Income Tax Appellate Tribunal - Delhi
Mid East India Ltd.,, vs Assessee on 12 June, 1998
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : A: NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI I. C. SUDHIR, JUDICIAL MEMBER
IT(SS) No. 5/Del/2004
Block Period: 1.4.87 to 26.2.97
Asstt. C.I.T., Vs. M/s Mid East India Limited,
Central Circle-6, H-1, Zamrudpur Community
New Delhi. Centre, Kailash Colony,
New Delhi.
(Appellant) (Respondent)
And
IT(SS) No. 10/Del/2004
Block Period: 1.4.87 to 20.2.97
M/s Mid East India Limited, Vs. DCIT, Central Circle-6
Mesco Tower New Delhi.
H-1, Zamrudpur Community Center,
Kailash Colony,
New Delhi.
Assessee by : Shri Salil Aggarwal, Advocate,
Shri Gautam Jain, CA,
Shri Shailash Gupta, CA
Department by : Smt. Anuradha Mishra, CIT DR
ORDER
PER I.C. SUDHIR, JUDICIAL MEMBER
IT(SS)A No. 5/Del/2004 The revenue has questioned the first appellate order on the following grounds :-
2
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
1. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred deleted the addition ofRs.33,53,613/-
made u1s 43B."
2. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.62,45,OO,850/- made on account of foreign income which was earned through its permanent establishments in Russia and Germany."
3. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted 1he addition of Rs.94,52,40,000/- made on account of undisclosed profit of M/s Marita Mesco. This addition was rectified u1s 154 and addition remained Rs.44,28,82,000/- "
4. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.36,00,000/- made on account of difference in investment in Mesco Mauritius by ignoring the facts that the addition was made on the basis of documents seized as per annexure-B-81 AA-4 and B-8/AA-69."
5. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.l,37,62,600/- made on account of loan from Kesoram Refractory. "
6. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the AO to allow dep. Of Rs.3,93,368/- and Rs.6,88,392/-."
7. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in has restricted the addition out of Rs.52,90,682/- at Rs.21,43,000/- made on account of undisclosed investment in the construction of Satbari Farm on the basis of valuation report found during the course of search operation."
8. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.6,29,000/- made on account of unexplained investment in the Dadar Farm House on 1he basis of seized documents.
3
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
9. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.2,35,00,000/- made on account of unexplained investment under the head "Other Sources".
10. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the disallowance of Rs.7,33,600/- and Rs. 11,19,044/- made on account of guest house expenses u1s 37(2).
11. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.24,99,94,306/- being difference between the balances of the assessee company and various other companies of Mesco Group which is as under:
a. Addition deleted on a/c diff. In balance sheet Mesco Airlines AY. 94-95 Rs. l,34,,99,568/-.
b. Addition deleted on a/c diff.: In balance sheet MISL India Ltd. AY. 94-95 Rs.23,33,92,551/-
c. Addition deleted on a/c diff. In balance sheet Mesco India Ltd. A Y. 96-97 Rs.16,17,527/-.
d. Addition deleted on a/e diff. In balance sheet Mesco Airlines & Div. AY. 97-98 Rs.14,84,560/-.
12. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.35,000/- & Rs.9,31,925/- made on account of unexplained in 21st Century Ld. And M/s Mesco Laboratories Ltd. made on the basis of seized documents.
13. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.61,00,000/- & Rs.13,50,000/- made on account of artificial billing and also deleted the addition of Rs.l,77,00,000/- made on account of gift coupons to the IDBI officials.
14. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.9,32,709/- made on account of expenses are which bills were not furnished.
4
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
15. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.ll,440/- made on account of expenditure claimed twice.
16. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.20,07,075/- made u/s 40(A)(3).'
17. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.19,10,000/- made on account of inflation in purchases."
18. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.29, 000 made u/s 40(A) (3)."
19. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleted the addition of Rs.95,000/- made u/s 40(A)(3)."
20. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in reducing the addition of Rs.35,520/- to Rs.3,614/- made on account of sale of scraped outside books."
21. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.8,33, 185/- made on account of sales not entered in the books of accounts."
22. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.l,18,74,860/- made on account of unaccounted sales by ignoring the fact that the addition was made on the basis of seized papers."
23. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.l,33,700/- made u/s 40(A)(3)."
24. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.ll,59,407/- made on account of payment made to India Trade Promotion Organization for which no bills were produced.:" 5
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
25. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the AO to allow deduction u/s 80HHC for the A.Y. 1994-95, 95-96 and 96 -97 of Rs.68,92, 723/-, Rs.l,00,82,183/- & Rs.46,27,929/- respectively. "
26. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.55,000/- made u/s 40(A)(3)."
27. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.6400/- made on account of non-billing of shoes at Ahemdabad Branch."
2. We have heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
Ground No.1:-
2.1 The relevant facts are that the assessee was subjected to search and seizure operation u/s 132 of the Act at its different premises and assessment u/s 158BC read with section 143(3) was framed. Out of several additions, addition of Rs. 33,53,613/- by way of disallowance u/s 43B for the assessment year 1996-97 was made as undisclosed income of the assessee. The assessee contended that mistakenly the same income was disclosed by the assessee in its return of income as undisclosed income and the Assessing Officer without examining the computation filed by the assessee and making necessary adjustments to the same has made addition of the said amount of Rs.33,53,613/-. It was contended that the conclusion of the Assessing Officer in proceeding to assess the declared sum of Rs.33,53,613/- is based on misappreciation of the provisions of law. It was submitted that merely because the assessee had erroneously offered the 6 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 income for taxation, the same cannot be assessed as such. Reliance was placed on several decisions including decisions of Hon'ble Jurisdictional Delhi High Court in the cases of CIT Vs. Bharat General Insurance Company Ltd. 81 ITR 303 (Delhi) and CIT Vs. Ravi Kant Jain 250 ITR 141 (Delhi). The Ld. CIT(A) called for remand report from the Assessing Officer (in short AO) on the submission of the assessee and thereafter rejoinder by the assessee thereto and being convinced with the contentions of the assessee, he has deleted the addition in question, which has been impugned by the revenue in the ground under consideration.
2.2 In support of ground, the learned CIT, DR has basically placed reliance on the assessment order. The learned AR on the other hand tried to justify the first appellate order on the issue.
2.3 Considering the above submission especially having gone through the above cited decisions of Hon'ble Jurisdictional Delhi High Court, We hold that it is an established proposition of law that it is incumbent on the Income Tax Department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee has wrongly shown an income in its return for a particular year, it cannot be conferred on the department to tax that income in that year even though legally such income did not pertain to that year; [ CIT Vs. Bharat General Insurance Company Ltd. 81 ITR 303 (307) ]. It is also an established position of law and it has been held as such by the Hon'ble Jurisdictional Delhi High Court in the case of CIT Vs. Ravi Kant Jain (supra) that the Assessing Officer was required to compute the income of an assessee according to law and merely because the assessee had erroneously offered the income for taxation, the same cannot be assessed as such and hence, the Assessing Officer had failed to appreciate that disallowances u/s 43B of 7 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 the Act could not be made in block assessment but only in regular assessments as the disallowance is on the basis of entries recorded in books of accounts. Respectfully following these decisions of the Hon'ble Jurisdictional Delhi High Court as well as Pune Bench of the Tribunal in the case of Janta Times Vs. ACIT; 66 TTJ 695 (Pune) and of Cochin Bench of the Tribunal in the Eastern Retreads (P) Ltd. Vs. ACIT 66 TTJ 839 (Cochin), the learned CIT(A), in our opinion has rightly come to the conclusion that an addition cannot be made u/s 43B of the Act in a block assessment and accordingly the amount of `33,53,613/- in question cannot be included in the computation of income as undisclosed income of the assessee. The learned CIT(A) was thus justified in directing the Assessing Officer to exclude the amount from the block assessment framed u/s 158BC/143(3) of the Act. The same is upheld. Ground No.1 is accordingly rejected.
Ground No.2:-
3. This ground is against the relief of Rs. 62,45,00,850/- granted by the learned CIT(A) by deleting the same which was made by the Assessing Officer on account of foreign income earned by the assessee. 3.1 In support of the ground, learned CIT-DR has basically placed reliance on the contents of page No. 3 to 5; para No.4 of the assessment order. She submitted that merely stating that income was exempt from tax u/s 90 of the Income-tax Act, 1961 is not sufficient on the part of the assessee to claim benefit available under the provisions of that section. The assessee needs to specify the specific provision and the nature of relief being claimed by it, to which it failed to. Thus, the Assessing Officer was having no option but to make addition of Rs.62,45,00,845/- on account of foreign income earned through its permanent establishment in Russia and Germany. 8
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 3.2 Learned AR on the other hand, placed reliance on the first appellate order. He submitted that issue raised in the ground is fully covered by the order of the Tribunal dated 12.06.1998 in the case of assessee itself in I.T.A. Nos. 4541/D/95, 2840/D/96 and 3086/D/97 for the assessment years 1991-92 to 1993-94; copies whereof have been made available at pages 65 to 76 of paper book No. I. He submitted further that similar view on the issue has been expressed by Tribunal in the case of assessee itself vide its order dated 09.01.2009 for the assessment year 1998-99 in I.T.A. No. 638/D/07, a copy whereof has been made available at page Nos. 1081 to 1092 of paper book-III. The learned AR pointed out further that the order of the Tribunal on the issue in the case of assessee for assessment year 1998-99 has been affirmed by the Hon'ble Jurisdictional Delhi High Court, vide its judgment dated 15.12.2009 in I.T.A. No.638/D/07. The learned AR submitted that in that judgment, the Hon'ble Delhi High Court in its order, has recorded a finding that reference petitions filed by the department against the decision of the Tribunal dated 12.06.1998 for the assessment years 1991-92 to 1993-94 has been returned un-answered. Learned AR also drew our attention to the comparable chart showing statements of yearwise assessment of the foreign income for the assessment years 1990- 91 to 1998-99 (page No.978 PB-II) agreement entered between India and USSR (page Nos.610 to 625 - PB-II) and agreement entered between India and Germany (page Nos.626 to 642, PB-II). These documents have been referred to by the learned AR in support of his submission that since assessee has a permanent establishment ( in short "PE") in USSR; as such, income earned by the assessee in USSR would not be taxable in India by virtue of Article 7 of Double Taxation Avoidance Agreement (DTAA). His further contention remained that there is no requirement in law to furnish proof of filing the return or of the payment of taxation in Russia and Germany. He submitted that when the income has not accrued in India in 9 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 law and is not taxable, there is no justification to deny the claim made by the assessee. He placed reliance on the judgment of Hon'ble Karnataka High Court in the case of CIT Vs. R.M. Muthaih; 202 ITR 508 (Karnataka) and of Hon'ble Madras High Court in the case of CIT Vs. S.R.M. Firms 205 ITR 400 (Madras). His further contention remained that the assessee company had duly disclosed the foreign income in the return of income filed for various years in the past in the regular course. Under Chapter-XIVB only undisclosed income can be brought to tax and such undisclosed income must come as a result of search. In support, he cited decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Ravi Kant Jain 250 ITR 141 (Delhi and of Bombay Bench of the Tribunal in the case of Sunder Agencies Vs. DCIT 63 ITD 245 (Mumbai). He also placed reliance on the later decisions of Hon'ble Jurisdictional Delhi High Court in the cases of Commissioner of Income-tax v. Vishal Aggarwal [2006] 283 ITR 326 (Del) and National Agricultural Co-Operative Federation of India Ltd. vs. JCIT 304 ITR (AT) 303 (Delhi).
3.3 Considering the above submissions, we find that the issue raised in the ground under consideration is fully covered by the decision of the Tribunal in the case of assessee itself for assessment years 1991-92 to 1993-94 (supra) which has been affirmed by the Hon'ble Jurisdictional Delhi High Court vide its judgment dated 15.12.2009 (supra). The Assessing Officer made addition of Rs.62,45,00,850/- i.e., foreign income earned by the assessee from Russia and Germany on the ground that the assessee had not specified the specific provision u/s 90 under which the exemption was claimed and the nature of relief claimed by it. The contention of the assessee basically remained that there was no justification to bring to tax the foreign income earned by the assessee from permanent establishment in Russia and that in the block assessment such income which has not 10 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 been disclosed and which has been detected as a result of search can only be assessed to tax. In support reliance was placed on several decisions and assessee company had also filed the following documents:-
S.No. Documents 1. Details of its foreign offices along with the
permissions/certificates from various India Govt. Agencies and Russian Govt. Agencies.
2. Written submissions claiming the exemption of the foreign income.
3. Order of Hon'ble ITAT in assessee's own case for the assessment years 1991-92, 1992-93 & 1993-94.
4. Statement of year-wise profit earned abroad and segregation of the consolidated profit of the assessee company.
5. Statement of taxes paid abroad along with copies of proofs of tax payment.
6. Copy of necessary Resolutions.
7. Copy of the protocol of the negotiations with Russian Company M/s Mari Agro Business Enterprises.
8. Copy of Rules & Regulations of the Joint Venture.
9. Copy of certificate issued by Ministry of Finance, USSR 3.4 The contention of the assessee also remained that there is no requirement in law to furnish proof of filing the return or of the payment of taxes in Russia and Germany and it is not the requirement of law that before claiming the amount as not taxable, the assessee must establish that it had paid the tax and filed the return of income in Russia and Germany. We fully agree with this contention of the assessee that when the income has not accrued in India and is not taxable, there is no justification to deny the claim made by the assessee as the same is fully supported by the decisions of Hon'ble Karnataka High Court in the case of CIT Vs. R.M. Muthaih (supra) and Hon'ble Madras High Court in the case of 11 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 CIT Vs. S.R. Farms (supra). We also concur with the contention of Ld. AR that it is not required for the assessee to pay tax in foreign country, if it was shown that income of company was exempted under DTAA. In other words, in case where subject is assessable to tax in India and is also assessable to tax in any other country in which country it carries its business through a permanent establishment, the subject would only be taxable in that country, unless it opts otherwise. It is also not in dispute that the assessee company had duly disclosed the foreign income in the returns of income filed for various assessments in the past in the regular course. Thus, being not an undisclosed income, the same cannot be brought to tax under Chapter-XIV-B of the Act. In this regard, we find strength from the above cited decisions of Hon'ble Jurisdictional High Court in the cases of CIT Vs. Ravi Kant Jain (supra) and others wherein the ratio has been laid down that under Chapter-XIV-B only an undisclosed income can be brought to tax and such undisclosed income must come as a result of search. Besides, as discussed above, the issue raised in the ground under the similar set of facts had already been decided in favour of the assessee by the Tribunal in the case of assessee itself for the assessment years 1991-92 to 1993-94 and 1998-99 (supra), which has been approved by the Hon'ble Jurisdictional Delhi High Court vide its judgment dated 15.12.2009 (supra). The Tribunal in those assessment years has held that such foreign income is not taxable in India which was earned by the 12 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 assessee from its permanent establishment in Russia known as Marita Mesco. In its computation of income for various assessment years the amount of foreign income earned by the assessee was duly shown with a foot note as "the assessee company has earned income from its trading and other operations at its foreign office abroad. The income from its branch abroad is taxable in terms of tax laws of that country. The assessee company is entitled to for relief in view of Double Taxation Agreement u/s 90 of the Income-tax Act, 1961." The relevant extracts of the order dated 12.6.1998 of the Tribunal for the assessment years 1991-92 to 1993-94 (supra) is being reproduced hereunder :-
"7. The assessee in this case is a company resident in India. It is an admitted fact that the assessee has a branch in Germany as well as in Russia. The definition of 'permanent establishment' under both the agreements includes a place of management, a branch, an office and a factory etc. Therefore, the assessee is having a permanent establishment in both the other contracting States namely Germany and Russia. These branch offices functioned independently at the respective countries and there is no business connection on the basis of which it can be said that part of the income is attributable to the Indian connection. The turnover and the profit of the branch offices are separately accounted for. There is no dispute about the amount of income of both the foreign branches. In such a case we have to follow the decision of the Special Bench of the Tribunal in the case of P.A.V.L. Kulandagan Chettiar Vs. ITO referred to above. As the provisions of the DTAA with the Federal Republic of German and the Russian Federation are exactly the same as in the case of Malaysia, this view which we are taking is fortified by the decision of the Hon'ble Madras High Court in the case of CIT vs. VR S.R.M. and Others (supra) and the Hon'ble Karnataka High Court in the case of R.M. Muthaiah (supra). We accordingly direct the AO to exclude the foreign income of the assessee for both the years."
