Delhi High Court
Digvijay Chemicals Ltd. vs Assistant Commissioner Of Income Tax on 31 August, 1999
Equivalent citations: (2000)68TTJ(DEL)280
ORDER
Sikandar Khan, A.M. A search was conducted at 54, Janpath, New Delhi in the premises of M/s. Bhagat Industrial Corporation and Shri R.D. Bhagat on 28-2-1996 and concluded on 23-3-1996. Shri R.D. Bhagat is the chairman of the said company as well as the present assessee- company. Books of accounts, documents etc. were found and seized which were later on handed over to the Deputy Commissioner, Special Range, Amritsar holding jurisdiction over the case of M/s. Bhagat Industrial Corporation. On scrutiny of the seized materials the said Deputy Commissioner was of the opinion that the unexplained advances/loans and income on the basis of loose sheets and books of accounts relating to M/s. Digvijay Chemicals Ltd. i.e. the present assessee were required to be examined by the assessing officer assessing M/s Digvijay Chemicals Ltd. Being satisfied in the matter the aforesaid Deputy Commissioner, Amritsar handed over the relevant seized materials under section 158BD to the assessing officer of M/s. Digvijay Ltd. i.e. the present assessee.
2. On receipt of the seized materials the assessing officer issued notice under section 158BD read with section 158BE(2) of the Act, 1961 requiring the assessee to furnish return of income for the above period. In response the assessee filed the return declaring 'Nil' income. The assessing officer then issued notice under section 143(2) of the Act. In response to the same the assessee filed written reply challenging the validity of the notice issued under section 158BD of the Act. It was contended that the search was not conducted in the case of the present assessee and therefore, no action could be taken on the seized documents in the assessee's case. It was further contended that no action could be taken under section 168BD of the Act because the Deputy Commissioner, Amritsar had not recorded his satisfaction that the disclosed income as per the seized documents if any, belong to the present assessee. It was argued that since the Deputy Commissioner, Amritsar had not recorded his satisfaction in the matter as required under section 168BD of the Act the handing over of the seized documents by him to the assessing officer of the present assessee was not proper and valid and consequently the assessing officer of the present assessee did not assume proper and valid jurisdiction over the present assessee insofar as the documents seized in course of search in the aforesaid cases were concerned.
3. The assessing officer was not satisfied and convinced with the aforesaid submissions and contentions. He observed that the handing over of the seized documents pertaining to the present assessee was proper and justified because same had been done after satisfaction of the Deputy Commissioner, Amritsar in the matter as required under section 158BD of the Act, on the basis of scrutiny of the relevant seized documents. He added that the assessing officer of the present assessee therefore, assumed proper and valid jurisdiction on receipt of the seized documents from the Deputy Commissioner, Amritsar. He referred to the several correspondences in this regard namely letter dated 14-11-1996 of Deputy Commissioner, Special Range, Amritsar addressed to the Commissioner, Meerut with copy of the assessing officer of the present assessee, letter dated 15-11-1996 of Deputy Commissioner, Amritsar addressed to the assessing officer of the present assessee letter dated 21st/22-11-1996 of the Deputy Commissioner, Amritsar addressed to the assessing officer of the present assessee, letters dated 17-1-1997 and 29-8-1997 of the Deputy Commissioner, Amritsar.
4. The assessing officer therefore, held that he had assumed proper and valid jurisdiction under section 158BD of the Act and the assessee's objections in this regard were not correct.
5. Thereafter the assessing officer required the assessee to explain the following transactions besides others found recorded in the seized documents :
(i) Cash payment of Rs. 27 lakhs as advanced to M/s Mini Exports vide pp. 1 to 36 of Annexure AAA of seized documents; and
(ii) Advance of Rs. 10 lakhs in cash to M/s Verma Tarafaq Instruments (P) Ltd. as per agreement deeds on stamped paper of Rs. 10 on 17-11-1993 vide pp. 1 & 4 and 1 & 5 of Annexure AA-7 of the seized documents.
In reply the assessee submitted that in respect of queries (i) & (ii) above the detailed explanation filed by the assessee on 17-1-1997 and 22-2-1997 in the course of regular assessment proceedings for the assessment year 1994-95 should be considered. The assessee also wanted that the case should be kept pending because a writ before the Allahabad High Court was pending. The assessing officer rejected this request with the observation that the assessment proceedings had not been stayed by the High Court and as the matter was time-barring the block assessment had to be completed.
