Income Tax Appellate Tribunal - Kolkata
Kailash Prasad Jain, Kolkata vs Assessee on 20 January, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - " िस" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA
(सम¢)Before ौी एस. भी. मेहरोऽा, लेखा सदःय एवं/and ौी महावीर िसंह, Ûयायीक सदःय)
[Before Shri S. V. Mehrotra, AM & Sri Mahavir Singh, JM]
आयकर (खोज और जÞती) अपील संÉया / I.T(SS).A No.15/Kol/2008
खंड िनधॉरण वषॅ/Block Period: 1990-91 to 2001-02
Shri Kailash Prasad Jain -Vs- Assistant Commissioner of Income-tax,
(PAN:ACVPJ 2439 C) Central Circle-XX, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
Date of hearing: 20.01.2012
Date of pronouncement: 13.03.2012
For the Appellant: Shri S. M. Surana
For the Respondent: Shri D. R. Sindhal
आदे श/ORDER
Per Mahavir Singh, JM ( महावीर िसंह, Ûयायीक सदःय)
This appeal by assessee is arising out of order of CIT(A), Central-III, Kolkata in Appeal No.173/CC-XX/CIT(A)C-III/06-07 dated 07.01.2008. Assessment was framed by ACIT, CC- XX, Kolkata u/s 158BC/158BD r.w.s 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Block Period 1.4.1990 to 10.8.2000 vide his order dated 29.03.2006 in consequence to revision order passed by CIT, Central-III, Kolkata u/s 263 of the Act.
2. Brief history of this case:
A search and seizure action u/s. 132 of the Act was conducted at the business and residential premises of the assessee by investigation wing of Income-tax Department on 10.08.2000. During the course of search at the residence of the assessee documents bearing identification mark KP-1 to KP-23 were found and seized. During search on business premises of Jain Udyog Ltd. at Jamshedpur documents bearing Identification mark JU-1 to JU-17 and PT-1 to PT-17 were found and seized. Original block assessment was framed by ACIT, Central Circle-XX, Kolkata u/s. 158BC r.w.s. 144 of the Act vide order dated 29.11.2002 assessing total undisclosed income of the assessee for block period at Rs.56,18,190/- as against the returned loss of Rs.1,94,872/-. Aggrieved, assessee preferred appeal before CIT(A), who deleted the additions and allowed the appeal of the assessee vide order dated 20.08.2004. In the meantime CIT, Central-III, Kolkata on perusal of block assessment records of assessee noticed that block assessment order completed u/s. 158BC r.w.s. 144 of the Act dated 29.11.2002 is erroneous and prejudicial to the interest of revenue for the reason that an amount of Rs.254, 2 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 32,93,200/- pertaining to assessment years 1995-96 to 2001-02 was not treated as undisclosed income of the assessee being unexplained cash credit and hence, he issued show cause notice dated 06.09.2004. CIT, Central-III, Kolkata passed revision order u/s. 263 of the Act dated 29.11.2004. Aggrieved, assessee preferred appeal before ITAT and ITAT in IT(SS)A No.185/Kol/2004 confirmed the revision order cancelling the assessment to the extent of reconsideration of entries recorded in seized documents KP-19 mentioning the amount of Rs 2,54.32.93,200/- vide its order dated 10.02.2006. Aggrieved, assessee preferred appeal before Hon'ble Calcutta High Court, wherein in ITA 232/06, judgment dated 12.11.2010, Hon'ble High Court decided the issue as under:
"After considering the submission of the respective counsel it seems to us that he first point for consideration is as to whether the order of block assessment passed by the Assessing Officer and affirmed by the appellate authorities in relation to the amount of Rs, 254, 32,93,100/- have become final and binding; whether the points raised and agitated by the appellant should be decided in this appeal or not.
Dr. Pal of course submits that since it is a question of jurisdiction this can be examined by this Court, for it is found ultimately the order of the Commissioner under Section 263 of the said ct was passed without the twin conditions being satisfied, and further steps taken pursuant thereto by the department has to be declared being null and void, consequently order passed by the Assessing Officer will stand set aside and it would become automatically infructuous. His contention is based on the decision of Supreme Court in Calcutta Discount case. We are of the view that Calcutta Discount case is not applicable on the facts and circumstances of this case as in that case factually the notice under section 34 of the Income Tax Act 1922 corresponding to Section 263 of the present Act was challenged filing Writ Petition under Article 226 of The Constitution of India and thereafter the assessment order was passed pursuant to the notice. In the factual background as aforesaid ultimately the Supreme Court found that order was passed without jurisdiction as precondition mentioned in the old Section were not satisfied. Here factually the situation is different.
