TaxTMI 
TaxTMI 
1999 (11) TMI 99
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....also being ITA No. 1192, 1193 & 1194 (AU)/1998 which have already been dismissed by us on the short ground that the appeal against order under s. 154, even if such an order related to block period assessment, was not maintainable directly before Tribunal. 2. In relation to the 'block assessment order' referred to above, the assessee initially came up with a petition for stay of the demand which contained an additional prayer for early hearing of appeal also, and the same was disposed of vide order dt. 23rd Feb., 1999, whereby the prayer for stay of demand was accepted subject to certain conditions. Against the said order the assessee filed a writ petition before the Hon'ble Allahabad High Court which disposed of the same vide order dt. 27th March, 1999, concluding part of which reads as under: "The learned counsel for the petitioner submitted that the appeal itself may be disposed of expeditiously. The petitioner can approach the Tribunal, directly submitting the application for disposing of the same as early as possible. The Tribunal shall fix the date for hearing of the appeal as early as possible." Later on the assessee moved a petition before the Hon'ble Supreme Court ....
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....ued and served on the appellant and, therefore, no valid order under s. 158BC (Chapter XIV-B of the Act) could be passed. (b) The assessment order, at any rate, did not reflect independent exercise of mind of the AO (in passing the order) as he was being continuously influenced and guided by the parallel proceedings as had been taken up by the DDI Wing, through examination of various persons (for which the DDI, Wing did not have the power, after the search under s. 132 had been concluded). (c) The manner in which search was actually conducted, particularly at the business premises of the appellant was neither proper nor in conformity with the rules laid down by the Department itself. 6. As far as the first aspect which, according to the learned counsel for the appellant, effects the very assumption of jurisdiction by the AO to pass block assessment order in the case of the appellant, is concerned, elaborate arguments were made by the learned counsel for the appellant with reference to various case laws (gist of which has been placed at APB 95 and 96). The sum and substance of the argument put forth by him is that the notice under s. 158BC, which confers jurisdiction on the....
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....ated as principal officer. In such a situation, it was incumbent on the AO to treat any person connected with the management of the company as its principal officer, by serving a notice of his intention of treating him (such person) as principal officer of the company, as required by the provisions of s. 2(35). The notice in the present case, is neither addressed to the principal officer of the company nor any notice has even been served on any of the three directors connected with the management of the company, by treating any one of them as 'principal officer' of the company. Mere service of the notice dt. 12th Dec, 1996, on Sri Vijay Kumar Agarwal (the Department in its paper book has mentioned that notice had been served upon the main director of the company Sri Vinod Kumar Agarwal) was not enough to meet the requirement of law. Thus, the said notice cannot be said to have been either addressed to the company or served in accordance with the provisions of law. 8.1. According to the learned counsel for the appellant the said infirmity was much more pronounced in the instant case because of vagueness even in the text of the notice whereby company was required to include in its....
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....; would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid &....
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....nbsp; of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by them would become &nbs....
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....p; High Court was right in holding that the notice in question was invalid and as such the ITO had no jurisdiction ....
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....sp; different from the entity which filed the return in response to that notice. The notice had been &n....
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.... fact, as no notice had been issued to it under s. 148 of the Act. We have already indicated above &n....
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....nbsp; does not get jurisdiction to make an assessment on a particular assessee. In this view of the matter, in our....
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....bsp; issuing of a valid notice to the assessee under s. 148 of the IT Act within the period specified &....
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....; same has not been served on the assessee in accordance with law, it will not be possible to sustain &....
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.... under s. 147 of the IT Act. (v) CIT vs. Thayaballi In this case the Mulla Jeevaji Hon'ble Supreme Kapasi (1967) Court referred to 66 ITR 147 (SC). its earlier decision in the case of Narayana Chetty &nbs....
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.... to the initiation or proceedings for assessment under s. 34. If no notice is issued or if the notice issued is shown to be invalid, &nbs....
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.... or a matter of jurisdiction. In that view, before assessing an 'AOP' as enjoined by s. 282(2)(c) of the &nbs....
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....nbsp; where "no notice" was sent to "the assessee", the "AOP" as enjoined by law. The entire proceedings are,  ....
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....sp; obliterated by relying on s. 292B of the IT Act. 8.2. Further reliance was placed on Tribunal order dt. 30th June, 1999, in the case of Monga Metals (P) Ltd. vs. Asstt. CIT in ITA No. 1377/A11/1997. Our attention was specifically invited to the discussion appearing and findings given in para 9 to 12.2 (APB 357 to 362) of the order. 9.1. Sri S. Chopra, Addl. Standing Counsel vehemently opposed the argument put forth on behalf of the assessee. First of all he referred to paras 1, 2.1, 2.3 and 2.4 of the DPB and the case laws mentioned therein and to some other case laws also which we shall deal at the appropriate place. He very forcefully pleaded that the notice under s. 158BC was wholly valid and various irregularities/infirmities (as have been pointed on behalf of the assessee) w....
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....ned before us, Sri Garg submitted that the matter was squarely covered by our decision in the case of Monga Metals (P) Ltd. and the same deserved to be followed here also as the facts are identical. As to various case laws as have been relied upon by the learned Addl. Standing counsel he dealt with each one of them in detail and tried to make out that all the case laws (as have been referred to and relied upon by the Addl. Standing Counsel) were distinguishable on facts as well as in law. He further went on to submit that the assessee company had specifically raised the issue of validity of the notice, time and again and gave it in writing also to the AO vide letter dt. 26th Sept., 1997. 12.1. We have carefully considered the rival submissions. Before dealing with the same, we refer to certain undisputed facts. The appellant is a public limited company which got incorporated on 15th July, 1994. Prior to this date, company was absolutely non-existent. It is engaged in the business of manufacturing of CTD bars, colloquially known as "saria" and the date of commencement of commercial production is 22nd June, 1995. Thus, at the most the asst. yr. 1995-96 when the company was in the ....
