Income Tax Appellate Tribunal - Mumbai
First Global Stockbroking (P) Ltd. vs Assistant Commissioner Of Income Tax on 14 November, 2007
Equivalent citations: (2008)115TTJ(MUM)173
ORDER
Rajpal Yadav, J.M.
1. The assessee and Revenue are in cross appeals against the order of learned CIT(A), Central-II, Mumbai dt. 30th March, 2004 passed for the block period starting from 1st April, 1990 and ending on 23rd March, 2001. According to the assessee the assessment in this case is a classic example of fatuous exercise of unbridled power at the hand of executives to tame the media and its supporters, who otherwise have been insulated under the Constitution from interfering in their freedom at the hands of the executives. It was pointed out that assessment in this case is result of sting operation carried out by Tehalka.com of whom the assessee and other sister concerns were having shares at the relevant time, exhibiting irregularities in Defence Arms Deal. Before taking cognizance of the specific grievance and arguments of both the sides in seriatim let us take note of the brief facts.
Facts:
2. Both the learned Revenue authorities have narrated the facts in detail as their orders are running into 264 pages (AO's order) and 241 + 8 pages Annexure [CIT(A)'s order]. Shri Shankar Sharma and Smt. Devina Mehra are husband and wife, they are ex-employees of Citi Bank. After their resignation from the bank they turn to be share brokers. They incorporated the assessee on 27th Sept., 1994. They are directors and the main persons operating the business affairs of the assessee. The assessee is a flagship company in the group and the main business of the company is undertaking shares and stockbroking and arbitrage operations. The assessee company is member of both the premier stock exchanges of India. The facts emerging out from the assessment order are as under:
The business of the company has grown many folds in the last two years i.e., asst. yrs. 1998-99 and 1999-2000. The group has taken over a number of existing companies, in India and outside India. Shri Shankar Sharma has a ticket on London and New York stock exchanges. It has been alleged that Mr. Shankar Sharma, director of FGSBPL, has played a key role on both 2nd March and 13th March, when the market crashed.
The group has three overseas corporate bodies in USA, UK and Mauritius.
FGSBPL has following known associate concerns.
Name Nature of business (1) M/s First Global Finance (P) Ltd. corporate finance (2) M/s UD&MD Agencies (P) Ltd. share trading (3) M/s Virta Trade & Agencies (P) Ltd. share trading (4) M/s Vruddhi Confmvest (P) Ltd. sub-broking
(5) M/s Panchal Components & Appliances (P) Ltd. finance, brokerage, trading (6) M/s Top Gear Leasing & Finance (P) Ltd. financial services (7) M/s Buffalo Networks (P) Ltd. media company (8) M/s Techno Software Solution (P) Ltd. IT service provider (9) M/s Garma Trexim (P) Ltd.
(10) M/s Shreenath Commercial & Financial Services (P) Ltd.
Overseas companies:
(11) M/s First Global UK (P) Ltd. broking & share trading
(12) M/s First Global Mauritius Ltd. advisory services, trading
investment, asset management
(13) M/s First Global USA Ltd. share broking & trading
First Global Stock Broking (P) Ltd. has an equity capital of Rs. 8 crores, reserves of Rs. 1 lakh and unsecured loan of Rs. 29 lakhs as on 31st March, 1997. The company has earned brokerage/other income of Rs. 1.17 crores in the financial year 1996-97. The equity capital has remained unchanged with reserves increased to Rs. 1.48 crores. The brokerage receipts increased to Rs. 21.26 crores as on 31st March, 2000. This shows that business of the company has grown many folds in the last two years.
First Global Stock Broking (P) Ltd. has invested substantially in UD & MD Agencies (P) Ltd., which is the promoter of the web site www.Tehalka.com. The business of the company was taken over by Buffalo Networks (P) Ltd. as a going concern on 20th July, 2000. UD & MD Agencies (P) Ltd. was purchased by Shankar Sharma on 29th Feb., 2000 who is also one of the directors in Buffalo Networks (P) Ltd. having shareholding of 26 per cent (approx.) in the company.
Search and seizure action under Section 132--A search operation under Section 132(1) of the IT Act was conducted at various offices and residential premises of the 'First Global' Group on 23rd March, 2001. As a result of search and seizure action incriminating books and documents relating to unaccounted income and undisclosed transaction of 'First Global' Group were found and seized vide Panchnamas dt. 23rd March, 2001, 29th May, 2001 and 1st June, 2001 at ground and fourth floors, Crescent Chambers, Tamarind Lane, Fort Mumbai and vide Panchnama dt. 27th March, 2001 at the residential premises of the directors of the First Global Group, Shri Shankar Sharma and Smt. Devina Mehra at Flat No. 4, Scherzade Building, Off Arthur Bunder Road, Minu Desai Marg, Colaba, Mumbai and vide Panchnama dt. 17th April, 2001 at the New Delhi office of the First Global Stock Broking (P) Ltd. situated at 1st floor, 129/1, Pocket No. 40, Chittaranjan Park, New Delhi and the following books of accounts, documents were found and seized.
1(i) Panchnama dt. 23rd March, 2001
(a) Books of accounts/documents found and seized from the office of M/s First Global Stock Broking (P) Ltd. (FGSBPL) 2, Ground Floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai vide Panchnama dt. 23rd March, 2001.
(A) A-1 Loose paper file containing 118 pages (B) A-2 Loose paper file containing 71 pages (C) A-3 Loose paper file containing 171 pages (D) A-4 Pad containing 8 pages (E) A-5 Pad containing 3 pages (F) A-6 Pad containing 11 pages
(b) Books of accounts/documents CDs/floppies found and seized from the office of M/s First Global Stock Broking (P) Ltd. (FGSBPL), 2, 4th Floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai vide Panchnama dt. 23rd March, 2001.
(A) A-1 Loose paper file containing 109 pages (B) A-2 Loose paper file containing 102 pages (C) A-3 Loose paper file containing 125 pages (D) A-4 Loose paper file containing 88 pages (E) A-5 Loose paper file containing 159 pages (F) A-6 Black diary containing 94 pages (G) A-7 Black diary containing 203 pages (H) A-8 Diary containing 259 pages (I) A-9 Cello world red diary containing 19 pages (J) A-10 Red colour diary containing 113 pages (K) A-11 Yellow Spiral book containing 7 pages (L) A-12 Loose paper file containing 6 pages (M) A'O:' (i) 10 CDR on 24th March, 2001 1(ii) Panchnama dt. 29th May, 2001 Prohibitory order under Section 132(3) was passed and put on the steel cupboard and subsequently the prohibitory order was lifted on 28th May, 2001 and the Panchnama was drawn in respect of this premises i.e., 4th floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai on 29th May, 2001 affecting the following seizure:
(A) A-1 Loose paper file containing 129 pages (B) A-2 Bank book containing 18 pages (C) A-3 Bank book containing 13 pages (D) Annex. O Back up of servers, hard disks taken on 7 CDs 1(iii) Panchnama dt. 23rd March, 2001 of Khar office and Vashi office
(a) Books of accounts/documents/CDs/floppies found and seized from office of M/s First Global Stock Broking (P) Ltd. (FGSBPL), Vishnu Dham Building. 14th Road, Link Road, Khar, Mumbai vide Panchnama dt. 23rd March, 2001 A-1 Loose paper file containing 41 pages A-2 Loose paper file containing 191 pages, 1 CD
(b) Books of accounts/documents found and seized from office of M/s First Global Stock Broking (P) Ltd. (FGSBPL) 1st Floor, Ratnam Square Plot Nos. 38 and 39, Sector 19A, Vashi, Navi Mumbai vide Panchnama dt. 23rd March, 2001.
(A) Annex. 11 Loose paper file containing 119 pages (B) Annex. 01 Back up taken on 23 CDs (C) Annex. 02 5 floppies (D) Annex. 03 3 dummy computer servers (E) Annex. 04 computer back up (CDR)-15 CDs.
1(iv) Search at New Delhi office Panchnama dt. 17th April, 2001 Search was also conducted at the business premises of M/s First Global Stock Broking (P) Ltd. at 1st floor, 129/1, Pocket No. 40, Chittaranjan Park, New Delhi vide Panchnama dt. 17th April, 2001.
(A) AA-1 Bunch of loose paper containing 50 pages (B) Annex. O Inventory of locker key seized (the same has been returned back on 25th June, 2001) 1(v) Search at residentil premises of directors There was also a search at the residential premises of the assessee company's directors Shri Shankar Sharma and Devina Mehra at Flat No. 4, Scherzade Building, Off Arthur Bunder Road, Minn Desai Marg, Colaba, Mumbai on 23rd March, 2001. As no one was present and both the directors were out of India, in presence of the secretary of the building, the front door was sealed by placing prohibitory order under Section 132(3) which was lifted on 27th March, 2001 and the search was concluded on 27th March, 2001 and the following seizure was effected:
(A) A-1 Loose paper file containing 46 pages (B) Annex. O-Locker key bearing No. 545-loeker No. 551 standing in the name of M/s First Securities (operating by Shankar Sharma and Devina Mehra) -'C Wing, Nariman Point.
Further on 30th March, 2001 the locker was operated and the following seizure was effected from the locker:
(i) Books of accounts/documents found and seized from First Securities (Shankar Sharma and Devina Mehra), Mittal Court, 'C Wing, Nariman Point-locker No. 551, Mega Safe Deposit on 30th March, 2001.
(A) A-1 Loose paper file containing 2 pages (B) Jewellery worth Rs. 1,61,701 was seized.
1(vi) Panchnama dt. 1st June, 2001 The search was concluded on 1st June, 2001 and the last Panchnama was drawn on 1st June, 2001.
The authorisation for search under Section 132 was lastly executed on 1st June. 2001 and the last Panchnama drawn within the meaning of Section 158BE r/w Clause (a) to Expln. 2 was drawn on 1st June, 2001. No seizure was effected on that date.
2. Block return for the block period filed by the assessee Notice under Section 158BC was issued on 18th May, 2001 for furnishing the block return of the assessee within 30 days of the service of the notice. The notice was served on 22nd May. 2001. In response, the assessee has filed their reply vide letter dt. 31st May, 2001 received in the tapal of the then AO's tapal on 4th June, 2001 requesting Lo keep in abeyance the notice under Section 158BC till the search proceedings are duly completed. In this regard, it is to state that the search proceedings were finally concluded on 1st June, 2001 as discussed in para 1 of this block assessment order. Hence there was no need to keep the notice in abeyance as no search proceedings were pending. Moreover there is no provision in IT Act to keep the notice under Section 158BC in abeyance.
Finally the assessee has filed their block return on 5th Oct., 2001 declaring undisclosed income of Rs. nil. The details of the block return filed are as under:
__________________________________________________________________________________ | 12. Details of total income and loss of the previous years comprised in the block| | period (see part- 11 of return) | |__________________________________________________________________________________| |Previous | Asst. | Including undisclosed | Returned/assessed | | year | yr. | income | | |(Chronol-| | | | |ogically)| |__________________________________|___________________________| | | | Total income | losses | Total income | Losses | | | | (Rs.) | (Rs.) | (Rs.) | (Rs.) | |_________|_________|_______________________|__________|__________________|________| |1st | - | - | - | - | - | |earliest | | | | | | |_________|_________|_______________________|__________|__________________|________| |2nd | - | - | - | - | - | |_________|_________|_______________________|__________|__________________|________| |3rd | - | - | - | - | - | |_________|_________|_______________________|__________|__________________|________| |4th | - | - | - | - | - | |_________|_________|_______________________|__________|__________________|________| |5th | 1995-96 | 86,328 | - | 86,328 | - | |_________|_________|_______________________|__________|__________________|________| |6th | - | 21,032 | - | 21,032 | - | |_________|_________|_______________________|__________|__________________|________| |7th | - | 41,634 | - | 41,634 | - | |_________|_________|_______________________|__________|__________________|________| |8th | - | 14,056,800 | - | 14,056,800 | - | |_________|_________|_______________________|__________|__________________|________| |9th | - | 116,53,820 | - | 116,53,820 | - | |_________|_________|_______________________|__________|__________________|________| |10th | - | 11,83,69,990 | - | 11,83,69,990 | - | |_________|_________|_______________________|__________|__________________|________| |11th | 2001-02 | 2,56,49,510 | - | 2,56,49,510 | - | |(Latest) | | | | | | |_________|_________|_______________________|__________|__________________|________| |12th Total undisc- | Rs. Nil| | | | |losed income of | | | | | |the block period | | | | | |___________________|_______________________|__________|__________________|________| |13th Tax on | Rs. Nil| | | | |disclosed income | | | | | |___________________|_______________________|__________|__________________|________| |14th Surcharge | Rs. Nil| | | | |___________________|_______________________|__________|__________________|________| |15th Tax payable | (14+15)=Rs. Nil| | | | |___________________|_______________________|__________|__________________|________|
3. After hearing the assessee and on analysis of the seized material learned AO framed the assessment order on 13th June, 2003 and determined the undisclosed income of the assessee for the block period as under:
18 Subject to the above remarks, the undisclosed income for the block period is computed under Section 158BB of the Act as under:
______________________________________________________________________________ | Asst. yr. | Returned | Assessed income | Undisclosed income | | | income | including | computed under Section | | | | Undisclosed income | 158BB of the Act | |____________|________________|_______________________|________________________| | 1995-96 | 86,328 | 1,14,170 | 28,242 | | 1996-97 | 21,032 | 3,94,058 | 3,73,026 | | 1997-98 | 41,634 | 6,49,734 | 6,08,100 | | 1998-99 | 1,40,56,800 | 1,76,79,665 | 36,22,865 | | 1999-00 | 1,16,53,820 | 1,48,93,089 | 32,39,267 | | 2000-01 | 11,83,69,990 | 1,22,43,85,448 | 11,06,01,548 | | 2001-02 | 2,56,49,510 | 5,73,32,86,971 | 5,70,89,10,491 | | 1.4.2000 to| | | | | 23.3.2001 | | | | | (broken | | | | | period) | | | | |____________|________________|_______________________|________________________| | Total undi-| 169179114 | 69926765 | 682279749 | | sclosed | | | | |income | | | | |____________|________________|_______________________|________________________| The total undisclosed income in the block period, therefore, is determined at Rs. 68,22,79,74,491 which is rounded off to Rs. 68,22,79,74,500 in terms of Section 288A of the IT Act.
Assessed under Section 158BC. Issued demand notice and challan accordingly. Charged tax @ 60 per cent of the total undisclosed income in terms of the provisions of Section 113 and charged surcharge @ 13 per cent, which comes to Rs. 4,62,58,56,670. Give credit for taxes of Rs. nil paid. Charged interest under Section 158BFA(1) for five 4 months. In view of the difference between the undisclosed income determined and the one disclosed in the return for the block period, penalty proceedings in terms of proviso to Section 158BFA (2) are initiated.
This order is passed with the previous approval of the Addl. CIT, Central Range 10, conveyed vide his letter No. Addl. CIT/CR.IO/Approval B.A./2003-04/45 dt. 12th June, 2003 in terms of the provisions under Section 158BG of the IT Act, 1961.
4. Dissatisfied with the additions assessee carried the matter in appeal before learned CIT(A). The learned CIT(A) again reappreciated the facts and circumstances in detail and deleted the addition of Rs. 3,11,31,47,932. He confirmed the addition to the extent of Rs. 3,71,83,66,012. The assessee is challenging the confirmation of the addition in its appeal, whereas the Revenue is impugning the deletion of additions.
5. First we take up the appeal of the assessee. The assessee has raised additional grounds of appeal and the same read as under:
1. That on the facts and in the circumstances of the case the learned CIT(A) erred in not holding that the order under Section 158BC made by the AO was bad in law and nullity being based upon proceedings under Section 158BC initiated by the AO on 18th May, 2001 while the search under Section 132(1), as per the Department's own admission was being conducted and had not been concluded.
2. Without prejudice to above contentions, the learned CIT(A) erred in not holding that the order under Section 158BC made on 13th June, 2003 was barred by limitation of time on account of the search having been conducted on or before 18th May, 2001.
6. In order to seek admission of the additional grounds learned Counsel for the assessee submitted that in general assessee has already taken ground Nos. 1B.1 and 1B.2 to the effect that block assessment is null and void as much as it is time barred and also search was initiated without fulfilling the requisite conditions of initiation of search. Thus according to the learned Counsel for the assessee facts are already on the record. No new facts are to be brought on record for adjudicating this ground of appeal. The assessee is only raising a specific ground on those facts. The learned Counsel for the assessee submitted that these grounds go to the root of the validity of the assessment order and also legal ground. For buttressing his contention he relied upon the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CAT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC). On the strength of this decision he submitted that an assessee can take a legal ground for the first time before the Tribunal even if the same was not agitated during the course of proceedings before the authorities below, provided that all facts necessary for disposal of the legal claim are already on record and no fresh investigation of fact is called for. Referring to the facts he drew our attention towards p. 5 of the assessment order wherein the AO has narrated the execution of the last Panchnama dt. 1st June, 2001. Similarly he drew our attention to the finding of learned CIT(A) recorded in para 9.3 of the impugned order, wherein the learned CIT(A) adjudicated the issue regarding framing of assessment order within the limitation. The learned Counsel for the assessee has submitted that a search under Section 132 of the Act was conducted at the various office premises of the assessee and residential premises of the directors on 23rd March, 2001. According to the Revenue the search concluded on 1st June, 2001 and, therefore, assessment framed on 13th June, 2003 is within the limitation provided under Section 158BE(b) of the Act. The learned Counsel for the assessee submitted that without prejudice to his other legal submission which he is going to raise in respect of ground Nos. 1B.1 and IB.2 in this additional ground the limited prayer of the assessee is that a notice under Section 158BC is required to be served on the conclusion of the search. In this case notice under Section 158BC was issued on 18th May, 2001 and at that time search was in session. According to the Department itself it was concluded on 1st June, 2001. He emphasized that if the Section 158BC notice emanating from the search concluded earlier then assessment is time barred. If the search is to be considered as concluded on 1st June, 2001 the notice issued upon assessee on 18th May, 2001 is legally void and no assessment on the basis of such notice is sustainable. While taking us through Section 158BC he emphasized that expression "has been conducted" is employed in Section 158BC. It is in the present perfect tense. It denotes that act of search should have been completed before issuance of the notice. In other words, Section 158BC is attracted or comes into play after the search under Section 132 is over or completed. Elaborating his point he pointed out that had the intention of the legislature being to empower the AO to invoke the provision of Section 158BC even before the completion of the search, the provision would have been worded as where any search "has been initiated" or is to be conducted and not has been conducted. For buttressing his contention he relied upon the judgment of Hon'ble Supreme Court in the case of ITO v. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) and contended that the bad initiation of proceedings would render the consequential order also bad in law. In the case before the Hon'ble Supreme Court the facts were that AO recorded the reasons in writing for reopening the assessment as mandatory requirement under Section 148(2) of the IT Act, but those reasons did not meet the requirement of law and, therefore, the Hon'ble Supreme Court has quashed the assessment order. Similarly the assessment order in the present case deserves to be quashed.
7. Shri Kotangale, the learned standing counsel for the Revenue while controverting the contention of learned Counsel for the assessee submitted that expression "has been conducted" does not contemplate that something should have been completed. It only denotes that if any search has been conducted then notice under Section 158BC is to be issued upon the assessee. Before conclusion of the search such notice can be issued. On the strength of Hon'ble jurisdictional High Court decision in the case of Shirish Madhukar Dalui v. Asstt. CAT (2006) 203 CTR (Bom) 621 : (2006) 287 ITR 242 (Bom), he submitted that issuance of notice under Section 158BC is procedural requirement, otherwise Section 158BA bestows jurisdiction on the AO for assessing him for the block period and Section 158BB provides the computation of the income for the block period. Some irregularity in issuance of notice under Section 158BC should not be construed as resulting the assessment order invalid. With a view to propound the meaning of expression "has been" or "has" he drew our attention towards such meanings available in the Judicial Dictionary, 13th Edition, K.J. Iyer.
8. We have duly considered the rival contentions and gone through the record carefully. For adjudicating the controversy whether notice under Section 158BC inviting an assessee to file return for the block period should be served after conclusion of the search or it can be served during the continuation of the search and what would be the consequences if that notice is issued before the conclusion of the search, the limited facts required are the date of notice and the date on which the search was concluded. All other aspects are purely question of law. The Hon'ble Supreme Court in the case of National Thermal Power Co. v. CIT (supra) has held that if the Tribunal is only required to consider a question of law arising from the facts which are on the record of the assessment proceedings, such question should be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of assessee. Thus the parties can be permitted to raise such question for the first time before the Tribunal even in the second appellate stage. In the present case all the basic facts are on record. It is purely a question of law. The assessee has already taken the issue in general grounds of appeal but raised the issue specifically by way of additional ground. Thus following the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. (supra) we permit the assessee to take up this issue by way of an additional ground and the same is admitted for adjudication on merit.
9. Section 158BC has a direct bearing on the controversy, therefore, it is salutary upon us to take note of this section. This section reads as under:
158BC Procedure for block assessment--Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 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 requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days;
(ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under Clause (i) of Sub-section (1) of Section 142, setting forth his total income including the undisclosed income for the block period:
Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this chapter:
Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return;
(b) the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 (Section 144 and Section 145) shall, so far as may be, apply;
(c) the AO, on determination of the undisclosed income of the block period in accordance with this chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;
(d) the assets seized under Section 132 or requisitioned under Section 132A shall be dealt with in accordance with the provisions of Section 132B.
The emphasis of learned Counsel for the assessee in his argument was that in the opening line of section the expression is "where any search has been conducted under Section 132".... The AO shall serve a notice to such persons requiring him to furnish the return within such time not being less than 15 days. According to the assessee the expression "has been conducted" means that notice has to be served upon the assessee after conclusion of the search whereas according to the learned Counsel for the Revenue such notice can even be served when the search was in session.
10. Before we embark upon an enquiry as to what would be the correct construction of the expression "where any search has been conducted", we think it appropriate' to bear in mind certain basic principles of interpretation of statute. The first basic rule is that if the words of the statute are in themselves precise and unambiguous , then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves do alone in such cases best declare the intent of the law giver. Thus it is cardinal principle of construction of statute that the Court must give effect to the each word used in the statute. It would not be open to the Courts to adopt a hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. The Hon'ble Supreme Court in the case of Ashwani Kumar Ghosh v. Arvind Bose 1953 SCR 1 had held that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. Similarly in the case of Qubec Raily Light & Power v. Vandary AIR 1920 PC 181 it had been observed that the legislature is deemed not to waste its words or to say anything in vain a construction which attributes redundancy to the legislature will not be accepted except for compelling reasons. Thus it is not permissible to add words to a statute which are not there. Similarly not to ignore any words used in the provision. The emphasis of learned Counsel for the Revenue was that expression "has been" is to be understood in continuing process or it can be ignored. In view of the above discussion, it is difficult for us to concur with the submissions of the learned Counsel for the Revenue. The expression "has been conducted" simply cannot be ignored. The expression "has been" is explained in the dictionary The Law lexicon by Shri Ramanatha Aiyer, which reads as under:
'Has been', 'When not followed by a participle is the present perfect tense of to be' and accordingly indicate that the state of thing has existed and may be (but not necessarily is) continuing and therefore even advocates who are not actively practicing on the date of appointment are eligible to be appointed as Judge provided he is qualified' Chandra Mohan v. State of U.P. AIR 1969 All 230 at 234 (Constitution of India, Article 233) Whether the expression 'has been' denotes transaction prior to the enactment of the statute in question or a transaction after coming into force of the statute, has to be gathered from the provision, in which the expression 'has been' occurs or from the other provision, in which the expression 'lias been' occurs or from the other provisions of the statute. Secretary R.T.A v. D.P. Sharma AIR 1989 SC 509, 513 [Karnataka Contract Carriages (Acquisition) Act (1976), Section 3(g)] 'Hathbeen' construed as 'is' in the sense of indicating a continuous fact (Ex.p. Kinning, 10 QB 730).
Has been previously issued. The words 'has been previously issued' do not merely connote the issue of a notification before the Bihar Act was passed but include all notifications made prior to or anterior to the first publication of a notice of an improvement scheme under Section 46. Patna Improvement Trust v. Lakshmi Devi AIR 1963 SC 1077, 1088 [Bihar Town Planning and Improvement Trust Act (35 of 1951), Sch. Clause 2(1)] Has for at least ten years been advocate of High Court. The expression 'has for at least ten years been advocate of High Court' does not mean that the advocate should actually practice for ten years in High Court. V.G. Row v. N. Krishnaswami AIR 1967 Mad 345, 346 [Constitution of India. Article 217(2)(b)] 'Has notice'. The words "has notice" mean has knowledge or information and not has received a formal notice. (17 CWN 440=16 CW 131= 151C 430) Has served on the committee, 'Has served' means that the act of serving has already been completed or it was done and may be (but not necessarily is) continuing. Harbhajan Singh v. State of Punjab AIR 1973 P&H 31, 33 [Punjab Co-operative Societies Act (25 of 1961) Section 26B(2)] Similar is the explanation in the Judicial Dictionary, 13th Edition by Shri K.G. Iyer. Thus in the light of the above explained meaning of expression "has been" we are of the view that expression "has been" used in the present perfect tense, which denotes that certain activities must have been completed before the issuance of a notice. The simple reading of the provision postulates that a search must have come to an end before the issuance of the notice under Section 158BC.
11. The next question for our adjudication is what will be the consequences if such notice has been issued prior to conclusion of the search. The learned Counsel for the Revenue emphasized that it is procedural irregularity which is curable. Section 158BC lays down the procedure and not bestows jurisdiction in the AO. He has relied vipon the decision of Hon'ble jurisdictional High Court in the case of Shirish Madhukar Dalvi (supra).
12. In order to adjudicate this question we have to understand the method of determining undisclosed income in a block assessment and scope of block assessment. Sections 158B(b) and 158BB provide the definition of undisclosed income and its computation for the block period. These provisions read as under:
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 purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false.
158BB Computation of undisclosed income of the block period.--(1) The undisclosed income 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 this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, 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,-
(a) where assessments under Section 143 or Section 144 or Section 147 have been concluded (prior to the date of commencement of the search or the date of requisition), on the basis of such assessments;
(b) where returns of income have been filed under Section 139 (or in response to a notice issued under Sub-section (1) of Section 142 or Section 148) but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns;
(c) where the due date for filing a return of income has expired, but no return of income has been filed,-
(A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period:
(ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under Clause (c);
(d) where the previous year has not ended or the date of filing the return of income under Sub-section (1) of Section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years;
(e) where any order of settlement has been made under Sub-section (4) of Section 245D, on the basis of such order;
(f) where an assessment of undisclosed income had been made earlier under Clause (c) of Section 158BC, on the basis of such assessment.
Explanation.--For the purposes of determination of undisclosed income,-
(a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of this Act without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under Sub-section (2) of Section 32:
Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under Sub-section (2)of Section 32;
(b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner:
Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement;
(c) assessment under Section 143 includes determination of income under Sub-section (1) or Sub-section (1B) of Section 143.
