TaxTMI 
TaxTMI 
2005 (10) TMI 219
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....n the basis of books of account and seized documents and submission made by the assessee alongwith the supporting evidences. 3. During the course of assessment proceedings, the Assessing Officer-observed that the assessee-company has created an amalgamation reserve of Rs. 5,47,42,677 on account of amalgamation of six transferor companies and such amalgamation was made with effect from 1-4-1997 vide the Hon'ble High Court's order on 21-4-1998. 4. The Assessing Officer further observed that there was issue of shares of Rs. 3,87,70,000 to eight companies on direct share application made by them in the financial year 1998-99, whereas the addition of Rs. 2,50,00,000 made to the share capital in financial year 1999-2000 is again on account of direct share application money received from other five companies. 5. The Assessing Officer accordingly had observed that the assessee-company has shown a sum of Rs. 11,85,12,677 as amount received from nineteen companies out of which Rs. 5,47,42,677, was treated as an amalgamation reserve on account of six transferor Companies, whereas Rs. 3,87,70,000 was said to have been received from eight companies on account of direct share applicatio....
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....s undisclosed income in the hands of the assessee. 9. The revenue is aggrieved with such order of ld. CIT(A) and has now come in appeal before us and has taken following grounds of appeal:- "(i) That on the facts and in the circumstances of the case the order, appeal order containing 293 pages passed by the ld. CIT(A) is perverse and given without proper application of mind being passed on 20-2-2003 within one day from the last date fixed for hearing on 19-2-2003. (ii) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in passing the order without giving reasonable opportunity to the Department to represent the case. (iii) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in passing the order on 20-2-2003 when he himself had allowed the time for filing the remand report by 24-2-2003. (iv) That on the facts and in the circumstances of the case in the order passed by the ld. CIT(A) there was violation of principle of natural justice inasmuch as the lime given to the department to submit the Remand Report was suo motu curtailed by him from 24-2-2003 to 19-2-2003. (v) That on the facts and in the circumstances of th....
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....eciating the facts and mere entries in the regular books of accounts do not exclude the transaction being considered as undisclosed income to be computed under sections 158B(b) and 158BB of the Income-tax Act. (xiii) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that the share application money amounting to Rs. 3,87,70,000 from eight companies during the financial year 1998-99 cannot be taxed as undisclosed income without discussing anything about the merits of addition. (xiv) That the ld. CIT(A) erred in observing that the share application money amounting to Rs. 3,87,70,000 from eight companies during the financial year 1998-99 cannot be taxed as undisclosed income as the transactions concerned were revealed in the regular books of account without appreciating the facts that mere entries in the regular books of account do not exclude the transaction being considered as undisclosed income to be computed under sections 158B(b) and 158BB of the Income-tax Act. (xv) That on the facts and in the circumstances of the case, the ld. CAT(A) erred in holding that the share application money amounting to Rs. 2,50,00,000 from five companies ....
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....efore the date of search. (xxiii) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that the Assessing Officer had examined issue of raising share capital of Rs. 3,87,70,000 received during the financial year 1998-99 from the eight companies in the regular assessment and no additions were made, it is implied that the share capital of Rs. 3,87,70,000 was found to be explained and genuine and no addition can be made treating the same amount as undisclosed income in the hands of the assessee-company. (xxiv) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that in absence of any material or evidence found during the course of search indicating that the share capital of raised from the 13 companies and amalgamation reserve cannot be taxed as undisclosed income. (xxv) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in deciding that no addition of share capital can be made in the block assessment in absence of any material or evidence found during the course of search pointing to share capital without appreciating the fact that the addition was made on the basis of evidence g....