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.... point of time or stage has served the company with a notice of his (AO's) intention to treat any of the three directors of the company, as its principal officer. The company by itself never designated anyone of its director or any other officer to act as its principal officer. The notice dt. 12th Dec, 1996, was get served on Sri Vijay Kumar Agarwal (not Vinod Kumar Agarwal as has been mentioned in DPB) without the AO at any stage, having expressed his intention to treat him the principal officer of the company. The notice dt. 12th Dec, 1996, was, of course, addressed to WS Alloys Ltd. 13. In the case of Monga Metals (P) Ltd. a company which was being managed by the same set of directors at the time of search which, in that case too took place on 3rd Sept., 1996, we have already held vide order dt. 30th June, 1999 after in-depth analysis of the provisions of s. 158BC vis-a-vis s. 148 that: "We are of the opinion that a notice, required to be served under the provisions of s. 158BC is akin, analogous and within the same parameter, as a notice under s. 148 and therefore, the grounds on which a notice under s. 148 can be held to be bad in law are sufficient to hold a notice unde....
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.... (d) in the case of any other person (not being an individual), to the person who manages or controls his affairs." Thus, under the new provisions as are applicable to the present case, in the case of a company a notice shall be treated to have been served validly, only after it has been found that the same had been addressed too, to the principal officer of the company. The objection of the learned Addl. Standing Counsel that the word used in s. 282(2) is "may" and not "shall" does not make any difference as in our considered opinion, the section as a whole has been couched in a language in which no opinion has been left to the AO, in the matter of addressing the notice or service is concerned. In view of this position it is not even necessary to refer to a large number of cases where the Courts have expressed the opinion that the word "may" shall be interpreted as "shall" (b) There is one more distinguishing fact in the case. The notice in the case of General Commercial Corporation Ltd was found to have been served on the secretary of the managing director who was principal officer of the company and the company had acknowledged receipt of such notice subsequently as may be ....
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....n through search had been duly specified therein and in any case an omission was cured by s. 292B. In other words, the Court found that the undisclosed assets having been specified with precision, it was of no consequence if some irrelevant portion had been omitted from being scored out as such an omission would not mislead anybody. Here it is not a case of omission in scoring out any irrelevant portion. If the notice is perused it will go to show that the company was required to include the income of various other entities also each one of which falls in different category of "persons" as defined in s. 2(31) of the Act. The observations by the Hon'ble Court to the effect that the omission as noted by it in the said case stood cured by the provisions of s. 292B, cannot be said to be having any relevance here as the same had been made in different context altogether. (iii) National Insurance Co. Ltd. vs. CIT (1995) 127 CTR (Cal) 238 : (1995) 213 ITR 862 (Cal). In this case the Hon'ble Court was dealing with a return of income filed by a company which had not been signed by the managing director thereof. The assessee's case was that it was just as a defective return and validit....
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....precedent to a valid assessment in exercise of the AO's jurisdiction, but it has no bearing on the question of the AO's inherent or fundamental jurisdiction, if the AO makes an assessment under s. 147 without issuing a valid notice under this section, he cannot be said to act without inherent or fundamental jurisdiction. His action would only amount to irregular exercise or assumption of jurisdiction and objection to such irregularity can always be waived." (b) and various case laws viz: (i) CIT vs. Vimlaben (1979) 13 CTR (Guj) 27 : (1979) 118 ITR 134 (Guj); (ii) CIT vs. Shilaben (1980) 15 CTR (Guj) 25 : (1980) 124 ITR 420 (Guj); (iii) CIT vs. Premanand (1980) 16 CTR (Guj) 6 : (1980) 124 ITR 772 (Guj) and (iv) Smt. Lalita Todi & Ors. vs. CIT (1980) 123 ITR 40 (Pat). 15.2. On a careful analysis of the said opinion, we find that it comes directly in conflict with the view expressed by the Hon'ble Allahabad High Court in the case of Banarasi Silk Palace vs. CIT (1964) 52 ITR 220 (All), a case which has been listed at the footnote of p. 1216 itself. The relevant portion appears at p. 230 of the said report which reads as under: "The language of s. 34 makes it clear....
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....158BC. 16. All these aspects, in any case are fully covered by various case laws as have been referred to in para 8.1 above and also the detailed discussions made by us in the judgment dt. 30th June, 1999, in the case of Monga Metals Pvt. Ltd. to which both of us were parties and we are unable to persuade ourselves to take a different view in the present case. 16.1. Therefore, our findings on this issue is that the notice dt. 12th Dec, 1996, claimed to be a notice under s. 158BC (by the Revenue) is bad in law and the assessment made in consequence upon the assumption of jurisdiction on the basis of such notice got vitiated at the very threshhold of it, as it fails to meet the requirement of a valid notice and for the detailed reasons as have been given by us in our order dt. 30th June, 1999, in the case of Monga Metals (P) Ltd. in ITA No. 1377(A11) 1997 in paras 3.1 to 12.2 which apply mutates mutandis to this case as well. 16.2. In view of the above discussion, so far as the present case is concerned, our conclusion is that: (i) notice under s. 158BC is not merely a procedural requirement but a condition precedent for assuming jurisdiction to pass block assessment orde....
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....other related matters (summary of which as extracted from the Commentary by Sri O.S. Bajpai appears at p. 53-57 of supplementary APBIII) it was necessary for the authorised officers to call upon two respectable persons of the locality to attend and witness the search. Such persons should be independent persons who should remain present throughout the search. In the present case, according to the learned counsel for the appellant, the ground rules laid down by the CBDT and also sub-r. (6) of r. 112 which provides for attendance of witnesses have not been followed which was a serious irregularity committed by the search party. Explaining his stand further, the learned counsel submitted that on the basis of such an irregularity, he was not claiming the search itself to be illegal. What he aimed at by taking this plea is that a serious irregularity had been committed-in the search operation which has gone to affect vitally the findings on various issues, particularly the stocks etc. found at the time of search for which specific ground had been taken by the appellant in this appeal. 17.2. Sri S. Chopra the Addl. Standing Counsel seriously objected to this plea, mainly on the ground ....