6. After detailed discussion about the nature of the transactions noted in the seized document the assessing officer observed that the advances to M/s Mini Exports amounting to Rs. 27 lakhs were not recorded in the books of accounts. He further observed that in the reply filed in course of the regular assessment proceedings for the assessment year 1994-95 referred to above also the assessee had failed to satisfactorily explain the advances of Rs. 27 lakhs. He rejected the contention that the said advances related to projection only and were not real. He therefore, held that the advances of Rs. 27 lakhs were unexplained investments under section 69 of the Act. Accordingly the addition of Rs. 27 lakhs was made.
7. As regards item (ii) above it was submitted before the assessing officer on behalf of the assessee that the advance of Rs. 10 lakhs to M/s Verma Tarafaq Instruments (P) Ltd. was made by cheque which had been recorded in the books of accounts on 16-11-1993. It was contended that the advance in question was not made in cash as mentioned in the agreement deeds executed on stamped paper of Rs. 10 on 17-11-1993 referred to above.
8. The assessing officer was not satisfied and convinced with the aforesaid explanation. He observed that the advance of Rs. 10 lakhs to M/s. Verma Tarafaq Instruments (P) Ltd. as per agreement deeds executed on stamped paper of Rs. 10 on 17-11-1993 was not recorded in the books of accounts and the advance of Rs. 10 lakhs on 16-11-1993 by cheque referred to above and recorded in the books of accounts was not the same as found from the seized documents referred to above. He also rejected the affidavit dated 17-1-1997 of Shri Dhruv Verma S/o Shri R.L. Verma, MD of M/s Verma. Tarafaq Instruments (P) Ltd. in which it was affirmed that no payment was received in cash on 17-11-1993 for Rs. 10 lakhs and that the payment was only received through cheque on 16-11-1993 for Rs. 10 lakhs. The assessing officer had required the assessee to produce Shri Dhruv Verma but he was not produced for examination and in his place one Shri H.K. Kathuria, senior manager finance was produced for examination and his affidavit dated 11-2-1997 was also furnished. The assessing officer did not consider it proper and refused to examine Shri Kathuria in place of Shri Dhruv Verma. The assessing officer therefore, finally held that the advance of Rs. 10 lakhs in cash on 17-11-1993 would not be linked up with the payment of Rs. 10 lakhs by cheque on 16-11-1993 and therefore, the said advance of Rs. 10 lakhs in cash remained unexplained for which addition was made to the total income as income from undisclosed sources.
9. The assessing officer required the assessee to show cause why interest or commission at 24 per cent on advances of Rs. 27 lakhs to M/s. Mini Exports should not be added to the total income. In reply the assessee contended that since the said advances had not been made there was no question of addition for interest.
10. The assessing officer was not satisfied and convinced with the aforesaid explanation. He observed that the assessee's main business being of financing and earning of interest thereon it would be proper and justified to estimate interest 24 per cent i.e. rate at which the assessee had charged interest on other advances recorded in the books of accounts. Accordingly an addition of Rs. 6,48,000 was made on account of interest on the advances of Rs. 27 lakhs to M/s. Mini Exports.
11. The assessing officer also added the following amounts to the total income for the block period :
(i) Disallowance of loss on sale of car under section 60 as per para 7 of Rs. 82,253 the assessment order (assessment year 1995-96).
(ii) Undisclosed lease rent on car as discussed in para 7 of the Rs. 44,200 assessment order (assessment year 1995-96)
(iii) Loss on account of devaluation of stock of shares disallowed Rs. 80,000 as per para 8 of the assessment order (assessment year 1995-96)
(iv) Disallowance of bad debts as discussed in para 9 of the Rs. 95,799 assessment order (assessment year 1995-96).