(2) In computing the undisclosed income of the block period, the provisions of Sections 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.
(3) The burden of proving to the satisfaction of the AO that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee.
(4) For the purpose of assessment under this chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under Sub-section of Section 32 shall not be set off against the undisclosed income determined in the block assessment under this chapter, but may be carried forward for being set off in the regular assessments.
13. Expounding the scope of the block assessment and inclusion of undisclosed income, the Hon'ble Delhi High Court in the case of CIT v. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del) has observed that the special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the AO. Evidence found as a result of search is clearly relatable to Sections 132 and 132A. Similarly Hon'ble Rajasthan High Court has explained the scope of block assessment and determination of undisclosed income in CIT v. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83 : (2001) 248 ITR 350 (Raj). The following observations are worth to note:
However, under the scheme of the provisions for block assessment, it is apparent that it relates to assessment of 'undisclosed income' of the assessee excluding the income subjected to regular assessment in pursuance of the returns filed by the assessee for such period. It is also apparent from the perusal of Section 158BB that the returns are also required to be filed in pursuance of the notice under Section 158BC(a) and the assessment is to be framed on that basis in the light of material that has come into possession of the assessing authority during the course of search which is the foundation of the proceedings. That being so, the correctness or otherwise of the returns filed in pursuance of the notice under Section 158BC(a) has to be examined with reference to the material in the possession of the assessing authority having nexus to assessment of 'undisclosed income' which is with the assessing authority, and premise of such proceedings. If the returns filed by the assessee do not accord with the materials which are already in the possession of the authority, it can be estimated to the best judgment by the assessing authority on the basis of the material in his possession. However, the assessing authority is not conferred with power to make estimation of income de hors the material in his possession, while making regular assessment order under Section 158BB. It has to be borne in mind that proceedings under Sections 158BB and 158BC are that of undisclosed income. Therefore, the proceeding carries with it a presumption that returns filed in pursuance of such proceedings are of undisclosed income and not necessarily in accordance with the books of accounts. Its verification has to be searched outside regular books with reference to material that has been found during search. That makes it imperative to adjudicate the return with reference to material that has come in the possession of the assessing authority during the course of search proceedings and on which basis the belief about the existence of undisclosed income is entertained by the assessing authority inviting invocation of Sections 158BB and 158BC. The enquiry into the correctness of such returns with reference to material so found has nexus with the object of the special provisions, to adjudicate whether the assessee is still honestly disclosing his income correctly after incriminating material has been found in the possession of the Revenue authority before such returns can be rejected and thereafter to frame assessment estimating the income liable to tax to the best of judgment on the basis of the material that is available with him.
The Hon'ble Bombay High Court had also an occasion to examine the concept of block assessment in CIT v. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom), wherein it was found that an assessee had constructed a bungalow and incurred an expense of Rs. 4,16,000. Thereafter search was carried out and the AO referred the valuation of the bungalow to the Departmental Valuer who determined the value of the property at Rs. 6,66,000 and the AO added the difference to the income of the assessee as undisclosed income. The Tribunal has deleted the addition on the ground that addition was not made on the basis of the material gathered during the course of search, rather all these informations were available to the AO at the time of regular assessment. He obtained the DVO's report subsequent to the regular assessment, therefore, addition is made beyond the scope of block assessment. The Hon'ble jurisdictional High Court upheld the deletion made by the Tribunal.
14. The Tribunal Mumbai Bench in the case of Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai) has made extremely lucid enunciation of law on the subject and we cannot do better than to extract some of the observations made in that decision;
23. There are adequate safeguards present against any possible misuse of the provision of search and seizure. Chapter XTV-B was introduced in order to make procedure of assessment of search and for requisition cases more effective. Under the provisions of this chapter the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995 be assessed separately as income of that block of ten previous years. The provision was introduced to streamline the procedure concerning the search matters. It is abundantly clear from the perusal of the prescription of Section 158BA that within the pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income. Such undisclosed income must come as a result of search. This section does not provide a licence to the Revenue for making roving enquiries connected with the completed assessment. It is beyond the power of the AO to review the assessments completed unless some direct evidence comes to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. Without such evidence or material the AO is not empowered to draw any presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is rule of law under which Courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such inference is disproved by other evidence. We find that the scheme of Chapter XIV-B does not give power to the Revenue to draw the presumption in regard to the undisclosed income. The AO could proceed on the basis of material detected at the time of search and the evidence gathered. Under Section 132(4), the authorised officer may, during the course of 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 exantination may thereafter be used in evidence in any proceeding under the Act.
From the above it is clear that undisclosed income in block assessment has to be determined on the basis of the seized material. Thus for assessing an assessee for a block period there should be a search conducted under Section 132. The search only would infuse jurisdiction to an AO over the assessee. The next step for the AO is to serve a notice upon the assessee under Section 158BC inviting it for furnishing the return. When the return is being furnished the AO was required to issue notice under Section 142(2) or under Section 143 etc. and compute the undisclosed income of the assessee. If such return was not filed then on the basis of the seized material AO would compute the undisclosed income for the block period.
15. The scheme of the block assessment indicates that assessee has to compute its undisclosed income for the purpose of filing a block return on the basis of seized material. If he failed to compute the true undisclosed income on the basis of the seized material and the AO determined a different undisclosed income than the one disclosed by the assesses, the assessee would be liable to penalty under Section 158BFA(2).
16. The second proviso appended with Section 158BC(1) prohibits an assessee to revise its return filed for the block period. Thus in response to a notice under Section 158BC if an assessee had filed the return of income, it cannot revise that return.
17. Section 158BFA(1) contemplates that if the assessee furnishes the return after expiry of the time-limit provided in the notice issued under Section 158BC(1) then assessee shall be liable to pay simple interest @ 1 per cent of the tax on undisclosed income.
18. The above chronological procedural requirement contemplates that an assessee (i) has to compute the undisclosed income on the basis of the seized material for filing the return in response to notice under Section 158BC, (ii) if the assessee failed to compute true undisclosed income and the AO determined a different undisclosed income than the one returned by the assessee, the assessee will be exposed to penalty, (iii) if the assessee failed to file the return within the time-limit provided in the notice issued under Section 158BC, an interest under Section 158BFA(1) would be imposed upon the assessee. In the present case such interest has been imposed upon the assessee of more than Rs. 4 crores per month, (iv) Section 158BE provides the limitation for passing an assessment order under Section 158BC or 158BD. The limitation has to be counted from the execution of the last authorized warrant of search. If a notice under Section 158BC is issued during the pendency of search and assessment proceedings begin the Department would execute such warrant of search according to the will and that can enhance the limitation for passing an assessment order. It can be seen from the present assessment that notice under Section 158BC was issued on 18th May, 2001, search was concluded in the first week of June and the AO got the enhanced limitation of roughly 20 days. In a given case it can be extended even for a longer period, (v) according to second proviso to Section 158BC assessee cannot revise a return furnished in response to a notice under Section 158BC.
19. It is true that Section 158BC in a way is a procedural section and some irregularity if happens in following that procedure it may be curable as provided in Section 292B of the IT Act. But if the procedure provides some serious consequences then it is difficult to construe those procedural conditions as directory. In the present case it is to be held that if any notice for inviting block return is to be given that can only be given after conclusion of the search. From the consequences provided supra, in our humble view, it emerges out that this procedure is mandatory procedure and violation to this would result in the vitiation of the proceedings.
20. Issuance of a notice prior to conclusion of a search leads to an unanalogous (sic-anomalous) situation. The search is still continuing. The search party is yet to find out the incriminating material. How an assessee can anticipate that Department will be able to lay its hand on such material. The computation of undisclosed income is absolutely impractical unless the search is concluded and ultimate seized material is supplied to an assessee. One can understand if assessee has a right to revise the return, in that case a preliminary return can be filed in compliance of the notice received under Section 158BC, but no such right is available in filing a block return. This is because an assessee has to compute the true undisclosed income on the basis of the seized material. Once everything is given to an assessee and it computed its income, the assessee cannot be allowed to say that he has wrongly computed the income. This may be the basic reason for not permitting an assessee to file a revised return. This is also the reason for levy of penalty under Section 158BFA(2).
21. The learned Counsel for the Revenue put emphasis on the decision of the Hon'ble jurisdictional High Court in the case of Shirish Madhukar Dalvi (supra). The facts in that case are that a search under Section 132 of the Act was conducted at the premises of the assessee. A notice under Section 158BC was served upon the assessee. This notice did not mention the correct provision of the Act. It did not mention the correct block period for which the return was required to file. It did not give 15 days clear notice. After this notice the AO wrote one more letter on 17th Sept., 1998. The assessee wrote a letter to the AO on 28th Sept., 1998, denied the receipt of notice dt. 6th July, 1998, however, sought extension of time and ultimately filed his return for the block period on 2nd Nov., 1998. The AO passed the block assessment on 30th June, 2000 and the learned CIT(A) decided the appeal of the assessee on 28th July, 2000. The further appeal of the assessee to the Tribunal was also decided on 28th July, 2003.
22. The contention of the assessee before the High Court was that valid service of legal and valid notice under Section 158BC is a condition precedent for assumption of jurisdiction to assess the return for block period. The issue and service of notice under Section 158BC is not a procedural requirement. It was submitted that the provisions of Sections 148 and 158BC are synonymous and pari materia. Thus according to assessee the AO has no jurisdiction to assume jurisdiction on an invalid notice. In the above background of facts Hon'ble High Court has considered the issue and observed that jurisdiction to an AO bestowed from the initiation of the search over an assessee. He exercised such jurisdiction once that search is concluded. Thus the basic jurisdiction infused in the AO by virtue of the provision of Section 158BA and not flows from Section 158BC. The Hon'ble Court has observed that Section 158BC is procedural section and it cannot be equated with Section 148, which is a substantive section. The learned Counsel for the assessee appearing before the Hon'ble Court had expressed that no specific prejudice was suffered by the assessee. In the present case assessee had prayed to the AO for keeping the notice in abeyance because search was not completed and it could not file the return before the conclusion of the search because seized material has to be supplied to the assessee for computation of true undisclosed income. The learned AO refused to keep the notice in abeyance and observed there is no provision in the IT Act to keep the notice under Section 158BC in abeyance. An interest of more than Rs. 4 crores per month is being levied upon the assessee. When assessee cannot file its return for want of seized material how it can be penalized for interest. This is a specific prejudice caused to the assessee. The penalty under Section 158BFA(2) has also been initiated. In the case of Shirlsh Madukar Dalvi (supra) the emphasis was on the illegality of the service of notice. In that background Hon'ble High Court has considered the irregularity as procedural irregularity and a curable one.
23. There is no dispute that the decisions of the Hon'ble jurisdictional High Court are binding upon the Tribunal. The Tribunal cannot take a different opinion contrary to the law laid down by the Hon'ble High Court. On careful reading of the Hon'ble High Court decision in the case of Shirish Madhukar Dalvi (supra) we find that notice in that case was also served before the conclusion of the search. Though the arguments raised before us were not raised before the Hon'ble High Court, nor the prejudice caused to the present assessee was demonstrated in that case, rather, it was expressed that no prejudice has been caused to the assessee. However, being subordinate authority we cannot afford to ignore the binding decision of Hon'ble jurisdictional High Court in the garb of above arguments or reasonings. The fact is that notice under Section 158BC was issued in that case before the conclusion of search and Hon'ble High Court has considered it as procedural irregularity only. Thus respectfully following the decision of the Hon'ble High Court we hold that it is procedural irregularity and not fatal to the assessment order. However, in view of the above discussion we direct the AO not to levy interest upon the assessee under Section 158BFA(1). In the result, in principle we reject the first additional ground raised by the assessee but subject to the direction that AO shall not charge interest under Section 158BFA(1). As far as the second additional ground is concerned the assessment order has been framed within a period of two years from the end of the month in which last warrant of authorization has been executed. The learned Counsel for the assessee at the time of hearing on the strength of Hon'ble High Court decision in the case of CIT v. Mrs. Sandhya P. Naik (2002) 178 CTR (Bom) 448 : (2002) 253 ITR 534 (Bom) has submitted that the Department has unnecessarily put the prohibitory orders. It could have recovered everything on 23rd and 24th of March, 2001, but only with a view to gain time Department did not choose to seize the documents and put prohibitory orders. This prohibitory order was lifted on 29th May, 2001, some loose papers, files, two bank books, certain hard disk, back up of server were seized. The Department had put the prohibitory order again, which was lifted on 1st June, 2001. His emphasis is on the point that nothing was to be seized after 23rd and 24th March, 2001. The Department could easily execute the search warrant on those days and seized the material, hence, it should be held that search was concluded in March itself and accordingly assessment order be held as time barred. On the other hand, learned Counsel for the Revenue relied upon the order of AO. On due consideration of all these arguments we are of the view that it is for the search party to decide how to seize the material and when to put prohibitory order. It is very difficult for judicial forum to judge the practical difficulty that arose at the time of search. According to the Department it had recovered certain hard disk, back up of server and certain materials, it could not be analyzed on the day of search. It may be difficult for the search party to decide whether these documents were required to be seized or not, hence, they put the prohibitory order for analysis of those documents on later date. We do not find any merit in this contention of learned Counsel for the assessee; the assessment has been framed within two years from the end of the month in which last warrant of authorization has been executed. Hence, this ground is also rejected.
24. Now we take up the other grounds of appeal raised by the assessee. In the memorandum of appeal the assessee has taken certain legal grounds which are preliminary grounds of appeal as well as the grounds challenging the additions on merit. In the legal grounds the first preliminary ground is that learned CIT(A) has erred in upholding the initiation of search. The assessee has submitted that there was no material with the Department which can authorize the authorized officer to initiate such proceedings against the assessee under Section 132 of the Act. According to the learned Counsel for the assessee the requisite conditions for initiating search were not available in this case.
25. We have duly considered the contention of learned Counsel for the assessee and gone through the written submission filed by him. The Special Bench of the Tribunal in the case of Promain Ltd. v. Dy. CIT (2005) 95 TTJ (Del)(SB) 825 : (2005) 95 ITD 489 (Del)(SD) has held that the Tribunal cannot consider and decide the issue relating to validity of search. The Tribunal has also observed that there is no provision for filing an appeal before the Tribunal against warrant of authorization issued under Section 132(1) of the Act. It further laid down even impliedly while considering the issue, on merit Tribunal cannot go into the issue whether search was initiated by the authorized officer after satisfying himself with the circumstances which can goad him for initiation of the search proceedings. Thus, in view of the Tribunal's order this preliminary ground is rejected.
Ground No. 1B
26. In this preliminary ground of appeal the assessee has pleaded that assessment is time barred. This ground is interlinked with the additional ground of appeal No. 2 raised by the assessee. Hence, in view of our decision on that additional ground of appeal this ground is rejected.
Ground No. 1C
27. In this ground of appeal the assessee has pleaded that learned CIT(A) has erred in upholding that AO was justified in passing the order under Section 144r/w Section 158BC.
28. The learned Counsel for the assessee while impugning the order of learned CIT(A) contended that AO has framed the assessment order in gross violation of principles of natural justice. The AO has made certain additions only on the basis of inference that assessee failed to comply with the notices. On the strength of Hon'ble Bombay High Court decision in the case of Gopal Das T. Agarwal v. CIT 1978 CTR (Bom) 43 : (1978) 113 ITR 447 (Bom), he contended that before drawing an inference AO ought to have evaluated the circumstances. If something has been confronted to the assessee and there cannot be any explanation of that document or the notings then how assessee can give explanation. Thus AO ought to have not drawn the adverse inference simply for the reason that no explanation is forthcoming from the assessee. The learned Counsel for the Revenue, on the other hand, relied upon the orders of Revenue authorities below.
29. We have duly considered the rival contentions and gone through the record carefully. The assessee has placed on record the list of events in tabulation form, i.e. the date, letter issued by the AO and how it has been complied with by the assessee. This list is available at pp. 15 and 16 of the paper book as well as at pp. 323 and 324 of the detailed paper book in compilation No. 2. We find that assessee had responded to almost all the letters written by the AO and cleared its point of view. The impact of alleged non compliance of notices on the part of assessee would be considered by us while dealing with those issues on merit, because it is an issue which requires appreciation of evidence and the facts and the circumstances. If the document in itself is clear and leads to an authority to some conclusion then that document can be relied upon straight away, unless clarified by the assessee. But if it required some corroboration for arriving at firm conclusion and there is no explanation with the assessee then merely on non giving of explanation, addition cannot be made because the document in itself is not leading to a firm conclusion. The positive circumstances should come from the AO. In such situation the safe procedure is to ignore such documents. This ground in itself does not require any specific finding.
30. Ground No. ID : In this ground the assessee has pleaded that assessment has been made in violation of principles of natural justice. It is again a ground which is in the form of argument and can be considered at the relevant point of time while deciding the particular issue. From the list of events appended by the assessee we found that almost more than 40 notices/letters were issued by the AO starting from 17th May, 2002 upto passing of the assessment order. Therefore, in a way opportunity of hearing was granted to the assessee. On a particular issue how much effective such opportunity was, we would consider while dealing that issue.
31. Ground No. IE : In this ground of appeal the assessee has submitted that addition in the block assessment can only be made on the basis of the evidence found during course of search and on information available or relatable to such evidence i.e. found in the course of search. The assessee has expounded the meaning of undisclosed income and scope of the block assessment.
32. Though we have already noticed the scope of block assessment while dealing with the additional ground of appeal raised by the assessee. In support of this ground the assessee has relied upon certain more judgments such as CIT v. Shamlal Balram Gurbani (2001) 168 CTR (Bom) 506 : (2001) 249 ITR 501 (Bom), Rainbow Distillers (P) Ltd. v. Dy. CIT (2000) 69 TTJ (Nag) 713 : (2000) 75 ITD 103 (Nag), Bhagwati Prasad Kedia v. CIT (2001) 167 CTR (Cal) 336 : (2001) 248 ITR 562 (Cal), Mange Ram Mittal v. Asstt. CIT (2006) 105 TTJ (Del)(SB) 594 : (2006) 103 ITD 389 (Del)(SB) and Morarjee Goculdas Spg. & Wvg. Co. Ltd. v. Dy. CIT (2005) 98 TTJ (Mumbai)(TM) 201 : (2005) 95 ITD I (Mumbai)(TM). We have already considered this issue and it is an undisputed position that undisclosed income for the block assessment is to be determined on the basis of material found during the course of search. Apart from the decisions we have cited supra, there are series of decisions on this issue. While dealing with the issue on merit we would bear in mind whether addition is based on the seized material found during the search or not. The learned CIT(A) while dealing with this issue at pp. 33 and 34 considered the scope of applicability of Section 145. On due consideration of this finding we find that learned CIT(A) has misconstrued and misinterpreted the scope of block assessment. The learned CIT(A) while giving reference to Board circular observed that if an entry is not indicative of undisclosed income the entire transaction which would complete those transactions in a logical manner has to be considered so as to determine the undisclosed income. The fallacy in the approach of learned CIT(A) is that entries though are part of regular books of account and declared in the regular return but those can be reappreciated in the block assessment. In our view this construction of scope of block assessment is not in the line of authoritative pronouncement noted supra. If any income is hidden in those entries then find out in the scrutiny assessment. Of course, if during the search some material is found indicating that those entries are false and have been manipulated in a way to conceal something then it will be open for the AO to re-appreciate those entries in the light of seized material and find out the true impact. The reference on the Tribunal order in the case of C.J. Shah & Co. v. Asstt. CIT (2001) 118 Taxman 183 (Mumbai)(Mag) at p. 35 of the impugned order is also misplaced.
33. Ground No. IF: In this ground assessee has pleaded that assessment has been made on the basis of the retracted statement. Again it is not a particular issue, rather an argument. It is an issue relating to evaluation of evidence and we will consider it while dealing the issue on merit.
34. Ground No. 1G : In this ground of appeal assessee has submitted that learned CIT(A) has passed the order without application of mind.' In our opinion it is a general ground of appeal, which requires no specific finding because while evaluating the particular addition we are going to consider whether it is sustainable or not and how learned CIT(A) has upheld the addition.
35. Ground No. 1H : In this ground of appeal assessee has pleaded that learned CIT(A) has erred in placing undue reliance on the allegation that there was no compliance by the assessee to the special audit proceedings under Section 142(2A) of the Act.
36. The learned Counsel for the assessee while impugning the order of learned CIT(A) has submitted that entire proceedings under Section 142(2A) are fraught, hence it should be ignored as nullity in the eyes of law. On the strength of Hon'ble Supreme Court decision in the case of Rajesh Kumar v. Dy. CIT (2006) 206 CTR (SC) 175 : (2006) 287 ITR 91 (SC). he submitted that before initiating proceedings under Section 142(2A) an opportunity of hearing to the assessee is mandatory. This opportunity has not been given to the assessee, hence, no cognizance of this special audit report could be taken by the learned CIT(A). The learned Counsel for the assessee further contended that assessee had specifically asked for a hearing to be given before the decision in respect of special audit was finalized. But no such opportunity was granted to the assessee. The documents found and seized by the authorized officers were not handed over to the assessee in complete form. He also emphasized that only loose papers, which according to the assessee were waste papers were found and seized. How those loose papers can be considered as books of accounts of the assessee and can be got audited by special auditor. According to him the loose papers do not make any sense and, therefore, by no stretch of imagination amenable to any audit. The whole aspect of audit is in relation to books of accounts regularly maintained. In the last he pointed out that this very issue was examined by the 'A' Bench of Tribunal, Mumbai in the case of Mrs. Devina Mehra, i.e. one of the directors of the assessee. The Tribunal has held that cognizance of this report cannot be taken. On the point whether loose papers can be equated with regular books and can they be got audited by a special auditor, the learned Counsel relied upon the Tribunal order in the case of Bajrang Textiles v. Dy. CIT (2004) 83 TTJ (Jd) 566. According to the assessee the Tribunal in the case of Bajrang Textiles (supra) has examined this issue and held that loose papers cannot be equated with regular books and cannot be put for special audit. The learned Counsel for the Revenue on the other hand, submitted that the Hon'ble Supreme Court in a subsequent order has doubted the correctness of the decision in the case of Rajesh Kumar v. Dy. CIT (supra) and referred this issue for reconsideration by a Larger Bench. He made a reference to the order of the Hon'ble Supreme Court in the case of Sahara India (Firm) v. CIT (2007) 209 CTR (SC) 20 : (2007) 289 ITR 473 (SC). On the strength of this decision he contended that once Hon'ble Supreme Court itself doubted the correctness of the earlier decision and referred it to a Larger Bench for consideration earlier decision should not be relied upon for arriving at a conclusion that in absence of opportunity of hearing no special auditor can be appointed. Consequently the special auditor's report is required to be ignored. The learned Counsel for the assessee in the rebuttal submitted that the decision in the case of Rajesh Kumar (supra) still holds field. It has not been overruled, hence, it is binding on all subordinate authorities. By merely a reference being made or constitution of Larger Bench does not amount that earlier position has lost its value of being binding precedent.
37. We have duly considered the rival contentions and gone through the record carefully. There is no dispute that special auditor was appointed without providing opportunity of hearing to the assessee. In view of the Hon'ble Supreme Court decision in the case of Rajesh Kumar (supra) such auditor can only be appointed after providing opportunity of hearing to the assessee. As far as contention of learned Counsel for the Revenue is concerned it is true that in subsequent order the Hon'ble Supreme Court has made a reference for constitution of Larger Bench but we are of the view that unless this issue is being considered by the Larger Bench and the decision rendered in the case of Rajesh Kumar (supra) is overruled, the ratio of law laid down in the case of Rajesh Kumar (supra) has the value of binding precedent upon us. Therefore, the report of the special auditor obtained in violation of the opportunity of hearing cannot be used against the assessee. Apart from the above, we find that a similar issue was considered by the Tribunal in the individual case of director Mrs. Devina Mehra and the Tribunal has concluded in the following words:
In the instant case of the assessee, the case of the Revenue actually is that the assessee had not co-operated with the special auditor appointed under Section 142(2A). In the light of the decision of Hon'ble Supreme Court in the case of Rajesh Kumar v. Dy. CIT (supra), the appointment of the special auditor itself does not survive.
38. There is one more fold of this issue. The Department has not got audited the regular books of accounts. The Department got audited the loose papers found during the course of search. Whether loose paper amounts to books of accounts or not and can be subject to audit is an issue which has risen before the Tribunal's Jodhpur Bench in the case of Bajrang Textiles v. Dy. CIT (supra) and the Tribunal has considered the issue exhaustively and propounded the following principle:
(i) Reference to special auditor under Section 142(2A) can only be made when the accounts of the assessee are of complex nature and interest of the Revenue is involved.
(ii) Simply because the accounts/documents are voluminous in nature, they cannot be said to be complex.
(iii) In block assessment, undisclosed income is to be determined on the basis of assets or documents found during the course of search, which is not reflected in the regular books of accounts. So there is no requirement of audit of books of account.
(iv) It is a fact that determination of undisclosed income is a difficult task which has to be judged after examination of the regular records of the assessee and items which appeared to be concealed income of the assessee. But that task cannot be said to make the books of accounts complex.
(v) The AO cannot make a reference to the auditor to prepare books of account on the basis of seized records or to compute the undisclosed income of the different years.
(vi) This indirectly means that the assessment was got completed through a special auditor. The objective behind directing special audit is to be audit the accounts and not to prepare the assessment.
(vii) The purpose of audit of financial statement is to enable the auditor to express opinion whether the financial statements are prepared in all material respects in accordance with the identified financial reporting frame or other criteria. The work 'audit' does not refer to preparation and compilation of books of account.
(viii) In case the reference made by the AO for special audit is without proper jurisdiction and bad in law, the assessment so made cannot be said to be within time by resorting to the special audit procedures.
In view of the above discussion we are of the opinion that special audit report cannot be used against the assessee and no adverse inference can be drawn on the ground that the assessee failed to co-operate with the auditor.
39. We now take the ground of appeal challenging the specific additions. The first ground of appeal is 'A'. In this ground of appeal assessee has taken three sub-grounds i.e. A-1, A-2 and A-3. In A-1 the prayer made by the assessee is general, wherein it is challenging the confirmation of the addition of Rs. 3,70,99,14,512. Since we are going to take up break up of this total amount in the other grounds of appeal, therefore, this ground is being treated as general ground of appeal challenging the total addition, which in itself does not require any adjudication. Similarly in ground No. A-2 the assessee has raised an argument only, wherein it has been submitted that learned CIT(A) has erred in confirming the addition on the basis of certain loose papers and failed to appreciate the fact that though the papers were seized at the time of search but it was not recorded from where these were seized and there were few hundred employees working for the assessee, the assessee was not able to identify the notings therein, in the absence of proper details mentioned on the seized paper for identification. Thus it is a specific argument which in a way has been raised in disputing the addition.
