment for asst. yr. 1993-94, i.e. upto the period when the investment in construction was made, under s. 143(3) and after scrutiny of seized books of account and assessee having furnished the report of the valuer along with return itself, even if, we for the sake of arguments, assume that the assessment for block period to be at par with the regular assessment then also the AO had no jurisdiction to reconsider the concluded issue and make a reference to the Valuation Officer. 37.4. In view of the above, we are of the opinion that the reference made to the Valuation Officer by the AO for determining the cost of construction of the building was without jurisdiction and therefore, the AO had no power to consider the valuation report and consequently had no jurisdiction to determine any undisclosed income on account of so-called undisclosed investment in the construction of the factory building. 38. On merits, first of all we are of the opinion that the determination of undisclosed income at Rs. 3,42,347 on account of alleged undisclosed investment is not correct because the Valuation Offic....
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....uction. 38.4. Furthermore, since the assessee had maintained complete record for construction, the absence of day today details of labour expenses, as alleged by the Revenue, also cannot be a reason for disbelieving the assessee's accounts, which in view of the decision relied upon by the assessee have to be accepted. 39. In view of the above discussions, we are of the opinion that the determination of undisclosed income on account of alleged undisclosed investment in the construction of factory building at Rs. 3,42,000 cannot be sustained, we therefore, direct the AO to delete the same. 40. Ground No. 4.1 [asst. yr. 1995-96 (a)], relates to computation of undisclosed income of Rs. 1,53,28,028 on account of alleged manufacturing and trading activities of ingots claimed to be by the Revenue as being outside the regular books of account and based on LP1 to LP31 found and seized during the course of search at the residence of one Mr. Madan Hada, erstwhile Director of the assessee company: 40.1. The brief facts relating to the aforesaid addition, revealed from the discussion contained from Para 9 at p. 3 to p. 34 of the order of the assessment for block period, are that the....
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....nd sold quantity of Ingots alleged to be outside the books for the month of December 1994, and January, 1995 were computed at Rs. 59,03,820 and Rs. 38,63,869 respectively. After allowing a benefit of 13 per cent burning loss but the documents, on the basis of which the alleged sales have been computed, have not been mentioned. 40.4(a). The final outcome of aforesaid action of the AO is that the alleged outside the books i.e., undisclosed net income for the financial year 1994-95 i.e. asst. yr. 1995-96 on account of manufactured and sold quantity of ingots outside the books have been computed at Rs. 1,53,28,028 after applying a net profit rate of 14.59 per cent on the total alleged outside the books turnover on this account of Rs. 10,97,66,734. 40.4(b). While computing the undisclosed turnover and net undisclosed income the learned AO followed the following criteria: "(1) Where actual sale value is available in seized material, the same has been taken. (2) Where actual sale value is not available and also no indications are available of any sale bill on undisclosed turnover, the rate of Rs. 10,100 per metric tonne has been applied on the undisclosed quantity of turnover,....
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....nbsp; the month of Feb., 1995. Page No. Purchase of scrap for the 23,34 month of Jan., 1995 linked to 40, with LP-22. 43,44 2. LP-5 Page 5 For the month of Sept., 1994. 3. LP-9 Page 1 Sale for the month of Aug., 4,5,16, 1994 of 2411.355 MT. 18,20 &nbs....
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....1994 but it Page 8 correspond to LP-1, LP-9 7. LP-15 Page 1-7 Purchase of scrap for the 7,30 month of Aug., 1994. Inward freight, is not shown except in stray cases. 8. LP-16 Page 3 Sales for the month of July, 26,27, 1994. The bills claimed by 29,30 the assessee to be posted are &nbs....
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.... Metal corresponds to p. No. 147 of A-3. 13. MMB-2 Page 1- Capacity of production. 15 32 14. MMB-3 Page 10- Capacity of production. 15 11 15. BKFF-2 Page 100 Undisclosed sales for the 26,27 & 123 month of June and July 1994. --------------------------------------------------------------- 41. Submissions by the counsel for the appellant: (a) The assessee's counsel advanced the following arguments: (i) That the loose papers marked as LP1 to LP31 found at the time of search at the residence of assessee's erstwhile director Mr. Madan Hada did not relate to assessee's business and since Mr. Madan Hada w....