Dr. Pal's client approached the Tribunal challenging the order passed under section 263 and even did not pray for any interim relief for stay of operation of the said order and allowed the order of assessment to assessment to be passed. Ultimately an appeal was also preferred. The legal proposition explained by Dr. Pal would be appropriate when it would be found that the authority concerned lacks inherent jurisdiction in the subject matter. In this case it cannot be held CIT had no jurisdiction. The question is whether assumption of jurisdiction is done by the said authority on being satisfied with the twin conditions mentioned therein. This question could and can be examined in many ways. When assessee did not take any step for stay of the order of the Assessing Officer pursuant to the impugned order of the Commissioner under Section 263 and after having participated in the hearing of the assessment proceedings and consequently preferring appeal, we think it would not be proper for this court at this stage to decide issue raised before us.
Accordingly we accept the submission of the learned Counsel for the revenue that the appeal factually has become infructuous but not legally. The provision of the appeal is very exhaustive and all points can be taken including the question of jurisdiction as taken here. We feel that considering all the aspects of the matter no decision should be rendered as if we do not accept contention of Dr. Pal, the appeal preferred by his client against subsequent order of assessment will have to be heard on merit and in that case the question of jurisdiction cannot be raised. In the event if we do not decide then all points can be
3 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 decided obviously by the appellate forum. We therefore, dispose of the present appeal keeping all points open holding that since the regular appeal has already been preferred this appeal has factually become infructuous."
In the meantime, the AO i.e. ACIT, Central Circle-XX, Kolkata framed block assessment u/s. 158BC of the Act, in consequence to revision order of CIT u/s. 263 of the Act, thereby treating this amount of Rs.2,54,32,93,200/- as undisclosed income of the assessee vide order dated 29.03.2006. Aggrieved, assessee preferred appeal before CIT(A), who confirmed the addition of undisclosed income vide his appellate order dated 07.01.2008. Aggrieved, assessee preferred appeal before Tribunal against the impugned order. Meanwhile, assessee against the judgment of Hon'ble Calcutta High Court in ITA No.232/06 dated 12.11.2010 taken the matter before Hon'ble Supreme Court in Special Leave to Appeal (No.CC 19565/2011) and Hon'ble Supreme Court ordered as under:
"The Special leave petition shall stand over for three months.
In the meantime, we are directing ITAT to dispose of the pending Appeal (IT(SS)/15/KOL/2008) as early as possible, preferably within three months."
In view of directions of Hon'ble Supreme Court, we have heard this appeal in IT(SS)/15/KOL/2008 on day-to-day basis on 16,17, 18, 19/01/2012 and finally on 20th January, 2012. We have heard Ld. Sr. Counsel Shri S. M. Surana for assessee and Shri D. R. Sindhal, CIT, DR for Revenue.
3. At the outset, Ld. Counsel Shri S. M. Surana drew our attention to the judgment of Hon'ble High Court in ITA No. 232/06 dated 12.11.2010 and argued that Hon'ble High Court has directed Tribunal to decide the issue of jurisdiction while adjudicating the appeal on merit also i.e. IT(SS)15/KOL/2008. Ld. Counsel pointed out the specific observations of Hon'ble High Court, wherein a clear direction to Tribunal was that "Accordingly we accept the submission of the learned Counsel for the revenue that the appeal factually has become infructuous but not legally. The provision of the appeal is very exhaustive and all points can be taken including the question of jurisdiction as taken here." Further, it was directed that "In the event if we do not decide then all points can be decided obviously by the appellate forum. We therefore, dispose of the present appeal keeping all points open holding that since the regular appeal has already been preferred this appeal has factually become infructuous." In view of the above directions, Ld. Counsel argued that the assessee has raised additional grounds qua assumption of jurisdiction by CIT u/s. 263 of the Act for revising the block assessment and further more he stated that operation of the order of Hon'ble 4 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 High Court is not stayed by Hon'ble Supreme Court. The additional grounds raised read as under:
"1. For that the order of the Ld. Commissioner of Income Tax passed u/s. 263 is arbitrary and bad in law.