40. A-3 is a specific ground of appeal wherein assessee is challenging an addition of Rs. 2,90,57,444. This addition has been considered by the learned CIT(A) at p. 97 of the impugned order while dealing with ground Nos. 27 to 43 of the assessee's appeal raised before him. The learned first appellate authority in para No. 16.1 has taken cognizance of the finding recorded by the learned AO. The finding recorded by the learned AO at pp. 185 to 196 while making this addition has been reproduced. Similarly learned first appellate authority has reproduced the written submission made before him and then rejected those arguments by recording a finding in para 16.3. The discussion of the AO, submissions of the assessee before the learned CIT(A) and finding of the learned CIT(A) recorded in paras 16.1, 16.2 and 16.3 of the impugned order read as under:
16.1 The findings of the learned AO leading to the addition have been discussed at page Nos. 185 to 196 of the assessment order which are as under:
A., Annex. A-1 seized from ground floor, Fort office as per Panchnama dt. 23rd March, 2001 reads as follows : (The relevant pages are enclosed herewith Annex. A pp. 1 to 20).
Page No. 50. The extract of the page No. 50 and p. 54 are handwritten pages, and are reproduced as under. The same is annexed herewith as Annex. A-1 Goushal 1999-2000 Loss-Forties-Virta Trade 2,56,20,479.81 Loss - Arch Finance -Virta Trade 98,03,225 Loss -Forties -Devina Mehra 89,08,120 ______________ 4,43,31,824.81 ______________ Payment Forties 2,40,00,000.00 M.P. 1,50,00,000 Payment- Forties 8,22,493.00 Pushma Inv.- FGS 41,70,788 Payment - Forties 16,20,497.81 Arch - Virta 15,46,775 Payment - Arch 1,13,50,000.00 Arch - FGS 1,13,50,000 Arch - FGS 36,034 Tele Fin. -FGS 10,00,000 Bal 46,89,375.81 _______________ ______________ 3,77,92, 972.81 3,77,92,972.81 _______________ ______________ M.P 1,50,00,000 Pushma 31/3 41,70,788 The reverse side of p. 50 contains:
Ashok
Profit Bajrang 77,02,081.75
NITS 22,57,182.12
Friends 32,62,824.84
Sunbeam Y2K 10,15,000.00
______________
Total 1,42,37,088.71
4,43,31,824.81
______________
5,85,68,913.52
Sahara 1,48,20,356.93
______________
7,33,89,270.42
While explaining contents of the backside of the p. 50 Shri Neeraj Khanna, chartered accountant, Chief Finance Officer of M/s FGSBPL stated in reply to question No. 8 vide his statement dt. 23rd March, 2001 as under:
Question No. 8-I am showing pp. 50, 54 and 117 of Annex. A-1, kindly go through the contents and explain.
Ans : "Backside of the p. 50 has details of certain adjustments in profit made in M/s FGSBPL. These adjustments are by way of transferring of profit of M/s FGSBPL into certain outside concerns like M/s Bajrang Plywood Ltd., M/s NITS Infotech, M/s Friends, M/s Sunbeam Y2K etc. The total quantum of such transactions by which profits have been passed on to these entities is to the tune of Rs. 1,42,37,088. Moreover, there is more such concern by the name of Sahara India Ltd. to whom profit entry of Rs. 1,48,20,356 has been passed on. The result in cash so generated total amount of Rs. 2,90,57,444 has been received by FGSBPL. This has been done through one Mr. Ashok. The other pages reflect the transactions of our company.
The above explanation given by Shri Neeraj Khanna, chartered accountant who was in charge of accounts of the company throws light on the modus operandi adopted by the assessee for generating unaccounted income and massive tax evasion running into crores of rupees by reducing taxable profits in the hands of group concerns/individuals of the assessee group.
(1) Shree Bajrang Ispat & Plywood Ltd. (SBIPL) : In this case, Shree Bajrang Ispat & Plywood Ltd. has done share transactions with M/s FGSBPL, broker during the period 1st April, 1999 to 31st March, 2000. During the course of search, it was found that FGSBPL has transferred a profit of Rs. 77,02,081 to SBIPL. On verification of the transactions, it was revealed that these transactions are squared up i.e. where there is no intention of actually giving or taking delivery of the shares, and transactions are settled only by payment of differences.
Initially, a survey under Section 133A was conducted at the office of Shree Bajrang Ispat & Plywood Ltd., A-24/25 , Satyam Commercial Complex, M.G. Road, Ghatkopar (East), Mumbai for limited purpose to verify the share transactions entered by M/s FGSBPL with Shree Bajrang Ispat & Plywood Ltd. and to see whether an amount of Rs. 77,02,081 profit of First Global Stock Broking was transferred to the latter. Subsequently, on finding incriminating documents, the survey was converted into search under Section 132(1) of IT Act, 1961 on 2nd May, 2001. The documentary evidences found at the office premises of M/s Shree Bajrang Ispat & Plywood Ltd. establish the fact that they had received cheque totalling to Rs. 77,02,081 from M/s First Global Stock Broking (P) Ltd. on various dates and in turn gave back the said amount of Rs. 77,02,081 in cash to them. This fact was explained in detail by Mr. Atul Chitalia who is looking after the affairs of M/s Shree Bajrang Ispat & Plywood Ltd. at Mumbai and he is a power of attorney holder of Shree Bajrang Ispat & Plywood Ltd. Shri Atul Chitalia confirmed having given Rs. 77,02,081 in cash to First Global Stock Broking (P) Ltd. vide his letter dt. 14th May, 2001 which is placed on record. This also confirms the statement of Shri Neeraj Khanna, Chief Executive Officer of First Global, who has stated having transferred profits and received back the same amount in cash in response to Q. Nos. 8, 12 and 13 in his statement on the date of search i.e., 23rd March, 2001.
The notebooks found and seized at the office premises of Shree Bajrang Ispat & Plywood (P) Ltd. at Mumbai office which are maintained by Shri Atul Chitalia, are written in his own handwriting. This cash bock is relating to the period from April 2000 to March 2001.
Mr. Atul Chitalia on the day of search at the office premises of Shree Bajrang Ispat & Plywood (P) Ltd. at Ghatkopar (East), Mumbai had deposed in his statement dt. 2nd May, 2001 that the company is in manufacture and sale of plywood having head office at New Timber Market, Fafirdit, Raipur, Madhya Pradesh, having registered office at A-24/25, Satyam Commercial Complex, Ghatkopar (East) and factory at House No. 12-1-23, Maharani Petha, Apsara Road, Vishakapatnam. He said that no books of account of the company except a bank account No. S-598 in Dena Bank, Ghatkopar branch is maintained at this office. Further, he has stated that the company is assessed to tax in GIR No. AAACB9485B with ITO Ward 2(1), Raipur and regularly filing return of income. The return of income of SBIPL shows huge carry forward business losses and unabsorbed depreciation. Therefore there is no tax effect in their case, even of some fictitious profits are admitted. The main persons of this company are Goel brothers (Anand Goel, who sits at Raipur). The head office of the company is also located at Raipur. The main activity carried out from Mumbai office is collection of sale proceeds, deposit the same in bank and remit the proceeds by way of DDs to Raipur.
While explaining the content of the diary, Mr. Atul Chitalia in his statement dt. 2nd May, 2001 has explained that the cash transactions recorded in the diary pertain to the period 1st April, 2000 to 31st March, 2001. The right side of page indicates the cash payments and left side indicates cash receipts. He has also explained the method of writing the figures as Rs. 10 lacs is written as 10000=00 and said the other entries of cash receipts and payments are to be read in the same fashion.
When he was confronted with the seized material regarding the nature of transaction with First Global Stock Broking (P) Ltd. #2, 4th Floor, Crescent Chambers, Fort, Mumbai, he has stated that he is not aware of the type of transaction with the company but explained that at the instruction of the directors, Shri Anand Goel or other directors he has delivered cash immediately, equivalent to the amount of the cheque received from First Global Stock Broking (P) Ltd., the entries of which were recorded in pp. 17, 21, 25 and 27 of notebooks (Annex. A. 1) represent cash payment to them.
___________________________________________________________________________ | Pg. | Amount as per | Particulars of noting | Date | Remark | | No. | noting | | | | |_______|________________|_________________________|__________|_____________| | 17 | 10,000-00 | Maheshwari for cheque | 14.7.2000|First Global | | | | | |Cheque | |_______|________________|_________________________|__________|_____________| | 17 | 5,000-00 | Maheshwari - cheque | 15.7.2000|First Global | | | | | |Cheque | |_______|________________|_________________________|__________|_____________| | 17 | 5,000-00 | Maheshwari - Account | 15.7.2000|First Globale| | | | | |Cheque | |_______|________________|_________________________|__________|_____________| | 21 | 5,000-00 | First Global Cheque | 3.8.2000 | | |_______|________________|_________________________|__________|_____________| | 21 | 5,000-00 | First Global Cheque | 5.8.2000 | | |_______|________________|_________________________|__________|_____________| | 21 | 5,000-00 | First Global Cheque | | | |_______|________________|_________________________|__________|_____________| | 21 | 5,000-00 | First Global Cheque | 14.8.2000| | |_______|________________|_________________________|__________|_____________| | 21 | 5,000-00 | First Global Cheque | 17.8.2000| | |_______|________________|_________________________|__________|_____________| | 21 | 7,000-00 | First Global Cheque | 29.8.2000| | |_______|________________|_________________________|__________|_____________| | 25 | 4,000-00 | First Global Cheque | 31.8.2000| | |_______|________________|_________________________|__________|_____________| | 25 | 4,500-00 | First Global Cheque | 4.9.2000 | | |_______|________________|_________________________|__________|_____________| | 25 | 1,500-00 | First Global Cheque | 5.9.2000 | | |_______|________________|_________________________|__________|_____________| | 25 | 5,000-00 | First Global Cheque | 22.9.2000| | |_______|________________|_________________________|__________|_____________| | 25 | 5,000-00 | First Global Cheque | 25.9.2000| | |_______|________________|_________________________|__________|_____________| | 27 | 5,000-00 | First Global Cheque | 25.9.2000| | |_______|________________|_________________________|__________|_____________| | 22 | 20-81 | First Global Cheque |25.9.2000 | | |_______|________________|_________________________|__________|_____________| | |77,02,081.75 | | | | |_______|________________|_________________________|__________|_____________| He clarified that a total amount of Rs. 77, 02,081 on the dates mentioned above was paid in cash to the representatives of First Global Stock Broking (P) Ltd., against receipt of cheque. This was done as per the direction of the directors. He was to get confirmation over phone but no acknowledgment of receipt was received from FGSBPL. When asked about the source of such cash payment made to the FGSBPL he said that he used to give the cash from the day to day cash collection and money received from different parties. He stated that the cheques so received from FGSBPL are deposited in Dena Bank and proceeds of the same are sent to Raipur by way of demand drafts. He once again clarified the entries written by him in the notebooks ( marked as A-1 and A-2 ) as the amount written in the notebook is to be multiplied by 100 to arrive at the actual amount e.g. Rs. 4 lacs is written as 4000=00.
The mechanism employed by FGSBPL (broker) for transferring the profit is briefly discussed below:
(i) The broker (FGSBPL) has to submit the daily list of transactions executed in the stock exchange. In this case, the broker has made fictitious entries by altering existing entries in the books by merely changing the name of the client. On scrutiny of records available with the stock exchange, e.g. daily lists of transactions, it was found that the original transaction has taken place in the stock exchange under the client code 2721 that was subsequently changed to Shree Bajrang Ispat & Plywood (P) Ltd. in the books. In some cases, it was observed that the client code was left blank in the stock exchange records. These transactions were subsequently transferred to Shree Bajrang Ispat & Plywood (P) Ltd. This shows that the assessee initially conducts transaction in the stock exchange on its own behalf earning profit and subsequently these transactions are shown to have taken place on behalf of the client. All the transactions are only squared up transactions, i.e. where there is no actual giving or taking delivery of shares, and transactions are settled only by payment of difference. The net effect is that the profit which has genuinely been earned by the assessee on certain transactions is subsequently transferred to SBIPL. The client code is left blank in certain cases in spite of regulatory authority, SEBI's directions vide Circular No. SMDRP/Policy /CIR-33/2000 dt. 27th July, 2000 that all stock exchanges were required to modify their software within three months from the date of the circular, in such a way that client code becomes mandatory at the broker level. The assessee has neither proved the genuineness of these transactions before the auditor appointed under Section 142(2A) nor before the AO during the course of block assessment proceedings. Therefore, it is clear that the assessee company has passed on their profit to M/s Shree Bajrang Ispat & Plywood (P) Ltd. to the tune of Rs. 77,02,081. Therefore Rs. 77,02,081 is treated as undisclosed income of the assessee M/s First Global Stock Broking (P) Ltd.
(2) Sahara India Financial Corporation Ltd. (SIFCL) During the financial year 2000-01 M/s First Global Stock Broking (P) Ltd., broker had shown certain share transactions and transferred profit to the tune of Rs. 1,48,20,356.90 to M/s Sahara India Financial Corporation Ltd. (SIFCL) and created bogus loss in the books.
The mechanism employed by the broker for transferring profits:
Similar to the nature of transactions as explained in the case M/s Shree Bajrang Ispat & Plywood (P) Ltd., the broker has altered existing entries in the books by merely changing the name of the client. On verification of stock exchange records i.e. daily list of transactions, it was found that the particular transactions originally have taken place in the stock exchange under the client code 3000. Later on, the broker changed the name of the client to Sahara India Financial Corporation Ltd. in his books. Further , all the transactions are squared up i.e there was no actual giving and taking delivery of shares, and transactions are settled only by payment of difference. Thus, the assessee initially conducts transactions in the stock exchange on its own behalf profit and subsequently these transactions are shown to have taken place on behalf of his client, SIFCL. The net effect is that the profit which has genuinely been earned by the assessee on certain transactions is subsequently transferred to SIFCL. It was also observed that the client code is left blank in certain cases in spite of regulatory authority, SEBI's directions vide Ciruclar No. MDRP/POLICY/CIR-33/2000 dt. 27th July, 2000 that all stock exchanges were required to modify their software within three months from the date of the circular, in such a way that client code becomes mandatory at the broker level.
M/s SIFCL submitted details vide its letter dt. 18th May, 2001 in response to this office letter dt. 8th May, 2001 wherein it is stated that they had purchased and sold shares through M/s FGSBPL but did not take or give any delivery of shares as all the transactions were squared up in the same settlement. The details of payments received during the financial year 2000-01 from M/s FGSBL are as follows:
____________________________________________________________________ | Date | Cheque | Amount | Bank details | | | No. | | | |__________|_________|___________|___________________________________| |7/02/2001 | 715253 | 10,00,000 | Bank of Punjab, Fort Branch | |8/02/2001 | 123631 | 10,00,000 | Bank of India, Stock Exc. Branch | |14/02/2001| 123633 | 20,00,000 | Bank of India, Stock Exc. Branch | |28/02/2001| 548064 | 20,00,000 | HDFC Bank, Fort Branch | |8/03/2001 | 123662 | 20,00,000 | Bank of India, Stock Exc. Branch | | | |___________| | | | Total | 80,00,000 | | |__________|_________|___________|___________________________________| An amount of Rs. 66,53,894 out of total sum of Rs. 1,48,20,356 was outstanding for payment by M/s FGSBPL as on 31st March, 2001. M/s Sahara India Financial Corporation Ltd. is assessed to income-tax in PAN No. AADCS8698C, Dy. CIT, Central Circle-1, Lucknow, UP.
The documents recovered in the course of search which are relevant to M/s SIFCL, are discussed in detail as under:
Pages 7 and 9 of notepad marked as Annex. A/6, seized from the office premises of M/s FGSBPL, Ground Floor, Crescent Building, Fort, Mumbai, on 23rd March, 2001, show the entries relating to Sahara on the following dates:
3.02.2001 Sahara 10 6.02.2001 Sahara 10 14.02.2001 Sahara 20 26.02.2001 Sahara 20 7.07.2001 Sahara 20 As discussed above, the notepads marked as A/5 and A/6 are in the handwriting of Mr. Neeraj Khanna, Chief Finance Officer of the company and these documents are maintained by him and written by him. While explaining the contents of these seized materials, he has replied in answer to question No. 8 on the date of search i.e. on 23rd March, 2001, that these are details of certain adjustments in profit made in the account of M/s FGSBPL. These adjustments are by way of transferring of profits of M/s FGSBPL into certain outside concerns like M/s Sahara India Ltd. to whom profit entry of Rs. 1,48,20,356 has been passed on and received in cash through one Mr. Ashok as per statement of Shri Neeraj Khanna dt. 23rd March, 2001.
Further, while explaining entries appearing on page Nos. 2 and 3 of A/5 Shri Neeraj Khanna has clarified the method of writing figures in the notepad in detail in answer to question No. 13 in his statement dt. 23rd March, 2001 that the figures are written in lakhs. For example Rs. 10 lakhs is written as 10.00. Further he clarified that the first column (in page No. 2 of Annex. A/5) indicates the date of receipt. The second column denotes the name of the party to whom cheque has been issued. The third column indicates the amount of cheque in lakhs and the fourth column indicates the cash received out of the said cheque after deducting the commission/discounting charges. In this case the entries on page No. 2 of A/5 seized material are mentioned as under:
-1- -2- -3- -4- 3.2.2001 Sahara 10.00 9.625 6.2.2001 Sahara 10.00 9.625 14.2.2001 Sahara 20.00 19.250 26.2.2001 Sahara 20.00 19.250 7.3.2001 Sahara 20.00 19.250
From the instant explanation offered by Shri Neerej Khanna, Chief Executive Officer in respect of the above entries on the day of search, it is very clear that the manipulation of transactions is in the form of First Global transferring out its profits and then recovering it in cash an equivalent amount of cheque from the parties to whom the cheques were issued on account of fictitious share transactions after deduction of commission/discounting charges. The date and amount paid to Sahara by First Global approximately matches with the date and amount received in cash from Sahara. The amount so received was used for various purposes as mentioned in page Nos. 8 and 10 of Annex. A/5. This establishes the fact that First Global transferred its own profits with a view to reduce profits and payment of tax. On verification of the seized material (page Nos. 6 and 8 of Annex. A/6 seized from the office premises of FGSBPL) further indicates the total commission paid to Sahara for arranging the accommodating entries totalling to Rs. 3 lacs on 23rd Feb., 2001, 28th Feb., 2001 and 7th March, 2001--Rs. 75,000, Rs. 1,50,000 and 75,000 respectively.
Sahara India Financial Corporation Ltd. vide its letter dt. 18th May, 2001 has confirmed these facts in paras 4 and 5 of the letter which are reproduced as under:
4. Our purchases through M/s First Global Stock Broking (P) Ltd. did not result in any delivery as the transactions were squared of within the same settlement.
5. Our sales through M/s First Global Stock Broking (P) Ltd. did not result in any delivery as the transactions were squared of within the same settlement.
Therefore the same is added as the undisclosed income for the asst. yr. 2001-02 for the broken period. (Copy of seized paper, copy of letter of Sahara and extract taken from file received from NSE M 1295099 is annexed herewith as Annexures.
(b) Sahara (Pages 7 and 9, Annex. A-6, ground floor) Rs. 1,48,20,356 (Rs. 66,53,894 is outstanding payable FGSBPL) The assessee has neither proved the genuineness of these transactions before the auditor appointed under Section 142(2A) nor before the AO during the course of block assessment proceedings. Therefore, it is clear that the assessee company has passed on their profit to M/s Sahara India Financial Corporation Ltd. to the tune of Rs. 1,48,20,356. Therefore Rs. 1,48,20,356 is treated as undisclosed income of the assessee M/s First Global Stock Broking (P) Ltd.
(3) NITs So/tech Ltd. (NSL):
As discussed above, in the cases of SBIPL and SIFCL, the same mechanism of transferring of profits is being adopted by the broker and in this case too. The NSL has done share transactions with M/s FGSBPL during the period 1st April, 1999 to 31st March, 2000. During the course of investigation, it was found that FGSBPL has transferred a profit of Rs. 22,57,182 to NSL. And the said amount was shown as outstanding payable to the client as on 31st March, 2000 in the books of M/s FGSBPL. On verification of the transactions, it was found that these transactions have not resulted in any delivery of shares and all the transactions are squared up transactions in the same settlement. The fictitious entries are made by altering existing entries in the books by merely changing the name of the client. In some transactions the client code was left blank. Thus, the assessee initially conducts transactions in the stock exchange earning profit and subsequently these transactions are shown to have taken place on behalf of his client, NSL. The net effect is that the profit which has genuinely been earned by the assessee on certain transactions is subsequently transferred to NSL. The client code is left blank in certain cases in spite of regulatory authority, SEBI's directions vide Circular No. SMDRP/POLICY/CIR-33/2000 dt. 27th July, 2000 that all stock exchanges were required to modify their software within three months from the date of the circular, in such a way that client code becomes mandatory at the broker level.
Analysis of seized material, marked as Annex. A/5 seized from the office premises at ground floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai-1 shows the following entries against NITs Softech Ltd.
NITs 20,00,000 (refer p. 11 of Annex. -A/5)
6-2-2001 2,57,000 (refer p. 9 of Annex. -A/5)
__________
Total 22,57,000
__________
On verification of ledger account of M/s NSL in the books of FGSBPL the assessee had made payments in the financial year 2000-01, on 21st July, 2000, 21st July, 2000 and 2nd Feb., 2001 for Rs. 10,00,000, Rs. 10,00,000 and Rs. 2,57,000 respectively. While explaining the contents of the seized material, Shri Neeraj Khanna, Chief Finance Officer has explained in detail on the day of search in reply to question Nos. 8, 12 and 13 stating an equivalent amount of cheque given by FGSBPL has been received in cash and the same cash was used for various purposes as mentioned in page Nos. 8 and 10 of Annex. A/5. It clearly establishes that the transactions are fictitious.
The assessee has neither proved the genuineness of these transactions before the auditor appointed under Section 142(2A) nor before the AO during the course of block assessment proceedings. Therefore, it is clear that the assessee company has passed on their profit to M/s NSL to the tune of Rs. 22,57,182. Therefore Rs. 22,57,182 is treated as undisclosed income of the assessee M/s First Global Stock Broking (P) Ltd.
(4) Friends Portfolio (P) Ltd., Delhi (FPPL):
In this case, FPPL has done share transactions with M/s FGSBPL ( broker) during the period 1st April, 1999 to 31st March, 2000. During the course of investigation, it was found that FGSBPL has transferred a profit of Rs. 32,62,824 to FPPL. On verification of the transactions, it revealed that these transactions are squared up i.e. where there is no intention of actually giving or taking delivery of the shares, and transactions are settled only by payment of differences. Most of the transactions resulted in profit. The profit has been tranferred to Friends Portfolio (P) Ltd. by altering the existing client code in the books of the broker.
Further, analysis of seized material, marked as Annex. A/5 seized from the office premises at ground floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai-1 shows the following entries against Friends Portfolio (P) Ltd. (FPPL):
Friends 20,00,000 (refer p. 11 of Annex. A/5)
21-2-2001 7,63,000 (refer p. 9 of Annex. A/ 5)
12-1-2001 5,00,000 (refer p. 9 of Annex. A/ 5)
__________
Total 32,63,000
__________
On verification of ledger account of M/s FPPL in the books of FGSBPL the assessee had made payments in the financial year 2000-01, on 26th July, 2000, 28th July, 2000, 12th Jan., 2001 and 20th Jan., 2001 for Rs. 10,00,000, Rs. 10,00,000, Rs. 5,00,000 and Rs. 7,64,000 respectively. While explaining the contents of the seized material, Shri Neeraj Khanna, CFO has explained in detail on the day of search in reply to the question Nos. 8, 12, and 13 stating an equivalent amount of cheque given by FGSBPL has been received in cash which was used for various purposes as mentioned on page Nos. 8 and 10 of Annex. A/5. It clearly establishes the transactions are fictitious and collusive, done with a motive to evade tax.
The assessee has neither proved the genuiheness of these transactions before the auditor appointed under Section 142(2A) nor before the AO during the course of block assessment proceedings. Therefore, it is clear that the assessee company has passed on their profit to M/s Friends Portfolio (P) Ltd. to the tune of Rs. 32,62,825. Therefore Rs. 32,62,825 is treated as undisclosed income of the assessee M/s First Global Stock Broking (P) Ltd.
(5) Sunbeam Infotech Ltd. (SIL):
An amount of Rs. 10,15,000 was debited to P&L a/c of First Global Stock Broking (P) Ltd., on account of expenses of Y2K compliance in the year 1999-2000. It was stated that Sunbeam Infotech Ltd. has undertaken certain work relating to solution of software upgradation for Y2K compliance. On verification of details, it was found that the bills for Rs. 9,75,000 and Rs. 40,000 were raised by Sunbeam Infotech Ltd., on 30th Sept., 1999 and 30th March, 2000 respectively and payment was actually received from First Global Stock Broking (P) Ltd., after a lapse of nearly one year of rendering the service. This itself gives sufficient doubt regarding suspicious nature of the transactions. On verification of bank account of Sunbeam Infotech Ltd., it was seen that most of the withdrawals were made in cash immediately on deposit of cheques received from First Global Stock Broking (P) Ltd. The explanation of Shri Neeraj Khanna, Chief Finance Officer of the company of First Global on the date of search in response to question Nos. 8, 12 and 13 regarding page No. 50 of Annex. A/1, stating that the amount equivalent to cheque has been received in cash and used the same for various purposes as mentioned in page Nos. 8 and 10 of the Annex. V. Thus, evidences recovered during the course of search and explanation of Shri Neeraj Khanna prove beyond doubt that the assessee had siphoned off profits by way of inflating expenditure.
The assessee has neither proved the genuineness of these expenses before the auditor appointed under Section 142(2A) nor before the AO during the course of block assessment proceedings. Therefore, it is clear that the assessee company has claimed bogus expenses not incurred for business purposes to the tune of Rs. 10,15,000. Therefore Rs. 10,15,000 is treated as undisclosed income of the assessee M/s First Global Stock Broking (P) Ltd.
Subject to the above remarks, the undisclosed income is worked out with reference to page No. 50 of Annex. A-1 as under:
(a) Shree Bajrang Ispat & Plywood (P) Ltd. 77,02,081
(b) Sahara (Pages 7 and 9, Annex. A-6, ground floor) 1,48,20,356 (Rs. 66,53,894 is outstanding payable FGSBPL)
(c) NSL 22,57,182
(d) Friends 32,62,825
(e) Sunbeam Y2K 10,15,000 Total 2,90,57,444 Other entities on this page are as under:
(I) Fortis (Virta Trade) 2,56,20,480 (II) Arch Finance (Virta Trade) 98,03,225 (III) Fortis (Devina Mehra) 89,08,120 Out of the above,
(a) item No. (I) Fortis (Virta Trade) Rs. 2,56,20,480 will be considered in Virta Trade & Agencies therefore, the same is excluded here.
(b) item No. (II) Arch Finance Rs. 98,03,225 will be considered in Virta Trade & Agencies therefore, the same is excluded here.
(c) item No. (III) Fortis (Virta Trade) Rs. 89,08,120 has already been added in Devina Mehra therefore, the same is excluded here.