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....st various entries contained in LP 11 and LP 22 which as per p. 7 of the assessment order have been considered as trading account for the months of September, 1994 and January, 1995 respectively by attributing these entries as relating to assessee's business. The assessee's counsel case was that in case the word "M" is taken as representing "M/s Monga Steel Ltd." then the word 'A' should have been taken as representing "Arpit Steels"; a concern owned by the son of Mr. Madan Hada and explained as claimed by the director of assessee-company in various replies and consequently the entries against which 'A' is mentioned should not have been taken as relating to the business of assessee-company. In support of his submission the assessee's submitted that it is an admitted fact that the Revenue has accepted the existence of a concern styled as M/s Arpit Steel, as a genuine concern and belonging to son of Mr. Madan Hada. According to him the assessment of this concern has also been completed. He therefore, submitted that ownership of loose documents have been attributed as that of the appellant without any supporting evidence and therefore, this action is not sustainable in law. (b) In ....
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....ept., 1997 attributed to be the assessee's business and therefore neither the turnover belongs to the assessee nor there is any question of so-called undisclosed income from such alleged turnover out-side the books. (d) The assessee's counsel further submissions, which was without prejudice to the aforesaid submissions were as under: "Without Prejudice (i) The figures of sales worked out in Annexure 'A' appears to be incorrect and excessive mainly on account of adoption of higher rate of sales on estimate basis. The quantity of sales have also not been found correct. We are enclosing herewith a chart from which it will be seen. (ii) Regarding G.P. rate it may be submitted that working of GP of 30 per cent as mentioned at p. 4 of the your notice is also not correct because figures of closing stock has been taken at Rs. 16,00,000 which includes stock of traded goods. Besides this figures, of sales have been adopted including excise duty whereas the purchases have been taken net of excise. If we reconcile the figures the G.P. rate as per books comes to 14.88 per cent. (iii) That if the Department wants to consider the-seized papers then the expenses like freight, broker....
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....mputed on account of alleged introduction of cash, because in that case the whole of the undisclosed income stand introduced in the books of account. According to the assessee's counsel the undisclosed income to the extent of Rs. 1,72,67,650 as computed by the Assessment Officer for alleged introduction of cash has to be out of alleged undisclosed income and therefore, there is no reason for estimating an additional undisclosed income of Rs. 1,53,28,028. (g) With regard to the ownership of M/s Arpit Steel, the assessee's counsel submitted that if at all the Revenue's version is accepted then as far as assessee is concerned, the transaction related to it had to be excluded and could be assessed in the hands of Mr. Vinod Agarwal, after making necessary enquiries. 42. The learned Departmental Representative on the other hand, first of all relied on the discussion and finding of the learned AO contained in page Nos. 3 to 34 of the assessment order and while enlarging the field of the arguments it submitted: (i) That Mr. Madan Hada, Deepak Hada and Sri Ram Singh were not allowed to be cross-examined because the assessee's insistence for cross-examination of Shri Deepak Hada and....
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.... It has been argued by the appellant that it was an 'after thought' on the part of Shri Madan Hada who has compute with the explanation that these loose papers recovered from his residence related to the appellant company. During the course of search operations, various papers, assets, investments are recovered and at the heat of moment, the owner of the premises will naturally not disown them. It is also a fact that during the course of search operations, it is not possible to identify each paper and documents being recovered from a premises. It is only after the search operations, when papers were analysed, Shri Madan Hada was again confronted to explain them. After looking into the specific papers and their nature, Shri Madan Hada could say that these papers related to the appellant company and were relevant for the period when he was director in the company. The recovery of any paper from an active director is not any unnatural phenomenon. The loose papers recovered from the residence of Shri Madan Hada were held to belong to the appellant company not only on the basis of statement of the Ex-Director, Shri Madan Hada but also due to the fact that they were clearly relatable to ....