Keeping in view of these relevant facts in mind, we are of the view that the learned CIT(A) has rightly deleted the addition of Rs. 62,45,00,850/- 13
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 questioned in the ground under consideration. The same is upheld. The ground No.2 is accordingly rejected.
Ground No.3:-
4. On the basis of balance sheet and profit and loss account of joint venture of assessee company and its foreign partner M/s Marita Mesco for the financial years 1991-92 to 1994-95, the Assessing Officer made addition of Rs.94,52,40,000/- as undisclosed income of the assessee. The Assessing Officer made addition with this finding that assessee was unable to explain the alleged difference between the profits entered in seized document and the profits disclosed in return from M/s Marita Mesco i.e. PE in Russia.
During the search, alleged balance sheets and profit and loss accounts of joint venture between the assessee company and its foreign partners in the name of Marita Mesco for financial years 1992-93 to 1995-96 were found and seized. The details of addition made in different assessment year are as under:-
(` in lacs) A.Y. Profits from 50% share of Profit as Addition Mesco Marita assessee shown in the made in as per Russian block alleged operation assessment seized records.
92-03 898.94 449.47 159.29 290.78
93-94 1753.90 876.95 143.41 733.54
94-95 2600.01 1300.01 23.74 1276.26
95-96 14594.94 7297.47 145.50 7151.82
Total - - 9452.40
4.1 The Assessing Officer noted that audited balance sheet was signed
by Ms. Rita Singh, Auditor Shri Anil Rohatgi and auditor of joint venture. Against this addition, the contention of the assessee remained that the 14 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 foreign income earned from the permanent establishment in Russia was wrongly shown under the head 'Germany' and vice-versa. Whereas while making the addition in question on account of alleged difference, income shown in the seized document was actually compared with the foreign income earned from Germany instead of M/s Marita Mesco Russia. An application u/s 154 was moved before the Assessing Officer to this effect and being satisfied with the contention of the assessee, the Assessing Officer vide his order dated 30.7.99 u/s 154 has rectified the mistake. As a result of this rectification u/s 154 of the Act, the undisclosed income of the assessee on account of undisclosed profits of M/s Marita Mesco has been computed and disputed addition has been accordingly restricted to Rs. 44,28,82,000/- as against initial addition of Rs. 94,52,40,000/-. Against this addition, the contention of the assessee before the learned CIT(A) remained as under:-
"a) It was submitted that the addition if any should have been made of Rs.4427.82 lacs instead of Rs.4428.82 lacs, since the addition for assessment year 1993-94 should have been 364.77 Lacs instead of Rs.365.77 Lacs.
b) It was further submitted that the assessee company had entered into a joint venture viz. 'Marita Mesco' with M/s Mari Agro Business Enterprise, Yoshkar-ola City, Mari ASSR (USSR) in August 1990 for manufacturing and trading in leather products. The copies of necessary resolutions passed along with the permission of the Ministry of Commerce for setting up the joint venture are placed at pages 34-37 of the paper book and the protocol of negotiations were also filed. It was submitted that, the venture 'Marita Mesco' is registered as 'Enterprise' in the State Register of Enterprises with Foreign investments established in Russian Federation and is a legal body as per Russian Law, certificates to this effect was issued by the Ministry of Finance, Russia Federation and the share of the assessee company in the joint venture was 50%, as has been adopted by learned DCIT. It was further submitted that operations in Marita Mesco was carried through a permanent establishment in Russia, income of which is not taxable in India and, therefore, the addition of income of Marita Mesco in India become totally uTe1evant and unsustainable.15
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
c) It was submitted that since the copies of alleged seized records are not available with the assessee, the assessee is not unable to make detailed submission in spite of the fact that the assessee had filed a letter dated 20.05.2002 for obtaining a copy of such documents.
d) However it was submitted that such seized records only show projection of profits earned are not the correct profits earned by appellant company. It was submitted that there was no justification for the assessee at any stage to under state its profits particularly in view or the fact that entire income. earned by the joint venture Marita Mecsco was exempted and has been claimed as exempt in view of DTAA entered into Russian Government. In fact Hon'ble Tribunal has held the same exempt for assessment year 199192, 1992-93 and 1993-94. Further it was stated that the profit shown is nothing but projections is evident from the fact that figures for assessment year 1994-95 are higher than profit disclosed.
e) It was further submitted that the learned DCIT' himself had not added the foreign income for the assessment years 1991-92, 1992-93 and 1993-94 while framing the impugned assessment order in view of the IT AT order, and hence, in any case there was no justification to include sum of Rs.750.95 lacs [Rs.385.18 + Rs.365.77] for assessment year 1991- 92 and assessment year 1992-93 as undisclosed income of the assessee.
f) In respect of addition of Rs.3677.87 Lacs for assessment year 1995-96 it was submitted that the said addition has been made for the assessment year 1995-96. In this connection it was submitted that the foreign income in respect of this assessment year was duly disclosed by assessee in its regular return for assessment year 1995-96 wherein income from M/s Marita Mesco has claimed as exempt in view of DTAA. This claim was accepted by department vide an order of assessment U/S 143(3) of the Act dated 30.03.1998 and as a result thereof the entire income disc1osed by assessee of Rs.36.19 crore was allowed and exempted. In view thereof it was submitted that in the regular assessment proceedings the claim as to whether such income from joint venture Russia is taxable or not stood decided in as much as the income declared to the extent of Rs.3619.50 Lacs was held as income not taxable under the provisions of the Act. It was further submitted that the instant addition of Rs.3677.87 Lacs represents difference between the profits allegedly disclosed as per the seized records i.e, Rs.7297.32 Lacs and profit duly disclosed in return of Income i.e.,Rs.3619.50 Lacs which is equivalent to Rs.3677.87 Lacs. It was thus submitted that once it is held in regular assessment proceedings the income of particular nature is exempted then irrespective of such income the learned DCIT has no jurisdiction to assess the amount in the block assessment proceedings where by only undisclosed income found and detected as a result of search can be examined. Reliance is placed on 16 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 the decision of Hon'ble Bombay Bench of the Income Tax Appellate Tribunal in the case of Sunder Agencies vs. DCIT reported in 63 ITD 245, wherein at page 257, it has been held as under:
"Under the provisions of this chapter the undisclosed income detected as a result of search initiated or requisition made after 30.06.1995 be assessed separately as income of that block of 10 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, the assessment could be made only in respect of the disclosed income. Such disclosed income must come as a result of search. This section does not provide a license to the Revenue for making roving enquiries connected with the completed assessments. It is beyond the power of the assessing officer to review the assessment completed unless some direct evidence come to the knowledge of the department as result of search, which indicate clearly the factum of undisclosed income. Without such evidence or material the assessing officer is not empowered to draw any presumption as to the existence of disclosed income."
It was submitted that in the same very judgment, in Para 19, the H0I1'hle tribunal has further observed that it is not any and every income which can be called to be the undisclosed income and relying upon the judgment of the Hon'ble Delhi High Court in the case of L.R. Gupta reported in 194 ITR 32, it has held that the income which is hidden from the department is undisclosed income. submitted that it has been held in the case of Parkash Food Ltd, vs. DCIT reported at 64 ITD 396 at page 398 that:· "Repetition it is clarified if the assessee has disclosed the particulars of income before the date of search and the A.O. drawn an adverse inference and intends to assess the same as income, then such income cannot be treated as undisclosed income. For example, the assessee may claim a particular receipt is not taxable Of may claim particular expenditure as allowable deduction under the provisions of Income Tax Act, 1961. In such cases, if the assessee has disclosed the particulars of such income or expenditure and the assessing officer intends to take a different view, then such income can not be termed as undisclosed income, though the same may be considered for inclusion in the total income during the course of regular assessment or re- assessment as the case may be, in accordance with law." 17
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 On the basis of aforesaid the appellant submitted that once the revenue had held that nature of income from M/s Marita Mesco has been held to be exempt in regular assessment proceedings then there is no basis under the chapter XIV B of the Act to change an opinion, which was once held by the Assessing Officer. Therefore, the entire income earned from M/s Marita Mesco for assessment year 1995-96 should also be held as exempted whether the quantum of such profit be Rs.7297.32 lacs or Rs.3619.50 lacs. In view of the aforesaid basis the addition made was prayed to be deleted."
4.2 Being convinced with the above submissions of the assessee, the learned CIT(A) has deleted the addition.
4.3 In support of the ground, learned DR has basically placed reliance on the assessment order. The learned AR on the other hand, tried to justify the relief given by the learned CIT(A). He also reiterated submissions made on behalf of the assessee before the authorities below. The learned AR also referred page nos. 831 of PB-II i.e., copy of the letter to the assessee requesting for supplying the balance sheet and profit and loss account etc.; page no.3 to 5 PB-I i.e., copy of the order dated 30.7.99 passed by the Assessing Officer; page nos. 581 to 582/PB-II i.e., copies of necessary resolutions passed by the assessee for entering into joint venture; page no.37 PB-I, i.e. permission of Ministry of Commerce for setting up the joint venture; page nos. 583 to 605/PB-II, i.e., copy of protocol of negotiation along with the rules and regulations; page no.16/PB-I; copy of question No.13 of detailed questionnaire dated 15.7.98; page nos. 60 to 64/PB-I, copy of letter dated 14.12.98 and page nos. 78 to 83/PB-I, i.e copy of complete break up of the profit as shown in annual return. 4.4 Having gone through the orders of the authorities below, in view of above submission, we find that the assessee had carried on the business 18 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 operation through the joint venture M/s. Marita Mesco in Russia. The foreign income as such was held to be exempt in assessment years 1992-93 and 1993-94 by the AO in the case of the present assessee itself, while giving effect to the order of the Tribunal, hence, the learned CIT(A) held that there was no justification in bringing to tax any amount irrespective of the amount to tax as undisclosed income. We do not find any infirmity in this finding of learned CIT(A). The addition for the assessment year 1994- 95 as discussed above has been rectified as nil in the order passed u/s 154 by the Assessing Officer on 30.7.99. Likewise the observation of the learned CIT(A) that in the assessment year 1995-96, the foreign income earned through M/s Marita Mesco has been accepted as exempt in the regular assessment framed u/s 143(3). Thus, the learned CIT(A) has rightly held that in making addition of foreign income for the assessment year 1995-96 would constitute a change of opinion and such addition would be impermissible under Chapter-XIV-B of the Act. We fully concur with the view of the learned CIT(A) that unless it is established that foreign income was undisclosed and the same was taxable, addition on this account cannot be made in the proceedings under Chapter-XIV-B of the Act. Considering these relevant aspects of the matter, we are of the view that the learned CIT(A) has rightly deleted the addition of Rs. 44,28,82,000/-. The action of the learned CIT(A) in this regard is upheld. In result, ground No.3 is rejected.
Ground No.4:-
5. The deletion of addition of Rs. 36,00,000/- by the learned CIT(A) has been questioned by the revenue in this ground. The Assessing Officer made addition of Rs. 36,00,000/- lacs on account of difference in investment in Mesco Mauritius in Assessment Year 1995-96. The Assessing 19 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 Officer made the addition on account of difference in investment in Mesco Mauritius on the basis of documents seized as per annexure B-8/AA-4 and B-8/AA-69 alleged to be written by Mr. Anil Rohatgi partner, the auditors of the assessee company, M/s A.R. and Associates. The financial statements of M/s Mesco Mauritius Ltd. were prepared by M/s Bacha & Bacha, CAs (auditors) 21 Jules Koenig Street, Port Louis and were also unsigned.
Noting financial figures shown in the financial statements of M/s Mesco Mauritius Ltd. and the position as per annual reports furnished and the accounts submitted as per the return of incomes of the assessee given a different picture as regards to funding of the investment activity at M/s Mesco Mauritius Ltd. The Assessing Officer also tabulated the figures shown in the annual reports of the assessee company. The Assessing Officer further extracted the contents of the seized letter alleged to be written by Mr. Rohtagi and noted that as on 30.09.1994 an investment of Rs.57.2 lacs (Mauritius `) had been shown in the account of M/s Mesco Mauritius Ltd. from the assessee company but only Rs. 3.17 lacs (Mauritius ` appear in the accounts of the assessee company). On these basis the Assessing Officer proceeded to conclude that certain adjustment had been carried out in the balance sheet of assessee showing such amount to be earned out of the trading carried out at Mauritius. The Assessing Officer held further that no such details or trading are available for the reason that no such trading has taken place and, therefore, the amount of investment had apparently been invested outside the books at Mauritius. He accordingly made an addition to the undisclosed income of the assessee of the amount of Mauritius Rs.54.04 lacs equivalent to Rs.36 lacs (converted at the exchange rate prevalent at that time as on 31.03.1995) for the financial year 1994-95 relevant to assessment year 1995-96. This action of the Assessing Officer was questioned by the assessee before the learned 20 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 CIT(A) and being convinced with the submission of the assessee in this regard, the learned CIT(A) has deleted the addition. 5.1 In support of the ground, the learned DR has placed reliance on the assessment order, whereas the learned AR has tried to justify first appellate order on the issue. He also referred copies of approval letters from RBI and from department of Companies Affairs, made available at page nos. 88 to 94 of PB-I ; copies of seized documents made available at page Nos. 645 to 665 of PB-II; copy of letter dated 14.12.98 of the assessee company, made available at page No.62 of PB-I, copies of documents regarding the furnishing details of the investments made in Mesco Mauritius Ltd. by way of plant and machinery along with RBI permission for opening the subsidiary company (page Nos. 88 to 94 of PB- I), and copy of relevant part of page No.2 of the letter dated 19.3.96, made available at page No.646 of PB-II.
5.2 Having gone through the orders of the authorities below, we find that against the addition in question, the explanation of the assessee remained that M/s Mesco Mauritius Ltd. is a subsidiary company of the assessee incorporated and registered in 1992 in Mauritius under the Companies Act, 1984 of Mauritius. Under the agreement approved by the RBI, the assessee company was to contribute 95% of the equity, whereas the balance against 5% was to be contributed by the foreign partner that is Government of Mauritius. The equity was to be contributed by the assessee company either in the shape of machinery, services, or any other kind as evident from the agreement approved by RBI. The financial year adopted by M/s Mesco Mauritius Ltd. for the preparation of balance sheet and closure of books of accounts was 1st October to 30th September of each year. With the assistance of balance sheet of M/s Mesco Mauritius Ltd. 21
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 made available at page nos. 645 to 665, PB-II and other seized documents, the assessee submitted that these pages are unsigned and as such no reliance can be placed on it. The further contention of the assessee remained that there was no unexplained investment in such company as there were only difference between balances. In this regard attention was drawn to para No.3 of page 64 B-8/AA-56 made available at page No.645 of PB-II, relevant extracts of which are produced hereunder:-
"3. We tried to reconcile the figures of balance sheet as on 30.09.1994 you will observe that assets and liabilities as submitted in your balance sheet and as annexed to the balance of MIL the assets and liabilities are the same. We have in order to reconcile to all figures made certain adjustments.
a) The intangible assets are added to the preoperational expenses we could not understand the nature of intangible assets in the absence of any explanation we have added to the preoperative expenses.
b) The capital contribution as per the MIL, New Delhi records was Rs.3.17 lacs in order to reconcile the amount of finance of total of Rs. 57.20 lacs we had shown a profit of Rs.54.03 lacs in the trading operations which we assume that whatever the amount was inducted other than the part of share capital as per MIL record is out of the profit of the trading operations
3. We still try to reconcile the figures as shown in your balance sheet as on 30.09.1995. The total share capital contribution as per MIL record is correctly shown as 246.31. The profit of Rs.54.04 lacs which we earned during the year 1993-94 was also shown as investment in asset."