16.2 In this context, the learned Authorised Representative on behalf of the appellant filed submission vide page Nos. 13 to 22 of letter dt. 13th Nov., 2003. The gist is as under:
(i) The seized papers having page Nos. 50 and 54 are handwritten pages written by the part time consultant of the First Global Group, Mr. Neeraj Khanna. The upper part of the backside of the seized p. 50 shows some figures against certain entities like:
Bajrang 77,02,081.75
Nits 22,57,182.12
Friends 32,62,824.84
Sunbeam 10,15,000.71
_______________
1,42,37,088.71
_______________
(ii) The first three were the amounts payable to the new clients of the appellant for the credits earned by these entities in share trading through the appellant. The trading was done by them during the financial year 1999-2000. However, at that time they had informed the appellant to keep these profits as margin as they wanted to do further share trading. This is a common phenomenon and practice in the stock market. The clients at their discretion routinely ask their sharebrokers to keep their credit balances with the broker, either as margins or as deposits for future trades. This is a normal practice in the market and is done with the brokers of repute where the client has trust and feels that his money will be safe. The appellant being one of the most reputed and trustworthy broker in the Indian stock market, the clients had total trust in them. As such the payments were not made to these clients immediately as per their request and retained as credits to them in their accounts with the appellant.
(iii) The fourth item was a bill for Y2K expenses. Y2K being a typical and unknown phenomenon, the appellant wanted to have some sort of guarantee that the work done will suffice and there would not be any disruption or irregularity in the computer operations. As such the appellant had an understanding that the payment will be made after a gap of a few months.
(iv) Thereafter, there is a figure of Rs. 4,43,31,824.81. This figure comprises of:
(a) Loss incurred by Virta Trade in transaction through 2,56,20,479.81 Fortis Securities Ltd.
(b) Loss incurred by Virta Trade in transaction through 98,03,225.00
Arch Finance Ltd.
(c) Loss incurred by Devina Mehra in transaction through 89,08,120.00
Fortis Securities Ltd.
______________
4,43,31,824.81
______________
(v) The last figure of Rs. 1,48,20,356.93 is on account of credit in the account of Sahara India Financial Corporation (SIFCL) for the credits earned by them in transaction through the appellant for the year 2000-01.
(vi) Therefore, if one looks at these figures, one would want to understand as to why figures of profits and losses were written on a piece of paper and totalled together. What was the logic behind writing in this manner? The answer is very simple. The person writing these figures was the part time consultant of the group. He was scrutinizing the accounts with a view to get an idea of the movement of funds of the group. He was not concentrating on the normal payins or payouts, which are usually done immediately. He was basically trying to assess that the payments that were to be made out of the payout, if not made immediately would have got absorbed elsewhere and consequently the appellant would need to plan out the flow of these funds. Secondly, the losses incurred by the group in share trading through other share brokers was again a burden on the normal fund flow and hence needed to be planned. Therefore as one would see, all these figures were outflows for the group, which needed to be planned and provided. Some of them in fact would have been paid by the time the document was made. However this was an exercise in fund flow and not necessarily cash flow. Fund flow as the name suggests, considers the sources and uses and differs from cash flow, which necessarily concentrates only the actual movement of bank or cash funds. So a change in the total debtors or creditors figures would be important from fund flow angle but may not be so important from cash flow angle if the net effect of the change from cash/bank funds angle is not significant. For example if there is credit sale, the figure of debtors would go up and effect fund flow but since there would not be any receipt in cash/bank, the cash flow position would not be affected.
(vii) Therefore, the above exercise was basically a fund flow exercise and not a cash flow exercise. As such the figures on the backside of p. 50 represent the payments that were made or to be made by the group.
(viii) The AO has relied only on the statement of Mr. Neeraj Khanna, which has, no evidentiary value as has been explained in the earlier part of our submissions. He has no corroborative evidence or material to support his averments. No unexplained cash, money, bullion, jewellery or asset has been found or seized by the Department.
(ix) From the above explanation it becomes clear that backside of p. 50 and p. 54 of Annex. A/I seized from the ground floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai have the same details on them. One is handwritten, whereas the other is typed. The rationale of writing or typing the same has already been explained.
(xi) Further the learned AO has made the following additions on account of suppression of profits:
(a) Shree Bajrang Ispat & Plywood (P) Ltd.
(b) Sahara India Financial Corporation
(c) Nits Softech Ltd.
(d) Friends Portfolio Ltd.
(e) Sunbean Infotech Ltd.
We are dealing with each addition separately hereunder:
a. Shree Bajrang Ispat & Plywood (P) Ltd.
(i) This company had done share transactions through the appellant during the year 1999-2000. All the bills, contracts, client agreements etc. were given to the Dy. Director of IT (Inv.), Unit IX (3) on 19th April, 2003, a copy of which is being enclosed herewith for your reference.
(ii) While discussing this addition, the learned AO has relied solely on the statement of one Mr. Atul Chitalia who is not even an employee of Bajrang Ispat & Plywood (P) Ltd. and was running his own proprietory concern namely Rasiklal & Co. and had no knowledge of the transactions as per his own admission. In the order, the learned AO has said that documentary evidence found at the office premises of Bajrang Ispat establishes the fact that they had received cheques totalling Rs. 77,02,081 from the appellant on various dates. So he confirms the factum of the transaction. Then he says that Mr. Atul Chitalia has confirmed giving cash to First Global Stockbroking (P) Ltd. on the instruction of the directors, Mr. Anand Goel and other directors. Mr. Atul Chitalia has specifically stated in his statement that he had no knowledge of the transaction. His statement is totally vague and he has not even identified the person to whom he has allegedly handed over the cash. He states "the above-referred payments totalling to Rs. 77,02,081.75 has been paid in cash by me to First Global or to their representative." It is quite strange to note that such a big amount of cash has allegedly been handled by a person who is not even an employee and has allegedly handed over cash to an unknown person. Moreover, the documentary evidence given in the assessment order, nowhere points to any cash having been given by Bajrang Ispat to First Global Stockbroking (P) Ltd., the appellant.
(iii) After having examined Mr. Atul Chitalia on oath, the directors of the company Bajrang Ispat & Plywood (P) Ltd. were also examined on oath. These statements have been deliberately suppressed by the learned AO and have no reference in the order. The reason being that nowhere in the statement, have the directors confirmed anything stated by Mr. Atul Chitalia. The statements taken on oath, clearly show that their cash on hand fully matched with the cash as per their books of account. It appears that the IT Department has taken the statement of Mr. Atul Chitalia under threat, coercion and duress and fearing that the statement will lose its meaning and value totally in case the same is refuted by the directors of Bajrang Ispat & Plywood (P) Ltd.; they have conveniently avoided asking any question relating to their transaction with the appellant in spite of the fact that Mr. Atul Chitalia has said that he had no knowledge of these transactions and whatever was done was as per the instructions of the directors of that company. The diary to which the learned AO has referred to, also gives the name of First Global and the amount and date of cheque. Nowhere has it mentioned cash having been dealt with.
(iv) As regards the alleged mechanism employed by the appellant, the learned AO has referred to the records available with the stock exchange. But he has neither given the same to the appellant for rebuttal nor attached any authenticated copy of it with order.
(v) Without prejudice to this we wish to state that the learned AO's contention that the assessee initially conducts transaction in stock exchange on its own account, earning profits and subsequently these transactions are shown to have taken place on behalf of the client is totally false and bald. The client code mentioned in the order is "2721" which is relating to "GMO Emerging Markets Fund, an FII client of the appellant. So the code does not belong to any of the group entities of the appellant and hence the argument of the learned AO fails.
(vi) Then he has said that in some cases the client code is left blank in spite of the SEBI's directions vide their circular dt. 27th July, 2000 and all the exchanges were required to modify their software within 3 months from the date of the circular in such a way that client code becomes mandatory at broker level.
(vii) If you analyse the above statement, one would understand that client codes were not mandatory for the broker to mention, till the end of October, 2000. As such for a transaction entered in the financial year 1999-2000 or till the end of October, 2000, it was not necessary to mention a client code while executing a trade. That was precisely the reason that the dealers at the broker level used to treat this fact casually and use to either leave this column blank or mention any other frequently used code, in order to save time if at the time of trading they were not sure of the client code of the actual client, as hundreds of trades are normally done each day. This was customary in all the brokerage firms at that point in time till October, 2000. This being the case, no reliance can be placed on the client code mentioned by the broker in the trading terminal.
(viii) On the other hand, the directors of the company having accepted the contracts, bills and the payments and having given confirmation of the copy of account, have confirmed the entire transaction. The IT Department had deliberately not confronted them on this issue, as they would have very much confirmed the transaction as being genuine, as they had confirmed the same to the appellant in the month of April, 2001. The appellant repeatedly asked the learned AO that as per settled law, if he intended to disbelieve any of materials, documents, books or explanations placed before him, he was compelled by law to provide a proper hearing for this purpose; provide an opportunity to the appellant to rebut the same and provide any alternative material and cross-examine any witness whose testimony he may be relying on. No material has been given. No opportunity to cross-examine Mr. Atul Chitalia has been provided to the appellant. There is no corroborative evidence on record to show that the appellant at any point had received cash.
(ix) Therefore, as per law and facts and circumstances of the case, the above addition may be set aside or deleted.
b. Sahara India Financial Corporation (SIFCL)
(i) We strongly deny the statement of the learned AO that during the financial year 2000-01, M/s First Global Stockbroking (P) Ltd. broker had shown certain share transactions and transferred profit to the tune of Rs. 1,48,20,356.90 to M/s Sahara India Financial Corporation (SIFCL) and created bogus loss in books.
(ii) We have already dealt with the arguments of the learned AO with regard to the alleged mechanism employed by the appellant. Even the transactions for SIFCL were done in the month of July, 2000 to October, 2000, when, as explained above, there was no mandatory requirement of mentioning of the client codes for the broker.
(iii) SIFCL has confirmed these transactions as genuine on oath as well as by furnishing letter dt. 18th May, 2001 and that is the reason that in spite of asking for a number of times the copy of the statement on oath recorded from SIFCL, the same has not been made available to the appellant.
(iv) As regards the emphasis on the statement that the purchases or sales did not result into delivery, we wish to state that since they were interested in doing share trading, most of their transactions were squared up transactions. In fact data regarding delivery pattern in stock exchanges downloaded for all the Indian stock exchanges shows that merely 12,88 per cent and 10.82 per cent of the value of transaction resulted in delivery for the years 1998-99 and 1999-2000 respectively. Copy of the downloaded table is being enclosed herewith.
(v) The learned AO has while deliberating on this issue has referred to Annex. A/5 and Annex. A/6 seized from the ground floor of Crescent Chambers, Tamarind Lane, Fort, Mumbai and has referred to the statement of Mr. Neeraj Khanna. In this regard, we wish to submit that the learned AO has separately dealt with and added Annex. A/5 and Annex. A/6 as undisclosed income on pp. 214 to 220. Therefore, we will deal with the same vhile dealing with those additions.
(vi) Here we wish to state that no reliance can be placed on the statement of Mr. Neeraj Khanna for the reasons stated in our submissions earlier. SIFCL has confirmed the factum of transaction as well as the receipt of the cheques for the same. The details mentioned in pp. 7 and 9 of Annex. A/6 are details of cheques given to SIFCL, which are tallying with the details of cheques given in the upper para of p. 191 of the assessment order.
(vii) As stated earlier, the Annexs. A/5 and A/6 will be dealt with separately. However, for the moment, we can say that these appear to be rough jottings written in the handwriting of Mr. Neeraj Khanna and appear to have some rough jottings for some fund flow exercise and appear to contain details of some cheque receipts or cheque payments. We deny that it is in anyway a record of cash receipt or cash payment. Explanation of each and every rough jotting mentioned above, will be given while dealing with those Annexures separately.
(viii) The appellant had submitted all the details like bills, contracts, copy of account confirmation, client agreement etc. to the Dy. Director of IT (Inv.), Unit IX (3) to prove the genuineness of the transaction. The counter party has also confirmed the transaction in full and has provided all the details as per their books of accounts. Therefore, the genuineness of the transaction has been proved beyond doubt.
(ix) In any case the transaction relates to the unfinished year and the learned AO has confirmed in the order that these were appearing in the books of accounts of the appellant. In this regard we wish to draw your attention to the provisions of Section 158BA(3) that state that if the income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of accounts or other documents maintained in the normal course relating to such previous years, the said income shall not and cannot be included in the block period. Such transactions have to be considered only in the regular assessment of the appellant.
(x) The appellant repeatedly asked the learned AO that as per settled law, if he intended to disbelieve any of materials, documents, books or explanations placed before him, he was compelled by law to provide a proper hearing for this purpose, provide an opportunity to the appellant to rebut the same and provide any alternative material and cross-examine any witness whose testimony he may be relying on. No material has been given. No opportunity to cross-examine the counter party has been provided to the appellant. There is no corroborative evidence on record to show that the appellant at any point had received cash.
(xi) Therefore, as per law and facts and circumstances of the case, the above addition may kindly be set aside or deleted.
c. Nits Softech Ltd. (NSL):
(i) In this case also the learned AO has levelled the same allegation of the alleged mechanism adopted by the appellant and an alleged transfer of profit of Rs. 22,57,182. These transactions took place in the financial year 1999-2000.
(ii) We have already explained above that the mentioning of the client code was not mandatory at the broker level and as such no adverse view can be taken on the basis that either there was no client code mentioned or the client code mentioned related to any other client.
(iii) More than 85 per cent of the transactions on the stock exchanges do not result in delivery as these are squared up transactions duly permitted as per rules and regulations laid down by the regulator SEBI and the stock exchanges. This aspect has been discussed in detail under the addition related to SIFCL.
(iv) As already stated, no reliance can be placed on the statement of Mr. Neeraj Khanna for the reasons above stated. Annexures A/5 and A/6 are rough jottings in the handwriting of Mr. Neeraj Khanna and appear to have some rough jottings for some fund flow exercise and appear to contain details of some cheque receipts or cheque payments. We deny that it is in anyway a record of cash receipt or cash payment. Explanation of each and every rough jotting mentioned above will be given while dealing with those Annexures separately.
(v) The appellant had submitted the details of bills, contracts, copy of account confirmation and client agreement to Dy. Director of IT (Inv.), Unit IX (3) on 19th April, 2001. We are enclosing herewith a copy of the same for your reference.
(vi) In any case the learned AO has himself stated in the order that the transactions are duly recorded and reflected in the books of accounts of the appellant. As these transactions were recorded and disclosed in the books of accounts and returns filed with the Department much before the date of search, these can't be considered in the block assessment of the appellant and have to be dealt with in the regular assessment of the appellant. It is pertinent to note that the regular assessment of the appellant for the financial year 1999-2000 (the year in which the transactions took place) was completed almost simultaneously along with the block assessment and the learned AO accepted these transactions in the regular assessment. No defect has been pointed out in the books of account of the appellant for that year.
(vii) The appellant repeatedly asked the learned AO that as per settled law, if he intended to disbelieve any of materials, documents, books or explanations placed before him, he was compelled by law to provide a proper hearing for this purpose, provide an opportunity to the appellant to rebut the same and provide any alternative material and cross-examine any witness whose testimony he may be relying on. No material has been given. No opportunity to cross-examine the counter party has been provided to the appellant. There is no corroborative evidence on record to show that the appellant at any point had received cash.
(viii) As such these transactions are very much genuine and therefore as per law and the facts and circumstances of the case, the addition made on account of these may please be set aside or deleted.
d. Friends Port/olio (P) Ltd., Delhi (FPPL):
(i) This addition is also similar to the case of Nits Softech Ltd. that has been explained above. For explanation submitted above and the fact that all these transactions as per learned AO's admission were appearing in the books of accounts and were disclosed in the return of income filed much before the date of search, these can't be considered in the block assessment and could only be considered in the regular assessment for financial year 1999-2000 relevant to asst. yr. 2000-01, that was finalized almost simultaneously along with this block assessment.
(ii) All the bills, contract notes, copy of account confirmation and client agreements were submitted to the Dy. Director of IT (Inv.), Unit IX (3) on 19th April 2001. A copy of this is being enclosed herewith for your reference.
(iii) The appellant repeatedly asked the learned AO that as per settled law, if he intended to disbelieve any of materials, documents, books or explanations placed before him, he was compelled by law to provide a proper hearing for this purpose, provide an opportunity to the appellant to rebut the same and provide any alternative material and cross-examine any witness whose testimony he may be relying on. No material has been given. No opportunity to cross-examine the counter party has been provided to the appellant. There is no corroborative evidence on record to show that the appellant at any point had received cash.
(iv) On the basis of law and the facts and circumstances of the case, the above addition may kindly be set aside or deleted.
e. Sunbeam Infotech Ltd. (SIL):
(i) The learned AO has, in the assessment order himself confirmed that an amount of Rs. 10,15,000 was debited to P&L a/c of the appellant. The learned AO has verified that the bills of Rs. 9,75,000 and Rs. 40,000 were raised by Sunbeam Infotech Ltd. on 30th Sept., 1999 and 30th March, 2000 and that the payment was duly received by the party. Therefore, he has confirmed and verified everything relating to the transaction for the appellant.
(ii) It is a fact that the transaction was appearing in the books of account of the appellant, for financial year 1999-2000, and was disclosed in the return of income filed much before the date of search, with the IT Department for the said financial year relevant to the asst. yr. 2000-01. Therefore, as per the law, when the transactions are fully disclosed in the books of accounts or return filed before the date of search, the same can only be considered in the regular assessment and not in the block assessment.
(iii) As already explained, no reliance can be placed in the statement of Mr. Neeraj Khanna. Moreover, we have already explained the seized page No. 50 being part of Annex. A/I. All the details relating to the above expenses were duly submitted to the Dy. Director of IT (Inv.), Unit IX (3) including bills, copy of account confirmation etc. A copy of the same is being submitted herewith for your reference. Delay in payment of the legitimate expenses would not make it an illegitimate expense. It has already been clarified earlier that since Y2K was a new phenomenon, the appellant wanted to be doubly sure that the problem of Y2K for which they were paying would actually be solved. Once they were satisfied with the services, the payment was made by them to the vendor.
(iv) The appellant repeatedly asked the learned AO that as per settled law, if he intended to disbelieve any of materials, documents, books or explanations placed before him, he was compelled by law to provide a proper hearing for this purpose, provide an opportunity to the appellant to rebut the same and provide any alternative material and cross-examine any witness whose testimony he may be relying on. No material has been given. No opportunity to cross-examine the counter party has been provided to the appellant. There is no corroborative evidence on record to show that the appellant at any point had received cash.
(v) Therefore, on the basis of law and the facts and circumstances of the case, the above addition may kindly be set aside or deleted.
16.3 I have carefully considered the finding of the AO and the submission of the learned Authorised Representative as well as the other material available on record. It is seen that the AO has discussed this issue at length in the assessment order. The addition of the AO is supported by the seized document Nos. 50 and 54 and further supported by survey action and evidence gathered during post-search investigation. It is further seen that Mr. Neeraj Khanna, the CFO of the company accepted the fact that the appellant is indulged in the transactions of selling its profit and purchasing the losses to evade the taxes and to generate the concealed income. The statement of Mr. Neeraj Khanna has been dealt with in detail in the earlier part of the appellate order. It is also noticed that the Annexs. A-5 and A-6 which were written by Mr. Neeraj Khanna were also seized during search operation which represent the entries of "cash" as against the impugned transactions of sale of profit and inflated expenses. Mr. Neeraj Khanna admitted the entries in those documents regarding sale of profit and inflated expenditure. It is unfortunate that the appellant is not ready to accept even the most apparent and glaring facts and omissions on its part and unnecessary keeps on dragging the issue, for which it has no case at all.
The seized paper Nos. 50 and 54 are absolutely clear in these terms that the jottings/notings therein represent the cash entries of the appellant. The appellant's contention that the entries represent the fund flow working, does not have even legs to stand. The entries are to the extent of fraction of rupee one like "Bajarang 7702081.75", "NITs 2257182.12". The projected fund flow statement can never be prepared in terms of fraction of rupee, and secondly when the appellant has inflow and outgo of several crores of rupees everyday, why a fund flow for only few selected parties?
In addition to all above, the most glaring fact is that entries in page Nos. 50 and 54 are further supported by entries in the diaries written by Mr. Neeraj Khanna, CFO of the company, and seized as Annexs. A-5 and A-6. Mr. Neeraj Khanna, author of the diaries and CFO of the company in his statement under Section 132(4), recorded during search itself admitted that the appellant is indulged in the transaction of selling profit and inflating expenses and entries in the diaries written by him represent the cash inflow and its application.
Mr. Neeraj Khanna further admitted that these transactions were executed through one "Mr, Ashok" whose name is also written in jottings on page No. 50.
The Department went further and surveyed the connected parties. The papers indicating return of cash of Rs. 77,02,081 were recovered from the premises of M/s Bajarang Ispat & Plywood Ltd. and Mr. Atul Chitalia, person in charge admitted having received the cheque and return of cash of equivalent amount to the appellant. Almost, similar results were there in the case of other surveys also.
I do not think that one can gather better evidence than what the Revenue has done with reference to the matter under reference. On the other hand, the appellant could not prove anything except of reiterating the argument that all transactions are recorded in the books of accounts. Here, the appellant forgets that the entries in the books represent the cheques issued for sale of profit, but the entries in seized documents represent the return of cash of equivalent amount.
In view of all the facts mentioned above and particularly with reference to that the issue has been discussed in detail by the AO in the assessment order which is well supported by the evidence found in search and the post-search investigation and statement of Mr. Neeraj Khanna, CFO of the appellant company. The addition of Rs. 2,90,57,444 is confirmed. This ground of appeal is dismissed.
Before us learned Counsel for the assessee reiterated his arguments and pointed out that basically addition has been confirmed on the basis of the statement of Mr. Neeraj Khanna, alleged Chief Financial Officer recorded at the time of search, coupled with the statement of Mr. Atul Chitalia, person in charge of M/s Bajrang Ispat & Plywood Ltd. He also pointed out that learned first appellate authority has made a reference of Annexs. A-5 and A-6. i.e. Mayur Spiral Pad found at the time of search, wherein certain notings had been made by Mr. Neeraj Khanna.
41. The learned Counsel for the assessee in brief submitted that all these entries were duly reflected in the books of accounts of the assessee cannot be subject-matter of the block assessment. The entries were for the period when it was not mandatory to mention the client codes, therefore, the AO has erred in inferring that client code was not reflecting and in a way assessee used to initially conduct transaction in stock exchange on its own account, earned profit and subsequently these transactions are shown to have been taken place on behalf of the client. The learned Counsel for the assessee emphasized that upto October, 2000 it was not obligatory for share broker to mention client code. He took us through the written submission filed by the assessee in this regard and reproduced by the learned CIT(A) in para No. 16.2 of the impugned order. On the other hand, learned Counsel for the Revenue relied upon the orders of Revenue authorities below and pointed out that if the seized material i.e. page Nos. 50 and 54 of Annex. 1 are read in the light of statement given by Mr. Neeraj Khanna, it revealed that assessee has been earning profit which was transferred to certain entities making loss. Those entities set off such profit against their losses and returned the amount back to the assessee.
42. We have carefully considered the rival contentions and gone through the record carefully. The transactions reflecting in page Nos. 50 and 54 were duly disclosed in the regular books of accounts for the concerned year. The AO is appreciating these transactions in the light of the statement given by Mr. Neeraj Khanna as well as some materials alleged to be found in the post-search enquiry. In this post-search enquiry a survey was carried out at the premises of M/s Bajrang Ispat & Plywood Ltd., which was subsequently converted into the search. According to the AO outcome of these enquiries and the material gathered indicate that these entries have been manipulated by the assessee and, therefore, it amount to an undisclosed income of the assessee.
43. Section 132(4) provides that authorized officer may, during the course of search examine on oath any person found to be in possession or control of any book etc. whereas Section 132(4A) raised a presumption of truth in respect of the contents of those books of accounts and other documents. These sub-sections read as under:
132(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 (11 of 1922), or under this Act.
132(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed-
(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
(ii) that the contents of such books of account and other documents are true; and
(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.
44. Let us see the quality of evidence gathered by the Department and whether on the basis of such evidence it can be held that assessee has made manipulation in its books of accounts and that can only be unearthed because of the search. The first evidence in the possession of the Department is the statement of Mr. Neeraj Khanna. Mr. Neeraj Khanna is the alleged Chief Financial Officer of the assessee company, whereas according to Mr. Neeraj Khanna he was only a part time consultant. As far as any disclosure made during the course of search under Section 132(4) is concerned we are of the view that no doubt the disclosure or admission made under Section 132(4) of the Act during the search proceedings is an admissible evidence but not a conclusive one. This presumption of admissibility of evidence is rebuttable one and if an assessee is able to demonstrate with the help of some material that such admission was either mistaken, untrue or under misconception of facts, then solely on the basis of such admission, no addition is required to be made. It is true that admissions being declaration against an interest are good evidence, but they are not conclusive and a party is always at liberty to withdraw the admissions by proving they are either mistaken or untrue. In law, retracted confession even make from the legal basis of addition if the authority is satisfied that it was true and was voluntarily made, but making the addition on retracted declaration would not be safe. It is not a strict rule of law but is only a rule of prudence. As a general rule of practice it is unsafe to rely upon a retracted confession without corroborative evidence. Due to this situation the Board has issued Circular No. 286/2/2003, though subsequent to the search, but in this circular it prohibits the Department from taking any confession in the search. Section 132(4) provides that the authorized officer may, during the course of search or seizure examine any person on oath which is found to be in possession or control of any books of accounts, documents, money etc. Any statement made by such person during such examination may thereafter be used in evidence. These documents were not found from the possession of Mr. Neeraj Khanna, these were found from the premises of the assessee. Mr. Neeraj Khanna being a part time consultant may have acquaintance with these documents but solely he cannot be asked to explain these documents. In that case Mr. Neeraj Khanna is a third person. The evidence given by him may be a good factor for probing the issue further and can be a corroborative piece of evidence, but solely on the basis of this statement, addition in the hands of assessee cannot be made, more so, the statement of Mr. Neeraj Khanna was not a voluntary statement. It is to be seen in the context it was taken. The assessee is a major shareholder of M/s Tehalka dot com, who had carried out sting operation that led to the resignation of the Defense Minister at that point of time. According to the assessee the instructions were from the higher ups. We may not concur with this submission of the assessee because there is no material to substantiate but we cannot lose sight to conceive the circumstances developed in our surroundings and available in the society. Mr. Neeraj Khanna while retracting his statement submitted that he was not allowed to take rest for a continuous period of 30 hours. A large number of documents were found and seized. These are loose papers. It is practically impossible for a person to give specific reply at a given point of time without consulting the details. More so, when these entries were duly disclosed in the books of accounts and were subject-matter of the regular return. Mr. Neeraj Khanna may be a well qualified person but even for an expert it is quite difficult to understand and give specific reply in such type of situation.