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....manufacturing facility available in the group was with appellant company The evidence for receipt of scrap, its weighment, its classification and sale of finished product in the factory premises of the appellant is available in the seized material from the residence of Shri Madan Hada. Thus, looking to the entirety of circumstances, relatable contents of the seized material undoubtedly related to the appellant company and could not be wished away simply on account of the facts that in the first instance at the time of search about operations Shri Madan Hada did not specifically stated about these papers. More so, when these papers were not specifically confronted during the course of search operations. The appellant was given opportunity to rebut this finding and instead of availing this opportunity, it chose to put up unreasonable demands such as examining together on the same day one by one more than one witnesses. It also chose to send an affidavit of Shri R.D. Verma by registered post on 29th Sept., 1997 knowing fully well that the limitation was expiring on 30th Sept., 1997 and as such there was no time to examine Shri R.D. Verma. While working out the undisclosed manufacturin....
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....nbsp; Rs. No. Rs. -------------------------------------------------------------- BF 11102214 BF 15484000 19 Rajjan 1,458 13 Radhelal 54,500 19 Ram Prakash 2,305 18 Hind Iron Store 4,800 20 Sri G.N. Agarwal 7,65,000 34 Arpit Steel 3,26,867 54 Smt. Sarada Hada 12,25,000 51 Bihar Sponge 2,79,596 52 Desraj Collection 0000000 50 Frontiex Alloy 7,220 ....
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....p; Difference A/c 7,336 47 Store August 4,00,000 03 Store September 8,00,000 30 Sanjay Factory 431 Nett Profit TS Fd 19,63,530 ----------- ----------- Total 2,77,02,442 Total 2,77,02,442 ----------- ----------- Supplement Balance Sheet 22 Nemani Bill&n....
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....nbsp; ----------- 3,12,562 ----------- From the contents appearing in LP 5 it is evident that this document neither bears the name of appellant nor the year in which it has been drawn and therefore, in absence of any corroborating evidence to support the Revenue's stand it is not possible to accept that th....
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....., 1995, in LP 9 is also different than the entry at pp. 3 and 4 of LP 22. How the AO attributed these entries as tallying with and belonging to the appellant's business is not known from the contents of these documents. The findings of the AO seems to be simply on his own astronomical presumption borne out from extra constitutional mind which cannot be sustained under the Income-tax Law, and under these circumstances unable to accept the conclusion that LP 9 also belong to the appellant's business. (iii)LP 11 (a) From p. 5 of assessment order it is observed that this document has been considered as belonging to the appellant on the basis that: (aa) it has been written by the assessee employee Mr. R.B. Verma. (bb) That the contents of p. 5 of Annexure LP 5 which is a trading/Profit and loss are identical and tally with the receipt details in LP 11. (b) We have seen p. 5 of LP 5 appearing at p. 13 of Revenue's paper book vol. 1 and LP 11 containing entries for the period 1st Sept., 1994 to 30th September and have not found any similarity either with respect to the details or anything else of these documents. On the contrary none of these documents bears appellant's....
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....ents LP-15 and LP 9, it is observed that none of the documents contains the appellant's name, none of them was found from the appellant's premises and the AO has not been able to co-relate any of the entries in these documents with the entries in the appellant's books of account also. Simply because names of certain parties were appearing in the appellant's regular books as well as in these documents itself cannot be sufficient ground for holding that these documents belonged to the appellant, or contents of these documents were appellant's undisclosed purchases and sales for the month of August, 1994. The findings of the AO are therefore, not sustainable. (vi) LP22 (a) From p. 7 of the assessment order it is observed that AO has considered these documents as that of the appellant on the basis of following observations: "Annexure LP-22 This is also a record of quantitative receipt and despatch on day-to-day basis for the month of January, 1995 and is similar to the contents of Annexure LP-11. The total receipts and dispatches are prepared by the employee Shri R.D. Verma. As per this annexure the total sales during the month of January are to the tune of 2,639.74 M. T....