5.3 Further submission of the assessee remained that financial year of the assessee company is year ending on 31st March each year but that of M/s Mesco Mauritius Ltd. is year ending on 30th September. The balance sheet of M/s Mesco Mauritius Ltd. for the year ending 30th September is incorporated in the annual report of the assessee company for the financial 22 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 year ending on 31st March of the next calendar year. It was submitted that due to different financial years of the two companies, the assessee company was not able to reconcile the investment in M/s Mesco Mauritius Ltd. as appeared in the books of account of the assessee company and the amount of share capital has shown in the balance sheet of M/s Mesco Mauritius Ltd., audited by M/s Bacha & Bacha, CAs as on 30.09.1994. The difference of Mauritius Rs. 54.04 lacs so arisen was inadvertently taken as profit earned in Mauritius for the purpose of disclosing the results of M/s Mesco Mauritius Ltd. in the annual report of the assessee. However, there was no difference in the investment made by the assessee company in M/s Mesco Mauritius Ltd. and the share capital of M/s Mesco Mauritius Ltd., submitted by the assessee. This fact was supported with the evidence from the following tables prepared by the Assessing Officer:-
The Financial Statement of M/s Mesco Mauritius Ltd.
(Figures in Mauritius Rupees)
F.Y. Fixed Assets Net Current Total Assets Financed By
Assets Share Capital Profits
30.9.92 24,124/- 25,000/- 49,140/- 49,140/- Nil
30.9.93 21,57,247/- (-)83,089/- 20,74,158/- 20,74,158/- Nil
30.9.94 41,57,290/- 15,63,191/- 57,20,481/- 57,20,481/- Nil
30.9.95 2,42,86,901/- 3,44,180/- 2,46,31,081/- 2,46,31,081/- Nil
The Financial Statement of M/s Mesco Mauritius Ltd.
(Figures in Mauritius Rupees -lacs)
F.Y. Fixed Assets Net Current Total Assets Financed By
Assets Share Profits
Capital
30.9.92 0.24 0.25 0.49 0.49 Nil
30.9.93 0.66 (-)0.41 0.25 0.25 Nil
30.9.94 41.57 15.63 57.20 3.16 54.03
30.9.95 296.91 3.44 300.35 246.31 54.03
5.4 With the assistance of above table, it was submitted that as on
30.09.1995 the amount of share capital in the balance sheet of M/s Mesco 23 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 Mauritius Ltd. audited by M/s Bacha & Bacha, CAs is the same as the investment made by the assessee company and amount of share capital shown in the balance sheet of M/s Mesco Mauritius Ltd. in the annual return of the assessee company. The further submission of the assessee company remained that even the letter allegedly written by Mr. Anil Rohtagi (though the said is seriously disputed) and as extracted above substantiate the submission of the assessee. It was submitted that the profit of Mauritius Rs.54.03 lacs earned by M/s Mesco Mauritius Ltd. in Mauritius as shown in the annual report of the assessee company was actually the difference on account of reconciliation between the assessee's record and the share capital of M/s Mesco Mauritius Ltd. which was inadvertently assumed as profit. It was submitted further that there was actually no difference in the share capital contribution as per assessee's record and that of M/s Mesco Mauritius Ltd. as on 30.09.1995, therefore, there was no investment in M/s Mesco Mauritius Ltd. outside the books but there was some difference on account of pending reconciliation as on 30.09.1994, which was subsequently reconciled. The contention of assessee accordingly remained that the addition was made without appreciation of the facts.
5.5 Considering the above submission, we are of the view that the learned CIT(A) has rightly come to the conclusion that the addition cannot be sustained merely on the basis of the documents relied upon by the Assessing Officer and the letter from Shri Anil Rohtagi, which was unsigned and which clarification on the subject was not obtained. The observation of the learned CIT(A) that difference between the figures of share capital as on 30.09.1995 as per the statements and as per the balance sheet of the assessee has not been rebutted by the revenue before us. We noted further that in the absence of reconciliation, figures were adopted in the statements but that in itself does not lead to any conclusion of investment 24 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 outside the books maintained by the assessee. The difference of Mauritius Rs.54.3 lacs in any case has been shown as profit. Under these circumstances, we are of the view that the learned CIT(A) has rightly come to the conclusion that no addition is warranted and was justified in deleting the addition of Rs.36 lacs in this regard. Ground No.4 is accordingly rejected.
6.Ground No.5:-
The revenue has questioned action of learned CIT(A) whereby he has given a relief of Rs.1,37,62,600/- to the assessee which was added by the Assessing Officer on account of loan from M/s Kersoram Refractory. The relevant facts are that the Assessing Officer noted that M/s Kersoram Refractory, a proprietorship concern of Shri Deepak Singh, nephew of the director/chairman of the assessee company had given a loan of Rs.1,37,62,600/- to the assessee company. The Assessing Officer noted further that Mid East Integrated Steal Ltd. (MISL) was sanctioned a loan of Rs.1,68,41,547/- from M/s Ashok Leyland against purchase of machinery from M/s Kersoram Refractory and the amount was disbursed by M/s Ashok Leyland to M/s Kersoram Refractory. However, no machinery was subsequently purchased by the MISL. The fund, thus, available with M/s Kersoram Refractory was further distributed with cash to Shri J.K. Singh of Rs.15,72,600/- and by giving a loan to the assessee company of Rs.1,37,62,600/-. The Assessing Officer also noted that Rs.15,72,600/- has been surrendered by Shri J.K. Singh in his block return as undisclosed income. The Assessing Officer, therefore, proceeded to add this amount to the undisclosed income of the assessee company on the basis that no amount was intended to be paid back to M/s Kersoram Refractory and by M/s Kersoram Refractory to M/s Ashok Leyland. The learned CIT(A) has, 25 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 however, deleted the addition being satisfied with the explanation of the assessee. This action of the learned CIT(A) has been questioned by the revenue before the Tribunal.
6.1 In support of the ground, the learned DR has basically placed reliance on the assessment year. He has referred contents of para No.9 of the assessment order with this submission that the assessee was having no intention to pay back the amount of Rs.37,62,600/- in question to M/s Kersoram Refractory, hence, the Assessing Officer was justified in making the addition of the amount in the income of the assessee. 6.2 The learned AR on the other hand tried to justify the first appellate order on the issue. He referred contents of para Nos. 9, 9.1 and 9.2 of the first appellate order. He reiterated the submissions made before the authorities below in this regard with this assertion that a loan cannot be treated as income. He also referred contents of the application filed by Ashok Leyland Finance Ltd. before Hon'ble Delhi High Court, copy of which has been made available at page Nos. 674 to 682 of the paper book-II. He submitted that at page No.674 to 682 of the paper book-II has been placed a copy of company application No.1585 of 1997 in Company petition No.2011 of 1997 moved by the petitioner Ashok Leyland Finance Ltd. in the matter of Ashok Leyland Finance Ltd. (petitioner) Vs. Mid East Integrated Steel Ltd. (respondent) for amendment in the petition. In para No.7 of the application, it has been mentioned that the respondent had sent a proposed repayment schedule to the petitioner to pay an amount of Rs. 1,55,00,000/- to the petitioner in the manner set out therein and as on date i.e., 29th July, 26 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 1997, the respondent had paid an amount of Rs.16 lacs to the petitioner and an amount of Rs.1,82,06,714/- is immediately due and payable from the respondent company to the petitioner.
6.4 Considering the above submissions, we find that the learned CIT(A) has deleted the addition in question on the basis that there is no material on record to hold that the amount in question had become non refundable and could be regarded as income. He has noted that the amount had initially been received as a loan by the assessee and there had been no subsequent change in the circumstances to alter the character of receipt in the hands of the assessee. He noted that no facts or evidence has been placed on record to show that the loan had seized to be as such and had acquired the character and nature of income.
The explanation of the assessee remained that the amount of Rs.1,37,62,600/- received as loan was duly shown in the books of accounts and there was no basis to treat the said sum as non returnable for the Assessing Officer particularly when the source of receipt was not doubted. It was submitted that source of nature of receipt was fully explained and had been accepted in the regular assessment proceedings. Decision of Hon'ble Supreme Court in the case of Param Sethi Sitarama Vs. CIT 57 ITR 532(S.C.) holding that all receipts are not income. It was argued that in absence of any express invocation of provisions of section 68 of the Act, this sum of Rs.1,37,62,600/- cannot be regarded as income of the assessee, much less as undisclosed income. It was submitted that merely because there was a surrender made by Mr. J.K. Singh of a sum of Rs.15,72,600/-, cannot be valid and proper ground to contend and hold that the loan received by the assessee had become non refundable. The assessee contended further that since the receipt was at the out set in the nature of 27 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 loan and there was no event resulting in the alteration of the nature of the sum, the amount received as loan could not by any stretch of imagination be held as undisclosed income of the assessee. Considering these material facts in totality and in absence of rebuttal of the findings of the learned CIT(A) that there was no material on record to hold that the amount in question had become non returnable, we are of the view that the learned CIT(A) has rightly deleted the addition in question. The same is upheld. The ground No.5 is accordingly rejected.
7. Ground No.6:-
The Assessing Officer disallowed Rs. 10,81,760/- being depreciation claimed in respect of the assessee company. The Assessing Officer noted in the assessment order that during the course of search operations, 70 imported machines were found lying at D-3/4, Sector-6, Noida and as such, has held that since the number of machines being put to use after import was not furnished, depreciation for the assessment year 1995-96 at Rs.3,93,368/- and for the assessment year 1996-97 Rs.6,88,392/- is disallowed. The learned CIT(A) has, however, deleted the disallowance, which has been questioned by the revenue before the Tribunal.
7.1 The Ld. DR has relied upon the assessment order. The learned AR has, however, reiterated the submissions made before the authorities below and has tried to justify the first appellate order in this regard. He also drew our attention at page nos. 26 to 30 of the paper book-I, the copy of import bill of the machines filed vide letter dated 22.10.1998. He submitted that these machines were in use and were temporarily kept at the premises at NOIDA.
7.2 Considering the above submissions, we find that the learned CIT(A) after discussing the submission of the assessee has deleted the disallowance mainly on the basis that Assessing Officer has not given any 28 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 concrete basis for the disallowance made. The contention of the assessee against the disallowance remained that during the block assessment proceedings the import bill of machines was filed vide letter dated 22.10.1998 and the same were duly verified. The further contention of the assessee remained that the machines in question were temporarily laying at D-3/4, Sector-6, Noida and had been in use but had been shifted there just prior to search. The further submission of the assessee in support remained that in the assessment year 1997-98 claimed depreciation at Rs.5,16,293/- has been allowed. The disallowance was also objected on the basis that there was no specific material found during the course of search alleging non use of such machinery and such disallowance cannot be made within the meaning of Chapter-XIV-B of the Act. Reliance was placed on several decisions including the decision of Hon'ble Gujarat High Court in the case of CIT Vs. N.R. Paper and Board Limited 248 ITR 526 (Gujarat).
There is no dispute on this well established position of law that an addition within the meaning of Chapter-XIV-B of the Act cannot be made in absence of specific material found during the course of the search, but in the present case machines in question were found laying at the premises searched, hence, there was reason for the Assessing Officer to doubt user of these machines but considering the above explanation of the assesee that machines were in use and were temporarily kept at the searched premises and above al that similar claim was allowed in the assessment year 1997-98 as well as there was nothing found during search to doubt the explanation of the assessee, we are of the view that the Ld. CIT(A) has rightly allowed the claimed depreciation. The same is upheld. Ground No. 6 is accordingly rejected.
29
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
8. Ground No.7:-
The revenue has questioned the action of the learned CIT(A) in giving part relief of Rs. 31,47,000/- out of the addition made by the Assessing Officer at Rs. 52,90,682/- on account of undisclosed investment in the construction of Satbari Farm for assessment year 1988-89. An identical issue has been dealt with hereinabove in Ground No.9 of the appeal preferred by the assessee wherein assessee has questioned action of the learned CIT(A) in sustaining the addition in part. After discussing the case in detail while adjudicating ground No.9 of the appeal preferred by the assessee, we have deleted the addition sustained by the first appellate authority in this regard. Following the decision taken therein ground No.7 of the present appeal is rejected.
9. Ground No.8:-
The Assessing Officer made addition of Rs. 6,29,000/- on account of unexplained investment in the Dagar Farm House. He noted that Annexure MES-144 seized at Bhuvneshwar contends rent agreement detail of the Dagar Farm house taken by the assessee company. He has further noted that as per the seized document rent was fixed at Rs.1,50,000/- per month out of which Rs. 75,000/- per month was to be paid in cash, along with brokerage of Rs. 25,000/- and water charges of Rs. 500/- per month. The assessee company, however, in its books of account has only debited Rs.75,000/- per month on account of rent paid of Dagar Farm House noted the Assessing Officer. Being not satisfied with the explanation of the assessee, the Assessing Officer worked out the alleged unexplained investment at Rs.6,29,000/- consisting of Rs.6 lacs rent paid for the eight months @Rs.75,000/- per month, water charges at Rs.4,000/- and 30 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 brokerage at Rs.25,000/-. This action of the Assessing Officer was questioned by the assessee before the learned CIT(A) and the learned CIT(A) after discussing the case of the parties has deleted the addition.
8.1 In support of the ground, the learned DR has placed reliance on the assessment order. The learned AR on the contrary has reiterated the submissions made before the learned CIT(A).
8.2 Having gone through the orders of the authorities below, we find that the explanation of the assessee remained that the Assessing Officer has not disputed that a sum of Rs.75,000/- per month was eligible business expenditure, hence, when if it is held that the assessee had made any payment outside books of account, it has to be necessarily allowed as business expenditure. It was contended that the seized document is not an agreement and there was no corroborative evidence so that any sum was expended outside books of account. It was contended that since the amount paid for the Dagar Farm House was duly disclosed in the books of account and there was no other evidence to draw any adverse view except the alleged papers showing the details of proposed rent, it could not be said to be undisclosed income. Considering these material facts, we are of the view that the learned CIT(A) has rightly come to the conclusion that there is no corroborative evidence in support of the details recorded in the relevant seized document and even if the amount was actually paid outside the books, the same would be covered u/s 69C of the Act and in that event deduction of equivalent amount as business expenditure would have to be allowed against amount treated as income leading to nil addition. We, thus, do not find infirmity in the first appellate order on the issue. The same is upheld. Ground No.8 is accordingly rejected.31
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
10. Ground No.9:-
The Assessing Officer made addition of Rs.2.35 crore on account of unexplained investment under the head "other sources". He held that the assessee had acquired a factory at B-521, Biwadi, Haryana. The Assessing Officer noted that shares of the company Suman International Pvt. Ltd. who owns the said factory at Biwadi, have been transferred to various individuals. The Assessing Officer did not agree with the explanation of the assessee and made addition of Rs.2.35 crore. Being convinced with the submission of the assessee, the learned CIT(A) has deleted the addition which has been questioned by the revenue before the Tribunal.