45. The learned AO while rejecting the contention of assessee on retraction of Mr. Neeraj Khanna's statement has observed that in answer to question No. 2 Mr. Khanna has disclosed the detail of the concerns and names of the directors of these concerns. He also disclosed the types of books of accounts maintained by the group as well as place where they are kept. According to the AO, Mr. Neeraj Khanna has also stated the exact position of the net brokerage as per seized page No. 56 of Annex. A-1. With the assistance of learned representatives we have gone through all these objections reproduced by learned CIT(A) at pp. 57 and 58 while dealing with the issue under the head "Retraction of the statement of Mr. Neeraj Khanna in para No. 14 of the impugned order". The few circumstances pointed out by the learned AO are of no consequence because being a tax consultant, Mr. Neeraj Khanna has to prepare the return of the group as a whole. Thus he is well versed with the constitution of the group and the types of books of accounts maintained by the group. These circumstances are not an unusual circumstance. The tax consultant should be aware about such details when he is handling such a large group. The next circumstance pointed out by the AO is that he disclosed the details of bank and also the exact position of the net brokerage as the seized page No. 56. As far as the disclosure of banks are concerned again it should be in the knowledge of the tax consultant, particularly when the details were brought to his notice while recording his statement. As far as the net brokerage issue is concerned the assessee is disputing the very computation of this brokerage in which position Mr. Neeraj Khanna could disclose such brokerage. These brokerages have been worked out by the AO on reappreciation of the entries already disclosed to the Department in the regular return. The AO drew corroborative support for his computation of brokerage from this statement. The circumstances pointed out by the learned AO if looked into the state of mind disclosed by Mr. Neeraj Khanna at the time of recording his statement, then it will reveal that such statement was not voluntary disclosure. He highlighted that directors were not available. He was kept under a continuous investigation for more than 30 hours. The moment the directors reached they were arrested on 19th April, 2001 on criminal complaint filed by the Department. He further prayed that his further statement should be taken in the company of his advocate. These circumstances and the background under which such circumstances have developed do indicate that his statement was not a free and voluntary one. Thus in view of the above discussion, in our opinion learned Revenue authorities below have erred in placing their implicit reliance on the statement of Mr. Neeraj Khanna.
46. The next circumstance pointed out by the learned AO for making this addition is that on enquiry from the stock exchange it revealed that the purchases and sales did not result into delivery. The assessee has pointed out that it is in the business of share trading. Most of its transactions were squared up transactions. On the strength of the data regarding delivery pattern in stock exchange, downloaded from the all India Stock Exchange the assessee pointed out that mere 12.88 per cent and 10.88 per cent of the value of the transactions carried out in the stock exchange resulted in delivery for the years 1998-99 and 1999-2000 respectively. If that be the scenario at all India level how the assessee in isolation can be expected to take delivery of shares in each transaction. This is not a circumstance which can suggest that assessee has manipulated its entries in the books of account and therefore, those entries require reappreciation and an addition is to be made in the block assessment. This fact is further to be seen in the light that assessee is a broker and sometime had Just booked the "Sauda" on earning some profit immediately sold. There cannot be any physical delivery of the shares in such "Sauda".
47. The next circumstance pointed out by the AO is that the assessee initially conducted transactions in stock exchange on its own account, earned profit and subsequently these transactions are shown to have taken place on behalf of the client. For this reason the AO took the aid of non mentioning of the client code in the transaction. The assessee has pointed out that at the relevant period it was not mandatory to make a mention of the client code. If that be the practice prevalent in the market how this reasoning can be used against the assessee for drawing an inference. More so, it is not strong circumstance which can persuade the AO to say that the disclosure made in the original books of account was false and, therefore, any income alleged to be embedded in those transactions is to be computed at a different figure and to be assessed as undisclosed income.
48. The next reasoning pointed out by the AO is that survey as well as search was carried out at the premises of M/s Bajrang Ispat & Plywood. There one Mr. Atul Chitalia admitted that he has returned cash to the assessee. The payments were made to M/s Bajrang Ispat & Plywood through account payee cheque. This fact has not been denied by the directors of Bajrang Ispat & Plywood. Mr. Atul Chitalia is not the controlling person of Bajrang Ispat & Plywood rather, he was running his proprietary concern in the name of Rasiklal & Co. He has no knowledge about the exact transaction. He could not tell to whom such money was given in cash. Whatever has been disclosed by Mr. Atul Chitalia was not confronted to the directors of M/s Bajrang Ispat & Plywood. The AO gave a reference to the diary, that is found from Bajrang Ispat & Plywood. Nowhere in this diary specifically written that cash has been returned and handed over to a particular person of the assessee. Thus the AO as well as learned CIT(A) have failed to appreciate the true inference flowing from the evidence gathered from M/s Bajrang Ispat & Plywood.
49. There is one more dimension. Some evidence was found in respect of M/s Bajrang Ispat & Plywood, that very evidence has been applied in respect of all other transactions. No doubt the provisions of Evidence Act are not strictly applicable in the income-tax proceedings but one has to consider which provisions are not applicable. The strict mode of proof required under the Evidence Act is not applicable in the income-tax proceedings. For example if somebody produced a sale deed, the vendor, vendee or the witness of the sale deed are need not to be produced before the authorities. It is not mandatory to record their statement for proving the fact that this sale deed was executed. Similarly if somebody produces a will it is not necessary to produce the witness for attesting or proving the signature of the attester. The basic principles of Evidence Act regarding opportunity etc. are to be adhered even in the income-tax proceedings, i.e. upon whom the onus is for explaining the particular circumstance etc. The AO is disbelieving the books of accounts maintained by the assessee duly disclosed to the Department in the original return. In such circumstances it is the AO who has to bring the positive evidence exhibiting the fact that whatever has been disclosed to the Department in the original return was false. On the basis of the generalization that in case M/s Bajrang Ispat & Plywood, this material was found thus all other entries are to be treated as the false, cannot be accepted in the law.
50. The learned first appellate authority has further observed that assessee contended that entries reflecting in pp. 50 and 54 are fund flow working. It is emphasized by the assessee that it was never a case of the assessee. The assessee submitted that these are jottings made to see the flow of funds for transactions that had happened or were under process. In the light of the above discussion we are of the view that learned Revenue authorities below have erred in confirming the addition. This ground of appeal is allowed and the addition of Rs. 2,90,57,444 is deleted.
51. Ground No. 3(b) In this ground the assessee is challenging the confirmation of an addition of Rs. 12,34,04,659.
52 The brief facts of the case are that shares of M/s HFCL were subscribed by the assessee and were allotted in its name. Those shares were allotted to the assessee in the private placement at the price of Rs. 1,050 per share. The assessee company had sold 1,42,525 shares of HFCL to its sister concern M/s First Global Finance (P) Ltd. on 10th March, 2000 @ Rs. 1,060 per share. According to the Department the market price of the shares of M/s HFCL was around Rs. 2,000 on 10th March, 2000 i.e. on the day when the shares were claimed to be transacted by the assessee to its sister concern. The sister concern in term sold these shares in the market in the month of April, 2000 and earned profit of Rs. 12,34,04,659. In the opinion of the AO this profit relates to the assessee and it has been transferred to the sister concern. He discussed this issue at pp. 196 and 197 of the assessment order. The learned first appellate authority has reproduced the relevant finding of the AO at p. 115 of the impugned order and which reads as under:
During the time of search, the back up of computer data was taken on CDs from the premises of the assessee. Among other things, the analysis of the data revealed that the assessee M/s First Global Stock Broking (P) Ltd. had passed certain entries in its accounts and shown the sale of 1,42,525 shares of HFCL on 10th March, 2000 to its sister concern M/s First Global Finance (P) Ltd @ Rs. 1,060 per share when the market price of these shares during that period was around Rs. 2,000. M/s First Global Finance (P) Ltd had in turn, sold these shares in the market on 1st April, 2000, 4th April, 2000 and 11th April, 2000 when the sale prices of these shares were Rs. 2,029, Rs. 1,914 and Rs. 1,349 respectively. Thus, in this transaction M/s First Global Finance (P) Ltd. earned a profit of Rs. 12,34,04,659. The source of this information is the printout from these CDs whose copies are annexed as Annex. B. Prima facie the whole transaction between the assessee and its sister concern appeared to be stage managed. In the month of April, 2000, the audit of the books of accounts of the assessee for asst. yr. 2000-01 was not completed. Thus, it was very easy to make adjustments in its books of accounts. Thus there was a reason to believe that the assessee has deliberately made these entries for showing the sale of 1,42,525 shares of HFCL to its sister concerns in the month of March, 2000 so as to divert the profit arising out of the sale of these shares in the market to its sister concerns. To examine this issue and verify the genuineness of the entries made by the assessee, they were given several opportunities to explain their case. As HFCL was a listed issue, the purchase and sale in these shares have to be made through the stock exchange. And if these are not made through the stock exchange then there are certain rules and regulations of the SEBI as well as the concerned stock exchange where the information has to be furnished in a certain manner and within a certain time. Despite giving several opportunities, the assessee have not come forward to explain the factual position regarding these transactions and whether the transfer of these shares from the assessee company to its sister concern was through the stock exchange or it was an off market transaction. In the event of this transaction being an off market transaction, the assessee should have furnished all the details and the proof of following the procedure laid down by the SEBI and the stock exchange and only then the authenticity of this transaction would have been acceptable. As the assessee have failed to furnish these details and the supporting proof, it is very much clear that the entries in the books of accounts have been made as an afterthought subsequent to the date of transaction to artificially transfer the profit earned on these shares to its sister concern. As these are not genuine entries, these are ignored and the profit earned on the sale of 1,42,525 shares of HFCL amounting to Rs. 12,34,04,659 is assessed as undisclosed income in the hands of the assessee M/s First Global Stock Broking (P) Ltd. in asst. yr. 2001-02.
53. Appeal to the learned CIT(A) did not bring any relief to the assessee.
54. Before us learned Counsel for the assessee while impugning the finding of learned Revenue authorities below reiterated the submissions made before the learned CIT(A) at pp. 116 and 117 of the impugned order. He took us through these submissions , whereas on the other hand, learned Departmental Representative relied upon the orders of the Revenue authorities below.
55. We have duly considered the rival contentions and gone through the record carefully. According to the assessee shares of HFCL numbering 1,42,525 were allotted in the private placement by M/s HFCL. These shares were duly reflected in the books of accounts of the assessee. We find from the record that shares were shown in stock as on 31st March, 2000 by the subsidiary company, thus, the shares could only be sold by the subsidiary company and not by the assessee. The profit could be taxed only in the hands of the subsidiary company which has actually been done because the subsidiary company has shown all these transactions in the books of accounts and disclosed the profit on sale of these shares in the regular return. The learned AO as well as the learned CIT(A) has added this amount in the income of the assessee only on the ground that assessee should have earned this profit. They have not disbelieved the transaction itself, nor they found that these transactions are false. In our opinion the learned CIT(A) has wrongly appreciated the scope of block assessment and has wrongly observed that simply because transaction is recorded in the books of account it does not come out of the pale of the undisclosed income. The Hon'ble jurisdictional High Court in (2000) 163 CTR (Bom) 432 : (2001) 247 1TR 448 (Bom) (supra) has considered an identical aspect. In that case an assessee had constructed a bungalow and incurred an expense of Rs. 4,16,000. These expenses were disclosed in the regular return of income, subsequently search was carried out and the learned AO referred the valuation of the bungalow to the DVO. The DVO determined the value of the property at Rs. 6,66,000. The learned AO added the difference to the income of the assessee as undisclosed income. The Tribunal has deleted the addition on the ground that addition was not made on the basis of the material gathered during the course of search, rather, all these informations were available to the AO at the time of regular assessment. The learned AO obtained the DVO's report subsequent to the regular assessment, therefore, addition is made beyond the scope of the block assessment. The Hon'ble High Court has upheld this order of the Tribunal. Similarly in this case the transactions of the sale and purchase of the shares were completed before the search. These have duly been disclosed to the Department by the assessee as well as by the subsidiary company. Both the companies are to be taxed at the same rate of tax. The addition is being made only on the basis of reappreciation of the transaction and under the garb that assessee should have earned this much of income. In view of our discussion, where we have propounded the scope of block assessment while discussing the preliminary issue we are of the view that this addition is unsustainable in the block period, hence, this ground of appeal is allowed and addition of Rs. 12,34,04,659 is deleted.
56. Ground No. 3 (c) : In this ground the grievance of assessee is that learned CIT(A) has erred in confirming the addition of Rs. 84,72,76,000.
57. The brief facts of the case are that assessee had purchased 10,68,275 HFCL shares. Those shares were purchased @ Rs. 1,050 per share. These shares were sold to various financial institutions and the sister concern on 3rd March, 2000. The shares were sold @ Rs. 1,060 per share. According to the AO the prevalent rate on that day was in between Rs. 2,100 to Rs. 2211. The learned AO has ultimately concluded that assessee has sold 9,25,750 shares. He took the average price of HFCL shares at the relevant time at Rs. 2,100 per share, multiplied this to the total number of shares sold by the assessee and then gave credit of the sale price i.e. Rs. 1,060 per share alleged to have been received by the assessee and shown in the books. He worked out the difference of sale price at Rs. 96,27,80,000 and made the addition. The AO has discussed this issue at pp. 197 to 207 of the assessment order. The finding of the AO has been reproduced by learned CIT(A) at p. 120 in para 18 , the relevant finding of the AO reads as under:
...It is noticed that you had purchased certain shares of HFCL from your group concerns and sold these to various FIIs , friends and staff members on 3rd March, 2000 @ Rs. 1,060 whereas the prevalent market rate on that day was between Rs. 2,100 to Rs. 2,211. These shares were initially allotted to your group concern by way of private placement by the company (HFCL) itself and this fact was confirmed by M/s HFCL during the course of post-search enquiry vide their letter dt. 27th April, 2001. (The relevant pages are enclosed herewith Annex. C pp. 1 to 103) 5 Your company purchased 10,68,275 HFCL shares from the following clients:
_________________________________________________________________________________ |S. | Name of the client | Date | No. of | Rate@ | Amount in Rs. | |No. | | | shares | | | |____|______________________________|________|__________|_________|_______________| |1 | Mohan Fiscal Services |3/3/2000| 1,42,550 | 1,050 | 149,677,500 | | | (P) Ltd. | | | | | |____|______________________________|________|__________|_________|_______________| |2 | UD & ME) Agencies |3/3/2000| 1,42,500 | 1,050 | 149,625,000 | |____|______________________________|________|__________|_________|_______________| |3 | Vruddhi Confinvest India |3/3/2000| 1,42,450 | 1,050 | 149,572,500 | | | (P) Ltd. | | | | | |____|______________________________|________|__________|_________|_______________| |4 | Naulakha Financial Services |3/3/2000| 1,42,700 | 1,050 | 149,835,000 | | | (P) Ltd. | | | | | |____|______________________________|________|__________|_________|_______________| |5 | Virta Trade & Agencies |3/3/2000| 1,42,525 | 1,050 | 149,651,250 | | | (P) Ltd. | | | | | |____|______________________________|________|__________|_________|_______________| |6 | Panchal Components & Appli- |3/3/2000| 1,42,675 | 1,050 | 149,808,750 | | | ances (P) Ltd. | | | | | |____|______________________________|________|__________|_________|_______________| |7 | Top Gear Leasing & Finance |3/3/2000| 70,125 | 1,050 | 73,631,250 | | | (P) Ltd. | | | | | |____|______________________________|________|__________|_________|_______________| |8 | First Global Stock Broking |3/3/2000| 1,42,750 | 1,050 | 149,887,500 | | | (P) Ltd. | | | | | |____|______________________________|________|__________|_________|_______________| | | | | 1,068,275| |1,121,688,750 | |____|______________________________|________|__________|_________|_______________| (Annexed herewith please find xerox copies of client-wise Sauda settlement and xerox copies of loose paper seized from Annex. A-1, ground floor, Fort oface 102-105).
The abovereferred group concerns have in turn sold to First Global Stock Broking (P) Ltd @ 1,060 per share. Thereafter, First Global Stock Broking (P) Ltd. has sold @ Rs. 1,060 per share to the following companies.
No. of shares
1. Various FIIs 8,30,550
2. First Global Finance (P) Ltd. 1,42,525
3. First Global Stock Broking (P) Ltd. 72,680 (retained with them)
4. Other clients 2,520 (correct figure is 22,520) ___________ 10,68,275 ___________ The assessee has asked for the source of information in this regard. The source of this transaction is available in seized material in page Nos. 102,103,104 of Annex. A-1, ground floor, Crescent Chambers, Fort , Mumbai and in contents of the CDs. The same source was intimated to the assessee vide my letter dt. 27th May, 2003.
In addition to 8,30,550 shares sold to FIIs, the assessee has also sold to friends and staff 22,260 shares and own account to the tune of 72,940 shares on 31st March, 2000 @ Rs. 1,060 per share as against the prevailing market rate on that day of Rs. 2,100 -Rs. 2,211 per share. In this way the total shares of HFCL old below the then prevailing market rate on 3rd March, 2000 are as under:
(i) To various FIIs 8,30,550 shares
(ii) To staff & friends 22,260 shares(correct figure is 22,520)
(iii) To own account sale 72,940 shares(correct figure is 72,680)
_________
Total 9,25,750 shares
_________
And accordingly the profit accrued on 9,25,750 shares of HFCL would be Rs. 96.27 crores by taking at lowest rate of Rs. 2,100 prevalent on the date of sale i.e. 3rd March, 2000. These transactions have been confirmed by you vide your letter dt. 14th May, 2001 addressed to Dy. Director of IT (Inv.)-IX(3), Mumbai.
Since the assessee was totally non-co-operative with the IT Department, the undersigned is left with no alternative but to rely upon the information gathered from the Enforcement Directorate, FERA Memorandum No. T-4/143/SDE/AKB/B/2002 (SCN) dt. 31st May, 2002 issued by Special Director, Enforcement Directorate, Janmabhoomi Chambers, 1st Floor, W.H. Marg, Mumbai revealed as under:
As per provisions of Sections 13 and 18 of the Securities Contract (Regulation) Act read with relevant laws and bye laws of Bombay Stock Exchange, the transactions that can take place outside the stock exchange are only 'SPOT transactions.
The assessee has not furnished the broker note and corresponding bills or any evidences for the abovereferred transactions in spite of several opportunities given to the assessee. The assessee failed to explain whether the shares were sold in stock market or outside. If the shares were sold outside whether the transactions have been reported to the stock exchange etc. In the light of the abovereferred discussion, it is clear that the sale to FIIs was not in private placement but an open sale at a price which was almost 50 per cent of the prevalent market price and thus, the share transaction has resulted in accrual profit in crores of rupees. In the same fashion 22,260 shares of HFCL and 72940 shares on own account of the assessee company has also resulted in accrual of profits in crores of rupees. In this way the total transaction has been concluded at 9,25,750 shares in an open sale at a price almost 50 per cent of the prevalent market price. The difference between the market price and the sale price requires to be treated as undisclosed income of the assessee hence, the profit of Rs. 96,27,80,000 has been computed on the sale of abovereferred 9,25,750 HFCL shares:
The assessee has not explained these transactions before the Investigation Wing, before the auditor appointed under Section 142(2A) and before the AO. The working of Rs. 96.27 crores is as under:
Computation of profit of Rs. 96,27,80,000 as under:
The average market price as per NSC data 1,94,40,75,000
as stated above into no. of shares 9, 25,750 x 2, 100
Less ; Price at 1,060 alleged to have sold into shares equal 98,12,95,000
to _____________
96,27,80,000
_____________
In the light of above discussions Rs. 96,27,80,000 is treated as undisclosed income of the assessee for the asst. yr. 2000-01.
The learned CIT(A) also reproduced the submissions made by the assessee. Before us learned Counsel for the assessee reiterated those submissions, therefore, it is salutary upon us to take note of these submissions, they read as under:
18.1 The submission of the learned Authorised Representative as per page Nos. 23 to 27 of letter dt. 13th Nov., 2003 are as under:
(i) Before dealing with this issue on merit, we would like to submit that the brokerage income of approximately 1 per cent of the issue price of Rs. 1,050 amounting to more than Rs. 1 crore and placement fees of Rs. 1.50 crores on the said transactions had been duly recorded and reflected in the books of accounts and the IT returns of the appellant for the financial year 1999-2000 relevant to asst. yr. 2000-01 and the said income thereon have been accepted as true and correct during the regular and scrutiny assessments for that year. This fact is recorded in the assessment order itself.
(ii) As has been explained by us above, while dealing with the seventh ground of appeal that when the transactions are recorded and reflected in the books of accounts and the return of income filed before the date of search, the same can't be dealt with in the block assessment proceedings and can only be dealt with in the regular assessment for that particular year.
(iii) Without prejudice to the above, the learned AO failed to appreciate that the addition of Rs. 96,27,80,000 shall amount to addition on account of notional income. Nowhere has the learned AO placed any material on record to show that the appellant has received this amount of Rs. 96.27 crores. Therefore, the addition made without establishing that the appellant had received Rs. 96,27,80,000 over and above the sale consideration of Rs. 98,12,95,000 on sale of 9,25,750 shares of HFCL, which is already recorded in the regular books of accounts shall amount to taxing the income that could have been earned and not which has been earned. Hence, the addition of Rs. 96,27,80,000 is not at all justified and the same may be deleted.
(iv) Without prejudice to the above contention, we wish to state that the learned AO failed to appreciate that out of the impugned shares, only 5,92,950 shares were allocated to FIIs at the book building price of Rs. 1,050 plus transaction charges including interest component. This was the rate at which all the 70,00,000 shares were allocated by the company HFCL. The entire transaction has been confirmed by the FII purchasers also. The balance shares have been sold later in the stock market at the prevailing rate as per the details furnished earlier. Therefore, the learned AO is not at all justified in making addition of Rs. 96,27,80,000.
(v) We submit that the learned AO failed to appreciate the fact that the appellant was fully co-operative with the IT Department. This can be verified from the fact that the appellant had filed all the details relating to the above transaction vide their letters dt. 14th May, 2001, 21st May, 2001, 11th Oct., 2001 and 3rd June, 2002. Apart from that the entire transactions were duly recorded and reflected in the books of account of the appellant, from where the Department had got the entire information.
(vi) The transaction deals with the purchase of unlisted, new shares of HFCL issued on a private placement basis by HFCL. FIIs have participated in this issue of private placement of equity shares on delivery-versus-payment (DVP) basis because their dealing guidelines do not allow them to participate on non DVP transactions. They expressed their interest in getting an allocation to this issue at the overall cut off price, plus related transaction costs. DVP transactions by FIIs are specifically permitted by SEBI. The appellant will rely on SEBI/RBI regulations, guidelines etc. as well as correspondence/other evidence to substantiate its claims.
(vii) All these FIIs, which purchased these placements, are full tax paying FIIs paying taxes in India. The profits accruing to these funds with regard to sale and purchase of Indian equity shares in India are taxable under the Indian IT laws. These transactions have been completed through their custodians and all receipts and payments are made through their custodians. None of these accounts are based in tax haven countries.
(viii) The purchase of these shares has been reflected in their fund management system and all normal tax returns associated with the purchase and sale of these shares have been completed, in the normal course of their business, by their custodians.
(ix) As can be seen, all these FIIs come from US and UK and these FIIs as mentioned by tax authorities are full tax paying FIIs, in India, unlike ones from tax havens like Mauritius etc. FIIs such as Putnam, GMO, AIM-mvesco are some of the largest fund managers in America and the UK. They manage $100-400 billion each, and are household names.
(x) All the transactions that these FIIs have entered into, are reflected in their tax returns in India, as well as in their transaction records with global custodians. A full legal, audit, tax and compliance trail exists for these transactions.
(xi) In any event, the shares purchased by the FIIs, as also all other 70 lac shares allotted in the private placement, were all unlisted at the time of the said transaction. These could not be traded on the stock exchanges and were not fungible with the listed HFCL shares trading on the stock exchanges. Therefore, the question of a 'below market price' transaction cannot exist. The shares in question had no market price as on the date of the transaction.
(xii) While the AO dishonestly says that he is relying on the evidence of the Enforcement Directorate (ED) in this matter, the facts are as follows:
(a) The ED has claimed that they were investigating this transaction at the sole instance of the IT Department.
(b) The ED has confirmed in an affidavit dt. June, 2003 that they have not been able to find any evidence of the appellant having received any undisclosed moneys in this transaction.
(c) The appellant will rely on various documents, affidavits, Court records etc. to evidence the same.
(xiii) The Enforcement Directorate after extensive investigation of more than 2 years on this issue has never filed any charges against the appellant having received any amount over and above, what has been recorded and reflected in the books of accounts of the appellant. The learned AO is put to strict proof to confirm whether the Enforcement Directorate has filed any case in the Court against the appellant, of having received this alleged difference amount of Rs. 96.27 crores.
(xiii) In support of the above, the appellant had already submitted the following to the Dy. Director of IT (Inv.) Unit IX, all of which has been deliberately ignored by the AO:
(a) Summary of allocation of 10,68,275 shares, issued by HFCL in private placement in February/March, 2000
(b) Summary of allocation of 5,92,950 shares of HFCL in private placement to FIIs through DVP transactions.
(c) All contracts issued to FII's for 5,92,950 new, unlisted shares allocated in private placement through DVP route.
(d) Other contracts showing sales of balance shares in stock market at market rate in April, 2000.
(ii) FII confirmations of the transaction @ Rs. 1,050 plus transaction cost.
(xiv) The learned AO had deliberately brought in the Enforcement Directorate on this issue. The fact that as early as in April/May, 2001, the Department had the entire information on the transaction, there was no need for them to go to anybody else for getting the said information. This was done with the mala fide intention to bring the Enforcement Directorate into the appellant's case. Apart from the appellant's group, they had conducted surveys, for this issue, on two other companies i.e. Naulakha Financial Services (P) Ltd. and Mohan Fiscal Services (P) Ltd. Even from there, they had got the entire information about the transaction.
(xv) The appellant had vide their letter dt. 11th Oct., 2001 explained the entire transaction once again and had even filed FII confirmation giving full trail of the transaction including its price, quantity, value etc. and also the fact that those FIIs and had reflected the said transaction in their returns filed with the IT Department.
(xvi) On p. 202 of the order, the learned AO had referred to the RBI letter dt. 11th Dec., 2001. The letter clearly states that the permission if any is to be taken by the FIIs. The appellant as a broker is not required to take any permission. Moreover, the learned AO has suppressed RBI letter dt. 10th Dec., 2001 that states "Further, in terms of para 1(5) of Sch. 2 of FEMA 2000, a registered FII is also permitted to purchase shares and convertible debentures of an Indian company through private placement/arrangement, subject to the ceilings specified." However, this issue is not relevant from income-tax assessment point of view and has been discussed here by us to counter the misleading averments of the learned AO.
(xvii) The learned AO has also referred to the stock exchange confirmation of the trades in HFCL scrip as on 3rd March, 2000. But that was with regard to the old shares of HFCL, which were already listed on the exchange. As on 3rd March, 2000, the new HFCL shares had not even originated from the company, leave apart the tradability aspect of it. The shares allocated by HFCL in private placement were transferred to the demat accounts of the parties on or around 24th March, 2000. Therefore, one could not compare the market price of the old listed shares as on 3rd March, 2000 with the new unlisted shares.
