Income Tax Appellate Tribunal - Delhi
Late Shri K.M. Bijli, Through Legal Heir ... vs Dcit, Spl. Range 35 on 12 March, 2004
ORDER
T.N. Chopra, Accountant Member
1.These two appeals have been filed by the legal heir of the assessee against separate orders of the ld. CIT(A) dated 3.8.1998 and 2.1.2001 for assessment year 1982-83. Both these appeals pertained to the same assessment year 1982-83 in the case of late Shri K.M. Bijli. In the first appeal ITA No.4779/98, the impugned order of the CIT (A) is against setting aside of the reassessment made by the Assessing Officer dated 30.3.1998 whereas the second appeal bearing No. 253/2001 is against the CIT (A)'s order dated 2.1.2001 sustaining certain additions made by the Assessing Officer vide the reassessment dated 3.3.2001. The controversy arising in these two appeals has unfortunately traversed a torturous path of litigation involving as many as three successive reassessments made by the Assessing Officer three times whereas the matter has been adjudicated by the first appellate authority on three different occasions. This is the second time that the same issue has come up before us, the earlier occasion being the appeal of the assessee before the Tribunal against the first order of the CIT (A) dated 19.1.1996 setting aside the reassessment.
2. Ld. counsel submitted that in so far as grounds being agitated by the assesee against reopening of the assessment are concerned, the issue stands concluded against the assessee vide the order of the Tribunal dated 17.4.2002 in respect of first reassessment in ITA No. 1337/Del/96. Copy of the Tribunal's order is placed in the paper book filed by the ld. counsel at pages 9 to 19.
3. The only issue involved in these two appeals is regarding the merits of the additions sustained by the ld. CIT(A) vide order dated 2.1.2001 which is the subject matter of ITA No.253/2001. Regarding the reliefs allowed by the ld. CIT (A), we are informed that no second appeal has been filed by the Department against the impugned orders of the ld. CIT(A).
4. Thus in the present appeals, the following two additions sustained by the ld. CIT (A) are being assailed by the assessee :
(i) Addition of 64,500 (equivalent in rupees) on account of interest @ 10% on bank deposits of 6,45,000.
(ii) Out of addition of 55,000 on account of loan to one Shri P.N. Chhabra, addition of 41,250 sustained by the ld. CIT(A).
5.Brief facts relevant for our purposes may be set out at the outset. Assessing Officer made the original assessment in the case of the assessee on 23.1.1985 under section 143(3) determining the loss at Rs. 1,35,191/-. The Assessing Officer subsequently received information, pursuant to correspondence entered into by JSFTD (Joint Secretary, Foreign Taxation Division), Central Board of Direct Taxes with the Inland Revenue of U.K. that the assessee has made deposits in various bank accounts with Muslim Commercial Bank and proceeded to reopen the assessment under section 147. Reasons recorded, as reproduced at pages 46 & 47 of the paper book filed by the assessee, are reproduced hereunder :
"Assessment in this case, was completed at a net loss of Rs. 1,35,191/- on 23.01.1985 against the returned loss of Rs. 1,47,191/-.
During the course of investigation in the case of M/s. Kumar Bros. Of U.K. In response to a question, what was the sources of money invested, it was replied as under :
Richmen in India get their money to Frankfurt and Switzerland. Shri K.M. Bijli produced set of accounts prepared by M/s. Gurmeet Singh & Co., in respect of his transport business and the accounts for his file hall for brief security. Shri Bijli was not prepared to produce copies to the Revenue despite to several requests or to allow detailed examination. Burton, the enquiry officer indicated that these were submitted accounts, profits Rs. 20 million, year ending 31.03.1982.
It has also been found that late Shri K.M. Bijli has various accounts in his name and in the names of his close associates in Muslim Commercial Bank, U.K. The details of these accounts are as under :
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No. Name of Account Holder Account Place
Number where A/c
is held
-----------------------------------------------------------
1. Krishan Mohan 21015 Widhi Green
2. - Do - 21016 - Do -
3. - Do - 21724 - Do -
4. - Do - 19047 - Do -
5. - Do - 19041 - Do -
6. - Do - 20559 Wimslow Road
7. Mohan Rani 19021 Widhi Green
8. - Do - 19013 - Do -
9. - Do - 21553 - Do -
10. - Do - 21554 - Do -
11. Smt. Sandhuro Rani 21043 - Do -
12. Shanta Kumari Narula 21403 - Do -
13. Krishna Mohan 1121016
14. Sandhuro Rani 1121043
15. Anil Kumar 21676
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All these accounts pertain to late Shri K.M. Bijli and the other persons being benami only Shri K.M. Bijli himself had deposed before U.K. Revenue authority that he had the amount of Pounds two millions, in his statement recorded on 06.06.1983.