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.... Transporter 19-11-1996 (8) Hira Singh Transporter 20-11-1996 (9) Dulara Transporter 20-11-1996 (10) Satish Chandra Trader Agnihotri Prop. Basi Ispat ----------------------------------------------------- 18.2. He invited our attention to various paragraphs also wherein the said statements have been referred to and relied upon by the AO in drawing various inferences and conclusions. Reference was also made to the notice dt. 23rd July, 1997, issued by the AO along with which statements of various persons as recorded by the ADI, Kanpur were supplied to the assessee, with the following paraphrasing: "I am also enclosing herewith the copy of the statement following persons from p. 25 to p. No. 38 of the Annexure, recorded by the ADI in consequence of search operation. ---------------------------------------------------- S.No. &nbs....
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.... Wing has got the powers to call for witnesses and examine them under various provisions as are contained in Part C of Chapter XIII of the Act, particularly those contained in s. 131(1A). It was further argued that even if the authorised, officer or the Asstt. Director of Income-tax does not have jurisdiction of the AO, he is not debarred from exercising the powers conferred on him under sub-s. (1A) of s. 131. As per the provisions of sub-s. (8) the books of account and other documents seized during the course of search can be retained by the authorised officer for a period of 6 months and for such further period as may be approved by the Chief Commissioner/Commissioner, Director General or Director as the case may be In this context it was further submitted by him that the provisions of sub-s. (9A) of s. 132 should be r/w sub-s. (8) and on an harmonious consideration of both the provisions, it should be held that even after carrying out search operation, the Asstt. Director of Income-tax continued to have jurisdiction in the present case to collect information through the process of law and make the same available to the AO for the purpose of framing the assessment. No mala fide w....
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.... 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, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian IT Act, 1922 (11 of 1922), or under this Act. Explanation: For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian IT Act, 1922(1) of 1922), or under this Act. (5).......... (6)........... (7)........... (8) The books of account or other documents seized under sub-s. (1) or sub-s. (1A) shall not be retained by the authorised officer for a period exceeding one hundred and eight days fro....
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....exercise in view of provisions of sub-ss. (8) and (9) are to be exercised by the ITO. 27.2. The reference to the jurisdiction over the periods in sub-s. (9A) is in relation to the jurisdiction to frame the assessment because of the reference for handing over the seized material, is to be ITO meaning thereby that since the provisions states that the seized material has to be handed over to the ITO, having jurisdiction over the person searched and thereafter the powers to be exercised in view of provisions of sub-ss. (8) and (9) shall be exercised by such ITO, it is very much clear that the jurisdiction is with respect to the "Jurisdiction with relation to the making of assessment" and not anything else. 27.3. Another requirement of sub-s. (9A) is that the seized material and assets are to be handed over to the "ITO" and nobody else. 28. In view of our aforesaid analysis of the various provisions we are of the opinion that an authorised officer who has no jurisdiction over the person in whose cases search has been conducted, has no powers either to retain the seized materials for a period more than 15 days or to examine any person or to record statement of any person connect....
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....undisputedly been used by the AO while framing the assessment order Specific references to the said statements are found at pp. 23.24, 29 and 33 of the assessment order (references to the pages are to the typed copy of the assessment order as appearing at pp. 1 to 46 of the APB) and we find that the said statements have largely gone to influence and affect the decision of the AO in the matter of addition of Rs. 77,34,961 as has been made by him on account of alleged suppression of production in the months of April, 1996 to 3rd Sept., 1996 (date of search), and remotely on the addition of Rs. 25 lakhs as has been made on the account of requirement of working capital for the business alleged to have been done by the assessee, outside the books of account. The effect of the material referred to above is severable and limited to the addition of Rs. 77,34,961 only and cannot be said to have permeated on the assessment order as a whole. To this extent we agree with the Addl. Standing Counsel and accordingly we hold that the addition of Rs. 77,34,961 cannot be said to have been validly made. However, these directions of ours are subservient to the findings given by us earlier that the ass....
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....r 13,01,920. 95. This very sale of C.T.D. bars are recorded on the back of page No. 23. For this sale receipt of amount on different dates from 12th Nov., 1995 to 27th Nov, 1995, are recorded on lower side of page No. 36 totalling to Rs. 13,25,000. On page No. 37 also V.V.S. is written very clearly on top showing that the sales recorded on this page belongs to M/s V.V.S. Alloys Ltd. Sale on this page are recorded from 13th Dec, 1995 to 18th Dec, 1995 totalling to Rs. 77.245 M.T. for Rs. 9,32,800. Those very sale receipt of Rs. 7 lacs in shown on 23rd Dec, 1995. Receipt of this particular cash amount is also available at first entry on page No. 27 wherein 700.00 is written on 23.12 and total receipts available on this page is 43.00. Taking into account page Nos. 37 and 27 it can be very well said that all the figures in page No. 27 are in lacs and details or receipt of 43 lacs are available on page No. 27 against the sale of C.T.D. bars during December, 1995 to March, 1996. On page No. 38 details of sale of C.T.D. bars of M/s V.V.S. Alloys Ltd. are available from 5th Nov., 1995 to 3rd Dec, 1995, totalling to 47.59 MT for 5,72,490. On the top of this page also V.V.S. in written....