10.1 In support of the ground, the learned CIT DR has basically placed reliance on the assessment order. In this regard, he has referred contents of para No.3 of the assessment order.
10.2 The learned AR on the other hand, reiterated the submissions made before the authorities below and referred contents of para No.13 to 13.2 of the first appellate order. He also referred page No.998 of the paper book i.e. remand report dated 29.10.2002 by the Assessing Officer. He submitted that it was a mere proposal and assessee had never purchased the shares of Suman International Pvt. Ltd. nor there is any evidence or material to establish that the assessee had purchased the shares. The shares were acquired by the promoters i.e. Smt. Rita Singh, Smt. Natasha Singh, Sh. J.K. Singh and Twenty First Century Finance Ltd. and same was disclosed in their respective returns which was duly accepted by the revenue. The learned AR submitted further that the assessee has placed on record a copy of statement of affairs as on 31.3.1998 in the case of Smt. Rita Singh, Smt. Natasha Singh and Shri J.K. Singh and also the order of 32 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 assessments in their cases for the assessment years 1997-98 and 1998-99 have been made available at page nos. 832 to 855 of the paper book-II.
The learned AR submitted that the audited balance sheet for the assessment year 1998-99 in the case of Twenty First Century Finance Ltd. and the order of assessment for the assessment year 1997-98 has been made available at page nos. 856 to 867 of the paper book-II. The learned AR pointed out that annexure A/1-A-55 has been supplied to the assessee by the learned CIT DR only before the Tribunal.
10.3 Having gone through the orders of the authorities below and material available on record, we find that the Assessing Officer in para No.13 of the assessment order has noted that the assessee had acquired a factory at B-521, Biwadi, Haryana which was owned by Suman International Pvt. Ltd. He has noted that shares were transferred in individual names at the rate of `10 per share. During the course of search operation Annexure A-1/A-55 was seized. Page Nos. 10 & 11 of the said Annexure contained correspondence relating to the proposed acquisition of the aforesaid factory. Copies of these documents have been supplied by the learned CIT- DR before the Tribunal. On the basis of these correspondences, the Assessing Officer has concluded that the dealing was finalized for approximate amount of Rs.2.35 crore. The Assessing Officer has noted further that the assets and liabilities of Suman International were acquired by the assessee but no amount was debited in the books of account for acquiring these assets and liabilities while the papers clearly state that the delay was struck at Rs.2.35 crore. The Assessing Officer accordingly made addition of Rs.2.35 crore as unexplained investment.
The contention of the assessee remained that the addition is based on mis-founding assumption unsupported by any material much less a valid 33 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 material on record. It was submitted that there are apparent contradiction in the finding of the Assessing Officer as he holds that the assessee has acquired a factory at B-521, Biwadi and at the same time he holds that no assets/liabilities have been shown in the books of account. The Assessing Officer further records that shares of the company, Suman International Pvt. Ltd., who owns this factory, have been transferred to various individuals. Thus, in view thereof, it is evident that it is undisputed by the Assessing Officer that there is no acquisition of either any assets/liabilities of Suman International Pvt. Ltd. or shares of Suman International Pvt. Ltd. It was contended by the assessee that the above finding of the Assessing Officer is fully verifiable from books of accounts of the assessee. It was contended that once it is held that no investment was made by the assessee, it cannot be had any imagination be held that there was any unexplained investment in such assets. It was argued that section 69 of the Act places a heavier burden on the department to establish with proper evidence that there was any investment which is unexplained in the nature made by the assessee company outside books of account.
On going through the above mentioned correspondences which are part of the seized material marked as annexure A-1/A-55 we find that the first letter dated 03.05.1993 was addressed to Shri Mehra by Shri J.K. Singh, Chairman of the assessee company authorizing Shri R.T. Tayal, Vice President Classic Financing Ltd. to negotiate and finalize the deal for an approximate amount of Rs.2.35 crore. The second letter dated 03.05.1993 is written by Shri Mehra confirming the acceptance of the above offer subject to working of the details and modalities of the transfer in a most tax efficient manner. Nowhere from these letters it is apparent that it was execution of the offer as the same was subject to various conditions. At the most, it was an acceptance of offer. The contention of the assessee 34 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 remained that the deal of acquiring of assets and liabilities of Suman International Pvt. Ltd. by the assessee company was never finalized. In absence of evidence supporting the execution of the offer, we are of the view that the above stated letters found during the course of search, were not sufficient to justify the addition in question made by the Assessing Officer. The details filed by the assessee to show that the shares of Suman International Pvt. Ltd. who owns the factory in question were acquired by other persons, have not been rebutted by the revenue as the same has been accepted by the revenue in the hands of these persons i.e. Smt. Rita Singh, Smt. Natasha Singh and Shri J.K. Singh in their assessments for the assessment years 1997-98 and 1998-99. Under these circumstances, we are of the view that in absence of any incriminating documents found as a result of search, learned CIT(A) has rightly deleted the addition in question holding the same as outside the scope of the block assessment under Chapter-XIV-B of the Act. The same is upheld. Ground No.9 is accordingly rejected.
11.Ground No.10:-
The Assessing Officer made disallowance of Rs.7,33,600/- and Rs.11,19,044/- on account of guest house expenses u/s 37(2) of the Act. The learned CIT(A) has deleted the same on the basis that it is outside the scope of the block assessment under Chapter-XIV-B of the Act as the same has been duly disclosed in the books of account and regular return of income.
11.1 In support of the ground, learned CIT-DR has placed reliance on the assessment order.35
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 11.2 Learned AR, on the other hand, has tried to justify the first appellate order on the issue. He also referred remand report dated 29.10.2002 filed by the Assessing Officer in this regard before the learned CIT(A). 11.3 The Assessing Officer made disallowance of Rs.7,33,600/- u/s 37(2) of the Act for the assessment year 1996-97 and Rs.11,19,044/- representing the guest house expenses for the assessment years 1993-94 to 1997-98. The contention of the assessee remained that the disallowance has been made regarding expenditure duly accounting for in the books of account and in the regular return of income. It was contended further that the Assessing Officer has not referred to any seized document before making the disallowances in question, hence, the additions are beyond the scope of provisions under Chapter-XIV-B of the Act. Considering these material facts of the issue, we are of the view that the learned CIT(A) has rightly deleted the addition. The same is upheld. Ground No.10 is accordingly rejected.
12. Ground No.11 12.1. The AO made addition of Rs.24,99,94,306/- being difference between the balance of the assessee company and various other companies of Mesco Group. The details of the addition made are as under:-
Nature of Addition Amount
(Rs.)
Alleged difference in balances with M/s 1,34,99,568/- Mesco Airlines Ltd Alleged difference in balance with M/s 23,33,92,551/- MISL Alleged difference in balances with M/s 18,17,527/- Mesco India Ltd 36 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 Alleged difference in balance of Mescos 14,84,560/- division in the Balance Sheet 12.2. Regarding difference of Rs.1,34,99,688/- , the AO has made following observation in Para No. 16 of the assessment order as under:-
" In reconciliation filed with of M/s Mesco Airlines Ltd. for financial year 1994-95, Rs.1,34,99,688/- (CR.) was attributed difference in opening balance which also falls in block. To which year these differences pertain and what is the nature of these difference were not filed. Since as on 1/4/94, M/s Mesco Airlines Ltd. has a debit balance of Rs.12,67,374/- against MIL and MIL has credit balance of Rs.1,47,67,062/- (though stated as Rs.1,47,062/-) against MAL, Rs,1,34,99,668/- credit balance remains unexplained and is added as unexplained liability in A.Yr. 1994-95."
12.3. The addition in question was objected by the assessee before the Ld. CIT(A) with this submission that the assessee had furnished reconciliation statement on 17/4/1998 reconciling balance in the books of the two companies as on 31/3/1995 before the AO during the assessment proceedings. Thus, the addition on account of alleged difference as on 1/4/1994 was made without granting a sufficient and fair opportunity to the assessee company and ignoring the reconciliation filed by the assessee. It was further submitted that there is no difference in the balance of the assessee company with Mesco Airlines Ltd as alleged by the A.O. Referring Page NO. 172 of the paper book i.e reconciliation with Mesco Airlines Ltd for the Financial Year 1994-95 (A.Y 1995-96), the assessee submitted that on careful perusal of the same, it is apparent that there was difference of Rs.1,34,99,688.50 as on 31/3/1994 being amount credited by the assessee 37 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 company in F.Y 1993-94 but it was not debited by Mesco Airlines Ltd. It was submitted that the same was rectified by Mesco Airlines Ltd on 1/4/1994 by debiting Mideast India Ltd with the same amount. Copies of the respective ledger accounts for the A.Y 1994-95 was made available and being satisfied with these submission, the Ld. CIT(A) has deleted the addition.
12.4. In support of the ground, the Ld. DR has placed reliance on the assessment order. The Ld. AR on the other hand tried to justify the first appellate order on the issue and referred submissions made in this regard before the Ld. CIT(A) made available at Page Nos. 937 to 938 of the paper book II. He submitted further that in absence of rebuttal of above submission by the Revenue, no interference with the first appellate order on the addition is called for.
12.5. We agree with the submission of the Ld. AR that in absence of rebuttal of above finding of the Ld. CIT(A) on facts no inference is called for with the first appellate order on the issue. The same is upheld. ] 12.6. So far as addition of Rs.23,22,37,926/- representing the alleged difference in the balance of the assessee company and Mideast Integrated Steel Ltd as on 31/3/1994, the A.O has made following observation:- 38
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 " In reconciliation of Mideast Integrated Steel Ltd. filed for financial year 1994-95, the difference of Rs.23,72,37,926/- was attributed to opening balance which also falls in block. In which year these differences pertain and what is the nature of these difference were not filed. Since as on 1/4/1994, MISL has a credit balance of Rs.38,45,368/- against MIL and MIL has credit balance of Rs.23,33,92,551/- against MISL. The credit balances in both the hand remains unexplained and are added in their respective hands as unexplained liability in A.Yr. 1994-95."
12.7. The addition was objected by the assessee on the basis that a similar addition on difference falling as on 1/4/1994 was also made in the block assessment of Mideast Integrated Steel Ltd and the Ld. CIT(A) being satisfied with the explanation of the assessee and after verifying the same had deleted the addition. It was submitted further that the opening balance as on 1/4/1994 of the assessee company in the books of Mideast Integrated Steel is Rs.37,94,12,863/- and not Rs.38,35,368.94 as on 1/4/1994 the balance of assessee company in the books of Mideast Integrated Steel Ltd was Rs.38,35,368.94 but the first transaction was made on 2/11/1994. It was submitted that the balance taken as on 1/4/1994 was actually balance as on 1/11/1994 hence there is error.
Account of the assessee company in the books of Mideast Integrated Steel Ltd was a system and programme error submitted the assessee and in support computer print out starting from 1/4/1995 since the accounts were computerized as on 1/11/1994 was furnished. This account actually gave balance as on 1/11/1994 of Rs.38,35,368/-. Copy of ledger account of the assessee company in the books of Mideast Integrated Steel Ltd for the 39 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 period from 1/4/1994 to 30/10/1994 also forms part of the record. The assessee company also furnished on record a reconciliation statement as on 31/3/1994 and as on 31/3/1995, copies whereof have also been made available before the Tribunal at Page Nos. 693 to 723 of the Paper Book. Considering these material aspect of the addition in question the Ld. CIT(A) has deleted the addition with this finding that there is no discrepancy as alleged by the A.O. In absence of rebuttal of the above finding of the Ld. CIT(A) by the Revenue, we are not inclined to interfere with the first appellate order in this regard. The same is upheld. 12.8. The A.O made further addition of Rs.18,17,527/- on account of difference between the assessee and Mesco India Ltd with the following observations:-
" With regard to MIL B-12/A balances reconciliation with M/s Mesco India Ltd it was seen tht assessee has credit balance of Rs.1,51,11,845/- in his book while Mesco India has debit balance of Rs.1,32,94,318/-. Hence there is no excess credit balance of Rs.18,17,527/- in assessee's case which is added in assessment year 1996-
97."
The Ld. CIT(A) has deleted the addition accepting the submission of the assessee against the same. The assessee pointed out that the AO has stated that the assesee had in Mesco India Ltd. debit balance of Rs. 1,32,94,318/- whereas the assessee had credit balance of Rs. 1,15,11,845/- . In view thereof since there was credit balance of Rs. 18,17,527/- in 40 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 excess, the same was added in asstt. year 1996-97. The assesee contended that there is apparent contradiction in the finding as it is stated that there is no excess credit balance and the AO has not mentioned the particular date when these was the alleged difference. In absence of rebuttal of above submission of the assessee, which has been accepted by the Ld. CIT(A), we do not find reason to interfere with the first appellate order as under the above facts we are of the view that the Ld. CIT(A) has rightly deleted the addition. This action of the Ld. CIT(A) is thus upheld. 12.9. Regarding the addition of Rs.14,38,560/- made on the basis of certain differences in balances between the assessee company and MIL Mesco, the submission of the assessee remained that no person can make profit out of itself as MIL Mesco is a division of the assessee company itself. It was furteher submitted that the additions of Rs.24,99,94,306/- are wholly untenable and fall outside the ambit of the provisions of Section 158 BB of the Act. It was submitted that the balances had been duly disclosed in the books of accounts of the assessee company. The returns of income for A.Ys 1994-95 to 1997-98 have been filed by the assessee and in the assessment framed u/s 143(3) such balances have been accepted as such. It was contended that in absence of any material evidence deducted during the course of search alleged difference cannot be held as undisclosed income of the assessee. Accepting these submissions the Ld. CIT(A) has deleted the 41 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 addition. Since the Revenue has not been able to rebut the above finding of the Ld. CIT(A) we are not inclined to interfere with the first appellate order which, as discussed above is reasoned one. 12.10. In result, Ground No- 11 is rejected.
13. Ground Nos. 12,13 to 27
Since additions involved in these grounds are based upon the seized documents from the premises of the auditors of the assessee and common arguments have been advanced by the parties in support of their respective cases, these are being disposed off simultaneously. 13.1. Different additions (in question in the above grounds) made by the A.O on the basis of seized document from the premises of M/s AR Associates, the auditors of the assessee company deleted by the Ld. CIT(A) has been questioned by the revenue. The Ld. CIT(A) has deleted these additions mainly on the basis that these documents are unsigned and it is not known by whom these are prepared. These documents contained certain calculations without any detailed description regarding the nature and purpose of the jottings made on these loose papers. 13.2. In broader support of these grounds, the Ld. DR has basically placed reliance on the assessment order, she has referred contents of the related paragraphs of the assessment order. The Ld. AR on the other hand 42 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 tried to justify the first appellate order on the issues with this common submission that the additions in question made on the basis of documents found from the auditors premises are beyond the purview of Chapter xiv B of the Act. He referred Page Nos. 1044 to 1103 of the Paper Book, to support his contention that the seized documents are loose papers containing certain calculations without any detailed description regarding the nature and purpose of the jottings made on these loose papers which are incapable of showing any interpretation merely by themselves. He also placed reliance on the following decision of Hon'ble Supreme Court and others :-
CIT Vs. J. K. Charitable Trust 308 ITR 161 (SC) Shri J. K. Singh Vs. DCIT & ors IT(SS)A No. 11 & 14/Del/2000 (Block period 1987-88 to 1997-98) order dated 5/7/2006 DCIT Vs. Little Rome Ltd & Ors IT(SS)A Nos 55 & 60/Del/2000 (Block Period 1993-94 to 1997-98) order dated 9/3/2007. DCIT Vs. Smt. Rita Singh and ors IT(SS)A Nos. 56 & 61/Del (2000) (Block Assessment years 1987-88 to 1997-98) order dated 20/6/2005.