(v) Loss on account of devaluation of stock of shares disallowed Rs. 3,53,013 as discussed in para 10 of the assessment order (assessment year 1996-97)
(vi) Undisclosed lease rent as discussed in para 11 of the Rs. 5,47,460 assessment order. (Rs. 70,820 in assessment year 1995-96) + (Rs. 4,76,620 in assessment year .1996-97). As regards the above the assessing officer observed that the assessee had failed to prove the loss on sale of the car for Rs. 10,000 only as against its WDV of Rs. 92,253 on 1-4-1994. As regards lease rent he observed that the assessee had not shown any lease rent for the leasing of the said car for the period 1-4-1994 to 7-10-1994 as per agreement entered into with RVIL on 8-10-1991 for 36 months. As regard (iii) above being loss on account of the valuation of the stock of shares (Rs. 80,000) he observed that the basis of the valuation was not correct and acceptable because the transactions on the basis of which the market value had been taken were not genuine. As regards the disallowance of bad debts of Rs. 95,799 the assessing officer observed that the assessee had not only to show that the said interest receivable from M/s Televista Electronics Ltd. had been declared by the assessee as income in the earlier year. As regards the disallowance of loss of Rs. 3,53,013 on account of the valuation of the stock of shares the assessing officer did not accept the assessee's explanation that the valuation had been made in view of the basis of valuation being cost or market value as on 31-3-1995 and 31-3-1996 whichever was lower. He was of the view that the market value adopted for the devaluation was not reliable and genuine.
12. As regards addition of Rs. 5,47,460 on account of undisclosed lease rent he observed that the assessee had leased out its assets to M/s. Pratap Steel Rolling Mills (1935) Ltd. on which he claimed 100 per cent depreciation but it had not credited the entire lease rental receipts from this company as per the agreements. He found that the monthly lease rent agreed as per details given on p. 18 of the impugned assessment order was Rs. 41,625 i.e. Rs. 4,99,500 for each of the two years viz., 1994-95 and 1995-96 relevant to assessment years 1995-96 and 1996-97, but the assessee had credited in the books of accounts lease rent of Rs. 4,28,680 for assessment years 1995-96 and Rs. 22,860 for assessment year 1996-97. Thus there was total difference of Rs. 5,47,460 for the two years viz. Assessment Year 1995-96 and 1996-97 which he added to the total income.
13. With the aforesaid additions the assessing officer worked. out the undisclosed income for the block period at Rs. 55,50,705.
14. Aggrieved the assessee has come up in appeal before this Tribunal. The learned counsel assailed the impugned assessment order on various grounds. We would first take up the arguments regarding the application of section 158BD of the Act. It was contended that the impugned order was not proper and valid because the conditions prescribed under section 158BD had not been complied with in the case. The Deputy Commissioner, Amritsar had handed over the seized documents relating to the present assessee without recording the satisfaction as required under section 158BD of the Act. He contended that the assessing officer, Bulandshahr did not assume proper and valid jurisdiction in the case so far as the seized documents were concerned. He added that there was no search under section 132 in the case of the present assessee. The books of accounts, documents, etc. pertaining to the assessee were seized from the aforesaid premises during the search in the cases of M/s Bhagat Industrial Corporation and Shri R.D. Bhagat relying upon the provisions of section 132(4A) of the Act. The Deputy Commissioner, Amritsar vide his order in the case of M/s Bhagat Industrial Corporation did not record his categorical satisfaction that the seized documents in question belonged to the present assessee and the undisclosed income therefrom had to be considered in the case of the present assessee and not in the case of M/s Bhagat Industrial Corporation. Thus the essential pre-conditions set out in section 158BD of the Act for handing over the seized documents by the Deputy Commissioner, Amritsar to the assessing officer of the present assessee had not been fulfillled in the case. Consequently the assessing officer, Bulandshahr did not assume proper and valid jurisdiction insofar as the seized documents pertaining to the present assessee were concerned. He submitted that in order to comply with this pre-condition the Deputy Commissioner, Amritsar was required to examine first the seized accounts and documents which had not been done by him. He further submitted that the term 'satisfaction' used in section 168BD of the Act must be understood in the sense the word 'satisfaction' had been used in section 271(l) regarding the concealment of income. He added that the provisions of section 158BD must be subjected to strict construction because it was in the nature of provision and since they are applied to persons other than, those who had been subjected to search operation.
15. The learned counsel further submitted that despite opportunity provided to the department it had not been able to come up before the Tribunal with concrete material to show that before transferring the seized documents the Commissioner, Amritsar was satisfied within the meaning of section 158BD of the Act about undisclosed income belonging to the present assessee found from the seized books and documents. He added that the internal correspondences between the assessing officer, Bulandshahr and Deputy Commissioner, Amritsar revealed that it was the former who urgently requisitioned the seized records of the assessee for necessary action. The question was whether the Deputy Commissioner, Amritsar was satisfied that the seized records contained undisclosed income before transferring the records and the answer to that question on the facts was in negative. He further submitted that in the affidavit in the writ proceedings before the Allahabad High Court the Commissioner, Amritsar had clearly stated that satisfaction was limited to the fact that the assessee's case fell within the jurisdiction of assessing officer, Bulandshahr and not that he was satisfied that any seized records disclosed undisclosed income. He contended that this statement had clinching effect to decide the question in favour of the assessee that the Deputy Commissioner, Amritsar was never satisfied within the meaning of section 158BD of the Act before transferring the records.