(xviii) Page No. 203 mostly gives the facts, which are not in question. On p. 204 however, the learned AO contends that the credit facilities were given by the Global Trust Bank to the eight companies without official sanction from corporate office. Firstly this is an internal matter of the bank. The bank sanctions the facility. Whether they had taken sanction of their higher authority or not is none of the appellant's concern.
(xix) As regard the 2,37,600 shares of HFCL we wish to submit that these have been sold in the market to the FIIs at the prevailing market rate in April, 2000 and are in no way connected with the 5,92,950 shares given to the FIIs @ Rs. 1,050 plus transaction charges.
(xx) The fact of having sold these shares in the market to the FIIs has been admitted by the learned AO. But while making addition on account of undisclosed income on this issue, the learned AO has taken total shares numbering 10,68,275 excluding therefrom only 1,42,525 shares sold in the market by First Global Finance (P) Ltd. as that was dealt with and added by him separately in the assessment order.
(xxi) The point of permission from RBI has also been dealt with by us in our submissions above and are not being repeated, although this is wholly irrelevant for the assessment of income.
(xxii) The learned AO has admitted in his order that all the FIIs have confirmed having bought these shares including the price as well as the circumstances leading to the purchase. Therefore, there is absolutely no case for any under-statement of price. The learned AO is only saying that the appellant should have sold these at the market price. There is no material on record to show that the appellant has received any unaccounted consideration for these shares. The source of the transaction has also been confirmed by the learned AO himself.
(xxiii) The learned AO has further contended that since these transactions were secondary market transactions and as such, rules and regulation of Securities Contract Regulation Act will apply. However, we submit that the above contracts are outside the purview of Section 13 of the Securities Contracts (Regulation) Act, 1956, and need not be a spot transaction, inasmuch as the trades were through or with a member of a recognised stock exchange. Legislature has advisedly not placed a requirement of trading on a stock exchange (as misinterpreted by the AO) but only a requirement that the trade, whether on or off market, must be between members of recognised stock exchanges, or through or with a member. It permits a trade through or with a member, on both counts the transactions being totally legal, it being admitted by the AO that FGSBPL was a broker. The entire basis of the disallowance on this account was wrong and illegal on the face of it.
(xxiv) In any event, an alleged breach of stock exchange bye-laws cannot result in an item of income being treated as undisclosed.
(xxv) At the end of p. 206, the learned AO once again harps on the allegation that the assessee has not explained these transactions before the Investigation Wing, before the auditor or before the AO. This is again false to the core as we have already stated in our submissions that numerous letters explaining the transactions were written to the Investigation Wing as well as to the learned AO. The issue of special audit has already been dealt with in detail in our earlier submission in the matter.
18.2 The learned Authorised Representative vide letter dt. 31st Dec., 2003 further submitted as under:
Please refer to the hearing held on 24th Dec., 2003 wherein the issue relating to the addition of Rs. 96 crores as undisclosed income relating to the 10,68,275 shares of HFCL private placement of new unlisted shares was discussed.
In this regard, we have been instructed by our clients to state that without prejudice to our submissions in the matter already submitted vide our letter dt. 13th Nov., 2003, we submit that the FIIs to whom the total of 5,92,950 shares were transacted on the DVP basis are the FIIs who are taxed for their income earned in India and are duly taxed in India for those incomes. On the basis of the information available with us, these FIIs have earned a profit of about Rs. 28.16 crores by selling the said shares. A detailed statement is being enclosed for your reference as Annex. A. Apart from that, the appellant had retained 3,10,280 shares with them that they have sold in the stock market at the prevailing market rate and have duly shown that profit of about Rs. 9.78 crores in their return of income for the asst. yr. 2001-02. A detailed statement is enclosed as Annex. 'B'.
The learned CIT(A) has gone through the submissions of the assessee and rejected them. However, he found little variation in the number of shares sold by the assessee and certain computation errors. He confirmed the addition at Rs. 84,72,76,000. This computation reads as under:
In view of all above, I hold that AO was absolutely justified in making the addition under reference. However, the quantum is recomputed as under:
_________________________________________________________________________ | 1 | 592950 shares sold to FIIs @ Rs. 1060 as against | Rs. 61,66,68,000| | | average price of Rs. 2100 | | | | 592950 x (2100-1060) | | |___|___________________________________________________|_________________| | 2 | 22520 shares sold to friends and staff | Rs. 2,34,20,800| | | 22520 x (2100-1060) | | |___|___________________________________________________|_________________| | 3 | 237600 shares sold to FIIs, in March, 2000 but | Rs. 20,71,87,200| | | changed the contract on 6/4/2000 at price of 1228 | | | | 237600 x (2100-1228) | | |___|___________________________________________________|_________________| | 4 | 72680 shares were retained by the appellant and | Nil | | | sold in financial year 2000-01 and profit earned | | | | on those shares, has been offered for tax in the | | | | asst. yr. 2001-02 as confirmed by AO in his remand| | | | report dt. 17/3/2004 | | |___|___________________________________________________|_________________| | | | Rs. 84,72,76,000| |___|___________________________________________________|_________________| As such, the addition under reference is confirmed to the extent of Rs. 84,72,76,000. In the result, the appellant gets relief of Rs. 11,55,04,000.
58. We have duly considered the rival contentions. There is no dispute to the facts that all these shares were unlisted shares. The learned CIT(A) accepted this fact. It appears that the learned Revenue authorities have misconstrued and misinterpreted the transaction itself. The transaction deals with the purchase of unlisted new shares of HFCL issued on a private placement basis by HFCL. The foreign institution/investment companies can participate in this issue of private placement of equity shares on delivery vs. payment (DVP) basis. These FIIs are UK and USA based. Their dealing guidelines do not allow them to participate on non DVP transaction. Thus they entered into an MoU with the assessee to facilitate the transaction. According to those MoU these FIIs expressed their interest in getting allocation issue at the overall cut off price plus related transaction cost. These DVP transactions are specifically permitted by SEBI. One of the arguments of learned Revenue authorities is that assessee has violated certain procedure laid down by SEBI and RBI, but in our opinion those violations would not ipso facto lead that assessee had earned this income. The Enforcement Directorate has not been able to come with any charge against the assessee having received any amount beyond what has been disclosed by the assessee through the official channels. It is important to note that once the shares were delivered to these FIIs they immediately made the payment through the custodian bank and assessee has already shown the commission income and other income related to these transactions. The learned AO as well as learned CIT(A) by making a reference to some small irregularities concluded that assessee had received the shares at issue price of Rs. 1,050 and sold them at that very price instead of selling them at a price of Rs. 2,100 per share approximately. Where on the other hand, the contention of the assessee is that it has only earned brokerage income which has already been disclosed to the Department in the regular return of income. On due consideration of all these facts and circumstances we are of the view that this addition cannot be made in the block assessment. More so there is no evidence which can belie the stand of assessee that these shares were not purchased by FIIs in private placement and the assessee has only helped them in accordance with delivery vs. payment scheme. The transaction ought to have been construed in accordance with the nature of assessee's business, whereas the learned Revenue authorities have taken it in isolation, de hors this transaction from the main stream of assessee's business. It is also important to note that the AO had assessed the income of more than Rs. 682 crores but in spite of the search Department was unable to locate the worth of this amount with the assessee. Thus in view of the above discussion we allow this ground of appeal and delete the addition of Rs. 84,72,76,000.
59. Ground No. 4 B(1) : In this ground of appeal the assessee is impugning the additions which have been made on the basis of various seized papers. In the ground assessee has narrated 141 such additions which are based on the basis of different pages of Annexs. Al, A2, A4 to A10. Out of these 141 different additions learned CIT(A) has taken cognizance of 79 amounts at page Nos. 237 to 240. Let us take note of the CIT(A)'s finding with regard to these 79 additions which read as under:
64. The additions based on seized documents having acceptable narration; but not explained during assessment proceedings as well as appellate proceedings.
In the preceding para I decided the issue with reference to the seized dumb documents not having acceptable narration and not explained by the appellant during assessment proceedings.
Here below I deal with the documents having acceptable narration, still not explained before AO as well as before me.
With reference to such documents, the AO made the addition for the reason that those were not explained during assessment proceedings. During appellate proceedings, the learned Authorised Representative submitted that those papers appear to be having rough jottings of unknown origin and is in unknown handwriting. The learned Authorised Representative also argued that those are in the nature of dumb documents and has nothing to do with the appellant.
Here again, I perused the entire seized material on the basis of which the additions have been made by the AO. I am of the opinion that below listed documents seized from the premises of the appellant are not dumb documents because those are having acceptable and explainable narrations. The alternative argument of the appellant that the seized paper has the jotting of unknown origin and is in unknown handwriting does not come to its help for the reason of clear provisions under Section 132(4A) of the Act, as discussed in detail under para 14(vii) of the appellate order. It would not be out of place to mention here that the rigorous and strictness of marshaling the evidences as per the Evidence Act, 1872 are not applicable to income-tax proceedings as discussed in detail under para 14 of the appellate order.
It is further seen that such documents have neither been explained during assessment proceedings nor in appellate proceedings. Therefore, there is no change in the status of additions with reference to these documents. Here again, just to keep the volume of appellate order manageable, I discuss all such acceptable documents together, which were neither explained during assessment proceedings nor during appellate proceedings, with brief narration, explaining the contents of the documents. The additions with reference to all such documents listed below are confirmed.
____________________________________________________________________________________ |Sr.|Page No |Ref. seized | Ref. | Amount of | Remark (in brief) | |No.|of asst |document | ground No.| addition | | | |order | | | | | |___|________|____________|___________|___________|__________________________________| |1 | | | | | | | |213 |A-2/54 |133 to 135 |1,56,000 |Paper contains jotting of various | | | | | | |payments in the office of RoC. | | | | | | | No explanation, source of | | | | | | | payment remained unexplained. | |___|________|____________|___________|___________|__________________________________| |2 | | | | | | | |214 |A-4/8 |142 to 144 |1,15,000 |Paper contains acceptable | | | | | | |narration appears to be in the | | | | | | |handwriting of Neeraj Khanna. | |___|________|____________|___________|___________|__________________________________| | | | | | | | | | | | | |Explained as advance tax | | | | | | |payment of some clients of Mr. | | | | | | |Khanna but no evidence in | | | | | | |support of the explanation. | | | | | | |Presumption of Section 132(4A) of | | | | | | |the Act. | |3 | | | | | | | |220 |A-1/3 |172 to 174 |2,79,841 |Addition of brokerage @ 0.05 | | | | | | |per cent on the amount of | | | | | | |transaction of shares. Jottings | | | | | | |of share transaction, with name | | | | | | |of scrip. No. of shares and | | | | | | |mount. | | | | | | |Either no explanation offered or | | | | | | |the explanation is not supported | | | | | | |by any evidence that brokerage | | | | | | |on such transaction has been | | | | | | |accounted for in regular books | | | | | | |of account during assessment | | | | | | |proceedings as well as appellate | | | | | | |proceedings. | |___|________|____________|___________|___________|__________________________________| |4 |221 |A-1/4&5 |175 to 177 |600,233 | -do- | |___|________|____________|___________|___________|__________________________________| |5 |221 |A-1/11 to 20|178 to 180 |2,553,472 | -do- | |___|________|____________|___________|___________|__________________________________| |6 |222 |A-1/21 to 38|181 to 183 |13,219 | -do- | |___|________|____________|___________|___________|__________________________________| |7 |228 |A-1/65 |210 to 212 |1,042,467 | -do- | |___|________|____________|___________|___________|__________________________________| |8 |229 |A-1/69 |213 to 215 |2,072,000 | -do- | |___|________|____________|___________|___________|__________________________________| |9 |232 |A-1/105 |276 to 278 |110,058 | -do- | |___|________|____________|___________|___________|__________________________________| |10 |232 |A-1/106 |279 to 281 |83,643 | -do- | |___|________|____________|___________|___________|__________________________________| |11 |232 |A-7/72 |282 to 284 |717,196 | -do- | |___|________|____________|___________|___________|__________________________________| |12 |234 |A-9/4 |291 to 293 |718,923 | -do- | |___|________|____________|___________|___________|__________________________________| |13 |234 |A-9/5 |294 to 296 |33,640 | -do- | |___|________|____________|___________|___________|__________________________________| |14 |235 |A-9/6 |297 to 299 |258,612 | -do- | |___|________|____________|___________|___________|__________________________________| |15 |235 |A-9/11 |300 to 302 |1,458,771 | -do- | |___|________|____________|___________|___________|__________________________________| |16 |238 |A-9/14 |306 to 308 |270,932 | -do- | |___|________|____________|___________|___________|__________________________________| |17 |238 |A-9/15 |309 to 311 |39,980 | -do- | |___|________|____________|___________|___________|__________________________________| |18 |238 |A-10/12 |312 to 314 |1,828,984 | -do- | |___|________|____________|___________|___________|__________________________________| |19 |238 |A-10/13 |315 to 317 |1,142,737 | -do- | |___|________|____________|___________|___________|__________________________________| |20 |239 |A-10/14 |318 to 320 |299,379 | -do- | |___|________|____________|___________|___________|__________________________________| |21 |240 |A-10/23 |324 to 326 |703,443 | -do- | |___|________|____________|___________|___________|__________________________________| |22 |240 |A-10/24 |327 to 329 |734,638 | -do- | |___|________|____________|___________|___________|__________________________________| |23 |240 |A-10/25 |330 to 332 |577,002 | -do- | |___|________|____________|___________|___________|__________________________________| |24 |241 |A-10/26 |333 to 335 |578,466 | -do- | |___|________|____________|___________|___________|__________________________________| |25 |241 |A-10/27 |336 to 338 |345,648 | -do- | |___|________|____________|___________|___________|__________________________________| |26 |241 |A-10/28 |339 to 341 |344,561 | -do- | |___|________|____________|___________|___________|__________________________________| |27 |241 |A-10/29 |342 to 344 |132,837 | -do- | |___|________|____________|___________|___________|__________________________________| |28 |241 |A-10/30 |345 to 347 |1,515,015 | -do- | |___|________|____________|___________|___________|__________________________________| |29 |242 |A-10/34 |348 to 350 |12,356 | -do- | |___|________|____________|___________|___________|__________________________________| |30 |242 |A-10/35 |351 to 353 |471,158 | -do- | |___|________|____________|___________|___________|__________________________________| |31 |242 |A-10/37 |353 to 355 |48,875 | -do- | |___|________|____________|___________|___________|__________________________________| |32 |242 |A-10/38 |356 to 358 |833,209 | -do- | |___|________|____________|___________|___________|__________________________________| |33 |242 |A-10/39 |360 to 362 |840,282 | -do- | |___|________|____________|___________|___________|__________________________________| |34 |243 |A-10/40 |363 to 365 |880,472 | -do- | |___|________|____________|___________|___________|__________________________________| |35 |243 |A-10/41 |366 to 368 |882,414 | -do- | |___|________|____________|___________|___________|__________________________________| |36 |243 |A-10/43 |369 to 370 |851,683 | -do- | |___|________|____________|___________|___________|__________________________________| |37 |243 |A-10/45 |372 to 374 |432,613 | -do- | |___|________|____________|___________|___________|__________________________________| |38 |243 |A-10/46 |375 to 377 |9,411 | -do- | |___|________|____________|___________|___________|__________________________________| |39 |244 |A-10/48 |378 to 380 |116,896 | -do- | |___|________|____________|___________|___________|__________________________________| |40 |244 |A-10/49 |381 to 383 |492,216 | -do- | |___|________|____________|___________|___________|__________________________________| |41 |244 |A-10/51 |384 to 386 |164 | -do- | |___|________|____________|___________|___________|__________________________________| |42 |244 |A-10/56 |387 to 389 |14,478,668 | -do- | |___|________|____________|___________|___________|__________________________________| |43 |244 |A-10/57 |390 to 342 |2,611,667 | -do- | |___|________|____________|___________|___________|__________________________________| |44 |245 |A-10/58 |393 to 395 |7,649,050 | -do- | |___|________|____________|___________|___________|__________________________________| |45 |245 |A-10/62 |396 to 398 |363,321 | -do- | |___|________|____________|___________|___________|__________________________________| |46 |245 |A-10/69 |399 to 401 |10,044 | -do- | |___|________|____________|___________|___________|__________________________________| |47 |245 |A-10/70 |402 to 404 |322,980 | -do- | |___|________|____________|___________|___________|__________________________________| |48 |245 |A-10/89 |405 to 407 |1,220,095 | -do- | |___|________|____________|___________|___________|__________________________________| |49 |246 |A-10/90 |408 to 410 |6,128,204 | -do- | |___|________|____________|___________|___________|__________________________________| |50 |246 |A-10/91 |411 to 413 |1,402,426 | -do- | |___|________|____________|___________|___________|__________________________________| |51 |246 |A-10/93 |414 to 416 |4,598,869 | -do- | |___|________|____________|___________|___________|__________________________________| |52 |246 |A-10/94 |417 to 419 |777,600 | -do- | |___|________|____________|___________|___________|__________________________________| |53 |246 |A-10/95 |420 to 422 |2,704,500 | -do- | |___|________|____________|___________|___________|__________________________________| |54 |246 |A-10/96 |423 to 445 |2,185,498 | -do- | |___|________|____________|___________|___________|__________________________________| |55 |246 |A-10/98 |446 to 447 |5,189,671 | -do- | |___|________|____________|___________|___________|__________________________________| |56 |247 |A-10/99 |448 to 450 |3,498,048 | -do- | |___|________|____________|___________|___________|__________________________________| |57 |247 |A-10/109 |451 to 453 |106,260 | -do- | |___|________|____________|___________|___________|__________________________________| |58 |250 |A-01/21 |496 to 498 |2,010,000 | -do- | |___|________|____________|___________|___________|__________________________________| |59 |251 |A-01/105 |514 to 516 |12,054,440 | -do- | |___|________|____________|___________|___________|__________________________________| |60 |253 |A-01/7 |544 to 546 |477,202 | -do- | |___|________|____________|___________|___________|__________________________________| |61 |227 |A-1/64 |207 to 209 |218,136 |Document with acceptable | | | | | | ||narration, but no explanation. | |___|________|____________|___________|___________|__________________________________| |62 |230 |A-1/87 to 88|243 to 245 |21,450 |Seized document having | | | | | | |acceptable narration with date, | | | | | | |signature etc. regarding | | | | | | |unexplained food & travelling exp.| |___|________|____________|___________|___________|__________________________________| |63 |230 |A-1/89 to 91|246 to 248 |278,415 |Seized document with absolute | | | | | | |clear narration of electric work | | | | | | |at Surat. Source of expenditure | | | | | | |remained unexplained. | |___|________|____________|___________|___________|__________________________________| |64 |231 |A- 1/102 |270 to 272 |5,230,000 |Seized document containing | | | | | | |name of scrip with figures | | | | | | |unexplained. | |___|________|____________|___________|___________|__________________________________| |65 |233 |A-7/159 |285 to 287 |1,413,000 |Seized document has jottings | | | | | | |with acceptable narration and | | | | | | |amount. The details appear to be | | | | | | |for some unexplained investment. | |___|________|____________|___________|___________|__________________________________| |66 |233 |A-8/20 |288 to 290 |30,000 |Seized paper with acceptable | | | | | | |narration of unexplained | | | | | | |expenditure on travelling to | | | | | | |Mahableshwar. | |___|________|____________|___________|___________|__________________________________| |67 |249 |A-1/1 to 14 |490 to 492 |2,786,000 |Seized papers pertain to receipt | | | | | | |of amount from various parties, | | | | | | |claimed to be entered in regular | | | | | | |books, but could not be | | | | | | |properly reconciled and not | | | | | | |evidenced for genuineness under | | | | | | | Section 68 of the Act. | |___|________|____________|___________|___________|__________________________________| |68 |250 |A-1/15 to 16|493 to 495 |2,040,104 |The seized papers have full | | | | | | |narration with name and | | | | | | |amount with heading "Payments | | | | | | |due to us". Remained | | | | | | |unexplained before AO. | |___|________|____________|___________|___________|__________________________________| |69 |250 |A-1/22 |499 to 501 |1,149,000 |Seized paper has complete | | | | | | |narration for "funds deposited for| | | | | | |arbitrage". Remained unexplained. | |___|________|____________|___________|___________|__________________________________| |70 |251 |A-1/51 |506 to 508 |2,963,000 |Seized paper has acceptable | | | | | | |narration probably for same car | | | | | | |payment. Remained unexplained. | |___|________|____________|___________|___________|__________________________________| |71 |251 |A-1/100 |511 to 513 |2,630,000 |Seized paper has complete | | | | | | |narration in absolute terms. | | | | | | |Paper appears to be for some | | | | | | |unexplained investment. | | | | | | |Remained unexplained. | |___|________|____________|___________|___________|__________________________________| |72 |252 |A-1/107 |517 to 519 |5,000,000 |Paper has acceptable narration | | | | | | |with name, date and amount. | | | | | | |Remained unexplained. | |___|________|____________|___________|___________|_________________________________ | |73 |252 |A-1/108 to |520 to 522 |405,000 |Seized papers pertains to receipt | | | |117 | | |of amount from various parties, | | | | | | |claimed to be entered in regular | | | | | | |books, but could not be | | | | | | |properly reconciled and not | | | | | | |evidenced for genuineness under | | | | | | |Section 68 of the Act. | |___|________|____________|___________|___________|__________________________________| |74 |253 |A-1/44A |547 to 549 |2,427,000 |Seized document has name of | | | | | | |scrip, share sold, and amount of | | | | | | |profit. Paper remained | | | | | | |unexplained. | |___|________|____________|___________|___________|__________________________________| |75 |254 |A-1/44B |550 to 552 |1,523,000 | -do- | |___|________|____________|___________|___________|__________________________________| |76 |254 |A-1/44C |553 to 555 |576,886 |Seized paper has acceptable | | | | | | |narration with amount, and | | | | | | |remained unexplained. | |___|________|____________|___________|___________|__________________________________| |77 |254 |A-1/46 |559 to 561 |7,648,778 |Seized document with acceptable | | | | | | |narration, name of the person | | | | | | |and Mobile No. etc., remained | | | | | | |unexplained. | |___|________|____________|___________|___________|__________________________________| |78 |252 |A-1/13 to 15|526 to 540 |5,252,000 |Seized document with acceptable | | | |31 to 36 | | |narration not explained. | |___|________|____________|___________|___________|__________________________________| |79 |253 |A- 1/2 |541 to 543 |200,000 |Seized document with acceptable | | | | | | |narration not explained. | |___|________|____________|___________|___________|__________________________________|
60. Apart from these above 79 entries there are other additions. The first three additions i.e. serial Nos. 1 to 3 are based on page Nos. 44, 47 and 53 of Annex. Al. These additions have been noticed by the learned CIT(A) while reproducing the order of learned AO at p. 140 as under:
2. Annex. 'A-1'p. 44 Page No. 44 contains figures against master not found and computer suspense account as follows:
1. Master not found credited 1,33,330
2. Master not found 41,07,218
3. Computer suspense account 82,63,385 ____________ 1,25,03,933 ____________1 The assessee has not furnished any explanation as regards the reflection of the same in the regular books of accounts therefore, these credits of Rs. 1,25,03,933 are considered as undisclosed credits and added to income for asst. yr. 2001-02 Rs. 1,25,03,933
3. Annex. 'A-1' p. 47 On this page there were certain credit entries under the head master not found. These are profit bearing entries. This credit to "master not found", of Rs. 55,28,406 was not explained as to whether same has been reflected in the regular books of accounts. Therefore the credit is considered as undisclosed credit and added to income for asst. yr. 2001-02 Rs. 55,28,406
4. Annex. 'A-1' p. 53 It shows credit amount of Rs. 15,204. The same has not been explained by the assessee company and in absence of any proof as to whether the same has been reflected in the regular books of accounts. Therefore the credit amount is treated as undisclosed and added to the income for asst. yr. 1999-2000.
Rs. 15,204.
Similarly at serial No. 4 of the grounds of appeal an additions of Rs. 2,42,55,152, Rs. 3,53,00,000, Rs. 11 crores and Rs. 20 crores have been made on the basis of page Nos. 56, 68 and 69, 70 and 71 of Annex. A-1. These additions have been discussed by the AO at p. 208 of the assessment order.
61. There are various small additions which we have already noticed while taking cognisance of the learned CIT(A)'s order from page Nos. 236 and 240 extracted supra. There are certain major additions i.e. at serial No. 20 of Rs. 4,96,96,494 based on p. 1 of Annex. A6. At serial No. 36 an addition of Rs. 13,88,09,925 is made on the basis of rough jotting reflected at p. 62 of Annex. Al. At serial No. 37 an addition of Rs. 62,90,00,000 is being disputed which has been made on the basis of rough jotting appearing in p. 63 of Annex. 1. Similarly a major addition of Rs. 8,51,00,000 has been made on the basis of rough jotting appearing at p. 13 of Annex. A9 and an addition of Rs. 8,89,00,000 appearing at p. 15 of Annex. A10. At serial No. 91 assessee is impugning an addition of Rs. 1,44,78,668 based on a rough jotting reflected at p. 56 of Annex. A-10. At serial Nos. 107 and 122 the assessee is impugning addition of Rs. 17,65,00,000 made on the basis of rough jottings appearing at page No. 6 and 7 of Annex. A-11 and an addition of Rs. 21,90,00,000 based on rough jotting appearing at p. 37 of Annex. A-1. Similarly an addition of Rs. 3,88,41,000 has been made on the basis of rough jotting appearing at p. 44D of Annex. A-1.
62. With the assistance of learned representatives we have gone through the record carefully as well as the seized material placed before us in voluminous paper book. As far as the addition impunged at serial No. 1 amounting to Rs. 1,25,03,393 is concerned, as noticed earlier while extracting the finding of AO this addition is made on the ground that certain entries were revealed on reconciliation of the data fed in the computer. The AO concluded that in certain entries " master not found" and computer suspense account. He treated such entries as undisclosed credit. Before learned CIT(A) it was contended that these entries relate to financial year 1999-2000. These have duly been reflected in the books of accounts and cannot be subject-matter of block assessment. It was also pointed out that at the relevant time company was exclusively using Comtek share accounting package, a computer software. In asst. yr. 2000-01 the assessee started its retail arms with its office at Vashi. In this retail business the number of clients increased, the Comtek software being based on Dos package was unable to take the load of work involved in retail business and in April, 2000 assessee had started updating Tally software package. Hence certain reconciliation errors and identification of particular account crept in. It was also pointed out that retail accounting was being done in Tally software accounting package. There was no need for putting repetitive work and this was the reason for the phrase i.e. "master not found" reflecting in the account. Thus, the assessee has explained its position and has contended that all these entries are reflecting in the regular books of accounts. The AO has rejected this contention in summarily manner. The addition cannot be made merely by observing that no explanation is coming from the assessee.