We are going to deal with this issue in ground No. 12 as to whether observations of an auditor of the assessee while finalizing the accounts, found during the course of search of the premises of the auditor, can be a basis to assess the undisclosed income of the assesseee. Finding on this common issue will be applicable on all these related ground Nos. 12 to 24 & 26 and 27 wherever additions have been made on such working / observations of the auditors.43
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 GROUND NO-12 13.3. In Ground No-12, the revenue has questioned first appellate order whereby the Ld. CIT(A) has deleted the additions of Rs.35,000/- and Rs.29,31,925/- made on account of unexplained investment in M/s 21st Century Finance Ltd and M/s Mesco Laboratories Ltd. respectively, in the assessment year 1994-95. The relevant facts are that during the search operation Annexure AA-12 of Party B-8 (page No. 727 of PB-1) was seized from the office of Shri A.R Rohtagi, statutory auditor of the assessee company. The AO made addition of Rs.35,000/- on the basis of rough calculation done on Page NO-63 of the said seized annexure and the addition of Rs.29,31,925/- was made on the basis of rough calculation done on Page NO. 34 of the Annexure. The contention of the assessee against these additions was that the documents containing audit observations seized from the premises belonging to M/s AR Associates Chartered Accountants, the auditors of the assessee company are unsigned and it is not known by whom these are prepared. A copy of the related annexure has been made available at page No. 727 of the Paper Book-(I). The grievance of the assessee also remained that the A.O has not consisted the auditors to verify the contents of the documents. The seized paper apparently suggest that it contains only working, may be before finalizing the accounts and in the documents the date and amount have been 44 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 mentioned without any further narration. How and from where these details have been prepared is not clear. The contention of the assessee also remained that they have not given any cash to 21st Century Finance Ltd and Mesco Laboratories Ltd, and therefore, question of explaining the source does not arise. Reliance was placed on the decision of Allahabad Bench of the Tribunal in the case of Monga Metals (P) Ltd Vs. ACIT, 67 TTJ 247 (Alla). The relevant extract thereof is being reproduced hereunder:-
" Findings of the quasi judicial authorities are found to have been influenced by the advice/information/evidence which have been obtained from third party and brought on record without the knowledge of the assessee or without allowing the assessee and opportunity to controvert or disapprove the information, evidence or statement of fact contained in such information or without allowing the assessee to cross-examine such third party, the order has to be found violative of principle of natural justice i.e such an order is an order in violation of natural justice. Once, the assessment is found to be in violation of principle of natural justice it has to be quashed as being bad in law and void or a nullity".
Reliance has also placed on several decisions which are as under:-
a) CBI Vs. V.C. Shukla 3 (1998) SCC 410, 433. b) Ashwani Kumar Vs. ITO 39 ITD 183 (Del) c) Kantilal & Borthers Vs. ACIT 52 ITD 412 (Pune) d) Silver and Arts Palance Vs. ACT 52 ITD Jaipur e) ACIT Vs. Shailesh S Shah 63 ITD 153(Mum) f) ITO Vs. M.A Chaidambaram 63 ITD 203 (Chennai) g) Agarwal Motors. Vs. ACIT 68 ITD 407 (Jab) h) D.A Patel Vs. DCIT 72 ITD340 (Mum) i) T.S. Venkatsan Vs. ACIT 74 ITD 298 j) Brij Lal Rupchand Vs. ITO 40 TTJ 668 (Ind) k) Dhan Raj Restaurant Vs. ACIT 55 TTJ 390 (Mum) l) S. K. Gupta Vs. DCIT 63 TTJ 532 at 535 (Delhi) m) Atul Kumar Jain Vs. DCIT 64 TTJ 786 (Delhi) 45 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
13.4. Considering above submissions of the assessee which have been unrebutted even before the Tribunal, we are of the view that the Ld. CIT(A) has rightly deleted the additions in question in absence of sufficient evidence as the working of the auditors without narration and indicating nothing except date and amount does not lead anywhere in absence of corroborative evidence. Ground No-12 is accordingly rejected. GROUND NO-13 13.5. In Ground No-13 the action of the Ld. CIT(A) in deleting the additions of Rs. 61,00,000 and Rs. 13,50,000/- on account of artificial billing and also deleting the addition of Rs.1,77,00,000/- made on account of gift coupons to IDBI officials has been questioned.
In support of the grounds, the Ld. DR has basically placed reliance on the assessment order. The Ld. AR on the other hand tried to justify the first appellate order and reiterated the submissions made before the authorities below and the decisions relied upon the first appellate order.
Regarding the addition of Rs.61,00,000/- made on account of artificial billing and gift coupons to IDBI officials to the tune of 1.77 crores in Mumbai Branch, the submission of the assessee remained that the discrepancy on account of artificial billing was later on rectified and the addition was totally vague without any details. It was submitted that the 46 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 amount of Rs.61 lac would be in the form of sales and income would be included in the income for the A.Y 1996-97. Regarding gift coupons based on observation of the auditors found recorded on seized documents marked at pages 109 to 112 of Annexure A-3 of party A-1 (page Nos. 734 to 737, Paper Book - II it was submitted that the amount written in the seized document was Rs.1.77 lakhs only and not Rs. 1.77 crores as alleged. It was submitted that these gift coupons were issued under sales promotion scheme and have no financial implication. The Ld. CIT(A) has deleted these additions accepting the explanation of the assessee about the addition of Rs.61 lac and 13.50 lac made on account of artificial billing that the allegation even if true would mean that the amount are already included in sales and no addition can be made on the basis given in the assessment order. He has further accepted the submission of the assessee regarding the gift coupons that the correct amounts in the seized paper is Rs.1.77 lakhs only and that no addition is possible on the basis of gift coupons as no income has accrued to the company and the mount has no bearing on the financial results.
A perusal of the seized document A-1/A-3 made available at Page No. 734 of Paper Book II, we fully agree that the gift coupons to IDBI Staff was to the tune of Rs.1.77 lakh only and not Rs.1.77 crores. The Ld. CIT(A) has thus rightly deleted the addition of Rs.1.77 crore with this finding that the correct figure is R.1.77 lakh and not Rs.1.77 crores and that 47 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 these gift coupons were issued under 'Sales Promotion Scheme' and have no financial implications. The action of the Ld. CIT(A) in this regard is thus upheld. The addition of Rs.61 lac has been made by the AO on account of artificial billing. This addition has been made on the basis of audit observation of Mumbai Branch wherein it was stated that the artificial billing of Rs.61 lac was done to show higher sales in the Mumbai Branch which is apparent from the seized document made available at Page No. 734 of the paper book-II. The submission of the assessee against this addition remained that it was only reported by the Mumbai Branch that artificial sales has been shown in the books which would have been subsequently rectified by the management and thus not pertaining in books. The further submission of the assessee remained that even otherwise, had in case this discrepancy in the books was not rectified, the amount of Rs. 61 lac which would be in the form of sales i.e. revenue those income would be included as income of the assessee company in the A.Y 1996-97 and would have been taxed accordingly. Therefore, in either case this could not be treated as income of the assessee company. There is no reason to doubt these submissions and thus we are of the view that the Ld. CIT(A) has rightly deleted the same.
So far as the addition of Rs.13.50 lacs made by the AO on account of artificial calculation is concerned we find that the addition is based on the contents of seized paper made available at page no. 736 of the paper book 48 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 II. On perusal of this document it is evident that the addition was made on the basis of audit observation of Indore Branch wherein it was stated that the artificial collection of Rs.13.50 lacs was done to show higher collection in the Indore Branch. The Ld. CIT(A) has thus in our view rightly deleted the addition with this finding that if the allegation is true it would mean that the amount have already been included in sales and no such addition can be made. We thus do not find reason to interfere with the first appellate order in this regard. The same is upheld. The Ground No. 13 is accordingly rejected.
GROUND NO-14.
13.5. The AO made addition of Rs.9,32,709/- on account of expenses, of which bills were not furnished. On the basis of audit observation on Page No. 38 of Part A-1 Annexure A-28, (a copy whereof has been made available at Page No. 740 of the paper book-II). The AO made the addition in question on account of unverifiable expenses. The observation of the auditor was that vouchers in respect of these bills are not available. The AO did not agree with the explanation of the assessee that these seized papers contain audit observation regarding fixed deposit division of the assessee company. It was submitted that during the block assessment proceedings, the assessee had filed the details of these expenses along with 49 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 account copy of relevant accounts. It was submitted that payments to various parties were made through crossed cheques, copies of the relevant bank statements were also made available. The details of these expenses have been made available at Page No. 237 of the Paper Book No-1. It was submitted that an amount of Rs.6,40,000/- was paid to CRISIL for the rating of fixed deposits of the assessee company. The payment was made through the head office of the assessee company on behalf of the F.D Division by account payee cheques.
13.6. Considering these material facts, we are of the view, that the Ld. CIT(A) has rightly deleted the addition on the basis that the payments to various parties have been made through crossed cheques and copies of bank statement along with account copy of relevant accounts were furnished during the course of assessment proceedings. His observation that the relevant payments are reflected in the bank statements and in the accounts under various heads have not been rebutted by the revenue before us. We thus do not find reason to interfere with the first appellate order on the issue. The same is upheld. The Ground No-14 is accordingly rejected.
GROUND NO-15
14. The A.O made further addition of Rs.11,440/- on the basis of the note that Indian Roadways Corporation has credited the same amount wise. In absence of specific allegation that the assessee had claimed the 50 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 expenditure twice we are of the view that the Ld. CIT(A) has rightly deleted the addition. The Ground No. 15 is accordingly rejected. GROUND NO-16.
15. The A.O made addition of Rs.20,07,075/- being alleged cash payment in contravention of Section 40A (3) of the Act. He made this addition on the basis of audit observation on Page 47 of Party A-6, Annexure A2 wherein the details of cash paid to Bokiyu Tanneries Ltd. in financial year 1990-91 has been given. The contention of the assessee against the above addition remained that the AO has proceeded arbitrarily to make this addition as it is evident from the fact that he had made the addition of Rs.48,500/- being sum of various amounts less than Rs.10,000/- and not hit by Section 40A (3) of the Act. The further submission of the assessee remained that the addition in any case cannot be a subject of block assessment. It was also contended that such disallowance cannot be made in a block assessment and in support reliance was placed on the following decisions:-
Janta Tiles Vs. ACIT (2000) 66 TTJ (Pune) 695.
Eastern Retrades (P) Ltd. Vs. ACIT (2000) TTJ (Coch) 839.
16. In view of the above cited decisions, we are of the opinion that the Ld. CIT(A) has rightly deleted the addition of Rs.20,07,075/- with this 51 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 finding that addition u/s 40A(3) can be a subject of the block assessment. The same is upheld. The Ground No 16 is thus rejected. GROUND NO. 17
17. The AO made addition of Rs. 19,10,000/- on account of inflation in purchase on the basis of observations of the auditor on Page No 131 of Party B-8, Annexure A-1. The AO rejected the explanation of the assessee that these amounts were actually paid as share application money to Mesco Kalinga Steel Ltd. which were wrongly debited as the purchases. It was explained that accounts were later on amended and the purchases have been reduced by the same amount. A copy of account of the party taken from Page No. 1019 and 1020 of the sized books of the assessee company for the financial year 1994-95 during the search and marked as Annexure A- 61 of Party A-1 was enclosed. It was also made available before the Ld. CIT(A) and after examining the veracity of these explanations, the Ld. CIT(A) has accepted the explanation of the assessee and has accordingly deleted the addition.
17.1. After having gone through the copy of the annexure made available at Page NO. 751 & 752 of the paper book-II, we find that the explanation of the assesse is well supported by the corroborative evidence of the ledger account of Mesco Kalinga Steel Ltd, hence the Ld. CIT(A) was 52 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 justified in deleting the addition in question. The same is upheld. The Ground No. 17 is accordingly rejected.
GROUND NO-18.
17.2. The AO made addition of Rs.29,000/- u/s 40 A (3) of the Act. The objection of the assessee against this addition remained that it cannot be made in a block assessment in view of the above cited decision in support of the similar issue involved in Ground No-16 of the appeal dealt herinabove. Following the decision taken therein in Ground No. 16, we hold that an addition u/s 40 A (3) of the Act cannot be made in a block assessment. The Ground is thus rejected.
GROUND NO. 19 17.3. The AO made addition of Rs. 95,000/- u/s 40 A (3) of the Act on the payment made to players at Saket Sports Complex as cash prizes to players. The Ld. CIT (A) has deleted the same with this finding that addition u/s 40A (3) of the Act cannot be made in the block assessment. Following our finding on an identical issue in Ground No. 16 & 18 hereinabove, we do not find reason to interfere with the first appellate 53 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 order in this regard. The same is upheld. The Ground NO. 19 is accordingly rejected.
GROUND NO. 20 17.4. The AO made addition of Rs. 34,520/- on account of unaccounted scrap sales which has been reduced by the Ld. CIT(A) to Rs.3,614/- on the basis that auditor has only pointed out that Rs.3,614/- was not booked. In absence of rebuttal of this material fact by the Revenue we are not inclined to interfere with the first appellate order in this regard. The same is upheld. The Ground NO. 20 is accordingly rejected. GROUND NO. 21 17.5. The AO made addition of Rs. 8,33,185/- on account of sales not entered in the books. The explanation of the assessee in this regard remained that they had shown that these goods were sent to Little Roam, a sister concern dealing in leather goods as per the details mentioned on the seized page, as samples. It was argued that the notings do not show that any income has been earned outside the books of account, hence no addition of notional income can be made in view of various decisions including the decision of Hon'ble Supreme Court in the case of Godhra 54 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 Electrical Vs. CIT, 226 ITR 625 (S.C). The further submission of the assessee remained that goods sent as samples would cause loss of revenue to the company and it is not a case where any income has been earned outside books unless any material is brought on record to support such contentions. It was also argued that no such addition can be made on the basis of audit observations made on the seized document found during the course of search of the premises of the auditor. It was also pointed out that there is no outstanding demand of Excise Department in the assessment order completed u/s 143(3) of the Act for the A.Y 1993-94. 17.6 Having gone through the orders of the authorities below on the issue, we find that the first appellate order in this regard is reasoned one. The Ld. CIT(A) in absence of any material in corroboration with the observation of the auditors on the basis of which the addition has been made, (a copy whereof has been placed at Page No. 814 of the Paper Book.) has rightly deleted the addition. The same is upheld. The Ground No. 21 is accordingly rejected.
GROUND NO. 22 17.7. An addition of Rs.1, 18,74,860/- on account of unaccounted sales was made by the A.O which has been deleted by the Ld. CIT(A). 55
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 17.8. The AO has made this addition on the basis of audit observations of Faridabad factory made on page no. 70 of the Annexure AA-52 of Party B-8 i.e the document seized during the course of search proceedings at the premises of the auditor. A copy of this annexure has been made available at Page Nos. 822 to 828 of the Paper Book-II.
18. On perusal of the orders of the authorities below, we find that the addition in question was impugned by the assessee before the Ld. CIT(A) with this contention that no such huge addition can be made in a block assessment on the basis of audit notes without establishing and substantiating the allegation that too when the audit note itself states that the goods sent to Madras was not still received back. It was stated that the goods were sent properly through the Excise Challan 57 F (3) for the job work. Further argument of the assessee remained that even otherwise out of the raw material sent for job work no one can earned any profit. Considering these material aspect of the issue which remained rebutted by the Revenue, we are of the view that the Ld. CIT(A) was justified in deleting the addition merely based on auditors notings on the seized document from their premises and in absence of corroborative material in support thereto. The same is upheld. The Ground NO. 22 is thus rejected. GROUND NO. 23 18.1. The A.O has made addition of Rs.1,33,700/- u/s 40 A (3) of the Act. The Ld. CIT(A) has deleted the addition on the basis that disallowance 56 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 u/s 40 A (3) is outside the purview of block assessment. We have already approved this view of the first appellate authority hereinabove in Ground No. 16. Following the decision taken therein we uphold the first appellate order in this regard. The Ground No. 23 is accordingly rejected. GROUND NO. 24.