In view of the above, I have reasons to believe that income chargeable to tax had escaped assessment. The income escaping assessment is estimated at Rs. 2,40,00,000/-."
In the first reassessment made by the Assessing Officer, an addition of Rs. 2,40,00,000/- has been made on the ground that the assessee had invested 2 million in the United Kingdom. As we have already indicated the sequence of events above, the final reassessment made by the Assessing Officer on 3.3.2000 for the third time involved addition of Rs. 1,06,62,575/- (equivalent in British 5,25,250). The two additions sustained by the ld. CIT (A), 64,500 and 41,250 as indicated hereinbefore are being challenged in the present appeals before us.
6. Now, with regard to the foreign bank accounts of the assessee in the U.K., the revenue has relied upon the correspondence entered into by the CBDT, India with Inland Revenue International Division of England. At page 20 of the paper book is placed a letter received by the Indian Tax Authorities from the Tax Authorities of England on 22nd May, 1989 by way of exchange of information under Article XXV of the U.K. India Double taxation Agreement. The relevant portion of this letter is reproduced hereunder:
"An investigation was carried out into the affairs of the Kumar Brothers under their company name of Rajan Trading Company Ltd. wherein a number of bank account were discovered, related to Kumars, and containing funds exceeding 2M. Mr. Bijli came to the UK in June 1983 in an attempt to explain the presence of that money and, when interviewed, claimed that the monies contained within the account were his. However, no evidence was produced to support his claim, and we suspected that he had instead made such a statement in order to help the Kumar brothers avoid paying tax on the monies. In the absence of any proof to support Bijli's assertions, the money was treated as being that of the Kumar brothers, who, while never actually conceding that any of the money was theirs, eventually accepted a compromise assessment based on the majority of the funds within the accounts."
This letter is sent by Mr. J.E. Shepherd of Inland Revenue International Division, Somerset House, London in response to letter of Joint Secretary, FTD dated 24.11.1988. There is a further communication from Mr. Shepherd in response to JS, FTD's letter dated 10.7.89. In the second communication, notes of interview between the assessee and the officers of the Enquiry Branch dated 6.6.1983 and 8.6.1983 have been forwarded. Notes of interview between the Kumars and officers of Enquiry Branch dated 14.10.1982 have also been enclosed with this letter. This letter is placed in the paper book at pages 21 and 22. Mr. Shepherd has indicated in his letter that for reasons of confidentiality, some extracts from the interview have been deleted. Vide para 4 of his letter, Mr. Shepherd observed as under :
"Copies: Assessments are not available because the matter was settled by negotiation and an offer in settlement was accepted. However, the various bank accounts at the Muslim Commercial bank which were, thought to be in the control of the Kumars were broken down into three categories. The first category was accepted as being neither in the possession of the Kumar's nor Bijli. The second category was accepted by the Inspector as probably being in the possession of Bijli and consisted of capital of 626,885 and interest of 181,XXV8. Unfortunately, a breakdown of the periods for which the interest arose is not available. The third category was for accounts, the interest on which was assessed on the Kumars treated as agents for un-named foregin parties, this interest being 558,590.
This information has been provided under the terms and conditions of Article XXV of our Double Taxation Conventions."
Notes of interviews held with the assessee as well as with Mr. K.L. Kumar are placed in the paper book at pages 87 to 131. From these documents, it appears that the assessee as well as his brother-in-law, Shri Kumar Stated before the officials of the Inland Revenue that various bank accounts at the Muslim Commercial Bank in the name of the assessee, his wife and other relations contained deposits made by the assesee out of his own funds. Interviews have apparently been conducted with the assessee by officials of the Enquiry Branch, U.K. at the office premises of Solicitors and Tax Advocates, Rothburn Burton & Partners Manchester in the presence of Rothman and his partner Mrs. Pullan. Interview with Mr. K.L. Kumar, brother-in-law of the assessee has, however, been conducted at the office of the Enquiry Branch, U.K. on 14.10.82 in the present of Rothburn Burton & Partners. Notes taken by the U.K. Tax Officials do not contain signatures of either the Tax Officials or the interviewee, namely, the assessee and his brother-in-law, Shri K.L. Kumar.