16. The learned Senior departmental Representative on the other hand, supported the impugned block assessment. He submitted that the internal correspondences referred to above showed that the Deputy Commissioner, Amritsar had handed over the seized books and documents relating to the present assessee to the assessing officer, Bulandshahr after being satisfied as required under section 158BD of the Act that they contained undisclosed income belonging to the present assessee to be considered by the assessing officer, Bulandshahr. In this connection, the learned Senior departmental Representative also referred to the contents of the appraisal report of the Investigation Wing and the letter of the DDI to the concerned assessing officers. He pointed out that the fact that the Deputy Commissioner, Amritsar did not consider the seized books and documents relating to the present assessee in the assessment order passed in the case of M/s Bhagat Industrial Corporation also clearly showed that he was satisfied that those seized books and documents were to be considered in the case of the present assessee and not in the case of M/s Bhagat Industrial Corporation. He added that it was not required on the part of the Deputy Commissioner, Amritsar to record his satisfaction in the assessment order in the case of M/s Bhagat Industrial Corporation, that the seized books and documents relating to the present assessee contained undisclosed income of the present assessee. He further added that such a finding by the Deputy Commissioner, Amritsar would have been prejudicial to the case of the present assessee and would have, been wrong because such a finding could have been given only by the assessing officer, Bulandshahr after examining the seized books and documents and hearing the present assessee on all the relevant issues. He therefore, contended that the satisfaction contemplated in section 158BD is not a satisfaction which should be recorded because that recording and that finding in the order would be prejudicial to the case of the present assessee and would be against the principle of natural justice. He added that the correspondences etc. referred to above clearly indicate if not explicit, the implicit satisfaction of the Deputy Commissioner, Amritsar.
17. The Senior departmental Representative further submitted that in the transfer of the seized books and documents by the Deputy Commissioner, Amritsar to the assessing officer, Bulandshahr there was no violation of rule of natural justice and no hearing was required to be given by the Deputy Commissioner, Amritsar before satisfying himself as per section 158BD of the Act. The hearing in the case had to be provided by the assessing officer and the rule of natural justice had to be followed by the assessing officer, Bulandshahr who had to examine the seized books and documents and determine undisclosed income, if any, in the assessment of the present assessee. That rule of natural justice and the reasonable opportunity of hearing had been duly and fully followed by the assessing officer, Bulandshahr in course of the impugned block assessment. He added that the present assessee became party when notice was issued to him by the assessing officer, Bulandshahr to consider the seized documents and not before.
18. The Senior departmental Representative further submitted that section 158BD of the Act did not provide for hearing or recording of satisfaction before handing over the seized documents to the assessing officer, Bulandshahr. He added that the learned counsel was trying to add certain things to section 158BD which were not there and in fact they are not even consistent and required to be there. He further added that if the Deputy Commissioner, Amritsar as the learned counsel wants he should have done, had given notice to the present assessee to examine the seized documents and investigate the matter to determine the undisclosed income, the entire actions of his would have been unnecessary and cause of harassment to the present assessee and wastage of long time because it was ultimately and effectively the assessing officer, Bulandshahr who had to examine the seized books and account and determine the undisclosed income if any, in the case of the present assessee. The result of investigation by the Deputy Commissioner, Amritsar would not have been binding on the assessing officer, Bulandshahr as under the law the findings of the concerned assessing officer were required and not those of any other assessing officer.
19. The learned Senior departmental Representative further submitted that the provisions of section 158BD were reasonable, fair and just inasmuch as it helps in the avoidance of too many searches and seizures. In the absence of section 158BD there would have been need for searches in all other cases whose books of accounts, documents, etc. were found during the course of search in particular cases.