18.2. The A.O made addition of Rs.11,59,407/- on account of payment made to India Trade Promotion Organization for which no bills were produced. The contention of the assessee against this addition remained that the payment has been made to the government concern by account pay cheque and should not be questioned. Since the genuineness of the payment was not in dispute, the Ld. CIT(A) considering the above contention of the assessee has deleted the addition on the basis that the genuineness of payment is not in dispute. It was submitted that copy of the account through which the amount was paid by cheque to India Trade Promotion Organization was furnished before the AO during the course of assessment proceedings, however, assessee was not able to furnish the bill for the same. Noting these material facts, we are of the view that the Ld. CIT(A) has rightly deleted the addition. The same is upheld. The Ground No. 24 is accordingly rejected.
57
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 GROUND NO. 25 18.3. Since it is not based on the addition made on the basis of observations of the auditors rather deduction allowed u/s 80 HHC by the Ld. CIT(A) has been questioned, we deal with this ground later on after dealing with the ground Nos. 26 & 27 based on observation of the auditor documents of which or found during the course of search at the premises of the auditor.
GROUND NO. 26 18.4. The AO made addition of Rs.55,000/- u/s 40 A (3) of the Act. Following our decision in Ground No. 16 hereinabove on an identical issue we justify the action of the Ld. CIT(A) in deleting the addition in question as the same cannot be made in the block assessment. The Ground No. 26 is accordingly rejected.
GROUND NO. 27 18.5. The A.O made addition of Rs.6,400/- on account of non billing of shoes..... at Ahmedabad Branch. The Ld. CIT(A) has deleted the same, on the basis that addition was made on notional basis which is beyond the 58 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 scheme of the block assessment. We do not find reason to interfere with the first appellate order in this regard in absence of rebuttal of the above finding of the Ld. CIT(A). The ground No. 27 is accordingly rejected. 18.6. Besides, we find it fit to mention over here that the additions which are subject matters of Ground Nos. 12 to 24 and 26 to 27 are based on the observation of the auditor of the assessee company which were found and seized from the premises of the said auditor during search proceedings. Hence, in absence of corroborative evidence in support these additions cannot be made in a block assessment. The additions in question in these grounds, therefore have been rightly deleted by the Ld. CIT(A) as we have held while dealing with the issue in ground No. 12 hereinabove. GROUND NO. 25
19. The assessee claimed deduction u/s 80HHC of the Act in the Assessment Years 1994-95, 1995-96 and 1996-97. The A.O made disallowance on the basis that the interest received cannot be set off against interest paid for the purpose of computation u/s 80HHC of the Act. The contention of the assessee remained that deduction under Chapter VI A of the Act cannot be re-examined in block assessment proceedings. In support reliance was placed on the following decisions:- 59
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 "Abdulgafar A. NAdiadwala vs. DCIT 75 ITD 394 (Mum) Microland Ltd. vs. ACIT 67 ITD 446 (Bang) Urmila Chandak & Ors. Vs. ACIT 60 TTJ (Mad) 758 Universal Capsules (P) Ltd. vs. DCIT 68 TTJ (Mumbai) 817 "
20. It was also contended that the AO has not relied upon any material seized during the course of search u/s 132 of the Act for making the addition in question. In absence of rebuttal of the above factual finding of the Ld. CIT(A) that no material was seized during the course of search proceedings u/s 132 of the Act for making the disallowance in question, we are of the view that the Ld. CIT(A) was justified in deleting the addition with further finding that deduction under Chapter VI A of the Act cannot be re-examined in block assessment proceedings. The first appellate order in this regard is thus upheld. The Ground No. 25 is accordingly rejected.
21. In the result appeal of the revenue is dismissed. IT(SS)A No. 10/Del/2004
22. The assessee has questioned the first appellate order on the following grounds :-
1. That the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in sustaining the assessment framed u/s I 58BCI143(3) of the Act by the learned DCIT, Central Circle 6, New Delhi.
2. That the learned CIT(A) has failed to appreciate that the proceedings initiated under section 158 BC of Chapter XIV B of the Income Tax Act had not validly been initiated against the assessee company as the proceedings taken for search and seizure operations uls 132 of the Income Tax Act were not valid and were in excess of jurisdiction vested in the concerned 60 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 authorities. In the absence of any valid material, the search and seizure operations being not valid, the entire proceedings taken in pursuance thereof were thus not valid and hence, the assessment made is un-
sustainable in law
3. That learned CIT(A) had failed to appreciate that even otherwise, the assessment made under Chapter XIV B of the Income Tax Act and by invoking the provisions of Section 158 BC of the Income Tax Act is highly arbitrary and the assessment had mechanically been made.
4. That further, the learned CIT(A) had failed to appreciate that the learned DCIT has not proceeded to compute the income in the manner provided u/s 158 BB of the Income Tax Act. Non-adherence to the aforesaid provisions of making assessment has resulted in the assessment being vitiated in law.
5. That the learned CIT (A) has further failed to appreciate that under the aforesaid Chapter, the undisclosed income of Block Period is to be the aggregate of the total income of the previous years failing in the block period, in accordance with the provisions of Chapter XIV B of the Income Tax Act, on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other material or information as are available with the Assessing Officer has and is to be reduced by the aggregate total income, or as the case may be in increased by the aggregate of the losses of such previous years so determined.
6. That further, the learned CIT(A) has further erred in failing to appreciate that the learned DCIT had erred in not granting to the assessee a fair and proper opportunity of being heard and has proceeded to make the assessment arbitrarily without calling for information or material and drawing adverse inference without providing to the assessee a valid and proper opportunity.
7. That the learned CIT(A) has failed to appreciate that in the instant case, search and seizure proceedings were concluded on 1.5.1997 whereas, the notice u/s 158 BC of the Income Tax Act was issued on 21.8.1997 and the documents which had been seized could be furnished only by November, 1998 and as such, the assessee could not have furnished a return of income earlier than 1. 1 .1999 and as such, assessment made within a period of 4 months was an assessment made in hurry and an assessment made without granting to the assessee a proper and valid opportunity.
61
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
8. That the learned CIT(A) has completely overlooked the detailed submissions and evidence forming part of the paper book while holding that, "the submissions are general in nature and without bringing any specific material on record." Infact, the finding recorded by the learned CIT (A) is arbitrary, misconceived and contrary to provisions of the Act.
9. That the learned CIT (A) has further erred in sustaining the addition to the extent of Rs.31,47,000I- out of an aggregate addition of Rs. 52,90,682/- as an alleged unexplained investment in Satbari Farm for the assessment year 1988-89 under the head' Income from other sources." 9.1 That the learned CIT(A) had failed to appreciate that there being no undisclosed investment , the addition had been made without any basis or any valid material. Infact, mere valuation report does not by itself be a basis to conclude that there was any unexplained investment made by the assessee company.
9.2 That there was no valid basis or material on record for the learned CIT (A) to have sustained the addition of the said sum and that too, while framing the assessment under Chapter XIV-B of the Income Tax Act. 10 That further, learned CIT(A) has erred in sustaining the following various additions of Rs. 2,38,56,115/- made under the head irregularities of books of accounts by the learned DCIT on the basis of the material seized from the premises of the Auditor of the assessee company containing audit objections raised during audits of the assessee company:
S No Para/Page of Asstt Amount (Rs.) Asstt. year
order
1 C(a)(16) 30,193 1997-98
2. C I (17) 12,48,000 1997-98
3. C (d) (17) 34,270 1997-98
4. C(d)(l7) 6,90,156 1997-98
5. D (a,b,c,d) (17,18) 93,675 1991-92
6. E (18) 2,14,000 1996-97
7. F (18) 12,74,380 1995-96
8. G (18) 26,000 1995-96
9. G (18) 20,860 1995-96
10. G (18) 52,256 1995-96
11. H (19) 4,03,869 1996-97
62
IT(SS) No. 5/Del/2004
& IT(SS) No. 10/Del/2004
12. H (b)( 19) 20,928 1996-97
13. 1 (19) 1,47,000 1993-94
14. 1(19) 3,614 1993-94
15. 1(19) 2,53,675 1993-94
16. J (20) 6,26,334 1996-97
17. K (20) 29,370 1996-97
18. K (20) ] 7,373 ]996-97
19. K (20) 5,950 1996-97
20. M (20) 17,583 1995-96
21. N (20) 3,46,629 1996-97
22. N (20) 1,83,00,000 1996-97
Total 2,38,56,115
10.I That the learned CIT(A) while upholding the aforesaid additions
has failed to appreciate that such papers were mere loose papers containing workings of the Auditor and, in absence of the Auditor having confirmed the factum that any of such papers indicate let alone establish that the assessee company had any undisclosed income/, the additions sustained are untenable and unwarranted. Infact, most of such papers are unsigned had have not been confronted to the Auditor of the assessee company to verify whether such Audit Notes had been solved subsequently or not. None the less there is no corroborative evidence found from the premises of the assessee company to support the allegations made by the learned AO and confirmed by the learned C!T(A).
10.2 That the learned CIT(A) has further confirmed the aforesaid additions without properly appreciating the submissions of the assessee company and, the findings recorded are vague, without any basis or evidence and therefore, the additions are untenable in law. !0.3 That the learned CIT (A) has further sustained the additions on irrelevant and subjective considerations, by failing to appreciate that said sums could not be held as undisclosed income under chapter XIVB of the Act.
10.4 That the learned C!T(A) has failed to appreciate the submissions made by the assessee that the documents found during the course of search alleging such payments were dumb documents and could not be a basis to hold the same as undisclosed income of the assessee. Infact, lengthy submissions supported by the evidence and judicial pronouncements has been overlooked and therefore, the addition sustained is unwarranted.
63
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 10.5 That the learned C!T(A) has failed to appreciate that the audit notes could not be arbitrarily be made a basis to hold that the observations noted therein were undisclosed income of the assessee, that too without confronting the same to he Auditor of the assessee company at whose premises such loose papers were found and he had himself subsequently signed the Statutory Audit Report and financial statements of the assessee company.
10.6 That the learned C!T(A) in a mechanical manner and without appreciating the submissions/evidences filed by the assessee and factual substratum of the issue, proceeded arbitrarily to sustain the addition which is wholly untenable in law and deserves to be deleted.
11. That the learned CIT(A) has failed to appreciate that the learned DCIT while framing the impugned assessment, did not provide to the assessee any fair proper and valid opportunity and the assessment has been made in highly arbitrary and fanciful manner and the assessment made of the income so detem1ined, it. Without jurisdiction.
12. That the learned C[T(A) has further erred in sustaining the initiation of proceedings u/s 271 D & 27 I E of the Income Tax Act and the observation made by the learned DCIT that there is violation of Section 269 SS and 269 T of the Income Tax Act The aforesaid observations are totally in excess of jurisdiction while making the impugned assessment and as such. they deserve to be totally ignored.
13. That further, the learned CIT(A) has erred in sustaining the levy of interest u/s 158 BFA of the Act and has also further erred in sustaining the initiation of penalty proceedings u/s 158 BFA, 271 D & 271 E of the Income Tax Act.
14. That in any case and without prejudice, the learned C!T(A) failed to appreciate that the approval obtained by the learned DCIT from the learned Additional Commissioner of Income Tax was not in accordance with law as the assessee had not been given any opportunity and the learned Additional Commissioner of Income Tax had thus erred in granting a mechanical approval.
It is, therefore, prayed that- it be held that the assessee company was not liable for assessment and the assessment made was untenable in law. In the alternative, various additions sustained along-with the levy of interest deserves to be deleted as such."
64
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
23. We have heard and considered the arguments advanced by the parties in view of the orders of the authorities below, material available on record and the decisions relied upon.
24. The relevant facts are that the assessee, a public limited company incorporated on 28.7.1977 in the name of Mideast Shipping Co. Ltd. was engaged mainly in the business of manufacturing, trading and export of shoes leather and various leather products. The assessee company and others were subjected to search and seizure operation u/s 132(1) of the Act, details of which are as under :-
SI. Place of search Date of
No. search
1 Mesco Tower, H-l, Zamrudpur Community Centre, Kailash 26.02.97
Colony, New Delhi.
2 B-132 Sec-2 Noida 26.02.97
3 156/158, Defence Colony Flyover complex, New Delhi 26.02.97
4 14/6, Mathura Road Faridabad 26.02.97
5 21-22, NEPZ Noida; 26.02.97
6 29A, Kalu Sarai, Delhi; 26.02.97
7 Mis A.R. Associates, Chartered Accountants 26.02.97
8 C-ll, Okhala Industrial Area, Phase - II, New Delhi 26.02.97
(warehouse)
9 N-13, NOSE-I, New Delhi 26.02.97
10 7, La-place, Shahnaz Road, Lucknow 26.02.97
11 41/530, Krishana Swami Cross Road, Cochin 26.02.97
12 Khetrapal Marketing Services, 306/9, Panjrapole, 26.02.97
R. Road, Ahemdabad
13 Shop no. 3, Gopal Mansion, Gokhale Road (S), Dadar 26.02.97
Mumbai;
14 No. 69, Defence Colony Chennai. 26.02.97
15 Mis A.R. Associates, Chartered Accountants 05.03.97
16 Mesco Tower, H-l, Zamrudpur Community Centre, 25.3.97
Colony, New Delhi.
17 29A, Kalu Sarai, Delhi 3.4.97
18 B-132 Sec-2 Noida 10.4.97
19 Mesco Tower, H-l, Zamrudpur Community Centre, 1.5.97
Colony, New Delhi.
65
IT(SS) No. 5/Del/2004
& IT(SS) No. 10/Del/2004
25. In pursuance to the search and seizure operations a notice u/s 158BC of the Act was issued to the assessee on 21.8.1997. In response, the assessee furnished a return of undisclosed income on 1.1.1999 for the block period comprising of assessment years 1987-88 to 1997-98 declaring thereon an undisclosed income of Rs. 90 768/-. In each of the assessment years falling within block period i.e. asstt. years 1987-88 to 1996-97, the assesee had filed its return of income before the date of search and seizure and assessments were also framed u/s 143(3) of the Act except for the assessment year 1996-97. The AO vide order dated 29.4.1999 computed the undisclosed income of the assessee at Rs. 1,96,15,42,702/-. Subsequently by an order u/s 154 of the Act dated 30.7.1999 the AO reduced the undisclosed income to Rs. 1,46,41,71,384/-. The assessee preferred first appeal against the assessment order which was disposed off vide order dated 15.4.1999. By the action of the first appellate authority the assessed income stood reduced to Rs. 2,66,26,652/-. Thus both, the assessee and revenue are in appeal before the Tribunal. Ground Nos. 1 to 8, 11,12, & 14
26. These grounds are general /legal in nature which do not call for any specific adjudication.
66
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 Ground No. 9 to 9.1
27. In these grounds the addition of Rs.31,47,000/- out of Rs. 52,90,682/- as an alleged unexplained investment in Satbari Farm for the asstt. year 1988-89 sustained by the Ld. CIT(A) has been questioned.