7. On going through the notes of interview with the assessee, it appears that the assessee stated that he has been visiting the U.K. over a period of last 10 years and made deposits with Muslim Commercial Bank. The bank accounts maintained with Muslim Commercial bank are already enumerated in the reasons recorded by the Assessing Officer for reopening the assessment as reproduced hereinbefore. The assessee stated that a sum of 2 million has been invested in the aforesaid bank accounts in 1982. According to him, the amounts have been brought to England in drafts from Switzerland, USA and Frankfrut. Regarding opening of the bank accounts and operating the same, he stated that his brother-in-law, Shri Kumar has been operating these bank accounts and sometimes when he is in England he would operate the accounts. From his statement, it appears that these accounts have been opened in the year 1974 or 1975. His brother-in-law, Shri K.L. Kumar (brother of assessee's wife) held interest in the company Rajan Trading Company Limited. Regarding opening of the accounts, we find that some of the accounts were opened by Shri K.L. Kumar who appended his signatures on the bank records using name of the assessee. At page 99 of the paper book, there is a reference to the Muslim Commercial Bank From No. CF-1 CF-11 and CF-19, the relevant extract is as under
"Questions Answers I show you Muslim Commercial Bank Forms CF1, CF 11 and CF 19 Can you identify the signatures on those forms ?
CF 19 my signatures CF 11 KL Kumar CF 1 K L Kumar Do you know who signed the forms?
Mr. K.L. Kumar has told the Inland Revenue he signed the form CF 19 using your name.
Is the signature yours?
Do not recognize the initial to left of the signature but the signature "Kishan Mohan" is mine.
You are satisfied that the form was not signed by K.L. Kumar?
Yes Has K.L. Kumar used your name in his dealings with the Muslim Commercial Bank and signed bank Form in your iname?
No Do you agree that your account numbered 20559, as indicated by the Form CF 19 is earmarked against the Borrowings of Rajan Trading Co. Ltd.?
Yes Why was that done?
He is my relative-he was in difficulty at that time.
Did you know your account had jbeen earmarked in favour of jthat company?
Yes."
Regarding the interest accruing on these bank accounts, the assesee stated in response to Question No. 67 that, "Mr. Kumar was to collect the interest - I would telephone him. I would get from Mr. Kumar when I cam to United Kingdom." At page 110, towards the conclusion of the interview dated 8.6.1983, the following questions and answers have been recorded :
"Questions Answers Did Mr. K.L. Kumar enjoy any benefits From these accounts?
The only benefit if I die All money to his son Ajay Kumar adopted by me in 1969.
Do you agree that K L Kumarand his company have enjoyed the investments as security i.e. the accounts have been earmarked in his or his company's favour?
Yes."
We have also gone through the notes of interview of Shri K.l. Kumar, brother-in-law. In reply to question No.39, Shri Kumar stated that Earmarking Form CF-19 with reference to account No.20559 might have been signed by him using the name of his brother-in-law, Shri Krishan Mohan. In fact, Shri Kumar stated that there was an understanding with the bank that he could sign on the bank documents for and on behalf of Shri Krishan Mohan, his brother-in-law.
8, With regard to the aforesaid interviews conducted by the Inland Revenue U.K., the Tax Authorities of England disbelieved the statement of the assesee that the money deposits in the banks accounts belong to him. According to the U.K. Tax Authorities such a statement was being given by the assessee in order to help the Kumar brothers avoid paying tax on the monies. The U.K. Tax Authorities accordingly proceeded to make a compromise assessment treating the funds as belonging to Kumar Brothers and Kumar Brothers duly paid tax thereon.
9. In the backdrop of the aforesaid factual perspective, we may now deal with the merits of the impugned additions sustained by the ld. CIT(A) which are being challenged before us by the assesee.