20. The learned Senior departmental Representative further submitted that the purpose of Chapter XIV-B was to expedite assessment in search cases. Section 132 continued to be on the Statute. Section 132(9A) also remained there. He added that Chapter XIV-B is procedure of assessment in search cases. As the matter in dispute about the recording of satisfaction is matter of procedure on this ground the impugned block assessment could not be declared as invalid. He relied on Supreme Court decision Supdt. (Tech.1) Central Excise v. Pratap Rai (1978) 114 ITR 231 (SC) and Income Tax Officer v. Seth Bros & Ors. (1969) 74 ITR 836 (SC). He also relied on the decision in Sarabjit Singh v. CIT (1998) 234 ITR 641 (Del), Addl. CWT v. Jamanlal Ramlal Kimtee (1983) 139 ITR 625 (MP) and GTC Industries Ltd. v. Assistant Commissioner (1998) 60 M (Mumbai) 308 : (1998) 65 ITD 380 (Mumbai).
21. The learned Senior departmental Representative further submitted that the comparison made by the learned counsel for the satisfaction mentioned in section 158BD with the word 'satisfaction' mentioned in section 271(1) was not proper and justified because in the case of 271(1) the question of satisfaction determined the levy of penalty for concealment on the assessee. Thus there was direct and immediate nexus between the satisfaction and the levy of the penalty but in the case of the word 'satisfaction' mentioned in section 158BD of the Act, there was no direct nexus and immediate levy of tax on the assessee because after an the undisclosed income had to be determined by the assessing officer, Bulandshahr and not by Deputy Commissioner, Amritsar. The assessing officer, Bulandshahr after receiving the seized books and documents had to examine the same, hear the assessee and then determined the undisclosed income if any. Therefore, the consequences of the word 'satisfaction' in section 158BD and in section 271(1) were not similar and hence they are not comparable.
22. We have given careful consideration to the facts and circumstances of the case, materials on the file and the submissions and contentions of the rival parties. We are of the opinion that the action under section 158BD of the Act taken in this case was proper and valid. The correspondences among the officers of the Investigation Wing of the department, the Deputy Commissioner, Amritsar and the assessing officer, Bulandshahr clearly show that the Deputy Commissioner, Amritsar had handed over the seized books and documents relating to the present assessee after being satisfied that the undisclosed income recorded in the said seized books and documents pertained to the present assessee and not to be assessee namely, M/s. Bhagat Industrial Corporation and Shri R.D. Bhagat in whose cases the search under section 132 of the Act was conducted. The satisfaction of the Deputy Commissioner, Amritsar is further made clear by the order he passed in the case of M/s. Bhagat Industrial Corporation in which he held that there was 'Nil' undisclosed income in the case. It was thus clear that the Deputy Commissioner, Amritsar was satisfied that the said seized books and documents had to be examined by the assessing officer, Bulandshahr to determine undisclosed income, if any, in the case of the present assessee i.e. M/s Digvijay Chemicals Ltd. The facts of the case therefore amply showed not only implicit but explicit satisfaction of the Deputy Commissioner, Amritsar as required under section 158BD of the Act.
23. There is nothing in section 158BD to indicate that it requires recording of satisfaction by the Deputy Commissioner, Amritsar that any undisclosed income belonged to the present assessee before handing over the seized books and documents to the assessing officer of the present assessee. We are convinced with the submissions and contentions of the learned Senior departmental Representative in this regard as mentioned above. We are of the view that the CIT, Amritsar was not required to give opportunity of hearing to the present assessee and determine that there was such and such 'Undisclosed income to be considered in the hands of the present assessee before transferring the seized books and documents to the assessing officer of the present assessee. Neither there is any words of such requirement mentioned in the section nor there is any implied indication in the section of such requirement. We agree with the learned Senior departmental Representative to ask for such hearing of the present assessee by the Deputy Commissioner, Amritsar and to determine undisclosed income from the examination of the seized books and documents would be unwarranted and prejudicial to the case of the present assessee. Such course of action by the transferring assessing officer i.e. Deputy Commissioner, Amritsar in the present case would be totally unnecessary and amount to avoidable harassment to the assessee and the transferring assessing officer because it is the transferee assessing officer who had to examine the seized books and documents relating to his assessee, hear the assessee in the matter and then determine the undisclosed income, if any. Thus hearing of the assessee and determination of undisclosed income by the transferor assessing officer was not required. In this view of the matter we reject the contention of the learned counsel of the assessee that since the Deputy Commissioner, Amritsar did not, give opportunity of hearing and did not determine undisclosed income from the seized books and documents relating to the present assessee, the handing over of the seized books and documents by him to the assessing officer, Bulandshahr under section 158BD of the Act was not proper and valid.