28. The AO has dealt with the issue in para No. 11 at page 13 of the order. On the basis of a signed report (photocopy) of Architect Mr. Dinesh Sing, found during the course of search and marked as annexure A- I/A-54 page 20-22, the AO observed that the construction at Satbari was completed in October 1987(1st phase) for Rs. 52,90,682/-. As per agreement dated 28.2.85 the cost of construction was to be borne by M/s. Mideast India Ltd. the assessee replied that this valuation is on estimate basis and not done on the basis of actual expenditure incurred. The assessee agreed that entire construction was taken by him and the amount actually incurred is reflected in books of accounts as under :-
31.5.89 - Rs. 36.34 lac and 31.1.90 to 31.3.92 - Rs. 36.78 lac, 31.3.73
-Rs. 44.8 lac. The assessee plea is rejected. The valuation was done on December, 88 and it clear states that construction was completed in October, 87. For assessment year 1988-89, there is no investment shown by assessee. And hence entire amount of Rs. 52,90,682/- is brought to tax as undisclosed investment in Satbari Farm from Assessment Year 1988-89, under the head other sources.67
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
29. Ld. CIT(A) has dealt with this issue at page Nos. 24 to 26 of the first appellate order. Ld. CIT(A) after considering the submissions of the parties has sustained the addition to the extent of Rs. 31.47 lacs i.e. difference between the valuation as per the valuation report and that debited in the books of accounts till 31.10.87. Parties are thus in appeals.
30. The Ld. AR contended that once the Ld. CIT(A) has admitted that valuation report is an estimate, there was no justification to sustain addition solely on the basis of valuation report. In this regard he placed reliance on the following decisions :-
a) 67 TTJ 247 (All) Monga Metals (P) Ltd. vs.ACIT (supra)
b) 67 TTJ 109 (Del) Alok Aggarwal vs. DCIT
c) 66 TTJ 704 (Pune) Jaikishan R. Agarwal vs. ACIT
d) 66 TTJ 565 (Chd) R.K. Syala vs. ACIT
e) 70 TTJ 131 (Ahd) Prarthana Construction (P) Ltd. vs. DCIT
f) 70 TJ 131 (Ahd)Unique Organizer & Developers (P) Ltd.
g) 69 TTJ 66 (Cal) T.S. Venkatesah vs. ACIT
h) 127 ITR 816 (P & H) CIT vs. Sham Lal
i)19 ITR 102 (Ori) Ganeshdas Kaluram
j) 34 ITR 501 (Ker) M.O. Thoma Kutta vs. CIT
k) 84 ITR 222 (P & H) Chiranjilal Steel Rollings Mills vs. CIT
l) 47 ITD257 (Bom) Dhirendra Parish Vs. Fifth ITO
m) 55 TTH 699(Del) Sir Sobha Singh & Sons (P) vs. IAC 68 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
n) 11 ITD 404 (Del) ITO vs. Omega Bright Steel (P) Ltd.
o) 27 ITD 392 (Ahd) ITO vs. Silk Museum
p) 56 TTJ 669 (Del) Skylark Chit Fund and Finance (P) Ltd. vs. ACIT
31. The Ld. AR also referred copies of valuation report (Annexure A54 of party, A-1, made available at page Nos. 666-668 of the papber book- II); reply /letter dated 17.4.1999 (made available at page Nos. 169 to 233 of the PB-I), Memorandum of lease dated 28.2.1985 (page nos. 669 to 673 PB-II) audited balance sheets for the F.Y. 1985-86, 1986-87, 1.11.1987 to 31.3.1989 (page Nos. 376 to 442 PB-I) ; and the assessment orders for the assessment years 1987-88 and 1988-89 (page No. 443 to 447, 455 to 459 & 483 to 487 of Paper Book - I). Ld. CIT DR on the other hand tried to justify the assessment order. She submitted that these were sufficient seized material on the basis of which the AO had worked out the undisclosed income.
32. On perusal of the orders of the authorities below we find that the issue involved is regarding undisclosed investment in the construction of Satbari Farm for the assessment year 1988-89 . The valuation report signed by Shri Dinesh Singh, Architect was found and seized during the course of search operation and marked as Annexure A-54 of party A-I. As per the valuation report the construction was completed in October 1987 (first phase) for Rs. 52,90,682/- and as per agreement dated 28.2.85 between 69 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 the assessee company and the owner of the factory, the cost of construction was to be borne by the assessee. Before the AO the assessee submitted that the valuation report was made on the estimate basis and does not reflect the actual expenditure incurred. It was submitted that the entire construction was accounted for by the assessee company and reflected in the balance sheet as under :-
Date wise Amount
31.3.89 Rs. 36.34 lacs
31.3.90 Rs. 36.78 lacs
31.3.91 Rs. 36.78 lacs
31.3.92 Rs. 36.78 lacs
31.3.93 Rs. 44.80 lacs
33. The AO did not agree with the explanation of the assessee and held that the valuation was done in December 1988 and it clearly states that construction was completed in October 1987. The AO therefore concluded that since no investment has been shown by the assessee for assessment year 1988-89, entire sums of Rs. 52,90,682/- is liable to be added as undisclosed income for the assessment year 1988-89.
34. Before the Ld. CIT(A) the assessee submitted that the land at Satbari was purchased by the three co-owners namely Mrs. Rita Singh, Mr. Harish Narula and Ms. Natash Singh who had entered into an Memorandum of lease dated 28.2.85 for leasing the land to the assessee 70 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 company. The lease deed also stipulated that the entire construction cost would be born by the assessee company. The assessee company accordingly incurred following amounts on the construction of the land and reflected the same in financial statements:-
Date Assessment Amount Spent Remark
year
Till 31.10.86 1987-88 Rs. 10,56,920/-
Till 31.10.87 1988-89 Rs. 21,43,137/-
Till 31.10.88 1989-90 Rs. 36,33,677/- Construction
completed
35. It was submitted that the assessee company had been regularly showing the cost of construction in its return of income of the respective assessment years and therefore such addition was outside the perview of the block assessment. It was submitted further that since the seized valuation report was signed by third person i.e. Shri Dinesh Singh, he should have been confronted by the AO to verify the nature, basis and objective of the valuation report. Reliance was placed on the following decisions :-
a) 67 TTJ 247 (All) Monga Metals (P) Ltd. vs.ACIT (supra)
b) 67 TTJ 109 (Del) Alok Aggarwal vs. DCIT
c) 66 TTJ 704 (Pune) Jaikishan R. Agarwal vs. ACIT
d) 66 TTJ 565 (Chd) R.K. Syala vs. ACIT
e) 70 TTJ 131 (Ahd) Prarthana Construction (P) Ltd. vs. DCIT
f) 70 TJ 131 (Ahd)Unique Organizer & Developers (P) Ltd.71
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
g) 69 TTJ 66 (Cal) T.S. Venkatesah vs. ACIT
h) 127 ITR 816 (P & H) CIT vs. Sham Lal
i)19 ITR 102 (Ori) Ganeshdas Kaluram
j) 34 ITR 501 (Ker) M.O. Thoma Kutta vs. CIT
k) 84 ITR 222 (P & H) Chiranjilal Steel Rollings Mills vs. CIT
l) 47 ITD257 (Bom) Dhirendra Parish Vs. Fifth ITO
m) 55 TTH 699(Del) Sir Sobha Singh & Sons (P) vs. IAC
n) 11 ITD 404 (Del) ITO vs. Omega Bright Steel (P) Ltd.
o) 27 ITD 392 (Ahd) ITO vs. Silk Museum
p) 56 TTJ 669 (Del) Skylark Chit Fund and Finance (P) Ltd. vs. ACIT
36. It was contended that valuation report is generally prepared on the market value basis and not on the basis of actual expenditure. Therefore the valuation report obtained at inflated figures for bank purposes, cannot assume a character of investment. It was submitted that under section 69 of the Act burden lies upon the revenue to establish that assessee had invested sums outside books of accounts. It was contended that there is no corroborative evidences placed on record to establish beyond doubt that such investment was actually made outside the books of account. In alternative it was submitted that there is no justification for making an addition of the entire amount of Rs. 52,90,682/- particularly when the assesee company had shown Rs. 21.43 lacs till 31.10.1987. Considering these submissions the Ld. CIT(A) held that the valuation report 72 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 is an estimate but at the same time the wide variation between the valuation as per valuation report and the cost of construction has not been satisfactorily explained by the assessee. He held that the valuation report is contemporaneous evidence of a technical expert and cannot be rejected. He accordingly sustained the addition to the extent of Rs. 31.47 lacs i.e. the difference between the cost as per valuation report and that debited in the books of accounts till 31.10.1987.
37. Considering above submissions we fully concur with the arguments of the Ld. AR that valuation report is an estimate and the addition cannot be made merely on the basis of the said valuation report in a block assessment. Ld. CIT(A) has accepted this contention of the assesee but at the same time he has ignored this contention on the basis of wide variation between the valuation as per the valuation report and the cost of construction shown by the assessee. He has rejected the cost of construction shown by the assesee on the basis that it is not satisfactorily explained. He has further not specified as to which explanation of the assessee was not appealed to him satisfactorily. Under these circumstances we are of the view the Ld. CIT(A) was not justified in sustaining the addition to the extent of Rs. 31.47 lacs. The same is ordered to be deleted. The ground Nos. 9 & 9.1 are accordingly allowed.
73
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 Ground Nos.10 to 10.6 :-
38. In these grounds, addition of Rs. 2,38,56,115/- made on the basis of loose papers found from the premises of the auditors of the assessee company has been questioned. The details of these additions are as under
:-
S No Para/Page of Asstt Amount (Rs.) Asstt. year
order
1 C(a)(16) 30,193 1997-98
2. C I (17) 12,48,000 1997-98
3. C (d) (17) 34,270 1997-98
4. C(d)(l7) 6,90,156 1997-98
5. D (a,b,c,d) (17,18) 93,675 1991-92
6. E (18) 2,14,000 1996-97
7. F (18) 12,74,380 1995-96
8. G (18) 26,000 1995-96
9. G (18) 20,860 1995-96
10. G (18) 52,256 1995-96
11. H (19) 4,03,869 1996-97
12. H (b)( 19) 20,928 1996-97
13. 1 (19) 1,47,000 1993-94
14. 1(19) 3,614 1993-94
15. 1(19) 2,53,675 1993-94
16. J (20) 6,26,334 1996-97
17. K (20) 29,370 1996-97
18. K (20) ] 7,373 ]996-97
19. K (20) 5,950 1996-97
20. M (20) 17,583 1995-96
21. N (20) 3,46,629 1996-97
22. N (20) 1,83,00,000 1996-97
Total 2,38,56,115
39. The relevant facts are that on the basis of material seized from the possession of M/s A.R. Associates, the auditor of the assessee company 74 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 containing audit objections raised during audits of the assessee company for various years, irregularities were found in the books of account of the company. On the basis of these seized papers, addition of Rs.
2,38,56,115/- was made. All these papers are in the form of audit enquiries, doubts, clarification sought, rough calculations, noting for filing audit reports etc. The contention of the assessee remained that the annual accounts, statutory audit reports, tax audit reports etc. are finalized after settling these queries and doubts. It was contended that the Assessing Officer had made additions without appreciating the nature of the papers seized and contents thereof. It was submitted that no addition could be made on the basis of someone's doubts, enquiries, rough calculations etc. and the Assessing Officer has failed to appreciate that neither the books of account nor the auditor's reports were rejected during the regular assessment proceedings and, as such, there was no reason to have made such addition on the basis of auditor's doubt. It was submitted further that the Assessing Officer has not established that such irregularities were actually existed in the books of account of the assessee company, particularly when the same auditor had signed the balance sheet and profit & loss account of the assessee company. It was contended that the Assessing Officer has made the addition merely on the basis of his subjective satisfaction and on suspicion, surmises and conjectures. The further contention of the assessee was that the Assessing Officer had failed 75 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 to bring out any material on record to substantiate such alleged addition other than audit observation. It was contended that the Assessing Officer has made huge additions on the basis of documents containing audit observations seized from the premises belonging to M/s A.R. Associates, Chartered Accountants, the auditor of the assessee company. Number of these documents is unsigned and it is not known by whom these are prepared. It was contended that such audit observations are in the form of huge papers and in the absence of any corroborative evidence cannot form basis for making any addition. Reliance was placed on several decisions of Hon'ble Courts.
40. Regarding addition of Rs. 30,193/- the Ld. AR submitted that ii is based on page No.28 of Annexure AA-66 which audit observation that bills were not available at the branch office for petty expenses of eth assesese company. Such document could not be a basis to allege and assume that such expenditure so incurred present's undisclosed income of the assessee. It was submitted that no material has been deducted as a result of such to include that expenditure so incurred is a false expenditure for the purpose of section 158BC(b) of the Act. An expenditure allegedly not allowable under the Act does not imply that such expenditure is a false expenditure. It was submitted that subsequently same auditor has finalized balance sheet for the assessment years 1997-98 which stand accepted in the assessment order framed u/s 143 (3) of the Act. IT was also pointed out that in absence 76 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 of examination of the auditors their observations cannot be a basis to hold that a sum of Rs. 30,193/- is undisclosed income of the assessee. Regarding the addition of Rs. 12,48,000/- based on annexure AA 66 page 25, the submission of the assessee remained that neither disallowance u/s 40A (3) can be added as undisclosed income nor cash loans advanced and duly recorded in the books of accounts of the assessee company can be added as undisclosed income of the assessee company.
41. Regarding addition of Rs. 34,270/- based on Annexure AA 66 page 11, the contention of the assessee remained that merely on different observation that the alleged bribes paid has been debited as promotional expenses, could not be a solitary basis to allege and assume that expenditure so incurred represents undisclosed income of the assessee, especially when no material has been found as a result of which a conclusion could be arrived at that expenditure so incurred is false expenditure for the purpose of section 158BC (b) of the Act. It was submitted that same auditor has finalized balance sheet for asstt. year 1997-98 which stand accepted in the assessment framed u/s 143(3) of the Act. Regarding the addition of Rs. 680156/- based on annexure AA 66 page 11, the Ld. AR submitted that mere supply of material for which there is no evidence to show that assessee had received any consideration which has not been declared in the books of accounts, addition can not be made as undisclosed income on notional basis by assuming that sales consideration 77 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 may have been received to the extent of Rs. 6,90,156/-. He submitted that there is no such amount written in the seized papers. Against the addition of Rs. 93675/- based on annexure A-2 page 40 to 46 reliance has been placed on the same submission made against the addition of Rs. 30,193/- discussed herein above.
42. About the addition of Rs. 2,14,000/- based on annexure A -1 page 140, the assessee has adopted the same contention as made against the addition of Rs. 34,270/- hereinabove.