10. The first addition sustained by the CIT(A) is in respect of interest on bank deposits dealt with vide para 6 of the impugned appellate order. Referring to question and answer no.117 of the interview recorded on 8.8.1983, the amount of 6,45,000 was deposited in July, 1980 and this amount remained in the account in the financial year 1981-82. The interest on this account is estimated at 10% and addition of 64,500 has been sustained on this basis.
11. Second addition is with regard to loan given by the assessee to Shri P.N. Chhabra. CIT (A) has discussed the issue vide para 9 of his order. Vide Question No. 13 and the Answer thereto given by the assessee on 6.6.1983 to the England Revenue Authorities, it appears that Mr. Prem Nath Chhabra of Swiss Hong Kong Limited was a friend of the assessee and amount of 55,000 was given in the year 1982 by way of loan. The relevant portion of the interview as appearing at page 92 of the paper book are reproduced hereunder :
" Questions Answers (34) Do you know Mr. Prem Nath Chabra of Swiss Hong Kong (Wholesale) Limited?
Yes. 1 He is my friend.(35)
What financial transactions have you had with Mr. Chabra or with his company, since, say 1970?
At one time would give a guarantee on Muslim Commercial Bank. He has owned money to me.(36)
What money did you lend him?
4-5transactions. 55,000 loaned to him in 1982 less than that before.(37)
Did he ever lend you money?
32,666 1980 or 1983.(38)
Was that in cash?
Advanced and repaid in cash."
CIT (A) observed that it is not clear whether the loan stated to have been given in 1982 would fall in the financial year 1981-82 or the succeeding financial year. CIT(A) accordingly sustained the addition to the extent of 75% of 55,000 on prorata basis. The addition was thus sustained to the extent of 41,250.
12. Shri Anil Kumar Chopra ld. Chartered Accountant assailing the impugned additions sustained by the ld. CIT(A) broadly made the following submissions:
(i) There is no evidence whatsoever of any interview held by England Revenue authorities with the assessee on 6.6.1983 and 8.6.1983 in England. The notes on interview furnished by the department do not bear signatures of either the assessee or the tax officials of the Inland Revenue U.K. Merely on the basis of the so-called interview notes, no addition can be made against the assessee.
(ii) No bank accounts have been produced in support of its allegation by the Department that the assessee invested money in various accounts with Muslim Commercial Bank in England. On mere notes supposedly recorded by Tax Officials of England, addition cannot be made in the case of the assesee. Ld. Counsel referred to Article XXV of Double Taxation Avoidance Treaty dated 23.11.1981 which provides that information with regard to bank accounts, if any, maintained by the assesee in England could have been requisitioned by the Indian Tax Authorities. Ld. Counsel submitted that without producing any documentary evidence like bank accounts, bank account opening forms, deposit slips etc. the inference drawn by the Department against the assesee regarding ownership of bank accounts is merely based on hear-say and does not constitute permissible legal evidence against the assessee.
(iii) The Tax Authorities of England have observed that the money invested in the bank accounts belong to Shri K.L. Kumar of Rajan Trading Company Limited and they have proceeded to make the assessment in the hands of Shri K.L. Kumar. Shri K.L. Kumar has also agreed to these assessment and paid taxes on that basis. Once the amount invested in the bank accounts have been assessed in the hands of Shri Kumar, there is no justification for the Indian Tax Authorities to again tax the same amount in the hands of the assessee.
Even on the basis of interview notes it is manifestly clear that the bank accounts were being controlled and operated by Shri K.L. Kumar and these accounts were actually used by way of security by Shri Kumar. These accounts cannot be treated as belonging to the assessee merely on the ground that Shri K.L. Kumar has used the name of the assessee and his family members for opening these accounts and putting his signatures on the bank documents using the name of the assesee as Krishan Mohan and K.M. Bijli etc.
(v) Regarding interest income, ld. Counsel submitted that from the interview notes, it is manifestly clear that interest on the bank accounts have been withdrawn by Shri K.L. Kumar and he has used the said money.
(vi) Regarding addition of 41,250 on account of loan to Shri P.N. Chhabra, the basis adopted by the CIT(A) is conjectural. The amount has been allegedly advanced in the year 1982. There is no justification for taxing the amount in the assessment year 1982-83 without establishing that any such investment was made by the assessee during the financial year 1981-82 relevant to assessment year 1982-83 under reference.