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....so far as the assessee's ownership is concerned, also do not advance the Revenue's case. It is only as a result of some behind the curtail activities that Mr. Madan Hada was made to express his apprehension as to the ownership of the documents as that of the assessee. (ii) The second statement recorded by the ADI on 8th Nov., 1996, is neither admissible in evidence nor can be taken as reliable one, because, statement smacks of not only of the hostile attitude of Mr. Madan Hada but seems to be a unlawful tutored extortion also. The statement of such unreliable and hostile witness, brought by the Revenue on record by unlawful means and used in an arbitrary manner in disregard to all canons of settled law on this point, can't form the basis of assumption that the documents belonged to the appellant. (iii) Revenue has not led any evidence with regard to action taken on undisclosed income of Rs. 78,00,000 by Madan Hada and also has not said anything with regard to the finding relating to his ownership of these documents. (iv) As discussed against individual LPs AO has considered these documents as belonging to the appellant simply on the basis of statement of Mr. Madan Hada whi....
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....cumstances of the case, we are of the opinion that if at any stage the appellant's undisclosed income on this account is to be computed it should be computed at the net profit rate of 5 per cent of the total turnover to be computed as per observations and directions here in before. 46. Ground No. 4.1 [Asst. yr. 1995-96 (b) and 4.5] Undisclosed income of Rs. 18,00,000 on account of alleged undisclosed working capital required for carrying out manufacturing and sale of ingots outside the books: 46.1. We have heard the assessee's counsel as well as the learned Departmental Representative. 46.2. The assessee's counsel, after referring to pp. 16 to 19 and 184 and 228 which are assessee's balance sheets as on 31st March, 1995, and 31st March, 1996 and assessee's reply against the assumption of working capital, submitted that there was no requirement of any capital for carrying on the alleged manufacturing and trading activity of ingots outside the books of account. The assessee's counsel further submitted that the undisclosed income of Rs. 18,00,000 has been determined only on the basis of presumption about the requirement of capital for carrying out the business outside the ....
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....e AO are as under: "Working capital As has been discussed in the foregoing para, the assessee had been doing extensive business to the tune of more than Rs. 10.5 crores, outside the regular books of accounts. Accordingly vide notice dt. 2nd Sept., 1997, on the basis of regular books accounts of the assessee, it was required to state reasons as to why a sum of Rs. 50 lacs may not be treated as additional requirement of funds for running the business outside the books of accounts, as per balance sheet as on 31st March, 1995, the difference of current assets and current liabilities was around 23,00,000. In the normal principles of accountancy this is supposed to be the requirement of working capital to run the disclosed business of the assessee to the tune of. Rs. 6 crores approximately (excluding trading transactions of around 4 crores approximately). Assessee in its reply stated that if the security deposit with KESA and the FDR appearing in the asset side of the balance sheet is removed, there will be no requirement of working capital as per regular books of the assessee. Assessee further argued that since against the undisclosed turnover, these investments would not be requi....
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....required only for purchases which are made in cash meaning thereby that if one is capable of procuring purchases on credit then there is no requirement of any working capital. The other expenses can be met out either from the cash, available (so-called working capital) or with the cash available out of receipts from sales. This aspect of the problem, no doubt, indicates that there is possibility of prior requirement of cash with a person who want to carry on the business but to allege such situation without having any evidence, is an unreasonable and based approach of the quasi judicial authorities. 47.3. So far as the present case is concerned we agree with the submission of the learned Departmental Representative that there is no evidence in the seized record which may go to show that the assessee had procured the purchases on credit but, we at the same time, are also conscious of the fact that there is no evidence in the seized record and at least the AO has pointed out none, which may indicate the purchases in cash either and therefore the findings of the AO have to be held as based on suspicion, which as per settled law that the suspicion however strong it may be cannot tak....