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....e resident of the directors) had nothing to do with the business of the appellant. No presumption could be drawn against the appellant company as the said papers were not found from the business premises of the appellant. The name of V.V.S. as found mentioned on some loose papers merely refers to the names of 3 directors, Viz. Shri Vijai Kumar Agarwal, Shri Vinod Kumar Agarwal and Shri Sanjai Kumar Agarwal. The said papers remained wholly uncorroborated. The appellant company had already disclosed much more sales during this period and there was no material to show that the said papers revealed at the first instance any sales made outside the books of account and in second instance that such sales are not covered by the sales recorded in the regular books of account of the appellant. He also referred to the explanation dt. 22nd Sept., 1997, which is reproduced herein below: (1) That there was no undisclosed production of its sales and as such there is no question of estimating the sales and any working of the undisclosed income as prepared in your letter, dt. 3rd Sept., 1997. (2) That for the asst. yr. 1996-97 you have proposed an addition of Rs. 17,57,884 as gross profit ado....
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.... to be the record of unaccounted sales, there was no undisclosed income as the said very papers revealed a loss of Rs. 7,52,465 in the alleged transaction of sale. 21.3 Without prejudice to all these submissions yet another plea was taken by the learned counsel for the appellant. As per the discussions appearing on pp. 41 to 43 (assessment order typed copy of which appears in the APB), the net profit rate of 13.8 per cent has been applied, subject to certain deductions, to arrive at undisclosed income or Rs. 6,21,593. The G.P., rate of 13.8 per cent was, in term, said to be on the profit rate disclosed by the assessee as per regular books of account for the asst. yr. 1996-97. It was submitted that the account of the asst. yr. 1996-97 nowhere disclosed such G.P. rate. He specifically invited our attention to p. 196 of APB wherein calculation of G.P. rate which excise duty and without excise duty have been given, which worked out to 1.70 per cent and 1.91 per cent respectively. On this basis it was pleaded that the application of 13.8 per cent was based on fallacious grounds. A reference was also made to assessment order passed by the Dy. CIT (now Joint CIT) (Asst.), Special Range....
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.... As regards alternate claim of the appellant that the said loose papers did not go to show that the appellant had earned any income in the transaction recorded therein but there was a loss on account of short realization, Sri Pratap Singh submitted that there was no question of any loss particularly when the corresponding business as recorded in regular books of account showed a profit. It was possible that complete records of loose papers might not have become available to the search party at the time of search, on account of which full particulars about cash realization against sales were not available. 21.6 As far as computation of income in the said business was concerned, initially he stoutly defended the working made by the AO. Later he submitted that even if there was some incorrect observation in the assessment order about the G.P. rate disclosed by the assessee in its regular books of account, yet the rate of profit applied by the AO (for the purpose of computation of undisclosed income) cannot be said to be excessive or unreasonable. To a query put by us about the appellant's contention that the G.P. rate disclosed in the books of account worked out to 1.91 per cent on....
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....ed hereunder for the sake of ready reference. "(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry is books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act." It can easily be said that no income arises out of these transactions but it is not the case because the transaction having been recorded in the documents found during the search, the income is covered by the definition of undisclosed income. Consequently it is not correct to say that no undisclosed income can be found on the basis of these documents. Coming to the quantum of undisclosed income, we are of the opinion that so far as the question of undisclosed investment is concerned, there is no evidence on this account and, therefore, we are unable to sustain any involvement of undisclosed income. However coming to the profit, we, in view of the facts and circumstances of the case are of the opin....
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....P/2 of search rate 14,500/MT ----------- ----------- 6.162.335MT 7,36,34,340 mentioned as 7,36,46,274 ---------------------------------------------------- Detailed working at APB Pages 26 to 30 (working at p. 30 based on assumption) Pages 16 to 26 (2891,26(-) as per books 168.354) working at p. 25 Pages 30 & 31 Pages 31 to 34 ---------------------------------------------------- (B) Computation of profit ---------....
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....2.61 MT and after taking the said figure as base, he worked out the undisclosed sale for the month of April, 1996, in the following manner: "G.P. As per RG-1 Production of April, 1996-409.16 + 3,700-4109.16 ------------------------------------------------ Less: Accounted sale of April, 1996 (4,109.16-236.725) 3,872.435 Add: Production of May, 1996 (3,872.435 + 2,891) 6,763,435 Less: Accounted sale and unaccounted sale of May, 1996 6,763.435-(426.96 + 2,722.906) 3,613.580 Less: closing stock of May, 1996 (3,613,589-730.070) 2,883.519 Undisclosed sale of April, 1996 2,883.519" ------------------------------------------------ It was submitted that the loose paper 32 could not have been taken to be the production of the appellant company for t....
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.... (MT) sale the invoices books MT) --------------------------------------------------------- LP-12 (pp.6 Bhagat 958.875 55.81 903.565 to 22) LP-12(pp. 41 Raju Singh 732.555 17.25 715.305 to p58) LP.12(P25 to Amrit Lal 418.175 30.609 387.566 P35) (Loading &nb....
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....the job work carried out by them for different principals, they had been taking assistance of Sri S.D. Verma, an employee of the company and it was for this reason that the said diaries were found at the premises of the appellant during the course of search operation. It was also submitted that the appellant did not have the capacity to produce this much of CTD bars (saria). As regards the loose paper No. 41 of LP-6, it was claimed to be belonging to Sri Jabbar Singh contractor who had been carrying out the job of twisting of C.T.D. bars (saria) on piece meal basis at different places. He had brought the said paper to show to the directors of the appellant company, his performance elsewhere. In support of this contention the appellant filed an affidavit from Sri S.D. Verma, copy appearing at p. 183 of the APB and also an affidavit from Sri Jabbar Singh. Sri Jabbar Singh was produced before the AO on 25th Sept., 1997, when his statement was also recorded. In his statement he clearly stated that the seized papers (41 of LP-6) did not belong to the appellant company but it belonged to some other rolling mill. The said paper contains the details of twisting done by him for some other m....
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....sp; 1,365 ------- 6,643 ------- 10 lab. camping @ 38 6,643  ....
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....MT @ 10 30 7 Lamp 7D/work 35 245 Cylinder loading unloading 50 -------- 3,908 AD 2,000 &....