2. For that the Ld. Commissioner of Income Tax erred in invoking the provisions of section 263 when the order of the Assessing Officer was merged in the order of Ld. CIT(A) since all the seized materials were duly considered by the Assessing Officer while computing and or estimating the income after calling for the explanation of the assesee in respect of the connected seized material papers including K.P 19 which was only an index of the other seized books and trial balances and were also duly considered by the Auditor on the basis of which the assessment was framed.
3. For that the Ld. CIT(A)-III erred in involving the provisions of section 263 and cancelling the assessment made by the A.O. when the assessment was completed by the A.O. after examining all the seized material including the entries in all the books along with the seized book KP 19which was an index to the entries reflected in other seized hooks and trial balance and the Ld. Commissioner of Income Tax has not disputed the fact that other books were duly examined by the AO.
4. For that on the facts and circumstances of the case the Ld. CIT erred in cancelling the assessment ignoring the submissions made before him which were also part of the assessment records and considered by the AO in the assessment order and no fault or error was found in the order of the AO accepting the peak as per trial balances preferred from their ledger of which KP 19 was only an Index.
5. For that the Ld. CIT erred in cancelling the whole of the assessment when no fault or error was found in the assessment made by the AO and the entries in KP 19 were also considered.
6. For that on the facts and circumstances of the case the order U/s. 263 assed by the Commissioner of Income Tax may be cancelled and the appellant may be allowed such further or other relief as may be considered fit and proper in the circumstances of the case."
4. On the other hand, Ld. CIT, DR opposed admission of additional grounds for the reason that as per the order of Hon'ble Supreme Court, the SLP shall stand over for three months and directed Tribunal to dispose of pending appeal IT(SS) No. 15/Kol/2008 as early as possible, preferably within three months. According to him, from this order of Hon'ble Supreme Court it is clear that issue of jurisdiction u/s. 263 of the Act was kept stand over for three months and hence, he argued that additional grounds should not be admitted. According to Ld. CIT, DR, the jurisdiction u/s. 263 of the Act is sub judice. According to him, the present appeal IT(SS) No.15/K/2008 was in respect to consequential order passed by AO and CIT(A) in compliance with the order of CIT u/s. 263 of the Act in respect of block assessment order framed by AO dated 20.03.2006, which is separate proceeding from the proceedings u/s. 263 of the Act which are pending adjudication before Hon'ble Supreme Court.
5 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02
5. We have heard rival contentions on admissibility of additional grounds raised by assessee in view of order of Hon'ble High Court. We find that Hon'ble Calcutta High Court while deciding ITA No. 232/2006 against the order of ITAT upholding revision proceedings initiated u/s. 263 of the Act by CIT directed that the provisions of appeal is very exhaustive and all points can be taken including the question of jurisdiction as taken here. Further, Hon'ble High Court has observed that in the event Hon'ble High Court does not decide then all points can be decided by appellate forum. Even operation of the order of Hon'ble High Court is not stayed by Hon'ble Supreme Court. In view of the above observations of Hon'ble Calcutta High Court, we take these as directions and admit the grounds raised by assessee on jurisdiction and adjudicate the same also.
6. The brief facts leading to the above issue are that during the course of search at the residence of the assessee documents bearing identification mark KP-1 to KP-23 and from business premises of Jain Udyog Ltd. at Jamshedpur documents bearing Identification mark JU-1 to JU-17 and PT-1 to PT-17 were found and seized. According to CIT, the AO while framing block assessment for the block period 01.04.1990 to 10.08.2000 u/s 158BC r.w.s 144 of the Act dated 29.11.2002 considered these documents but failed to consider the entry recorded in seized documents KP-19 at page 64(According to search party it is numbered as
68) mentioning the amount of 'Rs.25022.73 B/f 01.04.99 in the name of Pawan Babu', as is evident from the block assessment order. CIT, Central-III, Kolkata issued show cause notice u/s. 263 of the Act dated 06.09.2004 for revision of block assessment for the following reasons:
"1. Perusal of the records shows that the block assessment for the Block Period from 01.04.1990 to 10.08.2000 was made in your case u/s. 158BC read with Sec. 144 of the I. T. Act, 1961 on 29.11.2002 determining total undisclosed income at Rs.56,18,190/- and accordingly a demand of Rs.47,82,062/- was raised.