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....ssessed as income from unexplained sources. There were 2 more additions of Rs. 3,692 and Rs. 4,747 on account of income from other sources based on seized documents. The assessee's appeal before the CIT(A) as well as before the Tribunal were dismissed. As a result of direction of the Hon'ble High Court under s. 256(2) of the Act. The Tribunal referred the following 2 questions for the opinion of the Hon'ble High Court: (i) Whether there was any material before the Tribunal to hold that the assessee had made unexplained investment of Rs. 50,000 outside the account books during the relevant previous years? (ii) Whether Tribunal was justified in law and on facts in holding that inspections granted on 13th March, 1979, 22nd March, 1979 and 24th March, 1979 were sufficient opportunity to the assessee for examining 247 documents? 47.6. The Hon'ble High Court on the facts and circumstances of the case, answered the first question in negative i.e. in favour of the assessee by holding as under: "Regarding question No. 1, the finding recorded by the Tribunal is: "So far as the addition of Rs. 50,000 as unexplained capital is concerned, the same was based on the extent of sales....
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....the undisclosed income of Rs. 18,00,000 is to be deleted. 49. Ground No. 41 [Asst. yr. 1997-98 (a) and 4.6] Addition on account of undisclosed income of Rs. 33,85,210 on account of alleged undisclosed sale of ingots during the period 1st April, 1996 to 3rd Sept., 1996. 49.1. We have heard the assessee's counsel as well as the learned Departmental Representative but before divulging to their respective submission, prefer to extract brief facts relating to the addition as borne out from the record available with us. 49.2. The facts relating to the issue are that the learned AO on the basis of documents marked p. 15 of LP3 (Agarwal's residence) and p. 1 document marked as Annexure A/8 of Panchnama relating to the search at the residence of Mr. Agarwal, which have been made the annexures to the assessment order also; computed the undisclosed income for the period 1st April, 1996 to 3rd Sept., 1996 on account of alleged undisclosed sale of ingots outside the books of account at Rs. 33,85,210. The relevant part of the order runs as under: "Asst. yr. 1997-98 (1st April, 1996 to 3rd Sept., 1996) As has been discussed above, as per loose paper No. 15 of LP-3 and p. No. 1 o....
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....ssessee outside the books. 50.2. He, therefore, emphasised that these documents do not reveal either any factum of manufacturing of ingots or of sale or factum of assessee's involvement and consequently there do not exist any undisclosed income. 51. The learned Departmental Representative on the other hand has supported the order of the AO. 52. We have considered the rival submissions, facts and circumstances of the case and have gone through the contents of the documents relied upon by the AO for determining the undisclosed income of Rs. 33,85,210 and are of the opinion that to decide the controversy it is necessary to see as to what the documents contain and for that purpose we consider it necessary to reproduce the documents-copies of which are available at pp. 333 and 334 as under: "Copy of LP-3, Page No. 15 (Agarwal's) A B 1 11 9 453+373-4 2 11 11 385+532-2 3 12 10 406+447-2 4 12 ....
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....sp; 164 Ingot UP-78B9891 1/9 Monga 14430 149 Ingot UP-78B9891 1/9 Monga 14155 151 Ingot UP-78B9891 1/9 Monga 16250 169 Ingot UP-78N1589 1/9 Monga 15730 162 Ingot UP-78N1589 1/9 Monga 13665 148 Ingot UP-78N1589 1/9 Monga 14440 153 Ingot UP-78N1589 53.1. Before analysing the contents or interpreting the contents of the aforesaid two documents relied upon by the learned AO, we are of the opinion that the outcome of such analysis depends on the question relating to the onus to explain the details in such loose papers found during the search-was it assessee's onus or Revenue's onus. After going through the provisions contained in the provisions of ss. 132, 139(1), 142(1) and 143 o....
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....ks of account. The finding of the AO that the assessee's claim of these figures as representing the deployment of day-to-day number of workers cannot be accepted because there is deployment on holiday and no deployment on working day, is absolutely irrelevant for determining the nature of the contents of these documents. As already held that the onus to prove that the details represented the assessee's undisclosed income was on the Revenue. The assessee failure to provided further details was also not detrimental to its interest. If the AO's logic in presuming the contents to be sale and purchase of ingots is accepted then on the same logic why it cannot be taken as purchase and sale of something else or receipt of money itself or payment of money. The fact remains that if the assessee has failed to substantiate its explanation the Revenue has also failed to bring any evidence to support its conclusion and content of documents do not support the assessment order. (ii) So far as the document No. LP A/8 page No. 5 is concerned the AO before arriving at any conclusion, should have made proper enquiries as to the nature of the transactions- atleast from the owners of truck whose num....