63. Let us see one of the major additions i.e. Rs. 62.90 crores disputed in this ground. The finding of learned AO has been reproduced by learned CIT(A) in para 42 of the impugned order. The finding of the AO, submissions of the assessee and finding of the learned CIT(A) are reproduced as under:
42. Ground Nos. 204 to 206 relate to an addition of Rs. 62.90 crores at page No. 226/227 of the assessment order. The findings of the learned AO in this regard are as under:
11. Annex. A-1 page No. 63 reads as follows:WIPRO (-)90000 V 23/27 SSI (-)105000 V 13/44 DSQ (-)150000 V 5/69 GRASIM (-)200000 V 6/44 ICICI (-)181000 V 1/98 HFCL (-)75000 V 5/02 GACL (-)100000 V 1/90 Str.lnd (-)125000 V 1/90 ACC (-)75000 V 1/33 RIL (-)25000 V 1/03 RILCAP (-)100000 V 0/91
______ 62/90 As evident from page No. 59, 62/90 would mean Rs. 62,90,00,000. As the assessee has not submitted any explanation to the above, the same is considered as the undisclosed profit on sale of shares and added to the income of the asst. yr. 2001-02 (broken period) Rs. 62,90,00,000.
42.1 In this context, the submission of the learned Authorised Representative as per page No. 43 of letter dt. 8th Dec., 2003 is as under : '(i) The learned AO has made this addition on conjectures and surmises on the basis of rough jottings of unknown origin and handwriting. These appear to be rough jottings that are of unknown origin and are in unknown handwriting. We are therefore unable to comment on these with any degree of certainty. The Income-tax officials in the course of searching the premises have not made any noting as to the place/office/desk and from whom the particular papers were recovered making it impossible for us to comment on unknown papers in unknown handwriting. The company had hundreds of employees and dozens of traders and dealers. There is not even a note or statement on whether the paper is at all related to the company or is the personal matter of person writing or deals with trades or outstanding positions or market information or ALBM or BLESS or FII trades or local institutional trades or trades of other members of stock exchanges or which period/date or which stock exchange it pertains to.
(ii) From that point therefore these are dumb documents and cannot be relied upon to make any addition. Therefore, the same cannot be treated as undisclosed income. The addition of Rs. 62,90,00,000 may be deleted.' 42.2 I have carefully considered the findings of the AO and submissions of the learned Authorised Representative along with other material available on record. The impugned seized paper contains the handwritten jottings as correctly translated by the AO and reproduced in the assessment order. Here again, the figures like 23/27, 13/44 with the name of the scrip, number of shares sold and the subject code of "marked as V" is written on impugned seized document. The explanation of the appellant that rough jottings are of unknown origin and are in unknown handwriting does not come to its rescue because of the provisions of presumption under Section 132(4A) of the Act. For the reason that acceptable narration is written on the impugned paper seized from the premises of the appellant, it cannot be treated as dumb document also. This paper is again almost similar to the seized paper No. 58 discussed at length under ground Nos. 187 to 189. In addition to the discussions held above, I further rely on my findings to confirm the addition, as discussed under ground Nos. 187 to 189.
In view of the detailed discussions held above, the addition made by the AO and particularly with reference to that the document remains unexplained during assessment proceedings as well as appellate proceedings, I confirm the addition of Rs. 62.90 crores.
At serial No. 6 of this ground of appeal an addition of Rs. 11 crores is impugned which has been made on the strength of notings found on p. 70 of Annex. Al. Similarly on the basis of the notings at p. 71 of Annex. Al further an addition of Rs. 21,53,40,075 is made. On the basis of the notings available at p. 70 of Annex. Al the AO has made an addition of Rs. 17 crores, out of that Rs. 6 crores have been deleted by the learned CIT(A) and Rs. 11 crores is confirmed. Thus, additions have been made because according to the AO page shows deposit account, cash and guarantee cash account of Rs. 6 crores in NSC and Rs. 5 crores in NSC respectively. Further in deposit account and cash and guarantee account a cash of Rs. 5 crores and Rs. 1 crore in BSC respectively. The AO just narrated these accounts and then made addition on the basis that assessee failed to give any explanation. According to the assessee these jottings are rough jottings. They have come from unknown origin and are from unknown handwriting, hence, cannot be treated as undisclosed income for want of any proof. With regard to the addition made on the basis of notings available in p. 71 we find that AO has made an addition of Rs. 35.47 crores, which has partly been deleted by the learned CIT(A) and the assessee made the following submissions before the learned CIT(A):
24.4 In this context, the submission of the learned Authorised Representative as per page Nos. 10 and 11 of letter dt. 30th Nov., 2003 in brief are as under:
(i) These appear to be rough jottings that are in the handwriting of appellant's consultant Mr. Neeraj Khanna. The appellant has contacted Mr. Neeraj Khanna and has sought his help in deciphering the papers as the appellant is in no position to understand the rough jottings made by a third person and cannot know as to what was in his mind at the time of writing these jottings and as to what he was trying to scrutinize at the time of writing these jottings. Therefore although the appellant has on the basis of the inputs given by Mr. Khanna tried to decipher the papers, no adverse inference can be drawn against the appellant on the basis of these documents and papers.
(ii) On the face of the paper, the rough jottings appear to contain jottings regarding the works to be done. The amounts written therein appear to be the tentative repayment schedule for repayment of the money invested by the RNA group with FGSBPL. This is quite similar to the repayment schedule given on pp. 68 and 69 of this Annexure that has already been explained above.
(iii) All the repayments actually made are duly reflected and recorded in the books of account of the company. Copy of the ledger account of the parties is enclosed herewith for your reference. The accounts are fully reconciled and confirmed by the RNA group with those recorded in the appellant's books of account. The jottings being referred to are not books of account or anything similar to that and cannot be used for reconciliation of the account balances of the counter parties.
(iv) It is pertinent to note that the learned AO has added an amount of Rs. 3.53 crores as per seized pp. 68 and 69 for exactly the same transaction relating to the RNA group for which he had independently sought confirmations and the parties have confirmed all the transactions. But even then the learned AO in a total non-application of mind and in a mala fide illegal manner repeatedly made additions on the basis of same transactions. On what basis has the learned AO arrived at this figure of Rs. 17,56,59,925 has not been disclosed to the appellant.
(v) In spite of repeatedly asking for the statements of the counter parties, the learned AO has not given the same to the appellant. No opportunity to rebut the above claim or to furnish alternative evidence has been given to the appellant. No cross-examination has been provided to the appellant for the witnesses whose statements may have been relied upon by the learned AO.
(vi) Even the addition of Rs. 13,93,59,525 has been made by the learned AO without any application of mind. In the upper part of the para 9 on the addition made on account of transaction with RNA group, the learned AO says that the RNA group has confirmed that they have invested an amount of Rs. 17,56,59,925 with the appellant. In the lower part of the said para, he has added an amount of Rs. 13,93,59,525 on the pretext that the source of having received these funds from RNA group has not been explained to the learned AO , whereas he has already stated the fact of the appellant having received Rs. 17,56,59,525 from the RNA group towards investments. This is a malajide addition made with a view to make a high pitched assessment to harass the appellant and put a nonexistent financial burden on the appellant.
We further noticed the details of making additions of Rs. 1,18,73,000 on the basis of notings appearing in p. 95 of Annex. Al. This addition has been made on the ground that this much amount has been given to Virta Trading Agencies (P) Ltd. The assessee had filed copy of the account of Virta Trading Agjncies in its books of accounts. The learned first appellate authority confirmed the addition on the ground that the assessee failed to make the compliance of audit direction of the Department given under Section 142(2A). Thus we have gone through all the additions and the seized material exhaustively. The additions have been confirmed primarily for the reason that the assessee could not properly explain the queries raised by the statutory auditors, therefore, an adverse inference has to be drawn. While dealing with some of the entries the reason has simply been made that no explanation has come forward from the assessee. The learned CIT(A) for buttressing his finding further took aid of Section 132(4A) of the Act i.e. presumption of truth is attached with these documents. He also confirmed the additions on the basis of drawing adverse inference with the help of statutory audit report. In our opinion these additions are not sustainable because as noticed earlier while extracting the submissions of the assessee in respect of different additions (supra), according to the assessee all the entries were duly entered in the books of accounts at the relevant time. This fact has not been seriously disputed by the Department. The learned Revenue authorities proceeded on the construction of the scope of block assessment that they can reappreciate the entries and can work out the undisclosed income. The emphasis of the assessee is that papers which are rough papers, jottings lying in the office have been seized and assessee was asked to explain. The Department was unable to disclose the origin of the paper, in whose hand writing the papers are. It also failed to disclose the transaction to whom these papers relate to. In a hotchpotch manner the Department put certain jottings to the assessee for explanation. It was practically impossible for an entity to give explanation of a figure unless it is pointed out that this jotting relates to a particular transaction.
64. The learned CIT(A) while confirming the addition has observed that rigorous and strictness of marshalling the evidence as per the Evidence Act is not applicable to income-tax proceedings. We do not dispute with this observation, but one has to see which non-applicability of rigorous provision of Evidence Act is, i.e. made of proof etc. At the cost of repetition we may say that for example if somebody had produced a sale deed it would be per se admissible in the income-tax proceedings. It is not necessary to produce the vendor, vendee or attesting witness or some official from the Registrar's office to prove the sale deed and for reading it in the proceedings. Simply in general in a sweeping sentence one cannot ignore upon whom the onus is for explaining the particular entry. We are of the view that it is for the AO first to establish that some documents were found at the time of search, which goad the authority to reach at logical conclusion and the entries appeared in those documents are not reflected in the regular books of accounts of the assessee, only then the assessee can be put to explain. The AO has to first point out that this entry relates to a particular transaction, which assessee has not disclosed in the regular books of accounts. Hence, outcome of it would be considered as undisclosed income of the assessee. If the assessee failed to explain this to the satisfaction of the AO then that can be added as income of the assessee. On exhaustive perusal of the impugned orders we find that the learned Revenue authorities have ignored the submission of assessee that all these transactions have duly been disclosed in the regular books of accounts. The AO has made the addition only on reappreciation of the transaction or on the basis of drawing adverse inference. We have already observed on the strength of Hon'ble Supreme Court decision in the case of Rajesh Kumar (supra) as well as on the strength of the Tribunal's order in the case of Bajrang Textiles v. Dy. CIT (supra) that audit report obtained under Section 142(2A) cannot be used against the" assessee because opportunity of hearing before appointment of the special auditor was not provided to the assessee. More so, these are the loose papers and not the books of accounts which can be put to audit. Therefore, no adverse inference on the strength of the special auditor's report can be drawn against the assessee. The Hon'ble Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. (P) Ltd. v. CIT (1986) 58 CTR(SC) 9 : (1986) 159 ITR 624 (SC) had held that assessee was required to disclose primary facts and no inferential facts. The assessee has given the explanation to the entries reflecting in the seized material, from whom some logical inference can be drawn. Where the entries do not lead to any logical inference how the assessee can explain it. Merely on the ground that assessee failed to give some explanation the addition on the basis of drawing adverse inference cannot be made. For buttressing our point we draw support from the decision of Tribunal in the case of Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pane) and C.J. Shah & Co. us. Asstt. CIT (supra). The learned CIT(A) while dealing with the scope of block assessment has given reference to the order of Tribunal in IT(SS)A No. 28/Mum/1998 in the case of C.J. Shah & Co. v. Asstt. CIT. The propositions have been evaluated by the learned CIT(A) in contrary to the facts of the present case. In that case the assessee had claimed depreciation. When the search was carried out it revealed that such claim was only made on the basis of fabricated documents. It appears that there were no depreciable assets and such depreciation was not admissible to the assessee. It is a clear cut case of undisclosed income. Section 158B(b) provides that if during the course of search any material was found which can indicate that an assessee has claimed any expenses, deductions and allowances under this Act falsely then such expenses, deduction, claim would be treated as undisclosed income of the assessee. There are no such circumstances in the present case. The learned Revenue authorities have only drawn inference and reappreciated the transaction. They have calculated the notional profit alleged to have been earned by the assessee. Thus taking into consideration all the facts and circumstances we allow this ground of appeal and delete all the additions disputed in serial Nos. 1 to 141 of ground No. 4B(1) of the grounds of appeal.
65. Ground No. 3 : In this ground of appeal the assessee is impugning the addition of Rs. 61,87,500, which has been made on the ground that one Shri Ahmed Shamsuddin had arranged the remittance of 1,25,000 dollars to M/s First Global Mauritius Ltd. on behalf of the assessee.
66. The brief facts of the case are that the Enforcement Directorate had received an information that assessee had arranged 1,25,000 dollars, which was remitted to M/s First Global Mauritius through hawala channel. In this connection the Enforcement Directorate had recorded statement of one Shri Ahmed Shamsuddin, who in his statement has pointed out that he made the payment on behalf of the assessee. For this reason the addition has been made and the learned CIT(A) has confirmed the addition.
67. With the assistance of learned representatives we have gone through the record carefully. The Department was not able to lay its hand on any of the documentary evidences. The AO is simply harping upon the statement of Shri Ahmed Shamsuddin, which has been recorded by Enforcement Directorate. The assessee while pointing out the defects in the statement of Shri Ahmed Shamsuddin has contended in answer to a question he replied , "I recollect that someone in Dubai contacted us that he needed funds in Mauritius on behalf of an Indian company by name of First Global Stock Broking (P) Ltd.". This is the only evidence within the possession of the Department for treating this remittance as undisclosed income of the assessee. The Mauritius company alleged to have been received the money but there are no circumstances pointed out by the Revenue which can complete the chain. If some amount is remitted to the foreign company by any person how it can lead the authority (to believe) that amount was remitted only by assessee. The reply extracted supra of the statement of Shri Ahmed Shamsuddin is not sufficient to conclusively believe that assessee had remitted the amount. The Department could not find out who contacted Shri Ahmed Shamsuddin and how that person is related to the assessee. There should be some more corroboration for putting the assessee under a burden of tax for the income of Rs. 61,87,500. Simply on the basis of statement of third person it cannot be held that this amount has been remitted by assessee from undisclosed sources, more so, when an opportunity to cross examine this person was not granted to the assessee. This statement can at best be an information for probing the issue further. Hence, we allow this ground and delete the addition.
68. Ground No. 4 : In this ground of appeal the assessee is impugning the addition of Rs. 84,51,500 which has been made by the learned CIT(A) by making an enhancement. The learned CIT(A) has discussed this issue in para 62 at p. 227 of the order. The finding of the learned CIT(A) reads as under:
62. Notice of enhancement dt. 5th March, 2004 During appellate proceedings I came across that page Nos. 5, 6 and 7 of Annex. A-6 written by Mr. Neeraj Khanna has not been considered by AO during block assessment proceedings. The notice of enhancement was issued to the appellant vide this office letter dt. 5th March, 2004 which is as under:
To, M/s First Global Stock Broking (P) Ltd., No. 2, Crescent Chambers, 4th floor, Tamarind Lane, Fort, Mumbai-01.
Sub: Appeal against block assessment order - Notice of enhancement -Regarding -
Kindly refer to the above.
2. The appellate proceedings in your case against block assessment order are going on. During appellate proceedings I came across the following documents, seized as documents of Annex. A-6 during search action, which have not been considered during block assessment by the AO.
(i) Page No. 5 of A-6:
The page contains details of various expenses/gratification of Rs. 2,07,846 along with the dates and acceptable narration.
(ii) Page No. 6 of A-6:
This page contains the details of various transactions of Rs. 41.515 lacs, in acceptable narration along with the dates.
(iii) Page No. 7 of A-6:
This page again contains the details of various transactions of Rs. 72.935 lacs, in acceptable narration along with the dates.
The xerox copies of the pages are enclosed herewith for your ready reference.
3. It is to be mentioned further that these pages are pertaining to pad No. 5 written and maintained by Mr. Neeraj Khanna.
4. You are required to explain the notings on these papers and why not these papers be considered for the enhancement of the block assessment to the extent of amount of transactions written in the impugned papers.
5. The explanation should reach to the office of the undersigned on or before 11th March, 2004.
62.1 The appellant submitted its explanation vide letter dt. 11th March, 2004 which in brief is as under:
With reference to the above, we have been instructed by our client to submit the following explanation with regard to the pages, which according to you have not been considered by the learned AO.(i) Annex. A/6 page No. 5
This amount of Rs. 2,07,846 has already been considered by the learned AO on p. 10 of the seized Annex. A/6, being part of Panchnama dt. 23rd March, 2001 made for ground floor, Crescent Chambers, Tamarind Lane, Fort, Mumbai under the following head.
"Office expenses hiren' 2.08"
Therefore, in this regard we wish to state that:
(a) The above amount has already been considered by the AO while making the assessment order dt. 13th June, 2003 for the block period ended 23rd March, 2001, as the same is part of Annex. A/6, page No. 10 which has already been considered.
(b) That the appellant's explanation to these amounts is already on record with you in our written submission part IV on page No. 27.(ii) Annex. A/6 on page No. 6
As regards the transactions amounting to Rs. 41.51 lacs given on the above page, we wish to submit that these are the various amounts received/receivable as on the date on which the page was written. It is important to note that this page carries the detail that is also written on page No. 3 of Annex. A/5 that has already been considered by the learned AO and the addition has been made on that basis.
All the appellant's contentions with regard to the Annex. A/6 are contained in our appeal submission, part IV from page Nos. 1 to 36 and are applicable to the present explanation being offered now. We are now enclosing herewith the xerox copies of the respective ledger accounts in the books of the respective group companies of the appellant in whose books the abovesaid amounts are appearing.
7TH March, 2001 Sahara Comm. 0.75 __________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |__________ |___________|_________________________________________________________| | 0.75 | 0.75 | This is the amount of commission earned from Sahara | | | | India Financial Corpn. for the trades done for them. | |__________ |___________|_________________________________________________________| 7th March, 2001 Car payment 0.75 __________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |__________ |___________|_________________________________________________________| | 0.75 | 0.75 | This appears to be the amount received for the sale of | | | | an old car. | |__________ |___________|_________________________________________________________| 2nd March, 2001 Garma (Loan) 5.00 __________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |__________ |___________|_________________________________________________________| | 5.00 | 5.00 | This appears to be a loan of Rs. 5 lacs received by | | | | Virta Trade & Agencies (P) Ltd. from Garma Trexim (P) | | | | Ltd. The amount is duly reflected in the books of | | | | Virta Trade & Agencies (P) Ltd. | |__________ |___________|_________________________________________________________| 1st March, 2001 Top Gear 10.00 __________________________________________________________________________________ | Amount as | Amount | Explanations | | per pad | Rs. Lacs | | |___________|___________|_________________________________________________________| | 10.00 | 10.00 | This appears to be a loan of Rs. 10 lacs received by | | | | Top Gear Leasing & Finance (P) Ltd. from Garma Trexim | | | | (P) Ltd. The amount is duly reflected in the books of | | | | Top Gear Leasing & Finance (P) Ltd. | |___________|___________|_________________________________________________________| 5th March, 2001 Panchal 5.00 __________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|_________________________________________________________| | 5.00 | 5.00 | This appears to be a loan of Rs. 5 lacs received by | | | | Panchal Components & Appliances (P) Ltd. from Garma | | | | Trexim (P) Ltd. The amount is duly reflected in the | | | | books of Panchal Components & Appliances (P) Ltd. | |___________|___________|_________________________________________________________| 3rd March, 2001 Panchal 5.00 __________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad> | Lacs | | |___________|___________|_________________________________________________________| | 5.00 | 5.00 | This appears to be a loan of Rs. 5 lacs received by | | | | Panchal Components & Appliances (P) Ltd. from Garma | | | | Trexim (P) Ltd. The amount is duly reflected in the | | | | books of Panchal Components & Appliances (P) Ltd. | |___________|___________|_________________________________________________________| 8th March, 2001 Panchal 5.00 __________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|_________________________________________________________| | 5.00 | 5.00 | This appears to be a loan of Rs. 5 lacs received by | | | | Panchal Components & Appliances (P) Ltd. from Garma | | | | Trexim (P) Ltd. The amount is duly reflected in the | | | | books of Panchal Components & Appliances (P) Ltd. | |___________|___________|_________________________________________________________| 8th March, 2001 Vruddhi 5.00 __________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|_________________________________________________________| | 5.00 | 5.00 | This appears to be a loan of Rs. 5 lacs received by | | | | Vruddhi Confinvest India (P) Ltd. from Garma | | | | Trexim (P) Ltd. The amount is duly reflected in the | | | | books of Vruddhi Confinvest India (P) Ltd. | |___________|___________|_________________________________________________________| Rest of the page is a dumb document, as the same does not carry any date or the company name to which these amounts relate. Therefore, the balance portion of the document is a dumb document.
(iii) Annex. A/6 page No. 71st March, 2001 bal. 42.935 ___________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|__________________________________________________________| | 42.935 | 42.935 | This amount appears to be a carry forward of the | | | | balance from page No. 8 of the same Annex. A/6. This | | | | means that this amount has already been considered | | | | by the AO while finalizing the assessment order dt. | | | | 13.06.2003 in the case of the appellant. | |___________|___________|__________________________________________________________| 7th March, 2001 Sahara 20.00 ___________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|__________________________________________________________| | 20.00 | 20.00 | This amount has already been considered and added | | | | by the learned AO on the basis of pp. 50 and 54 of | | | | Annex. A/I being part of Panchnama made for ground | | | | floor Crescent Chambers, Fort, Mumbai. This amount | | | | appears to be a payment made to Sahara India | | | | Financial Corporation by the appellant against the | | | | client credit balance. The ledger account of Sahara | | | | India in the books of First Global Stockbroking (P) Ltd. | | | | is enclosed that shows that the amount is duly | | | | reflected in the books of the appellant. | |___________|___________|__________________________________________________________| 13th March, 2001 Bang 5.00 ___________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|__________________________________________________________| | 5.00 | 5.00 | This appears to be a payment that was to be made by | | | | M/s Shankar Sharma to Bang Equity Broking (P) Ltd. | | | | as margin money against its trading account with | | | | Bang Equity as of that date. However the appellant | | | | has finally paid an amount of Rs. 15,12,946. 28 on | | | | 17.3.2001 vide cheque No. 024101 of Bank of India. | | | | The copy of account of Bang Equity in the books of | | | | M/s Shankar Sharma is enclosed that shows that the | | | | said payment is duly reflected in the books of the | | | | assessee. | |___________|___________|__________________________________________________________| 16th March, 2001 Bang 4.00 ___________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|__________________________________________________________| | 4.00 | 4.00 | This appears to be a payment that was to be made by | | | | M/s Shankar Sharma to Bang Equity Broking (P) Ltd. | | | | as margin money against its trading account with | | | | Bang Equity as of that date. However the appellant | | | | has finally paid an amount of Rs. 15,12,946.28 on | | | | 17.3.2001 vide cheque No. 024101 of Bank of India. | | | | The copy of account of Bang Equity in the books of | | | | M/s Shankar Sharma is enclosed that shows that the | | | | said payment is duly reflected in the books of the | | | | assessee. | |___________|___________|__________________________________________________________| 19th March, 2001 Bang 20.00 ___________________________________________________________________________________ | Amount as | Amount Rs.| Explanations | | per pad | Lacs | | |___________|___________|__________________________________________________________| | 20.00 | 20.00 | This appears to be a payment that was to be made by | | | | M/s Shankar Sharma to Bang Equity Broking (P) Ltd. | | | | as margin money against its trading account with | | | | Bang Equity. However the date appears to be wrongly | | | | written on the rough Jotting. Appellant has paid an | | | | amount of Rs. 20,00,000 on 24.1.2001 vide cheque | | | | No. 027791 of Bank of India. The copy of account of | | | | Bang Equity in the books of M/s Shankar Sharma is | | | | enclosed that shows that the said payment is duly | | | | reflected in the books of the assessee. | |___________|___________|__________________________________________________________| As regards your observation that these pages are pertaining to pad No. A/5 written and maintained by Mr. Neeraj Khanna, we wish to clarify that the pages relate to Annex. A/6 and that the rough pad having seized document numbers Annex. A/5 and Annex. A/6 were not his personal pads. He has denied the allegations purportedly levelled by the Department that these contained some secret jottings of cash account of the appellant. As can be verified from the perusal of Annex. A/6, that the various pages of this pad have notings by different persons including him. Except for the pages written by him, it is not known as to in whose handwriting the other pages of that pad have been written. We have already explained in detail the purposes and circumstances of writing these rough jottings and this explanation applies to abovesaid pages also.
In the light of the above explanation of the appellant, we request you not to enhance the assessment that is already high pitched and without basis, as has been explained by us in our submissions.
62.2 I have carefully considered the issue and the submission of the appellant. It is seen that the impugned seized document Nos. 5, 6 and 7 are part of Annex. A-6 and the author is Mr. Neeraj Khanna. The explanation of the appellant with reference to impugned page No. 5 that the same has already been considered by the AO on p. 10 of the seized document A-6 is found to be correct. On the seized document No. 5, the expenses are written of Rs. 2,07,846 and heading of the page is "Hiren". At page No. 10, the office expenses "Hiren" Rs. 2.08 lacs has been written which has been considered by the AO for addition.
In view of the above facts, the jottings of page No. 5 are not considered for enhancement.
62.3 The impugned seized paper No. 6 of Annex. 'A-6' contains the following details:
Date Description Amount
7/3 Sahara (Com.) 0.75
7/3 Car payment 0.75
14/2 Garma 0.015
2/3 Garma (Com.) 5.00
1/3 Top Gear 10.00
5/3 Panchal 5.00
3/3 Panchal 5.00
8/3 Panchal 10.00
8/3 Vruddhi 5.00
_______
Total 41.515
_______
31420
Ashok Jhaveri 22.221
Balance 9.199
________
31.420
________
Jhaveri 5.00
Hiren 4.00 2.50 Jhaveri
Hiren 3.00
Neeraj 2.00
Jhaveri 15.00
The appellant could not submit any explanation for the first 4 entries of the impugned seized paper. For the last 5 entries of Top Gear, Panchal and Vruddhi, the appellant submitted that these are appearing on page No. 3 of Annex. A-5 which has already been considered by the AO in the block assessment. On verification of the impugned page No. 3 of Annex. 'A-5', the contention of the appellant is found to be correct. Meaning thereby, the following entries have already been considered by the AO and, therefore, those are not considered in the enhancement under reference.