2. On examination of the materials on records it is seen that the assessment completed u/s. 158BC read with Sec. 144 of the I. T. Act, 1961 on 29.11.2002 is erroneous and is prejudicial to the interest of revenue for the reason that an amount of Rs.254,32,93,200/- pertaining to A.Y. 1995-96 to 2001-02 was not treated as your income being an unexplained cash credit as per provisions of Sec. 68 of the I. T. Act, 1961.
3. In view of the above it is proposed to revise the assessment u/s. 263 of the I. T. Act, 1961."
7. Show cause notice was replied by the assessee vide letter dated 22.11.2004 wherein it was contended that the AO during the course of block assessment proceedings examined all books of account and documents seized including KP-19 and ledger thereof in PT-6 which contains book trial Balances, ledger accounts and cash containing loan/investment transactions recorded therein. The assessee referred to the block assessment order. He stated that the AO has considered book PT-6 which is trial Balances, ledger accounts and cash containing 6 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 loan/investment transactions recorded therein and KP-19 is ledger and index and this was examined by AO by making specific query vide AO's letter dated 18.11.2002 while framing block assessment. According to assessee, the AO has considered Trial Balance of "J" as well as Trial Balance of Raj & Raj and has compared the figures shown in Trial Balance with reference to audited accounts as well as assessee's capital. According to AO, all the investments as per this Trial Balance is less than Rs.1,08,40,877/-. The assessee submitted that the audited balance sheet of all investments made by it whether in his personal name or utilizing the name of third parties and all the books of accounts and other seized documents were taken into account by the auditors as per audited balance sheet filed during block assessment proceedings. The audited accounts include KP-19. According to assessee, the peak statement prepared on the basis of seized documents including KP- 19 is less than Rs.1.08,40,877/-, which confirms that the AO applied his mind to the said KP-19 while framing block assessment. The next contention of the assessee is that while preparing this peak statement all the items have been taken into account except the amount in the name of Pawan Babu, which is a single entry and according to CIT's show cause notice this amount is over Rs.250 cr. is unthinkable huge cash receipt and this entry is spelt as balance B/f as on 01.04.99. According to assessee, there is no supporting entry or evidentiary entry in any seized books or documents for the periods relating to block period to show that the amount was received during the block period or afterwards from any Pawan Babu or any payment was made to Pawan Babu of any amount which worked out to Rs.250 cr. In view of these, assessee contended before CIT that the peak amount available with the assessee is less than the amount of Rs.250 cr. then there is no question of treating the same amount as unexplained credit in KP-19. Further, these amounts appeared in the Trial Balance seized including the Trial Balance of Raj & Raj which has specifically been considered by the AO and the Trial Balances and the profit and loss account of Raj & Raj and the seized material were the subject matter of appeal before CIT(A) and, therefore, the block assessment completed by AO, on the basis of seized material, have merged in the order of CIT(A). In view of these reasons, the assessee contended that the proceedings u/s. 263 of the Act be dropped.
8. The CIT after considering the submissions of assessee cancelled the block assessment order and directed the AO to make fresh assessment after examining cash transactions recorded in seized document KP-19. The CIT held as under:
"I have taken into consideration the above-said written submissions and have also examined the assessment record of the assessee and find that the A.O. did not examine the contents of the transactions recorded in seized diary KP-19 while completing the assessment. The statement recorded u/s. 131 and u/s.132(4) of the I. T. Act of Shri K. P. Jain during the course of search proceedings reveal that the assessee had admitted that the said register 7 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 contained details of undisclosed cash transactions. The assessment records clearly indicate that these cash transactions were not examined by the A.O. at any point of time.
Further, the contention of the Ld. AR that these transactions were examined during the assessment proceedings is unsubstantiated by the fact that the assessment was completed u/s. 144 in view of the assessee's failure to furnish details as sought by the AO. Neither is the contention that the entries of this seized document had found place in the said trial balance KP-6 borne out from record. Notwithstanding this position it is also clear from the record that the AO. failed to cause any inquiry into those transactions.
In view of above, it is held that the assessment is erroneous in that the cash transactions recorded in seized diary KP-19 were not examined and for which reason the assessment completed u/s. 158BC read with section 144 of the I. T. Act is held to be prejudicial to the interest of revenue.
The assessment is, therefore, cancelled and the AO is directed to make a fresh assessment after examining the cash transactions recorded in seized document KP-19, as per law."