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....D.R. contended that such companies were in fact used by the assessee as device to introduce black money in the business and such companies were in existence for the namesake only as they were in the total control of assessee-company and, therefore, the amount received from such companies on account of amalgamation reserve and share application money was rightly treated as undisclosed income of the assessee. The ld D.R. has further relied on the statement of witnesses i.e. Shri S.K. Tulsyan, K.K. Jajodia and Shri P.K. Jajodia recorded by the Assessing Officer wherein they have admitted that such companies were actually in control of the assessee-company and transactions between these companies and the assessee-company were not genuine as these do not involve any physical movement of shares, etc. The ld. D.R., however, fairly admitted that such witnesses could not be cross-examined by the assessee. 13. The ld. D.R. has further contended that even otherwise section 68 is applicable in this case as the assessee has not been able to prove regarding the identity, creditworthiness and genuineness of transactions with above 19 companies as held by the Hon'ble Calcutta High Court and rel....
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....d on mere suspicion and assumption which is not permissible in block assessment. It has been submitted by the ld. Counsel that not a single argument has been submitted by the ld D.R. that any of the income belonging to the assessee was unaccounted or undisclosed as no Bank account was found which was undisclosed and no undisclosed bullion or article was possessed by the assessee to justify the addition made by the Assessing Officer. 16. The ld. counsel has strongly relied on the definition of undisclosed income as given in section 158B(b) and section 158BB, which reads as under:- "Section 158B(b): 'Undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act for any expense deduction or allowance claimed under this Act which is found to be false". Section 158BB "158BB(1): The undisclosed income of ....
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.... and 2000-01, assessments of which were completed after the search and nothing wrong was found by the Department. Ld. D.R. further submitted that though provision of section 68 applies to the block assessment proceedings also but same is not applicable in the present case as all the details pertaining to such credit has duly been shown by the assessee in its regular return of income filed prior to the date of search. 19. The ld. counsel has also filed VIII Volume of paper book running into 1049 pages in support of his claim that all the nineteen companies, on account of which share amalgamation reserve was obtained, and share application money were received during the financial years 1998-99 and 1999-2000, were genuine and were assessed to tax well prior to the date of search. The ld. counsel vide the above VIII Volume of paper book has filed details of the order of Hon'ble High Court effecting such amalgamation of six companies with the assessee-company and details of application money received by it from thirteen various independent companies. He has also filed the certificate of incorporation of such companies issued by the Registrar of Companies with the name and address of ....
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....ted in the books of account and already presented before the Department and assessments have been completed then the same will be outside the scope of block assessment to be computed under special provisions of Chapter XIV-B of the Income-tax Act, 1961. 22. Concluding his argument, it has been submitted by the ld. counsel that the entire addition made by the Assessing Officer was based on presumption and assumption and without any material evidence on record and no addition was based upon the material and evidences found at the time of search and submitted that all the transactions, on the basis of which additions were made by Assessing Officer, had rather been disclosed by the assessee vide regular return of income well prior to the date of search and, therefore, the ld. CIT(A) was justified in deleting such addition. It has, therefore, been pleaded that the order of ld. CIT(A) be upheld. 23. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the case laws relied by both the parties and all the VIII Volume of paper book filed by the ld. counsel for the assessee. 24. The re....
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....side witnesses which cannot be made basis for the addition in the block assessment keeping in view the fact that all such companies from whom share application money was received and amalgamation reserve was created were existing income-tax payee and were filing return of income with the Department which were audited and nothing adverse was found during the course of search which could suggest that the above companies were actually benami companies of the assessee-company. 29. Apart from above, we find that so far as the amalgamation reserve of Rs. 5,47,42,677 is concerned, the same were created by the assessee by virtue of amalgamation of six companies vide order of the Hon'ble jurisdictional High Court dated 21-4-1998 w.e.f. 1-4-1997 and, therefore, there was no occasion for the revenue to treat such amalgamation reserve available to the assessee by virtue of the order of amalgamation by the Hon'ble High Court, as undisclosed income of the assessee. We have also considered the fact that all the six amalgamating companies were income-tax assessees and were duly incorporated by virtue of certificate issued by the Registrar of Companies. 30. So far as the share application mon....