43. Against the addition of Rs. 1,27,438/- based on annexure A-11, page 112 and 113, the contention of the assessee remained that both the authorities below have overlooked the detailed explanation tendered by the assessee, wherein it has been explained that there is no suspense account as per the reconciliation statement so furnished, which has been accepted. It is highly unjust on the part of the AO to accept part of the explanation and arbitrarily reject part of the explanation furnished by the assessee. Against the addition of Rs. 26,000/- based on annexure A-11 page 56-57, the contention of the assessee remained the same as it was advanced against the addition of Rs. 34,270/- discussed hereinabove. It was also submitted that out of Rs. 26,11,000/- even as per the auditor represents donation and not bribe which has been duly disclosed in the books of accounts, therefore, the same cannot be brought to tax as undisclosed income. Against the addition of Rs. 20,860/- based on annexure A-11 page 78 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 50-55, the submission of the assessee remained the same as advanced hereinabove against the addition of RS. 34,270/-. It was also submitted that out of Rs. 20,860/-, Rs. 20,000/- even as per the auditor, represents sponsorship expenses and not bribe which has been duly disclosed in the books of accounts. Therefore the same cannot be brought to tax as undisclosed income. Against the addition of Rs. 52,256/- based on annexure A-11 page 47 the submission of the assessee remained that mere audit observation that expenses debited are allegedly personal expenses could not be made a basis to allege and assume that such expenditure so incurred represents undisclosed income of the assessee. It was contended that no material has been found as a result of search to conclude that expenditure so incurred is false expenditure for the purpose of section 158BC(b) of the Act. It was submitted that in any case here is a case where subsequently same auditor has finalised balance sheet for assessment year 1995-96 which stands accepted in the assessment u/s 143(3) of the Act. Thus in absence of any examination of the auditors, these observations cannot be a basis much less valid basis to hold that a sum of Rs. 52,256/- represents undisclosed income of the assessee company. According to the assessee such expenditure is disclosed promotional expenses and hence allowable as such. Against the addition of Rs. 4,03,869/- based on annexure AA -15 page No. 5 similar contention has been raised as discussed above wherein against the addition of Rs. 30,193/-. Against the addition of Rs. 79
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 20,922/- based of annexure AA-15 page No. 60 similar contention has been raised as discussed hereinabove against the addition of Rs. 52,256/-. Against the addition of Rs. 1,47,000/- based on annexure AA-AA-15 page 45 similar contention as advanced against the addition of Rs. 34,270/- discussed hereinabove has been raised. Similar arguments has also been raised against the addition of Rs. 3,614/- based on annexure AA-15 page
43. Against the addition of Rs. 2,53,675/- based on annexure AA-15 page 14, similar arguments have been adopted as advanced by the assessee, against the addition of Rs. 30,193/- discussed hereinabove. Similar argument as advanced against the addition of Rs. 34,270/- has also been raised against the addition of Rs. 6,26,334/- based on annexure AA 25 page No. 40 and addition of Rs. 29,370/- based on annexure AA 52 page 78. Against the addition of Rs. 17,373/- based on annexure AA 52 page 77 the submission of the assessee remained that mere difference as per auditor's observation during finalization of audit can not be a basis to suggest that sales have not been disclosed by the assessee company. It was pointed out further that subsequently same auditor has finalized balance sheet for asstt. year 1995-1996. Against the addition of Rs. 5950/- based on annexure AA 52 page 68, Ld. AR submitted that mere difference as per auditor's observation during audit finalization cannot be a basis to suggest that sales have not been disclosed by the assessee company. He pointed out that subsequently same auditor has finalised balance sheet for the asstt. year 80 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 1995-96 which stands accepted in the assessment framed u/s 143(3) of the Act. Against the addition of Rs. 346629/- based on Annexure A-I page 122 it was submitted that both the authorities below have overlooked the detailed explanation tendered by the assessee wherein it has been explained that there is no undisclosed income. In this regard he referred his submission made to the AO made available at page No. 133 of the paper book. Opposing the addition of Rs. 1,83,000/- based on annexure A-I page 122 Ld. AR submitted that mere fact that Rs. 1,83,000/- worth of material has been received from M/s. Shruti Shoes Ltd. for which allegedly no bills have been received cannot be made a basis to assume that there is undisclosed income. It was submitted that it is not a case of alleged unaccounted sales as has been assumed by the AO. At the best it is a case of purchases made for which no bills were raised by M/s. Shruti Shoes Ltd. It was contended that there is no material to show that assesee has made any payment outside books of accounts so as to allege and conclude that there is undisclosed income of the assessee company. Thus the total addition of Rs. 2,38,56,115/- made and upheld by the authorities below has been opposed by the assessee.
44. Before the Tribunal, the learned AR while reiterating above submissions, contended that addition cannot be made on the basis of audit observations finalizing the audit, found from the premises of the auditor of the group companies. He submitted that there are plethora of decisions 81 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 holding that documents found from the possession of a third party cannot be used against the assessee. He contended that even the auditors have not been examined by the Assessing Officer and, therefore, the additions have been made on mere surmises. He submitted that the issue raised in these grounds is fully covered by the decision of the Tribunal in the case of group companies on an identical issue under similar set of facts in the cases of Shri J.K.Singh, Smt.Rita Singh and M/s Little Rome Ltd., copies of these orders have been made available at page Nos.1105, 1052 to 1064 and 1044 to 1051 of the paper book respectively. He submitted that no appeal has been preferred by the Revenue against these orders. The learned AR also drew our attention to page Nos.1129 to 1144 of the paper book Volume-4 wherein a copy of judgment of Hon'ble Delhi High Court in the case of CIT Vs. Smt. Rita Singh for block assessment year 1987-88 to 1997-98 and order of admission under Section 260A of the Act have been made available. The learned AR submitted further that no addition can otherwise be made on the basis of audit report of the auditors as the author of documents have not been examined and, therefore, such evidences constitute hearsay evidence. He placed reliance on the following decisions:-
(i) Mohammad Yusuf - AIR 1968 (Bombay) 118. (ii) Ramji Dayawala & Sons Private Limited Vs. Invert Import - AIR 1981 (SC) 2085. (iii) CIT Vs. S.M. Aggarwal - 293 ITR 43(Delhi) 82 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 (iv) Atul Kumar Jain Vs. DCIT - 64 TTJ 786.
45. The learned AR submitted further that even otherwise, in absence of any corroborative evidence, mere fact that paper is found from the premises of an auditor cannot be a ground to make the addition. In this regard, he placed reliance on the following decisions:-
(i) Monga Metals (P) Ltd. Vs. ACIT - 67 TTJ 247 (All.).
(ii) Ashwani Kumar Vs. ITO - 39 ITD 183 (Del). (iii) ACIT Vs. Shailesh S.Shah - 63 ITD 153 (Mum). (iv) ITO Vs. M.A. Chidambaram - 63 ITD 203 (Chennai). (v) D.A.Patel Vs. DCIT - 72 ITD 340 (Mum). (vi) Brij Lal Rupchand Vs. ITO - 40 TTJ 668 (Ind). (vii) Dhan Raj Restaurant Vs. ACIT - 55 TTJ 390 (Mum). (viii) S.K.Gupta Vs. DCIT - 63 TTJ 532 at 535 (Delhi). (ix) Atul Kumar Jain Vs. DCIT - 64 TTJ 786 (Delhi). (x) CBI Vs. V.C.Shukla - 3(1998) SCC 410, 433, 434. (xi) Kantilal & Brothers Vs. ACIT- 52 ITD 412 (Pune). (xii) Silver and Arts Palace Vs. ACIT - 52 ITD (Jaipur). (xiii) T.S.Venkatsan Vs. ACIT - 74 ITD 298.
46. The learned CIT DR, on the other hand, placed reliance on the orders of authorities below making and sustaining the addition of Rs. 2,38,56,115/-
in question. She submitted that all these additions are based on the material seized from the premises of the auditors of the assessee and specific amount has been mentioned therein.
83
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
47. On perusal of orders of the authorities below, we find that learned CIT(A) has sustained various additions of Rs. 2,38,56,115/- made under the head irregularities of books of account by the Assessing Officer on the basis of material seized from the premises of the auditor of the assessee company containing audit objections raised during audits of the assessee company. The details of paragraph/page numbers of the assessment order, amount involved and assessment years are as under:-
S.No. Para/Page of Asstt Amount (Rs.) AY
Order
1. C(a)(16) 30,193 1997-98
2. C I(17) 12,48,000 1997-98
3. C(d)(17) 34,270 1997-98
4. C(d)(17) 6,90,156 1997-98
5. D(a,b,c,d)(17,18) 93,675 1991-92
6. E(18) 2,14,000 1996-97
7. F(18) 12,74,380 1995-96
8. G(18) 26,000 1995-96
9. G(18) 20,860 1995-96
10. G(18) 52,256 1995-96
11. H(19) 4,03,869 1996-97
12. H(b)(19) 20,928 1996-97
13. I(19) 1,47,000 1993-94
14. I(19) 3,614 1993-94
15. I(19) 2,53,675 1993-94
84
IT(SS) No. 5/Del/2004
& IT(SS) No. 10/Del/2004
16. J(20) 6,26,334 1996-97
17. K(20) 29,370 1996-97
18. K(20) 17,373 1996-97
19. K(20) 5,950 1996-97
20. M(20) 17,583 1995-96
21. N(20) 3,46,629 1996-97
22. N(20) 1,83,00,000 1996-97
Total : 2,38,56,115
48. We have already discussed hereinabove the objections of the assessee against each of the additions. The main contention of the assessee against the addition remained that the seized papers were loose papers containing workings of the auditor and in absence of the auditor having been confirmed the factum that any of such papers indicates let alone establish that the assessee company had any undisclosed income, the additions sustained are untenable and unwarranted. It was contended that most of such papers are unsigned, and have not been confronted to the auditor of the assessee company to verify whether such audit notes have been served subsequently or not. It was contended further that there is no corroborative evidence found from the premises of the assessee company to support the allegations made by the Assessing Officer and confirmed by the learned CIT(A). It was contended that such addition could not be held as undisclosed income under Chapter XIV-B of the Income-tax Act. We find from the remand report furnished by the Assessing Officer before the first appellate authority, the relevant report has been made available at page No.999 of the paper book that the Assessing Officer has simply supported the addition without examining the objection raised by the assessee in this regard. The Assessing Officer has simply stated that the said addition was made after considering the explanation filed by the assessee company 85 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 about the documents seized and the contention of the assessee is not based on any evidence. Having gone through the above cited decisions in the case of Smt. Rita Singh - IT(SS) A.No.56/Del/2000 (block AY 1987-88 to 1997-98) and others, order dated 19.05.2006; M/s Little Rome Limited - IT(SS) A.No.55/Del/2000 (block AY 1993-94 to 1997-98) and others, order dated 09.03.2007; and Shri J.K. Singh - IT(SS) A.No.11/Del/2000 (block period 1987-88 to 1997-98), order dated 05.07.2006, we find that an identical issue under similar facts has been decided by the Tribunal in favour of the assessee. In the case of DCIT Vs. M/s Little Rome Limited (supra), the addition was made by the Assessing Officer being cash payment to M/s Mesco Laboratories which was not entered in the books of account. During the course of search, some documents were found pertaining to the assessee. In these documents, there was record of cash having paid to M/s Mesco Laboratories. The Assessing Officer found that these cash payments were not reflected in the books of account of the assessee and were to be considered as unexplained expenditure. The assessee contended that these were entries noted by the auditor's assistant in the office of the auditor and it has not reflected the real position. The Assessing Officer did not agree and made the addition as unexplained investment. The learned CIT(A) deleted the addition following his order in the case of Shri J.K.Singh. The Tribunal has upheld the action of the learned CIT(A). In the case of Shri J.K.Singh (supra), similar addition was made on account of unexplained investment made in cash deposits which is a sister concern. The addition was deleted by the learned CIT(A) which has been upheld by the Tribunal. In this decision, the Tribunal has held that the document was admittedly found from the possession of the auditors of the assessee. The document on its own does not record the fact as to whether investment was made by the assessee. The assessee cannot be asked to explain the notings made and found from the possession of the 86 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 auditor. Admittedly, the auditor was not examined on this document. The Tribunal has accordingly upheld the action of the learned CIT(A) with this finding that the learned CIT(A) was justified in deleting the addition made by the Assessing Officer. The appeal preferred by the Revenue was accordingly dismissed. We also find that in the case of Smt. Rita Singh (supra), the Revenue had preferred appeal under Section 260A of the Act before the Hon'ble High Court of Delhi vide ITA No 359 of 2007 raising three issues but the appeal of the Revenue has been admitted by the Hon'ble High court vide its order dated 13.01.2009 in ITA No.359/2007 only on one issue as to whether the Tribunal's decision of deleting the addition of `19,59,881/- made by the Assessing Officer on account of election expenses incurred by the assessee was perverse? We thus find that there is no interim stay granted by the Hon'ble High Court against the operation of the order of the Tribunal nor the issue under present appeal before us has been admitted by the Hon'ble High Court for its adjudication. We thus find that the issue raised in the present appeal is fully covered in favour of the assessee by the order of the Tribunal in the above cited decisions on an identical issue under similar facts, the relevant extract of the decision of the Tribunal in the case of Smt. Rita Singh (supra) is being reproduced herein for ready reference :-
"19.2 We have perused the seized document and we find that the case made by the Revenue cannot be sustained. Admittedly, this document was found from the possession of the auditors of the assessee. The document on its own does not record the fact as to whether investment was made by the assessee. The assesee cannot be asked to explain the notings made and found from the possession of the auditor. Admittedly, the auditor was not examined on this document. In the circumstances, we are of the view that the CIT(Appeals) was justified in deleting the addition made by the assessing Officer. Order of the CIT(Appeals) does not call for any interference and the same is confirmed. This ground of appeal by the Revenue, is dismissed."87
IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004
49. Respectfully following the above decision of the Tribunal in the case of Smt. Rita Singh (supra) on an identical issue under similar facts, we decide the issue raised in ground Nos.10 to 10.6 of the appeal preferred by the assessee in favour of the assessee with the direction to the Assessing Officer to delete the addition of `2,38,56,115/- made on the basis of loose papers found from the premises of the auditor of the assessee company. These grounds are accordingly allowed.
Ground No.13 :-
50. In this ground, the assessee has questioned levy of interest under Section 158BFA of the Act. The learned AR submitted that the return of income could not be filed in time in the absence of copies of seized documents. The learned CIT(A) has upheld the charging of interest without verifying the above contention of the assessee that there was no contribution of the assessee in filing the return delayed. The learned AR submitted that the issue is fully covered by the decision of Delhi Bench of the Tribunal in the group cases of M/s Mesco Airlines Limited and Mrs. Natasha Singh, copies whereof have been made available at page Nos.1024 to 1043 of the paper book filed on behalf of the assessee.
51. The learned DR, on the other hand, tried to justify the orders of authorities below in this regard.
52. Having gone through the order impugned, we find that learned CIT(A) has simply upheld the action of the Assessing Officer in charging interest under Section 158BFA of the Act without commenting upon the contention of the assessee that delay in filing the return of income by the assessee was due to non-supply of copies of seized documents by the Revenue in time. The Tribunal in the case of Mesco Airlines Limited Vs. ACIT - IT(SS) A.No.34/Del/2007 (block period 1992-93 to 1997-98) vide its order dated 27.06.2008 has held that the delay in filing the return having been held to be not attributable to the assessee, the levy of interest under 88 IT(SS) No. 5/Del/2004 & IT(SS) No. 10/Del/2004 Section 158BFA(1) cannot be held to be leviable for such period which was required by the assessee for the purpose of obtaining the seized material from the Revenue. In that case before the Tribunal, the assessee after obtaining the seized material from the Revenue had filed its return of income within 14 days which the Tribunal held as reasonable time and interest charged under Section 158BFA(1) was deleted. Since the delay in supplying the seized documents as requested by the assessee has not been examined to this effect that as to whether it was attributed on the part of the assessee to justify the action of the Assessing Officer in this regard, we set aside the matter to the file of the Assessing Officer to decide the issue after verifying the above aspect regarding the delay as to whether it was due to non-supply of the copies of seized documents to the assessee after affording opportunity of being heard to the assessee. The ground is thus allowed for statistical purposes.
53. In the result, the appeal is partly allowed.
54. Consequently the appeal preferred by the revenue is dismissed and that preferred by the assessee is partly allowed.
The order is pronounced in the open court on 31st October, 2013.
sd/- sd/-
(G.D. AGRAWAL) ( I.C. SUDHIR )
VICE PRESIDENT JUDICIAL MEMBER
Dated 31st October, 2013
Veena
Copy of order forwarded to:
89
IT(SS) No. 5/Del/2004
& IT(SS) No. 10/Del/2004
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
By Order
Deputy Registrar, ITAT