24. We also find the submissions of the learned Senior departmental Representative that the provisions of section 158BD should also be read and understood with reference to provisions of section 132(9A) of the Act. Sec. 132(9A) continued to be on the statute book even after the insertion of Chapter XIV-B of the Act. There is no requirement of recording of satisfaction before handing over seized documents to the assessing officer of the assessee to whom the seized books and documents belong. The required satisfaction before handing over the seized books and documents of the concerned assessing officer has to be arrived at on consideration of the contents of the seized documents and reports and correspondences relating thereto. We find that the Deputy Commissioner, Amritsar had arrived at the satisfaction after due consideration of the various correspondences, reports and the seized books and documents. Therefore, his action to hand over the seized books and documents to the assessing officer, Bulandshahr was proper and valid under section 158BD of the Act.
25. We also do not find force in the arguments of the learned counsel that the word 'satisfaction' mentioned in section 158BD is pari materia to the word 'satisfaction' mentioned in section 271(1) of the Act. In the former case there was no immediate consequence of levy of tax or penalty but in the latter case there was immediate consequence of levy of penalty on the assessee. Therefore, in the latter case, the assessing officer must give opportunity of hearing to the assessee before arriving at the satisfaction for levy of penalty under section 271(1) of the Act. In the former case the levy of tax or penalty did not directly and immediately arise from the satisfaction of the transferring assessing officer i.e. Deputy Commissioner, Amritsar. The determination of undisclosed income and the consequences of levy of tax, penalty, etc. had arisen by the action of the assessing officer, Bulandshahr who had given the opportunity of hearing to the assessee before passing the impugned order.
Thus the word 'satisfaction' mentioned in section 158BD is not pan materia to that of section 271(1) of the Act.
26. We are also of the view that the impugned block assessment cannot be quashed as invalid because no substantive right of the assessee had been taken away by the transfer of the seized books and documents to the assessing officer, Bulandshahr. There is no dispute about the fact that the seized books and documents pertained to the present assessee and it was the assessing officer, Bulandshahr assessing the present assessee who was competent to examine these books and hear the assessee in the matter. Thus the action of the Deputy Commissioner, Amritsar in transferring the seized books and documents to the assessing officer, Bulandshahr under section 158BD of the Act, did not take away any substantive right of the assessee, therefore, the plea of the assessee that the block assessment should be quashed is not valid and acceptable. We are also of the view that the matter in dispute relating to the transfer of seized books and documents to the assessing officer, Bulandshahr was a procedural matter and the non-recording of satisfaction by the Deputy Commissioner, Amritsar as the learned counsel contended he should have done would not make the impugned assessment liable to be quashed as invalid. The decisions reported in (1978) 114 ITR 251 (SC), (196,9) 74 ITR 836 (SC), (1998) 234 (7R 641 (Del), (1983) 139 ITR 625 (MP), and (1998) 69 TTJ (Mumbai) 308 : (1998) 65 ITD 380 (Mumbai) cited by the learned Senior departmental Representative support this view. On the other hand the decisions relied upon by the learned counsel as mentioned in the written submissions, filed are not relevant and applicable to the facts of the present case. The facts, were distinguishable and different from the facts of those cases.
27. In the above view of the matter we therefore, hold that the handing over of the seized books and documents relating to the present assessee by the Deputy Commissioner, Special Range, Amritsar to the assessing officer, Bulandshahr was proper and valid action under section 158BD of the Act and there was no invalidity in the impugned block assessment on this account.
28. Now we come to the arguments of the learned counsel regarding the various additions made in the impugned block assessment as mentioned above. The learned counsel submitted that the assessing officer had erred on facts and in law in making the aforesaid additions in the block assessment. He added that the amount of Rs. 27 lakhs entered in the seized loose sheets as advance to M/s Mini Exports was only calculations of the projected exports of M/s Mini Exports against which Rs. 27 lakhs would have been worked out as additional loans. However, no advance was made. An affidavit of Shri Jagat Singh Chadha proprietor of M/s Mini Exports was filed in this regard and he was even presented before the assessing officer for cross-examination but the assessing officer chose not to do so.