Top Gear 10.00
Panchal 5.00
Panchal 5.00
Panchal 10.00
Vruddhi 5.00
_____
Total 35.00
_____
However, the appellant could not submit any explanation for the entries mentioned in the name of Ashok Jhaveri Rs. 22.221 lacs and further entries worth Rs. 29 lacs in the name of Jhaveri, Hiren and Neeraj as jotted on the impugned seized paper as produced above. In view of the above facts, the enhancement based on the seized paper No. 6 is calculated as under:
1. Sahara 0.75
2. Car payment 0.75
3. Garma 0.015
4. Garma 5.00
5. Entries in the name of Jhaveri, Hiren & Neerai 29.00 ______ Total : 35.515 ______ The assessment is enhanced by Rs. 35.515 lacs on account of the above seized document 62.4 Now. I come to the sized document No. 7 of Annex. A-6 The jottings on the documents are as under:
Date Description Amount
1/3/2001 BAL 42.935
7/3 Sahara 20.00
13/3 Bang 5.00
16/3 Bang 4.00
19/3 Bang 20.00
Total 72.935
The appellant submitted that the balance of Rs. 42.935 is carried forward from seized paper No. 8 of Annex. 'A-6' which has already been considered by the AO. On verification the contention of the appellant is found to be correct and, therefore, this amount is not considered for the purpose of enhancement. However, the explanation of the appellant for remaining 4 entries is not convincing and, therefore, the assessment is enhanced by Rs. 49 lacs with reference to the remaining 4 entries on impugned paper No. 7 which has not been considered in the block assessment by the AO. There appears to be some totalling mistake on this paper. The total of the 4 entries considered for enhancement is Rs. 49 lacs and, therefore, the assessment is enhanced accordingly.
To sum up, the page No. 5 is not considered for enhancement. The enhancement on the basis of page No. 6 works out to Rs. 35.515 lacs whereas the enhancement on the basis of document No. 7 works out to Rs. 49 lacs. The total enhancement works out to Rs. 84.515 lacs.
As discussed in length in the preceding para No. 60, the seized Annexs. A-5 and A-6 contain the documents written by Mr. Neeraj Khanna who is the CFO of the company. Mr. Neeraj Khanna in his statement under Section 132(4) admitted that the appellant is indulged in the transactions of sale of profit, buying losses and inflating expenses and generating undisclosed income. He also explained the entries of Annex. 'A-5' and 'A-6' columnwise and accepted that the jottings in the impugned Annexures represent the cash entries on account of concealed income by way of sale of profit or inflation of expenses etc. This issue has been dealt elaborately in preceding para while adjudicating the additions based on Annexs. A-5 and A-6 and, therefore, I rely on all my arguments advanced there, for the purpose of this enhancement of the assessment under reference.
In view of the detailed discussion held above, the AO is directed to enhance the assessment of the appellant company by Rs. 84,51,500.
69. We have duly considered rival contentions. It emerges out that the assessee has pointed out that some of the entries were rough jottings, which could not be explained as it was not possible to link them up with real transactions. The learned CIT(A) has proceeded on the presumption that those pages were in the handwriting of Mr. Neeraj Khanna. It was clarified that the pages listed in the Annexs. A5 and A6 were in the handwriting of different persons. The jottings made related to certain expenses and other transaction. The explanation was furnished wherever the details could possibly be found out. As already explained some of the entries had been considered by the AO and separate additions had already been made. The learned CIT(A) persisted with the observation that the pages under consideration were in the handwriting of Mr. Neeraj Khanna. He accepted that page No. 5 was already considered by the learned AO. He also accepted certain entries on p. 6 as explained. For the remaining figures jotted in the loose papers he confirmed addition of Rs. 35.51 lacs with reference to entries on p. 6 and Rs. 49 lacs with reference to entries on page No. 7. The total amount confirmed comes to Rs. 84.515 lacs. The learned CIT(A) further repeated the observation that the author of the pages was Mr. Neeraj Khanna and that he had admitted that the assessee had indulged in transactions of sale of profits, buying of losses and inflating expenses. The learned AO has considered all the sheets in the Annexs. A5 and A6. There is nothing to infer that these pages were overlooked when they formed part of the Annexure to the assessment order. Further, it has been repeatedly stated that all the pages of Annexs. A5 and A6 are not in the handwriting of Mr. Khanna. A look at those pages will make it clear that they have been written by different individuals. It was therefore, improper on the part of the learned CIT(A) to give those papers so much of weightage while they were just like other loose papers. Further, it has already been held that the statement of Mr. Khanna has no evidentiary value as the claims made by him were not supported by any material and he had already retracted the" statement. In view of the above we delete this addition.
70. In the result, the appeal of the assessee is partly allowed.
71. Now we take up the Department's appeal in IT(SS)A No. 361/Mum/2004. The first ground of appeal is that learned CIT(A) has erred in deleting the addition of Rs. 50,000. This addition was made on the ground that assessee has taken a deposit of Rs. 50,000 from a person named Laxmi Minakshi. In the return for asst. yr. 2001-02 assessee did not include the name of this person in the schedule of loans taken. The learned CIT(A) deleted this addition on the ground that the amount is duly recorded and reflected in the books of accounts. The Revenue in its ground of appeal has pleaded that learned CIT(A) has considered the ledger account in violation to Rule 46A of IT Rules. On due consideration of the order of learned CIT(A) we do not find any merit in the ground raised by the Revenue because the learned CIT(A) has called for a remand report on a number of issues and he heard the AO at the time of hearing the appeal. The addition is beyond the scope of block assessment. The entries were duly reflecting in the regular books. Thus this ground of appeal is rejected.
72. Ground No. 2 : In this ground of appeal the grievance of Revenue is that learned CIT(A) has erred in deleting the addition of Rs. 41,56,09,408.
73. We have gone through the record carefully. The learned CIT(A) has deleted this addition on the ground that the addition has been made on the basis of seized documents which represent the bank entries only. These entries have duly been disclosed to the Department in the regular assessment. According to the learned CIT(A) the assessee cannot be compelled during the block assessment to get verified each and every entry in the regular bank account which is part of its regular books of accounts. The relevant findings of learned CIT(A) read as under:
With reference to the submission of the appellant it is pertinent to decide whether verification of each and every transaction in the bank account appearing in the regular books is the subject-matter of block assessment or not. It is an established law that the proceedings of regular assessment and block assessment are independent. The essence of special procedure for block assessment under Chapter XIV-B is to provide for an assessment of the undisclosed income detected as a result of the search without affecting the regular assessments made or to be made. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessment covering the previous years falling in the block period. Under the proceedings of Chapter XIV-B, the AO is not empowered to verify each and every transaction appearing in the regular books of account of the appellant. He can do so only if he has the relevant seized material in his possession. In the instant case, the AO was not having incriminating documents in his possession, what was found in the search was the copy of the bank account which has been properly explained by the learned Authorised Representative to the AO. There was nothing in the possession of the AO suggesting that the impugned credits in the said bank account represent doubtful cash credits or so giving any indication of addition under the provisions of Section 68 of the Act.
In my opinion, the issue under reference would not fall for consideration under Chapter XIV-B as no such evidence was found in the search which could warrant its consideration in the block assessment order. This position is evident from the latest decision of jurisdictional High Court in the case of CIT v. Dr. M.K.E. Memon (2001) 168 CTR (Bom) 184 : (2001) 248 ITR 310 (Bom), the relevant extract of which is reproduced below:
In conclusicn we would also like to mention that Chapter XIV-B lays down a special procedure for assessment of search cases and provides for assessment of undisclosed income as a result of search. Under Section 158BB r/w Section 158BC, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed under regular assessment vide Section 143(3). This exercise under Section 143(3) for regular assessment stands on a different footing in contrast to the exercise undertaken by the AO under Chapter XIV-B where the AO has to assess only the undisclosed income. Therefore, the scope of regular assessment is quite different from the scope of assessment under Chapter XIV-B. The regular assessment is to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid the tax in any manner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block period and not the income or loss of the previous year which is only done in the normal regular assessment under Section 143(3). In a large number of cases we find that the above distinction is not kept in mind by the AO. It is for this reason that we have spelt out the difference between the regular assessment and the block assessment under Chapter XTV-B of the IT Act.
In view of the detailed discussions held above, in my opinion the matter under reference does not fall under Chapter XTV-B of the Act. The seized documents represent the bank entries only which has been explained by the learned Authorised Representative to the AO. The appellant cannot be compelled during block assessment to get verified each and every entry in the regular bank account which is part of its regular books of account. The AO has liberty to do so under regular assessment or under other provisions of the Act. Secondly, the learned Authorised Representative did not deny for getting it verified except that for asking more time. Thirdly, the seized documents does not indicate anything with reference to undisclosed income. In view of all above, the impugned addition of Rs. 41,56,09,408 is deleted.
On due consideration of this finding of learned CIT(A) we do not find any error in it, hence, this ground is rejected.
74. Ground No. 3 : The grievance of the Revenue in this ground is that learned CIT(A) has erred in deleting the addition of Rs. 18.75 crores. The learned CIT(A) has extracted the finding of AO recorded on p. 230 of the assessment order while making this addition. The finding of AO, submission of the assessee as well as the finding of the learned CIT(A) are appearing in para No. 46 of the impunged order at p. 188 , which read as under:
46. Ground Nos. 252 to 254 relates to an addition of Rs. 18.75 crores on page No. 230 of the assessment order. The findings of the AO in this regard are as under:
21. Annex. A-1 page 95 This is a noting on a plain paper giving details as 1094 = 18,75,00,000. 1094 is one of the bank accounts of the assessee in Global Trust Bank. The amount against that appears to be money deposited in this account from undisclosed sources. As the same has not been explained the amount of Rs. 18,75,00,000 is treated as undisclosed and added to the income of asst. yr. 2001-02 (broken period). Rs. 18,75,00,000.
46.1 In this context, the submission of the learned Authorised Representative as per page No. 50 of letter dt. 8th Dec., 2003 is as under:
(i) These appear to be rough jottings that are of unknown origin and are in unknown handwriting. We are therefore unable to comment on these with any degree of certainty. The income-tax officials in the course of searching the premises have not made any noting as to the place/ office/ desk and from whom the particular papers were recovered making it impossible for us to comment on unknown papers in unknown handwriting. The company had hundreds of employees and dozens of traders and dealers. There is not even a note or statement on whether the paper is at all related to the company or is the personal matter of person writing or deals with trades or outstanding positions or market information or ALBM or BLESS or FII trades or local institutional trades or trades of other members of stock exchanges or which period/date or which stock exchange it pertains to. This is a dumb document.
46.2 I have carefully considered the findings of the AO and submissions of the learned Authorised Representative along with other material available on record. The addition is based on paper seized from the premises of the appellant during search action and inventorised as page No. 95 of Annex. -1. On perusal of the paper, it is seen that the document has some rough working "(163.10 x 34100), Rs. 3,337 thereafter some jottings like 1094 --> 18,75,00,000, below that some figure like 2,74,67,163.30. There is no relationship among the figures mentioned on the document. The document does not have any narration at all except figures.
In my opinion, it is a dumb document. I do not think that any person can explain such documents. It is an established law, that any loose paper can be accepted as evidence under income-tax proceedings only if it has acceptable and explainable narration.
Secondly, the AO himself mentioned that 1094 is the bank account of the appellant appearing in regular books of account. Only on the basis of conjectures and surmises he cannot conclude that it appears to be an unexplained credit in the said bank account. The AO must bring something cognizant on record before giving such findings. Otherwise also each and every credit in the bank account appearing in regular books of the appellant is not the subject-matter of Chapter XIV-B of the Act, as discussed elaborately while adjudicating ground Nos. 231 to 233. In view of the discussions held above, the impugned addition is deleted.
On due consideration of above facts and circumstances we are of the view that the bank account has already been disclosed to the Department and the addition on account of entries appearing in this account cannot be made in the block assessment and learned CIT(A) has rightly appreciated the facts and circumstances, hence this ground is rejected.
75. Ground No. 4 : In this ground the grievance of the Revenue is that learned CIT(A) has deleted the addition of Rs. 16,15,14,277. The learned first appellate authority has taken cognizance of the finding of AO for making this addition as well as the submissions made by the assessee. The finding of the AO, submissions of the assessee as well as finding of the learned CIT(A) on this issue read as under:
49. Ground Nos. 267 to 269 relate to an addition of Rs. 16,15,14,277 on page No. 231 of the assessment order. The findings of the AO in this regard are as under:
26. Annex. A-1 page 101: This paper shows an amount of Rs. 16,15,14,277 as balance expenses remaining. As the same has not been explained, the same is treated as undisclosed and added to the income of asst. yr. 2001-02 (broken period) Rs. 16,15,14,277.
49.1 In this context, the submissions of the learned Authorised Representative as per page No. 52 of letter dt. 8th Dec., 2003 (in brief) are as under:
(i) The learned AO is not justified in making addition of Rs. 16,15,14,277 without appreciating the facts and circumstances of the case.
(ii) The learned AO has made this addition on conjectures and surmises on the basis of rough jottings of unknown origin and handwriting.
(iii) These appear to be rough jottings that are of unknown origin and are in unknown handwriting. We are therefore unable to comment on these with any degree of certainty. The income-tax officials in the course of searching the premises have not made any noting as to the place/ office/ desk and from whom the particular papers were recovered making it impossible for us to comment on unknown papers in unknown handwriting. The company had hundreds of employees and dozens of traders and dealers. There is not even a note or statement on whether the paper is at all related to the company or is the personal matter of person writing or deals with trades or outstanding positions or market information or ALBM or BLESS or FII trades or local institutional trades or trades of other members of stock exchanges or which period/date or which stock exchange it pertains to. This is a dumb document.
(iv) Therefore, the same cannot be treated as undisclosed income. The addition of Rs. 16,15,14,277 may be deleted.
(v) The learned AO has made this addition on conjectures and surmises. No material relied upon by the learned AO has been provided and no opportunity to rebut the same has been given to the appellant. No show cause notice has been served on the appellant on this point. Therefore, the addition is not sustainable even from the natural justice point and may kindly be deleted.
49.2 Here again, the addition is based on seized paper No. 101 without any acceptable narration with some codes like 464974, 464847 etc. The document has some jotting like Yahoo.com, thereafter in right corner of the paper the jottings are like below:
161514276/90-----------
Gross Exp. = Remaining Reached 71 In my opinion, it is a dumb document. I do not think that any person can explain such document with any certainty. It is an established law that any loose paper can be accepted as evidence under income-tax proceedings only if the document has acceptable and explainable narration.
On close perusal of the document, it appears to be a rough paper, because the figures are not written in any symmetry. Some jottings are vertical and some jottings are horizontal. The AO was not justified in making additions on the basis of such dumb document.
In view of the discussions held above, the impugned addition is deleted.
With the assistance of learned representatives we have gone through the record carefully. We have dealt with a number of documents of similar nature while dealing with the assessee's appeal, in view of our detailed finding on all other issues, wherein we have deleted similar type of addition, coupled with the finding of learned CIT(A), we do not find any merit in this ground of appeal, it is rejected.
76. Ground No. 5 : In this ground of appeal the grievance of the Revenue is that learned CIT(A) has erred in deleting the addition of Rs. 1,66,00,000. The finding of the learned AO, submissions of the assessee, and the finding of the learned CIT(A) on this issue read as under:
55. Ground Nos. 508 to 510 relate to an addition of Rs. 1.66 crores on page No. 251 of the assessment order. The findings of the learned AO in this regard are as under:7. Annex. 1 page No. 65
This page appears to be rough jottings showing credit of Rs. 1,66,00,000 from unexplained sources. In absence of any explanation the amount of Rs. 1,66,00,000 is treated as undisclosed and added to the income of asst. yr. 2001-02 (broken period) Rs. 1,66,00,000.
55.1 In this context, the submissions of the learned Authorised Representative as per page No. 35 of letter dt. 22nd Dec., 2003, (in brief) are as under:
(i) The learned AO is not justified in making addition of Rs. 1,66,00,000 without appreciating the facts and circumstances of the case.
(ii) The learned AO has made this addition on conjectures and surmises on the basis of rough jottings of unknown origin and handwriting. This is paper of unknown origin and handwriting with some rough jottings. This is a dumb document. Therefore, the same cannot be treated as undisclosed income. The addition of Rs. 1,66,00,000 may be deleted.
(iii) The learned AO has made this addition on conjectures and surmises. No material relied upon by the learned AO has been provided and no opportunity to rebut the same has been given to the appellant. No show cause notice has been served on the appellant on this point. Therefore, the addition is not sustainable even from the natural justice point and may kindly be deleted.
55.2 On perusal of the impugned seized document No. 65, I reached to the conclusion that it is a dumb document. The document does not have any acceptable and explainable narration. It appears to be some rough work, without indicating any logical inference.
The notings are like under:
BSE
-------> <-------
Angel
LKP Client account Bank balance
* Century +70
-----
Prabhu Lata 1 Cr.
50
____
140 Cr.
20 Lacs
_______
166 Lacs
I do not think any conclusion can be drawn with such documents. It is absolutely clear dumb document, and any addition based on such document is not justified by any standard.
In view of the above facts, the impugned addition is deleted.
On due consideration of the above finding it is clear that addition has not been made on the basis of some documents from where some logical inference can be drawn. The learned CIT(A) thus has rightly deleted the addition.
77. Ground No. 6 : In this ground the Revenue has pleaded that learned CIT(A) has erred in deleting the addition of Rs. 9,92,92,806 out of Rs. 11,27,92,806 by holding that such addition cannot be made for the purpose of Chapter XIV-B of the IT Act.
78. The brief facts of the case are that AO has made an addition of Rs. 11,27,92,806 on the ground that during the course of search certain details of remittance to one Calcutta party by way of a demand draft were found. Such remittances were made during the period 1st April, 1991 to 31st March, 2000. He worked out the remittance made on different dates at Rs. 9,92,92,806. He further found certain other loan amount to an entity Grama Trexin (P) Ltd. In this loan the amount is of Rs. 1,35,00,000. According to the AO assessee has not explained the entries reflecting in the bank account exhibiting the remittance of amount, therefore, he made an addition of Rs. 11,27,92,806. The learned CIT(A), on appeal deleted the entire addition. The Department in ground No. 6 is only challenging the deletion to the extent of Rs. 9,92,92,806.
79. With the assistance of learned representatives we have gone through the record carefully. The AO himself has observed that remittances of Rs. 9,92,92,806 were made to Calcutta party during the block period from bank account No. 6039 of the assessee. This account was duly shown to the Department in the regular return of income, hence, the entries appearing in this account are already known to the Department. The learned CIT(A) deleted the addition on the ground that the source of preparing the draft has already been explained by the assessee. These entries were brought to the knowledge of the Department in the regular assessment proceedings and hence, no addition can be made in the block assessment. After going through this finding of learned CIT(A) we do not find any error in it, hence, this ground of appeal is rejected.
80. Ground No. 7 : In this ground of appeal the grievance of Revenue is that learned CIT(A) has erred in deleting the addition of Rs. 33,29,702 out of Rs. 50,68,455. The learned CIT(A) has taken cognizance of the finding recorded by learned AO on p. 222 as well as the submissions of the assessee. The discussion made by the learned CIT(A) in para 60 of the impugned order exhibiting the finding of AO, as well as submissions of the assessee and finding of the learned CIT(A) read as under:
60. Ground Nos. 184 to 186 relate to an addition of Rs. 50,68,455 on page No. 222 of the assessment order. The findings of the AO leading to the addition are as under:5. Annex. A-1 page Nos. 55, 56 & 57
The total brokerage details on these pages are as under:
Pg. 55 1738753
Pg. 56 1693096
Pg. 57 16,36,606
_________
Total 50,68,455
_________
As the assessee has not submitted any explanation regarding the brokerage on these pages, hence the amount of Rs. 50,68,455 is treated as undisclosed and added to the income of the asst. yr. 2001-02. (broken period) Rs. 50,68,455.
60.1 In this context, the submissions of the learned Authorised Representative as per page No. 39 of letter dt. 8th Dec., 2003 are as under:
(i) These appear to be the brokerage reports prepared by the retail arm of the company FGSBPL and is part of the MIS reports prepared for analysis by the management. The paper is self-explanatory. We with a view to show through test check, that these brokerage amounts are appearing in the books of the appellant, have taken the amounts relating to the sub brokers of the appellant. The amount of brokerage shown in the statement is for the month to date and not for a particular day. As such p. 57 is reflecting brokerage upto 13th day of the month whereas p. 56 is reflecting brokerage upto 14th day of the month and p. 55 is reflecting brokerage upto 15th day of the month. Therefore p. 55 is showing cumulative brokerage figure upto 15 working day of the month and is inclusive of the brokerage given on p. 56 and p. 57. The daywise brokerage calculation of the three sub brokers is being enclosed herewith to show that the brokerage relating to them is duly recorded and reflected in the accounts. There is a slight difference of a few hundred in these figures as these were tentative figures given immediately at the end of the day, which in the case of all brokers would change a little when the final checking is done of these accounts and minor silly mistakes are corrected after checking. We are also enclosing herewith a copy of the brokerage statement of the appellant for the period 1st March, 2001 to 23rd March, 2001 from its books of account to show the said brokerage amounts are appearing in the books of account of the appellant company. Since the said transactions are duly recorded in the books of the appellant the same cannot be considered in the block assessment of the appellant and the brokerage income cannot be added to the undisclosed income of the appellant.
(iv) Without prejudice to the above we wish to state that the amount of brokerage shown in the statement is for the month to date and not for a particular day. As such p. 57 is reflecting brokerage upto 13th day of the month whereas p. 56 is reflecting brokerage upto 14th day of the month and p. 55 is reflecting brokerage upto 15th day of the month. Therefore p. 55 is showing cumulative brokerage figure upto 15th day and is inclusive of the brokerage given on p. 56 and p. 57. Therefore the learned AO has triple counted the same item of income and the additions made being as it is wrong, have been further multiplied thrice to achieve the mala fide goals of the learned AO.
60.2 I have carefully considered the finding of the AO and the submission of the learned Authorised Representative as well as the other material available on record. The additions are based on seized document Nos. 55, 56 and 57 of Annex. 'A-1'. The seized papers have the jottings with acceptable narration, regarding brokerage income of the appellant. I made an attempt to reconcile the figure of jottings with the figure of books of accounts as claimed by the appellant. It is seen that most of the figures are not tallied. However, on close perusal of page Nos. 55 to 57, it is noticed that the total of page Nos. 56 and 57 has been carried forward on page No. 55. In other words, the page No. 55 is the final page indicating cumulative brokerage details of Rs. 17,38,753. The AO has considered all these three seized papers independently and made the addition of Rs. 50,68,455.
It is an admitted fact that documents have been seized from the premises of the appellant which remained unexplained during assessment proceedings as well as appellate proceedings. For the reasons discussed in detail while adjudicating the various grounds of appeal in the earlier part of the order and particularly with reference to that the impugned seized document remained unexplained, I confirm the addition of Rs. 17,38,753 as indicated on seized page No. 55. The addition of Rs. 33,29,702 is deleted.
81. With the assistance of learned representatives we have gone through the record carefully. The learned CIT(A) confirmed the addition of Rs. 17,38,753 out of the total addition of Rs. 50,68,455. We have considered this issue while dealing with the assessee's ground of appeal i.e. ground No. 4B(i). At serial No. 30 of this ground the assessee in its appeal is impugning this addition of Rs. 17,38,753. This addition has been made on the basis of notings appearing at pp. 55 to 57 of Annex. Al. We have considered this issue and deleted the addition: Basically the addition was made on account of brokerage income.
82. According to the assessee the , brokerage income has already been disclosed in the accounts and it could be a subject-matter of the regular return. While dealing with the assessee's ground of appeal we have discussed the issue how these entries have been read by the AO out of context and reached on different conclusions. He has considered all these issues in isolation. Since we have deleted the addition even confirmed by learned CIT(A), therefore, taking into consideration our finding on the assessee's grounds of appeal coupled with the finding of learned CIT(A) extracted supra, we do not find any merit in this ground of appeal, it is rejected.
83. Ground No. 8 reads as under:
On the facts and in the circumstances of the case in law, the learned CIT(A) has erred in deleting the addition of Rs. 2,47,71,075 by holding that these are dumb documents whereas the AO had made the addition by treating it as unexplained expenses based on seized paper Nos. 93, 99, 100, 104 and 109 of Annex. 'A1', 65 of Annex. 'A2' and page No. 6 of Annex. 'A4' which were not explained at the time of assessment proceedings.
84. The (learned CIT(A) deleted this addition and the findings recorded in para 63 read as under:
63. Additions based on dumb documents:
On perusal of the assessment order, it is seen that the additions are based on seized documents during search for the reason that those documents were not explained by the appellant during assessment proceedings. During appellate proceedings, the learned Authorised Representative with reference to most of the documents, argued that the papers/documents appear to be rough jottings of unknown origin and in unknown handwriting. For many of such documents he submitted that those are the dumb documents. I tried to verify the seized documents with reference to the submission of the appellant whether those are the dumb documents. On verification of entire seized material the following documents were found to be dumb by me. The below listed documents on the basis of which additions have been made by the AO do not have any narration. It is an established law that any seized document which does not have any acceptable narration cannot be the base for addition on account of undisclosed income. To keep the volume light of the appellate order, I discuss all such dumb documents together herebelow with reference to the additions in the assessment order and delete the additions based on such dumb documents.
Dumb documents ___________________________________________________________________________________________ |Sr. | Page No.|Ref. seized |Ref. ground |Amount of | Remark (in brief) | |No. | of Asst.| document | No. | addition | | | | order | | | | | |____|_________|____________| ___________|___________|____________________________________| |1 | 211 | A-1/109 | 107 to 109 | 564,999| Some figures on the right corner | | | | | | | of computer generated sheet, | | | | | | | without any narration. | |____|_________|____________|____________|___________|____________________________________| |2 | 213 | A-2/65 | 136 to 138 | 3,311,000| Hand written sheet containing many | | | | | | | telephone numbers, names and other | | | | | | | details. In the left corner written| | | | | | | like CRS -25,11,000 CRS -8,00,000. | | | | | | | No details, no narration. | |____|_________|____________|____________|___________|____________________________________| |3 | 214 | A-4/6 | 139 to 141 | 1,500,000| Some tax calculation @ 30%. No | | | | | | | narration. | |____|_________|____________|____________|___________|____________________________________| |4 | 230 | A-1/93 | 249 to 251 | 8,371,205| Jottings of some figures with sign | | | | | | | of (+) & (-). No narration at all. | |____|_________|____________|____________|___________|____________________________________| |5 | 231 | A-1/99 | 261 to 263 | 5,000,000| Jottings containing only figures | | | | | | | of amount in "crores" totalled as | | | | | | | "50". No narration at all, except | | | | | | | figures. | |____|_________|____________|____________|___________|____________________________________| |6 | 231 | A-1/100 | 264 to 266 | 5,832,871| Jotting only of figures without | | | | | | | any narration. | |____|_________|____________|____________|___________|____________________________________| |7 | 232 | A-1/104 | 273 to 275 | 191,000| Jotting on seized paper only in | | | | | | | figure as 1,91,00,000. No narration| | | | | | | at all. | |____|_________|____________|____________|___________|____________________________________| In view of the discussions held above, the additions based on above dumb documents are deleted.
At the time of hearing we have asked the learned representative for the Department to goad us as to how we can reach some reasonable conclusion for reversing this finding of the learned CIT(A). The AO has made the addition simply noticing certain figures. He has not discussed as to how these figures have been arrived in logical manner. Hence, we do not find any merit in this ground of appeal, it is rejected.
85. In the result, the appeal of the assessee is partly allowed and that of Revenue is dismissed.