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.... 25,727 -------- 11,000 -------- ....
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....any. 25.6. The learned counsel submitted that the writings on the said loose parchas could not have been treated to be the unaccounted sales of the appellant. There was no corroborative evidence which could go to show that the appellant carried out any such production, as for carrying out such production there is a requirement of raw material and other inputs. No materials was found even during the course of extensive search which could even remotely suggest that the appellant company had made any purchase of raw material and other inputs which remained unrecorded in the books of account and which could provide for the source of extra production (and sales thereof). August, 1996 to the date of search 25.7. For this period also the unaccounted sale has been worked out at Rs. 20,94,815 based on loose papers No. 50 and 51 of LP-2 which had been taken as basis for working out the unaccounted sale for June and July, 1996. 25.8. Submissions similar to the foregoing one have been made by the learned counsel for this estimate also. A reference was made to the explanation dt. 22nd Sept., 1997, which is reproduced hereunder: "The papers considered for the month of June to the ....
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....hom the said statement belonged, he could not even tell the name of the concerned rolling mill. Loading contractors to whom the diaries have been stated to be belonging, were not even produced till as late as 22nd Sept., 1999, Sri S.D. Verma and employee of the company, who had verified these diaries was not produced for examination. 25.11 Similarly for the month of April, 1996, although loading details showing unrecorded despatches found during the course of search were incomplete, yet from the working given by the AO at p. 30 (APB) of the assessment order the conclusion of the unaccounted sale gets confirmed. As regards the remaining months starting from June, 1996, to the date of search, here also papers were found which contained date-wise details of sales which could not be verified from the regular books of account. He, thus, concluded that no interference was called for, so far as the working of sales outside the books of account was concerned. 25.12 As to the application of rate (as has been applied by the AO for working out the quantum of undisclosed income) he referred to the discussion made in relation to the similar addition of Rs. 6,21,593 as had been made in the....
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....p; Sd/- POA" It was again pleaded that the addition was not maintainable either on facts or in law and in any case the same got wholly vitiated as it had been made at the behest of and under the instructions of the DDI Wing. 27.1. We have carefully considered the rival submissions. First of all we shall deal with the objection with regard to the very legality of the addition. It has not been disputed from the side of the Revenue and in fact it could not have been, in view of the letter dt. 23rd Sept., 1997, written by the AO himself, to the appellant company, copy appearing at pp. 98 to 101 of APB, relevant portion of which has already been reprodu....
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....rding seized materials, and an appraisal report was prepared by them which was forwarded to the relevant AO who on the basis of appraisal report issued notices to the appellants in terms of s. 158BC r/w s. 158BD. In his statement on oath in terms of s. 132(4) "T" admitted that he would disclose a sum of Rs. 40 lakhs for the block period to cover up any shortage of deficiencies in the group of search cases. The AO framed the assessments under s. 143(3) r/w s. 158BD, yet he issued notices to all the appellants under s. 158BC directing them to file return for the block period for income including UDI (undisclosed income). The appellants initially did not file such return contending that there was no UDI. However, ultimately they filed return after expiry of prescribed period. The AO after scrutinising seized materials and obtaining details/clarifications from appellants, made assessment for the block period determining respective UDI on 31st March, 1997. On appeal, the appellant assessee sought quashing of assessment orders on ground that: (1) search operations having been conducted on 30th Aug., 1995, according to s. 158BE assessment framed on 31st March, 1997, were barred by limi....
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....sal report of the DDL It was on account of this conduct and attitude of the Departmental authorities in withholding the appraisal report which compelled one to draw an inference that what the assessees submitted was true and correct and, therefore, the same was true, correct and acceptable. It was on the account of these reasons that the impugned assessments, were vitiated and were not sustainable in law requiring vacation." (ii) Sirpur Paper Mills Ltd. vs. CWT (1970) 77 ITR 6 (SC). In this case the Hon'ble Supreme Court while considering the scope and instruction and directions of CBDT as contemplated by s. 13 of the WT Act has held as under: "The orders, instructions and directions of the Central Board contemplated by s. 13 of the WT Act, 1957, may control the exercise of the power of the officers of the Department in matters administrative but not quasi-judicial. The proviso to the section does not imply that the Board may give any directions or instructions to the WTO or to the CWT in the exercise of his quasi-judicial functions." Accordingly, where, in certain applications for revision under s. 25 of the WT Act, 1957, from the inception of the proceedings, the CWT put....
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....hich cover an area of more than 6 acres has not been considered in the proper prospective. It is not unusual that such shifting might have taken place for proper stacking, storing etc. In any case, looking to the quantities mentioned therein the page No. 30 of LP 6 cannot be held to be containing the details of loading into the trucks of the finished goods for the purpose of despatches (which remained unaccounted). Once it is found and held that the entries in the said parcha could not be treated to be containing the details of unrecorded despatches, there remains no evidence which could go to show that the appellant made sales outside the books of account in the month of April, 1996. There is also force in the appellant's contention that another parcha (on the basis of which it has been inferred that the appellant produced 3700 MT of CTD bars in April, 1996) cannot be said to be containing the details of production. The appellant raised specific objection to the effect that firstly the production as stood already recorded in the excise records of the assessee was commensurate with the electricity consumption and secondly the appellant's factory could not have produced so much of t....
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....r independently. In this manner the loading in relation to the sales having not been entered in the books of the appellant, would work out to 885.815 MT only as per the working given hereinbelow: Qty. in Tonne Loading done by Bhagat contractor 958.875 Deduct: Quantity despatched, other than the quantity handled by the purchaser's contractor 73.060 55.81 + 17.25 -------- 885.815  ....