29. As regards the payment of Rs. 10 lakhs in cash to M/s. Verma Tarafaq Instruments (P) Ltd. on 16-11-1993 as mentioned in the seized stamped agreements referred to above, he submitted that the payment was actually made by cheque on 17th Nov., 1993 which was duly recorded in the books. He added that there was no cash payment on 16th Nov., 1993 and the discrepancies with regard to the cash and cheque and dates of 16th Nov., 1993 and 17th Nov., 1993 were inadvertent and should not be treated as reasons for considering the said cash payment different from the said payment by cheque. He further added that the affidavit of the debtor through its managing director and senior manager (finance & accounts) were submitted and they also appeared before the assessing officer to corroborate the fact. The affirmations made in the affidavit had not been contradicted.
30. As regards the addition of Rs. 6,48,000 or account of undisclosed interest on advance of Rs. 27 lakhs, the learned counsel submitted that since the assessee had not made such advance the question of adding any notional interest thereon did not arise.
31. Again he submitted that the addition of Rs. 3,53,013 on account of the allowance of loss on devaluation of stock of shares was Pot justified He submitted that the assessee had been holding its stock of shares as trading and the valuation had been made at market price on the basis of stock of shares rates as shown in the past several years. Precisely the same method had been followed for the year in question. He contended that the loss was genuine and the disallowance was unjustified and wrong.
32. As regards the addition of Rs. 5,47,460 on account of undisclosed lease he submitted that the consistent method of accounting followed by the assessment year to year in this regard was cash or receipt basis and not on basis the same method had been followed in the year under constitution of the contended that the assessing officer was not justified in making the for accrued lease rent ignoring the fact that the assessee had followed cash or receipt method of accounting in this regard.
33. As regards addition of Rs. 80,000 on account of allowance of the loss on the validation on the stock of shares, the submissions of the learned counsel were similar to those in respect of addition of Rs. 3,23,013 discussed above.
34. As regards the disallowance of bad debt of Rs. 95,799 the learned counsel submitted that the interest on the loan to M/s. Televista Electronics Ltd. was accounted for oil accrual basis and assessed in the past years on that basis. During the previous year relevant to the assessment year 1995-96 in consequence of a dispute before the Delhi High Court the rate of interest was reduced from 18 per cent to 15 per cent resulting in loss on bad debt of Rs. 95,799. He Contended that the claim of bad debt was therefore admissible for deduction.
35. As regard the, addition of Rs. 82,253 on account of short-term capital loss section 50 on sale of car and the addition of Rs. 44,300 on account of on account of undisclosed lease rent on car the learned counsel submitted that the assessing officer had not given proper jurisdiction for the additions and he had made the additions merely on suspicion and surmises.
36. The learned Senior departmental Representative on the other hand, supported the order of the assessing officer and reiterated the reasons given by him for the additions in the impugned block assessment. He submitted that the explanation furnished were not satisfactory and convincing and therefore, the assessing officer was justified in making the impugned additions. He added that the assessing officer had given convincing reasons and reasonable basis for the additions as set out in the impugned block assessment. He further submitted that the assessee had failed to produce necessary evidences in support of its denial of the aforesaid transactions and income. The impugned additions had been made by the assessing officer on the basis of the seized materials and not on conjecture and surmises.
37. We have given careful consideration to the materials on the file, and submissions and contentions of the rival parties. We are of the view that the addition of Rs. 27 lakhs on account of unexplained advance to M/s. Mini Exports found entered in the seized loose sheets, addition of Rs. 10 lakhs on account of unexplained payment of Rs. 10 lakhs in cash to M/s Verma Tarafaq Instruments (P) Ltd. and the addition of Rs. 6,48,000 on account of estimated interest on the undisclosed advance of Rs. 27 lakhs were proper and justified The advance of Rs. 27 lakhs detected from the seized loose sheets was not recorded in the books of accounts and it was undisclosed and unexplained advance. The explanations, affidavits, etc. filed by the assessee regarding the advance of Rs. 27 lakhs were not convincing and acceptable. The contention of the learned counsel that the advanced amount of Rs. 27 lakhs entered in the seized loose sheets was not actual advance but merely a protection is not convincing and acceptable. In view of the clear noting of the advance of 27 lakhs to M/s Mini Exports in the seized loose sheets which the assessee failed to convincingly and satisfactorily explain, the addition of the amount as undisclosed income was proper and justifiable The said addition clearly fell within the definition of undisclosed income under section 158B(b) of the Act.