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....we are of the opinion that it was the Revenue's onus first to prove that the arithmetic figure appearing on two loose papers were receipts, were in the nature of sale of ingots and amounted to undisclosed income in the assessee's hand which has not been discharged. 55. Proceeding further we are of the opinion that before asking the assessee to explain as to how certain receipts in his hands are not taxable as undisclosed income, the burden is on Revenue to prove that it is within the taxing provisions, which in the present case seems to have not been discharged by the Revenue because from the order of the AO as well as submissions of the learned Departmental Representative we have not been able to come across to any iota of evidence whatsoever which may show that the arithmetical figure appearing on these 2 loose papers considered as assessee's sales of ingots outside the books resulting in undisclosed income and therefore we hold that there is no evidence on record which may support the findings of the AO. 56. In the ultimate analysis of cumulative facts and circumstances relating to the issue, one thing has become clear is that except suspicion, there is no evidence in favo....
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....he Act could not be made only on bare suspicion. An assessment so made without disclosing to the assessee the information supplied by the Departmental Representative and without giving any opportunity to the assessee to rebut the information so supplied and declining to take into consideration all materials which the assessee wanted to produce in support of his case constituted a violation of the fundamental rules of justice and called for exercise of the powers under Art. 136 of the Constitution." (iii) Similarly, our conclusion that suspicion cannot take the place of proof is supported by the finding of the Hon'ble Supreme Court in the case of Umacharan Shaw & Bros vs. CIT, where on the facts and circumstances of the case, the Hon'ble Supreme Court set aside the order of the Tribunal holding at p. 277 as under: "Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the ITO could come to the conclusion that the firm was not genuine. There are many surmises and conjectures and the conclusion is the result of suspicion which cannot take the place of proof in these matters." 57. In view of the above facts and cir....
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....n 31st July, 1997 and 11th Aug., 1997. (vi) Assessee's request dt. 11th Aug., 1997, for cross-examination of authorised officer who had prepared the inventory of stock of scrap. (vii) Letter No. Asstt. CIT/CC-II/KMP/S&S/Block Assessment/Monga Group/1997-98/192 dt. 18th Sept., 1997, addressed by the AO to the assessee's principal officer denied the assessee's request for examination of the authorised officer who had prepared the stock inventory. 58.3. In the assessment of block period the AO estimated the stock of scrap as on 3rd Sept., 1996, at 720 MT by considering each one of 60 heaps of scrap as one truck load of 12 MTs and after allowing the set off of 427.945 MT available as per books and valued the excess stock at Rs. 21,99,000. 59. On the basis of the aforesaid facts and circumstances, the assessee's counsel's main objection is that stock inventory of scrap was based purely on guess work and consideration of one heap of one truck load of 12 MTs is absolutely unreasonable and impracticable computation. According to him when the scrap is unloaded from the truck it has to be unloaded in shape of 2 or 3 heaps and similarly weight of each truck can never be 12 MTs. Ac....
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.... of natural justice and in case it is found to have not adhered to, then the action is arbitrary and can be struck down. 60.1. As far as present case is concerned, it is abundantly clear from the facts on record, findings of the AO and denial for cross-examination of authorised officer that the authorities have acted in an arbitrary manner while considering the assessee's request and objection for actual weighment as well as request for the cross-examination of the authorised officer, which is in complete disregard to the settled principles of law relating to the principles of natural justice and fair play and, therefore, the action of the AO is liable to be struck down on this score alone. 60.2. So far as the stand taken by the Revenue that the stock on the date of search was actually physically taken and details were furnished to the appellant, it is of no use to the Revenue, because, it is admitted fact that the stock was not actually weighed rather was mere on physical look of the authorised officer that the stock of 60 heaps was estimated to be 60 trucks load. The Law required the authorised officer to weigh the stock which was not done. The subsequent confrontation into....