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.... 1,84,28,782 -------------- ---------------------------------------------------------- 29. Other question that remains to be considered now, is the computation of the element of 'undisclosed income' in relation to the undisclosed sales as per the computation given above. The AO has applied a GP rate of 15.73 per cent and thereafter allowed some deductions, so as to arrive at the figure of undisclosed income. In relation to the similar addition of Rs. 6,21,593 as had been made in the asst. yr. 1996-97 (comprised in the block period) it was found that the G.P. rate as per the disclosed version of the assessee for the asst. yr. 1996-97 was 1.91 per cent only. This figure is nearer to the GP rate of 2.66 per cent as has been applied by the AO herself in another search case of Vandana Steels Ltd. which is engaged in the manufacturing of ingots (where profit margin is usually higher than in the manufacturing and sale of CTD bars....
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....5 lakhs with the following observations/findings: "As regards the reply of working capital though technically it is true that no working capital will be needed for undisclosed business. However, the undisclosed business is quicker, faster and mostly in cash. Looking to the volume and nature of business, the working capital of the asst. yr. 1996-97 is estimated at Rs. 25,00,000 which will be available as circulating capital for the subsequent assessment year." 31. With reference to the said observation, it was vehemently argued by Sri S.K. Garg that firstly even on the basis of the material seized during the course of search operations it could not have been held that the appellant made any sales outside the books of account. There were no unrecorded purchases of other inputs required for carrying out manufacturing activities over and above the disclosed version, nor any such information came to the knowledge of the AO even in the post-search period. The electricity consumption was commensurate with the disclosed version of production and no irregularity has been found. Alternatively, it was pleaded that from the disclosed version of the appellant as stood reflected in the bal....
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....f the fact that source of such funds remained unexplained, the addition had rightly been made. 33.1 We have carefully considered the arguments put forth by the parties before us. We have already upheld, in principle that search operations revealed some undisclosed business activities. The appellant's argument that it did not carry out any business outside the books of account and the addition on account of working capital was, therefore, not tenable, fails squarely. However, there are merits in the alternate plea raised by the appellant, to the effect that even the disclosed version of appellant's activities showed that the same was financed by trade liabilities, even if we exclude the figures of loan taken from bank, against the security of stocks and book debts. In the absence of any information about making actual investment in purchases of raw material and other inputs which were the only venues, wherein there could have been any requirement of funds (investment in various fixed assets, etc. already stood recorded in the books of account), the AO could not have proceeded to estimate the so-called requirement of 'working capital' and make addition for the same. In fact if we ....
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....l is available at pp. 102 to 197 of the DPB. In response to specific query raised by the AO in terms of para 10 of the notice dt. 23rd July, 1997, which is reproduced hereunder: "10. The chart of the cash receipt as per No. 20 of the Annexure enclosed herewith (Annexure-4) was recovered from the premises of the WS Alloys Steel Ltd. giving the total cash receipt of Rs. 18,86,355. You are required to state as to whether these cash receipts are accounted for and source of the same." The appellant's reply dt. 26th Sept., 1997, seems to be very cryptic, rather evasive, as may be seen from the following: "With reference to para 10 of your letter dt. 23rd July, 1997, we have to submit that these papers do not relate to our factory and we have also not been able to know as to who have prepared these papers. Without prejudice, for a perusal of these papers we find that there is debits and credits both and as such it can not be said that they are unexplained investment. No adverse inference may kindly be drawn." (APB-91) 34.3. The assessee has not given any further information at the assessment stage, and also failed to explain even about the net effect of various debits and credits....
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....orking of his own estimate. From the cost of construction, as worked out by the approved valuer, based on his on the spot inspection, the appellant's version stood fully proved and supported. The report was prepared not by 'anybody' but by a person duly approved by the very CBDT which is the apex body for the valuation cell of the IT Department also. 'Pleadings' of the approved valuer and his 'estimates' had to be given due weight and consideration and could not have been brushed aside by making a casual observation to the effect that the said report (prepared by the approved valuers) was not acceptable in view of the approved valuer's estimate being lower than the assessee's version. 35.3. Further, Shri Garg pointed out that there was no occasion for making a reference to the valuation cell for determining the cost of construction. For making such a reference, even under s. 131(1)(d), it was incumbent upon the AO to record the reasons and specify the material on the basis of which he held an opinion, at least prima facie, that the appellant's version of investment was not correct. This having not been done the 'reference' to valuation cell under s. 131(1)(d) cannot be said to b....
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....uation Officer Allahabad of his own. From a perusal of the letters, we find that the AO had made a reference under s. 131(1)(d) to the District Valuation Officer at Kanpur who delegated/transferred the same to the Valuation Officer at Allahabad on the ground that the assessee's factory was situated in his (Valuation Officer, Allahabad) jurisdiction. Enquiries were also made by us from the Valuation Officer to ascertain as to what was basis of applying a particular rate for estimating the cost of construction. His reply was that he had followed the rates of CPWD as on 1st Oct., 1976, as circulated by the CBDT and such rates were suitably increased' so as to cover the increase in cost in the intervening period. However, even after specific query made by us, he could not show that any working was done or nothing made by the Valuation Officer so as to find out the precise specifications of the building which was subject matter of 'reference', material used therein and other relevant information and to compare the same with the 'specification' covered by the rates of CPWD as circulated by the CBDT and applied by the Valuation Officer in this particular case. 37. Shri Garg continued h....
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....d by any valid material or ground. First of all we find serious infirmities in the information collected by the AO in the form of valuer report. There is no provision under the IT Act, like one available under the WT Act, where matter can be referred to the valuation cell. The AO, of course can collect information under s. 131(1)(d), but, before proceeding to collect information by invoking his jurisdiction under s. 131(1)(d), he has to have some material at least prima facie before him, to show that the assessee's version is understated and such material should be borne out from the records as were in existence, before making a reference. If the books of account have been maintained wherein investment is recorded, as is the case here, the AO has to find some infirmities in the said books of account particularly with reference to the cost of construction as entered therein, so as to clothe himself with the jurisdiction to get an information about the true 'cost' thereof by making a reference to the Valuation Officer of from any other source. Further, s. 69 of the Act clearly says that only such investment can be treated as 'undisclosed income' of the assessee, which has not been fo....