38. Again the submissions and the contentions of the learned counsel regarding the addition of Rs. 10 lakhs on account of unexplained cash payment to M/s Verma Tarafaq Instrument (P) Ltd, on 16th Nov., 1993 are not convincing and acceptable. The cash payment of Rs. 10 lakhs as clearly noted in the seized stamped agreements referred to above cannot be treated as the, same as the payment of Rs. 10 lakhs by cheque on 17th Nov., 1993. The payment by cheque was accounted for payment and recorded in the books of accounts but the payment in cash on 16th Nov., 1993 was unaccounted payment and was not recorded in the books of accounts. For this undisclosed income of Rs. 10 lakhs the addition made by the assessing officer was proper and justified. The addition is duly covered under section 15813(b) of the Act.
39. Again we are of the view that the addition of Rs. 6,48,000 oil account of estimated interest on the undisclosed advance of Rs. 27 lakhs to M/s Mini Exports was proper and justified. The assessing officer had given sufficient justification for the impugned addition. He had found that the assessee had been advancing. loans on interest. He also found that the rate of interest charged by the assessee in other cases was 24 per cent. He was therefore, justified in estimating the amount of interest Co 24 per cent on the said undisclosed loans of Rs. 27 lakhs. We are of the view that this addition was also covered under section 15813(b) because the undisclosed income on account of interest on the undisclosed loan of Rs. 27 lakhs has been taken on the basis of seized materials. We therefore, confirm this addition as well.
40. Ass regards other additions we do not find convincing and satisfactory reasons for the same. The additions of Rs. 3,53,013 and Rs. 20,000 were made by the assessing officer by rejecting the valuation of the stock of shares. Admittedly the, assessee had been holding its stock of shares as trading stock and had been making the valuation of shares at market price on the basis of Stock Exchange rates. The assessing officer was not justified in rejecting the valuation of the stock of shares merely on the suspicion that the Stock Exchange rates adopted by the assessee were not genuine. No specific materials had been brought on record to support this belief to the assessing officer. It can therefore be held to be merely on suspicion and not genuine belief. Further additions based on suspicion and surmises are not covered under section 158B(-b) of the Act. In this view of the matter we hold that these additions in the impugned block assessment were not proper and justified-
41. Again the addition of Rs. 5,47,460 on account of undisclosed lease rent had been made by the assessing officer without giving reasonable opportunity to the assessee to explain the issue and without going into the method of accounting followed by the assessee with regard to the lease rent. The assessing officer made the impugned addition as undisclosed lease rent in the view that the assessee followed mercantile system of accounting with regard to the lease rent. The learned counsel for the assessee however, contended before us that the assessee had followed cash or receipt method of accounting with regard to the lease rent and the same had been declared on cash or receipt basis. We are of the view that the issue must be reconsidered by the assessing officer in the light of the correct facts of the case. We therefore, direct him to verify the method of accounting followed by the assessee in respect of the lease rent and then pass fresh order in the matter.
42. As regards the disallowance of bad debts of Rs. 95,799 we find considerable force in the submissions and contentions of the learned counsel. We therefore, direct the assessing officer to verity whether the amount of interest in question had been shown by the assessee as income from interest on accrual basis and assessed in the past on that basis. 11 this claim is found to be correct the addition of Rs. 95,799 on account of bad debts should be deleted by the assessing officer in the light of the aforesaid submissions of the learned counsel.
43. As regards the disallowance of short-term capital loss under section 50 on the sale of car we are of the view that the assessing officer was not justified in making the impugned addition of Rs. 82,253. The addition was not justified because it was not covered under the definition of undisclosed income as given in section 15813(b) of the Act. No convincing materials from the seized documents had been brought on record to show that the sale price of the car was higher than what had been shown by the assessee. The assessing officer had merely a suspicion that the sale price shown was much lower because the WDV was higher. Additions based on suspicion and surmises cannot be justified under s .158B(b) of the Act. Addition in the block assessment to be covered under section 158B(b) of the Act must be based on concrete materials. We therefore, delete the addition of Rs. 82,253. However, as regards addition of Rs. 44,200 for estimated lease rent of the car we would restore the matter to the assessing officer and direct him to give opportunity to the assessee to explain the matter. After hearing the assessee the assessing officer should pass fresh order based on concrete facts in this regard.
44. In the result, the appeal is partly allowed for statistical purposes.