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....me on the basis of evidences, material or record found at the time of search. Thus, the income which is not based on the basis of evidence or material found at the time of search, i.e. based merely on hypothesis, surmises, conjectures or estimate, cannot be brought to tax under this Chapter. The income which is not undisclosed, i.e. income has been duly disclosed in the assesee's books maintained in the regular course of business can also not be brought to tax under this Chapter. Even an asset or transaction which is duly entered in the books maintained by the assessee regularly and disclosed to the department can also not be regarded to be undisclosed income. The assessment under this Chapter shall be in addition to regular assessment and income assessed will not be included in regular assessment. 32. The Hon'ble Tribunal in its celebrated case of M.B. Eduljee Cassinath Sons has discussed the scope of block assessment under Chapter XIV after amendment in the definition of undisclosed income under sections 158B(b) and 158BB(1). The Bench in which one of us is a party has observed as under:- "26.2 We shall now see the scope of ambit of block assessment in the definition of 'un....
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.... under section 158B(b) seeks to cover any expense, deduction or allowance claimed by the assessee and found to be false. 26.3 The memorandum explaining the provisions of Finance Act, 2002 is contained in CBDT Circular No. 8 of 2002 dated 27th August, 2002, reported in 258 ITR 13-57. The relevant portion of the same are reproduced below- "6.1 Rationalisation of the provisions of Chapter XIV-B relating to block assessments in cases of search and requisition. 6.11 The existing provisions contained in Chapter XIV-B of the Income-tax Act provides for a single assessment of undisclosed income of 3 block period of six years in cases of search under section 132 or requisition under section 132A and lay down the manner in which such income is to be computed, and the interest or penalty which may be levied in certain circumstances. 6.12 The existing provisions of clause (b) of section 158B define undisclosed income to include income or property which has not been or would not have been disclosed for the purposes of the Act, and which is represented by any money, bullion, jewellery or other valuable article or thing, or by any entry in the books of account or other-document or any....
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....ess income. Genuine and bona fide claim though found not to be in accordance with the provisions of law/or debatable allowance, cannot be treated as undisclosed income. Thus, when in the course of search some material was found showing particular amount of expenditure which is less than what has been claimed in the books of account, the difference between two will constitute undisclosed income. Similarly when in the course of search it was found that an assessee which is allowance deduction, say, under section 80HH, was, in fact, not employing the minimum number of workers, thus the claim of deduction made was false, the deduction originally allowed would now be assessed as undisclosed income under the provisions of Chapter XIV-B. In the case of K.V. Abdul Nazer, the ITAT, Bombay Bench 'C' has held "even after the amendment, two conditions have to be satisfied, namely (1) that the expenses must be found to be false and (2) undisclosed income must be based on the evidence found during the search and/or other information or material available with Assessing Officer and relatable to the evidence found" Thus the income which has not been found on the basis of material or evidence fo....
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....be taxed in block assessment although the same featured in the regular books of account. When the loan creditor was an assessee and in whose assessment the loan advanced had been accepted by the revenue, the Assessing Officer was wrong in holding that the assessee was liable to pay tax on that loan money taken from that assessee. 36. In a recent judgment, Hon'ble Delhi High Court in case of CIT v. Vishal Aggarwal [2005] 147 Taxman 597 held that since no incriminating materials, documents or information found, a post-search enquiry conducted by Assessing Officer during the block assessment proceedings could not form the basis for making an addition. Since the post-search inquiry was unconnected with the information or material recovered during the search, it was held that at best the Assessing Officer could reopen the assessment under section 147 of the Act, but could not add the income under section 158BC thereof. 37. In case of Morarjee Gocaldas Spg. & Wvg. Co. Ltd. v. Dy. CIT [2005] 95 ITD 1 (Mum.)(TM), Hon'ble Third Member while deciding an identical issue as involved in the present case held that the assessment made under section 158BC was to be vacated, since it was base....