(vii) Ld. Counsel further stated that owing to the very fact that the aforesaid bank accounts have been maintained right since 1974-75, there is no justification for the revenue to pick out an item of 55,000 as reflected in the bank account for making the addition as undisclosed investment.
13. Shri Amitabh Misra ld. CIT DR, on the other hand, strongly supported the impugned order of the ld. CIT (A) and argued that interviews conducted by British Tax Officials contained specific information regarding the bank deposits made by the assessee and the same cannot be brushed aside merely on the ground that such interview notes, sent by International Tax Division of U.K., do not bear the signatures of the assessee or any British Tax Officials. He submitted that it was for the assessee to disprove the fact that the bank accounts appearing in his name in the Muslim Commercial Bank belong to him. Ld. DR submitted that the onus which lay upon the assessee has not been discharged and, therefore, the impugned additions sustained by the CIT (A) are justified and deserved to be upheld.
14. We have carefully considered rival submissions and gone through the various orders of the tax authorities below as well as paper books filed by the ld. Counsel and the ld. CIT DR. From the facts, as discussed hereinabove, it is manifestly clear that the entire case of the department rests solely on the notes of interview held by U.K. Tax Officials with the assesee as well as his brother-in-law, Shri K.L. Kumar. No other evidence or material has been produced by the revenue to support and substantiate the allegation that the assesee maintained bank accounts in the U.K. with the Muslim Commercial Bank. We specifically call upon the ld. CIT DR to clarify as to whether apart from the unsigned notes of interview, the department has any material regarding the bank accounts reportedly maintained by the assessee with the Muslim Commercial bank in the U.K. Despite opportunity allowed by us in this behalf, the ld. CIT DR was unable to clarify if the Department has any other evidence or material regarding the bank accounts of the assessee with the Muslim Commercial Bank U.K. After careful appraisal of the facts and evidence on record, we have no hesitation in holding that the Department has failed to bring on record facts and evidence to support and substantiate its inference that the assessee deposited money in the bank accounts maintained with Muslim Commercial Bank during the year. The onus would undoubtedly lay upon the revenue to prove the allegation that the assessee maintained bank accounts in the U.K. It is relevant to note here that the notes on interview with the assessee have been recorded on 6.6.1983 and 8.6.1983 and the same have been forwarded to the CBDT in May, 1989 by the Inland Revenue U.K. It appears to us that these interview notes possibly constituted the starting point of investigation for the department to probe the matter further. This, however, does not appear to have been done. The Department has initiated reassessment proceedings in December, 1992 and thereafter made reassessment successively on three occasions without making any efforts to collect evidence with regard to the alleged bank accounts owned and operated by the assesee in the Muslim Commercial Bank in England. The assesee died on 11.1.1992. The department did not even make an attempt to interrogate the assesee with reference to the interviews recorded by the British Tax Authorities. Copies of bank account, details of deposits and withdrawals as well as other documentation like bank account opening forms etc. have not been requisitioned by the department from the U.K. Tax Authorities. If the assesee maintained any bank accounts in the U.K., such documents and evidence should have been obtained specially when Article XXV of Double Taxation Avoidance Treaty dated 23.11.1981 provides for the exchange of information and reads as under :
"The competent authorities of the Contracting States shall exchange such information (being information and documents which are at their disposal under their respective taxation laws and obtained in the normal course of administration) as is necessary for carrying out the provisions of this Convention or for the prevention of fraud or the administration of statutory provisions against legal avoidance in relation to the taxes which are the subject of this Convention. Any information or documents so exchanged shall be treated as secret but may be disclosed to persons (including a court or administrative body) concerned with assessment, collection, enforcement or prosecution in respect of taxes which are the subject of this Convention. No information or documents shall be exchanged which would disclosed any trade, business, industrial or professional secret or any trade process."
In the absence of any such evidence, we feel that there is no basis for us to hold that the assessee maintained bank accounts with the Muslim Commercial Bank U.K.