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....n the custody of the Court pending the determination of the suit; (f) to perform any ministerial act." As is evident from a plain reading of s. 75 of the CPC out of the various purposes as contained therein for which a Court may issue a commission, the purposes which are of relevance in the context of the situation presently under discussion and which can be made use of by the AO in utilizing the agency of a Valuation Officer to ascertain the cost of construction of a building, are purposes under cls. (b) and (e) of s. 75 of the CPC i.e., to make a local investigation and to hold a scientific, technical or expert investigation. Other purposes provided for in s. 75 of the CPC being not relevant, need not be gone into order 26 of the CPC lays down the rules relating to issue of commission and allied matters. Rule 9 of 0. 26 provides for commission to make local investigation; r. 10 thereof lays down the procedure of commission and r. 10-A in respect of commission for scientific investigation. Rule 16 specifies the powers of Commissioners and provides that unless otherwise directed by the order of appointment, commission may; (a) examined the parties themselves or any witness produ....
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....n the powers of a Civil Court under r. 9, O. 26-CPC which has to be a dispute about any matter which requires elucidation. In other words, the Court must first get itself judicially satisfied that there is a matter in dispute and then it must also further get satisfied that for the purposes of elucidating such matter in dispute, issuance of a commission is requisite or proper. 39.4. The Shorter Oxford English Dictionary on Historical Principles, Third Edition, defines the word 'elucidate' to mean, "to lender lucid, to throw light upon to explain". Thus, it is only for the purposes of clarifying or explaining any matter in dispute that, under r. 9, O. 26, CPC, the Court may issue a commission to a person of its choice to carry out the required investigation and report back to the Court. 39.5. The powers of the AO under s. 131(1) cannot be wider than those of the Civil Court under the provisions of CPC. Coming to the application of these powers to matters under this Act, be it said that when an assessee furnishes his return under the Act showing in the financial statements accompanying the return an expenditure in the construction of building at a certain figure, it cannot be s....
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....As held by the Orissa High Court in the case of K. Raghunath Rao vs. Smt. Tumula Jailaxmi AIR 1988 Ori 30, "An order to issue a commission to any person under r. 9, 0. 26, CPC is discriminatory. Being a judicial order it is required to be supported by reasons so that propriety of the exercise of discretion would be visible". On the facts of this case, it was held "a bare perusal of the order shows that the same is not supported, by any reason. On this short grounds, the order is liable to be set aside on account of jurisdiction with material irregularity". The High Court further elucidated the requirement of law by observing "Since issue of a writ to a person for local investigation would depend upon the facts and circumstances of each case, no hard and fast rule can be laid down. This much can be said that the basic prerequisite for issue of such a writ is the satisfaction of the Court that a local investigation is requisite or proper. This satisfaction is to be judicial satisfaction based on reason." Omission to record satisfaction with reason, it can be argued on the strength of the above judgment would warrant setting aside of the order issuing writ of local investigation. ....
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.... 39.11. In view of the above, we are of the opinion that so far as the present case is concerned, the issuance of Commission by the AO in absence of any opportunity to assessee, application of his mind and recording of reasons was bad in law. Similarly the subsequent delegation of power and functions of a Commissioner by DVO, Kanpur to Valuation Officer Allahabad was illegal, bad in law and without jurisdiction and, therefore, the so-called valuation report in the present case was not a legal report and has no sanctity in law. Consequently there could not be any undisclosed income on the basis of such report. 39.12. On merits we are of the opinion that assessee deserved a rebate on account of self supervision and the quantities specified by the Valuation Officer Allahabad on account of builders efforts could not form the part of investment made by the assessee and, therefore, such amount could not be undisclosed income. 39.13. Even otherwise, as admitted the Valuation Officer Allahabad, who was present at the time of hearing, that the valuation is done on the basis of rates approved by CPWD and CBDT as on particular date adjusted according to the passage of time and also th....
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....d by the concerned Departments. This plinth area rate is rough/assessment of cost for obtaining administrative approval/budget sanction and then other detailed estimate for actual working are prepared. (3) It is well known fact that when one constructs his own house/factory building by expending from his pocket he always takes care of procuring the material most economically without bothering for the make and manufactures name. (4) That strict supervision by himself and his working staff and cash down payments towards purchase of material through his clients in bulk directly from source at cost price and being himself industrialist and engaging/ skilled/unskilled labourers locally, the better output and economical construction was ensured. (5) The owner curtailed the overhead expenditure to the minimum possible extent. (6) The utilisation of fund is planned and reviewed weekly/fortnightly basis thus saves the interest cost, which is otherwise embedded in 'rates' whether fixed by CPWD or UPPWD. (7) The expeditious construction obviates the extra expenditure involved in delayed and protective circumstances whereas in the Government contracts the excessive investment in....
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....the basis of regular assessment also, has to be accepted. In this situation, the addition on account of alleged unexplained investment in building cannot be sustained and we hold so. Grounds No. 4.2(3)-Investment in stocks, addition-Rs. 1,93,10,480 40.1 As has been noted by us in the very beginning, search and seizure operations under s. 132(1) were carried out at the factory of the appellant, situated in Malwa (District Fatehpur) Industrial Area, Distt. Fatehpur, which commenced at 8.30 AM on 3rd Sept., 1996, and got concluded on the same day at 6.15 P.M. after preparation of inventory of stocks of scrap, CTD bars of various dimensions and other material (valued at Rs. 3,60,91,726) as is borne out from Panchnama dt. 3rd Sept., 1996, itself. At the time of entry into the factory premises, Sri Virendra Ojha, Asstt. CIT and one of the authorised officers recorded the statement of Shri Shiva Kant. In the said statement, Shri Shrikant stated that he had been looking after the security of the factory in his capacity as security guard and he was not aware of the working of the factory, its stock position availability of books of account and other records, etc. In the Panchnama the ....