However, when the matter was carried before ITAT, against revision order of CIT, Tribunal in IT(SS) No. 185/K/2004 dated 10th February, 2006 upheld the order of CIT qua the entry of Rs.254,32,93,200/- as under:
"Considering the totality of the facts of the case and considering the fact that the Ld. CIT had issued notice u/s. 263 only for one issue i.e. non-consideration of an amount of Rs.254,32,93,200/- by the AO, the order of the AO is erroneous and prejudicial to the interest of revenue only to this extent. Since no notice was issued for the other items, the assessee had no opportunity to substantiate his case. Therefore in our considered opinion the CIT was not legally justified in cancelling the entire assessment. Moreover the CIT(A) had already passed an order on 20.8.2000 against the order of the AO for which the revenue is in appeal before us. Thus, the order of the CIT cancelling the assessment u/s. 263 to the extent of Rs.254,32,39,100/- only is upheld. The power of the AO extends only to consider the taxability or otherwise of the sum of Rs.254,32,93,100/- in the reassessment proceedings. We direct accordingly. The grounds by the appellant are therefore partly allowed."
9. Ld. Senior counsel for the assessee Shri S. M. Surana explained the nature of seized documents KP-19 and PT-6. According to him, only controversy is as regards to the entry recorded in KP-19 in one corner of page 64 wherein an amount is written as "Rs.25022.73 B/f 01.04.99 Pawan Babu". He explained that PT-6 contains details of various receipts and ledger accounts of cash credits using the name of parties. The transactions contain in PT-6 is assessee's own money, as admitted by assessee, which was invested and recorded as loan transactions in these documents and which are computer print outs in the shape of trial balances, cash book and ledger. The assessee has filed complete trial balance, cash book and ledger of Raj & Raj from 01.04.1997 to 10.08.2000 seized and marked as PT-6 (at assessee's paper book pages 194 to 410). Ld. Counsel referred to the relevant details of PT-6 at page 194 reads as under:
1. Raj & Raj T/B 98-99 1-5
2. -Do- Cash Book 98-99 6-38 8 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02
3. -Do- General Ledger 98-99 39-98
4. -Do- Balance Sheet 31.3.99 89-89
5. -Do- Trial Balance 1.4.99 to 31.3.2000 90-91
6. -Do- Cash Book 1.4.99 to 31.3.2000 92-128
7. -Do- General Ledger 1.4.99 to 31.3.2000 129 to 179
8. -Do- Balance Sheet 31.3.2000 180-181
9. -Do- Trial Balance 1.4.00 to 10.8.2000 182-183
10. -Do- Balance Sheet 1.4.00 to 10.8.2000 184-185
11. -Do- Cash Book 1.4.00 to 10.8.2000 186-195
12. -Do- General Ledger 1.4.00 to 10.8.2000 196-216 According to Ld. Counsel, the peak transactions of loans in PT-6 is less than Rs.1,08,40,877/-, which was assessee's own capital received on family partition in AY 1991-92. The assessee submitted that these loan transactions in PT-6 was suppressed by two '00', e.g., Rs.5,00,000/-
was mentioned as Rs.5,000/-. The assessee's contention, further, was that KP-19 was index for the entries recorded in PT-6. For this, Ld. Counsel referred to depositions made during the course of search of Shri K. P. Jain u/s. 132(4) of the Act on 01.11.2000 and referred to question nos.10 and 11, which read as under:
"10 Q. Are the figures in this trial balance suppressed?
10 A. The figures have been suppressed by two digits.
11 Q. Please go through the cash in hand column of the Trial Balance on page 21 of JU/.... which reads 435524.56 on the credit side. This figure if translated comes to Rs.4 crores 35 thousand-lacs 52 thousand Four Hundred & fifty six. How do you explain this and how much of the same is disclosed?
11A. The figure of Rs.4.35 cr. is the total of cash transactions from 01.04.98 to 10.01.2000 which also includes ledger entries. The details are ....... in the computer ..... u/s. 132(3)."
Further, Vide Question no. 12 of the deposition dated 19.10.2000 u/s. 132A assessee explained KP-19 as under:
12.Q. Please examine seized loose ..... mark of identification KP-19 and comment on the nature of transactions mentioned therein?