15. Apart from the aforesaid, we feel that even the notes of interview with the assessee and his brother-in-law, Shri K.L. Kumar do not conclusively establish that the bank accounts with the Muslim Commercial Bank contained own funds of the assessee. It is important to note that most of these bank accounts have been controlled and operated by Shri Kumar who has even signed the bank documents posing as Krishan Mohan Bijli, i.e., the assesee. The interview notes further indicate that this has been done with the connivance and knowledge of the bank officials. The interviews recorded with the assessee as well as his brother-in-law further indicate that interest on the bank accounts have been withdrawn by Shri K.L. Kumar from time to time Shri K.L. Kumar is closely related with the assesee being brother of assesee's wife. The assesee has adopted Shri Kumar's son. Further more, the bank accounts have been earmarked against the borrowings of Rajan Trading Company Limited, which is the concern of Shri K.L. Kumar. Thus, it emerges from the interviews recorded by the Inland authorities U.K. Kumar has apparently been the real beneficiary of the accounts, if any, maintained with Muslim Commercial Bank. The Inland Revenue Authorities of U.K. have in fact drawn this inference against Shri K.L. Kumar and brought to tax the deposit in the hands of Shri K.L. Kumar to which Shri Kumar has agreed. From these facts, it is evident that even the tax authorities of U.K. have disbelieved the ownership of money by the assessee and proceeded to assess the amount in the hands of his brother-in-law, K.L. Kumar. We are, therefore, unable to appreciate as to how the Assessing Officer in India can draw an inference on the basis of interview notes that the assessee invested money in the bank accounts in the U.K. particularly when the British Tax Authorities conducting the interviews have come to a contrary finding which has been accepted and acknowledged by Shri K.L. Kumar, brother-in-law of the assessee.
16. We may refer to another important aspect having a bearing on the evidentiary value of the interview notes communicated by the British Tax Authorities Interviews with the assesee were conducted by the tax officials of Inland Revenue U.K. at the office of Rothburn Burton & Partners, who were Tax Advisors of Shri K.L. Kumar. The interviews with the assesee were obviously informal, oral and outside the pale of tax laws of the U.K. No statement has been recorded and no oath has been administered to the assessee by the Enquiry Officials. A mere informal conversation with the assessee at the office premises of his brother-in-law, Shri K.L. Kumar's Tax Advisors could not be the sole basis of the finding that the assessee had invested his funds in bank accounts particularly when no evidence whatsoever to support and supplement the preliminary details, elucidated in the informal conversation with the assessee have been brought on record. We are aware that rigors of rules of evidence contained in the Evidence Act are not applicable to the income tax proceedings and the Income-tax authorities are fully entitled to invoke the principles contained in it. However, the proposition cannot be extended to support and sustain tax assessments made on the sole basis of oral and informal conversation held with the assessee by a tax authority which is denied by the assessee.
17. Regarding the factual merits of the two additions, even if we proceed on the basis of the interviews as recorded by the British Tax authorities, we feel that the impugned additions sustained by the ld. CIT(A) are liable to be deleted. Regarding the interest income of 64,500 estimated by the ld. CIT (A), we are unable to sustain the same inasmuch as there is no evidence brought on record before us in support of any such interest earned by the assesee during the financial year 1981-82. There is no information on record before us regarding the extent of deposit held by the assessee in his account. Merely because a sum of 6,50,000 has been deposited on 22.7.1980 would not by itself justify the assessment of any interest income for the financial year 1981-82 relevant to assessment year 1982-83 under reference. With regard to loan to Shri P.N. Chhabra, even the so-called bank entries do not support any such addition for assessment year 1982-83. The loan has been given in 1981. There is nothing on record as to whether the advancement of the loan falls in the accounting year 1981-82 relevant to assessment year 1982-83. Moreover we find from the extract of the interview containing questions and answers no. 34 to 37, as reproduced above, that the assessee has transactions with Mr. Chhabra right since the year 1970 and even has received loans from him in the year 1980 or 1983. thus, the date of the loan in question as falling during the year under reference or being out of undisclosed funds generated during the year under question is not established. Even otherwise, from the interview it is clear that the assessee has been having deposits right since 1974 in the bank and, therefore, any addition merely on the basis of answer to question no. 36 would not be justified. Thus, even on merits of the two additions, proceeding on the basis of the bank accounts as per the interview recorded by the tax officials, we feel that the impugned additions deserve to be deleted.
18. For the aforesaid reasons, we delete both the additions, namely, 64,500 on account of interest and 41,XXV0 on account of loan to Mr. P.N. Chhabra and allowed ITA NO.253/Del/2001 by the assessee. Thus, ITA NO.253/2001 is allowed and ITA NO.4779/Del/98 is dismissed as infructuous.