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....sp; Vinod Kumar Agarwal 4th Sept., 1996 All that has been said is true and correct to the best of my knowledge and belief. The statement has been given by me voluntarily and without any coercion. I have understood the statement and certify that it is correctly recorded. Sd/- Vinod Kr. Agarwal" 40.2. In the wake of the said search operation the entire stock as inventorised by the authorized officers was put under deemed seizure as per 2nd proviso to s. 132. I....
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.... CIT, Kanpur. 253-254 Letter dt. 9th Oct., 1996, addressed to ADI (Inv), Kanpur reiterating the objections, as may be seen from the following narration: -------------------------------------------- "Besides other points relating to inventory of stock prepared at the time of search, we, in our letter dt. 6th Sept., 1996, have stated that the standard weight of one bundle of iron bar is approx, 100 Kg. and the weight of 200 Kg. Adopted for item No 4 of Annexure N-1 of the V.V.S. Alloys Ltd. is apparently wrong. We are enclosing herewith the certificate of some of the parties of Iron trade for your kind consideration. Also in item Nos. 9 & 10 of inventory shows the 28 mm. round and the weight of each rod has been taken as 95 Kgs. & 40 Kgs. respectively which is also apparently wrong." (b) Letters written to AO after the centralization of cases of Asstt. CIT, Central Circle, Kanpur....
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....nbsp; by search party on 31st Sept., 1996, as prepared by excise department. 177 Certificate of V.V.S. Con-Cast Ltd. about their material as listed in the inventory dt. 3rd Sept., 1996, prepared by the authorised officer. 207 Letter dt. 25th Sept., 1997, about weight of bundle of CTD bar 208-209 Affidavit dt. 24th Sept., 1997, of Sri Mukhtiar Abbas tr....
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.... Rs. 1 M.S. ingot 554.5 180.700 373.800 38,87,520 (010.400) 2 to 11 CTD bar 1,767.309 691.660 1,075.649 1,26,92,658 (011.800) 12. Kunda&n....
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....d in the inventory were just estimated ones, which resulted into grave errors which even stare at ones face. For example: (a) The weight of CTD bars which along account for an addition of Rs 1,26,92,658 has been taken as 200 Kg. per bundles whereas, as per the standard practice followed throughout the country, the weight of one bundle of CTD bars (irrespective of the thickness and dimension thereof) varies between 95 Kgs. to 100 Kgs. In support of the said contention certificates from various dealers in this line, affidavit of transporters who are regularly engaged in transportation of all sorts of grounds and merchandise, including CTD bars and other persons involved in the trade were filed. The seized records namely LP-12 (which were maintained by labour contractors for the work done by them at various factories were also referred to (which have even been annexed to the assessment order) These records showed that the quantity per bundle varied between 95 Kg. and 105 Kgs (reference was made to pp. 56, 57 and 58 of the APB). With reference to APB 57 it was clarified that in the 12th line from the top, the number of bundles had been typed as 65 whereas it should have been 100 (65....
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....; ------ 45.080 ---------------------------------------------------------------- [extracted from letter dt............ APB 212] In support of the receipt of goods from the said parties the relevant documents which included excise gate passes also had been filed before the AO. (e) Exclusion of item belonging to the sister concern M/s V.V.S. Con-Cast Ltd. had wrongly been denied on the ground that the nomenclature of the items as mentioned in the said bills was different than that mentioned in the inventory. It had duly been pointed out before the AO that the items were same and had been procured by the said concerned for setting up its industrial unit. 40.....
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.... squarely lied on the Department to prove that the appellant was the owner of stock of the magnitude mentioned in the inventory and as the said burden had not been discharged, the addition deserves to be deleted. 42. On behalf of the Revenue Sri S. Chopra supported the conclusion drawn by the AO about the excess stock found during the course of search and addition made on that basis. He pleaded that the inventory had been prepared in the presence of the staff of the appellant company and the stage for objection to the process of inventorisation, was the stage when the inventory was being prepared. No such objection was raised at that time. Moreover, the working sheet prepared by Sri Virendra Ojha a responsible officer of the Department and one of the authorized officers in the search goes to show that actual counting/weighment was done. The reason for not making the working sheet as a part of the Panchnama was not vital, as it is not usually done. Shri Ojha in his report has pointed out that while preparing the inventory even zero mistake in the weighing scale was sought to be eliminated by comparing standard weight of certain things (such things have not been specified in the r....
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....o undated and the way it has been prepared it does not inspire confidence. No explanation could be given even by the learned counsel for the Revenue, at the time of hearing of appeal, for not making the said calculation sheet and the report of the authorised officer available to Sri Vinod Kumar Agarwal to whom copy of Panchnama was delivered on 4th Sept., 1996, when he was summoned at the camp office of the DDI at Malwa on 4th Sept., 1996. The appellant had been repeatedly representing about the mistakes in the inventory, before DI Wing and kept even the CIT/Chief CIT, Kanpur informed about its grievance. The same remained unattended to. On the face of such repeated representations, the delay in making the calculation sheet and the report of the authorised officer, available to the assessee after more than 10 months had passed, precisely on 31st July, 1997, is also inexplicable. The appellant's argument that the weight of CTD bars had been taken at 200 Kgs. Per bundle was erroneous as the standard weight varies between 95 and 105 Kgs. could also not be met by the learned Addl. Standing Counsel for the Department. On the other hand, as has been rightly pointed out by the counsel for....
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.... 195.34 20,31,536 CTD bars 691.66 716.41 24.75 2,92,050 Scrap 179.16 200.00 20.84 1,66,720 Ingot found Nil 24.25 24.25 2,86,450 loaded in two trucks (parked in the factory premises) --------- 27,76,456 -------------------------------------------------------....