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....nion that rate of Rs. 11,000 per MT will meet the ends of justice and consequently the AO is directed to compute the undisclosed income on this account by adopting this rate. 61. Ground No. 4.1 [Asst. yrs. 1995-96, 1996-97 & 1997-98) & 4.8 Computation of undisclosed income for asst. yrs. 1995-96, 1996-97 and 1997-98 after holding the trading activities with respect to purchases and sales with various parties referred to at p. Nos. 41 to 52 of the assessment order for block period as ungenuine and holding that the undisclosed cash has been introduced in the books of account by adopting via media of such ungenuine transaction. 61.1. We have heard the assessee's counsel as well as the learned Departmental Representative but before divulging to their respective stand, it is deemed necessary to extract the brief facts as revealed from the assessment order and the records available before us, as under: 61.2. The appellant's books of account for asst. yrs. 1995-96, 1996-97 and 1997-98, which were in respect of manufacturing as well as trading activities, depicted the G.P. rate of 15 per cent, 12 per cent and 10 per cent respectively. The AO rejected the G.P. rates depicted by ....
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....opi Krishna and has squared up the accounts by showing sales to them but the party has denied having entered into any transaction with the appellant. (i) The AO similarly conducted investigation for the verification of sales and observed that the appellant has made 3 types of sales namely: (a) Cash sales. (b) Sales to square up the accounts. (c) Sales to the parties from whom payments were received by cheque or draft. One of the parties from whom the payments were received by cheque or draft was M/s K.C.P. Fueller Ltd. of Madras and the total sales to this party, made by the appellant were to the extent of Rs. 1.75 crores. (ii) The AO further observed that with regard to the cash sales no enquiry is possible whereas the sales which have resulted in squaring up of the accounts have been shown to inflated the sale and bring down the G.P. (iii) With regard to 3rd category of sale i.e. sales to M/s K.C.P. Fueller Ltd., the AO, after making enquiries from the transporter concluded that number of vehicles claimed for sending the goods were not the number of trucks and the so-called sales to this party were not genuine i.e. according to the AO there was no actual deli....
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....k of cash flow statement. 62. Submissions by the parties. (i) The appellant's counsel on the basis of above facts and circumstances, first of all relied on appellant's reply dt. 22nd Sept., 1997, available at p. 230 of paper book and the relevant part of appellant's reply reads as under: "M/s Monga Metals (P) Ltd. 76/43, Halsey Road Kanpur Date: 22nd Sept., 1997 To The Asstt. Commissioner of Income-tax Central Circle-II, Kanpur Re: Block assessment proceeding With reference to your letter dt. 19th Sept., 1997, we respectfully beg to submit as under: The other points raised are in respect of trading activities done by us in asst. yrs. 1995-96, 1996-97 and 1997-98 which are duly disclosed and appearing in our regular books of accounts which were seized during the course of search. From para 3 of page (sic) of your letter it has been observed that by making trading activities, unaccounted profit of the assessee's company has been introduced in the books of accounts" Without Prejudice We may submit if the Department has reached to this conclusion th....
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....Jija) had expired after some serious illness. Purchases and sales with accounts of the parties till 3rd Sept., 1996, have been squared up. Some times the parties make the transactions through their 'Dalai' and goods are received from them which were sold by us in due course. Your observation about fictitious credit are also not correct. Moreover because there has been no fictitious credits. From the balance sheet it will be seen that there are following items at assets side in respect of these goods. (a) Stock; (b) sundry Debtors (Trade); and (c) profit merged with other losses. We have received so many notices and enquiries in last 10 days and we have been attending your office -almost even whole day and we had very little time left in making lot of compliances required by you. Looking to the above facts and circumstances of the case no addition is called for on the points raised in your notice dt. 19th Sept., 1997, also. In case any further clarification is needed kindly let us know and proper and sufficient time may kindly be granted. Thanking you." (ii) So far as asst. yr. 1997-98 is concerned, he further submitted that all the transactions having been r....
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....ied these goods to one M/s Fuller K.C.P. Ltd. to the extent of Rs. 1 crore 76 lacs and odd. The detailed investigation showed that the trucks shown to have transported goods from Kanpur to Sirohi in Rajasthan were found to be bogus. The truck numbers mentioned in the bilties turned out to be numbers of two wheelers, three wheelers and roadways buses. In some cases where even truck numbers existed, the owners refused to have transported any such goods. In fact these trading transactions were bogus and were resorted to by the appellant to introduce unaccounted cash in the books of account. Therefore, the net cash inflow resulting from these bogus transactions has been worked out in asst. yrs. 1995-96, 1996-97 & 1997-98. From these amounts, the profit already disclosed on these bogus transactions and included and incorporated in the regular books of account has been deducted. The remaining amount has been treated as unexplained introduction of cash by bogus trading transactions and has been accordingly taxed in the block assessment proceedings." 64. After having considered the rival submission, the facts and circumstances of the case, overall effect of so-called ungenuine purchases....
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....that the appellant has, by indulging in such ungenuine purchases and sales, has introduced its undisclosed cash, in books; (ai) First of all we would like to record that it was not fair on the part of the AO not to confront the appellant with the enquiries made for parties other than M/s K.P. Fueller Ltd. In our opinion, whatever may have been approved or stand of the appellant while responding to various queries or requirements of the AO with respect to sales to M/s K.P. Fueller Ltd. the need of the hour, in view of the principles of natural justice, was that the AO should have confronted the appellant with such enquiries and should have allowed a reasonable opportunity for explaining the appellants stand. (aii) This arbitrary action on the part of the quasi-judicial authority i.e. AO amounts to violation of the principles of natural justice which has vitiated the findings of the AO on the point which are to be quashed. (aiii) Since the AO himself has concluded that the appellant was carrying on manufacturing and trading activities of ingots outside the books, it cannot, simply on the basis of certain transactions having been termed as not genuine, be held that all the tr....
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.... Rs. Opening stock Nil Sale 5,00,000 Purchases 5,00,000 C. Stock 1,00,000 G.P. 1,00,000 ---------- ---------- 6,00,000 6,00,000 ---------- &nb....
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....n our opinion it is not only impossible, impracticable but unprofitable also, and cannot be done without convenience of 3rd person. Here again a question arises as to why the 3rd party shall associate itself. If any party chooses to associate itself it will do so with the intention of procuring some benefit or earning some income and ultimately to get lost ab initio, so that it is out of reach of the taxman. (c) Even if it is taken that some one will take risk to associate itself then the question arises as to why the assessee will extend any benefit or allow any 3rd party to earn some income, when the assessee can disclose its cash by taking recourse to the provisions of s. 273A of the Act and by paying the regular tax. (d) Further by introducing cash to the extent of gross profit as in the above example one is left with, in the shape of working capital; is sum to the extent of net profit only which no prudent person will prefer. 65.1. In view of above discussion, we are of the opinion that such type of activity do not result introduction of undisclosed cash, though, they may result in some help to 3rd party or may result in assessee's earning some income. For example ....
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....even if Revenue's theory of introduction of cash is accepted and that reason is the provisions of s. 158BB(1)(b) according to which the undisclosed income on the basis of entries in the regular books of account, for the period for which the return of income is not due by the date the search has been conducted, can be determined only if it is proved by the Revenue that had there been no search the person would not have disclosed such entries or transaction or income, otherwise as per the provisions of s. 158BB(1)(b) income for the periods for which the time for furnishing the return under s. 139(1) has not expired and computed on the basis of entries relating to such income found recorded before the date of search in the books of account and other documents maintained in the normal course of business has to be deducted for arriving at the undisclosed income for that year. (b) As far as the present case is concerned, since the AO has admitted in the assessment order that the purchases and sales, which as per him are not genuine, have been recorded in the regular books of accounts and there being no evidence to show that the appellant would not have disclosed those transactions, th....