12.A. This also contains details of undisclosed cash transactions. Seized KP-19 is a ready reckoner and index to know the position of a particular account."
10. Ld. Counsel stated that there is no deposition by assessee that the figures are suppressed by five '00000' in KP-19. He stated that all the entries in PT-6 are incorporated in summary manner in KP-19 and AO during the course of assessment proceedings verified all entries from PT-6 to KP-19 and found recorded in PT-6 and taken KP-19 as only index. He further stated that, the entry in the name of 'Pawan Babu' for an amount of Rs.25022.73 was not found recorded in PT-6 and hence, this was not considered as entry giving any reflection to any transaction. He further stated that a peak credit statement was prepared on the basis of PT-6, which comes to Rs.10840877 which was examined by AO in the original assessment order vide 9 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 para 4b. He further stated that the auditor of the assessee on the basis of seized materials and other records prepared Trial Balance, P&L Account and Balance Sheet with regard to the periods 1990-91 to 2001-02, which contains specific reference to PT-6 and it automatically includes KP-19 because it is only an index of PT- 6. He stated that the AO on consideration of all the three Trial Balances accepted the returned undisclosed income disclosed on the basis of said audit report, wherever income was disclosed i.e., for AY 1995-96 to 1998-99. However, Ld. Counsel stated that for subsequent assessment years 1999-2000 to 2001-02 the audit report on the basis of which return declaring loss was filed, the AO did not allow the losses declared therein. According to Ld. Counsel, the AO verified the peak amount of Rs.1,08,40,877, seeking explanation vide notice dated 18.11.2002 from the assessee in regard to entries in KP-
19. The Ld. Counsel also referred to the order sheet entry dated 02.08.2002, whereby the AO has referred to the entry of KP-19 page 64 where this amount was written as Rs.25022.73 as Rs.250,22,73,000/-. The AO after verification of peak amount, received by way of family settlement of Rs.1,08,40,877/- has not treated the same as undisclosed income. The assessee preferred appeal before CIT(A) against disallowance of loss for three years i.e. 1999-2000 to 2001-02, falling in the block period, The CIT(A) allowed the claim of loss by holding that when the AO has already assessed the income for earlier years i.e. 1995-96 to 1998-99 on the basis of audit report prepared from seized documents and books of accounts, there was no reason as to why the loss declared in subsequent years i.e.. 1999-2000 to 2001-02, on the basis of same audit report should not be allowed. Accordingly, he allowed the claim of loss. Ld. Counsel stated that the matter was carried to Tribunal and Tribunal dismissed the appeal of revenue, confirming the allowance of loss by CIT(A). Even Hon'ble High Court dismissed the departmental appeal, which was carried u/s. 260A of the Act.
11. In view of the above facts, Ld. Counsel for the assessee stated that the show cause notice for revision of block assessment u/s. 263 was issued on 06.09.2004 and revision order was passed on 29.11.2004, but before that CIT(A) has already allowed the appeal of the assessee vide its order dated 20.08.2004 regarding allowance of losses for three years after considering the seized diary KP-19. Hence, Ld. Counsel stated that the original order of block assessment dated 29.01.2002 had merged in the order of CIT(A) dated 29.08.2004 and the order of CIT(A) was further affirmed by Tribunal and Hon'ble High Court by dismissing the appeal of revenue on the ground that there was no substantial question of law involved.
According to Ld. Counsel, once the block assessment order dated 29.11.2002 had already merged in the order of CIT(A) passed on 20.08.2004, the proceedings initiated and revision 10 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 order passed by CIT u/s. 263 of the Act has no power, jurisdiction or authority to revise the block assessment order, which is neither erroneous nor prejudicial to the interest of revenue.
12. Ld. Counsel further argued that even explanation C to section 263 of the Act cannot be made applicable because the question of assessability or otherwise in respect of KP-19 was directly in issue before CIT(A) as the loss was determined on the basis of audit report of Chartered Accountant, which was prepared on the basis of seized documents including KP-19. He further stated that during appeal before CIT(A), the issue was the subject matter of appeal before CIT(A), hence, even explanation C to section 263 of the Act cannot be applied in the present case. Ld. Counsel for the assessee made his arguments on consideration of this seized document KP-19 by the AO during the course of Block Assessment Proceedings and once the AO has examined the document KP-19, revision u/s. 263 of the Act by the CIT is not possible. Ld. Counsel stated that once the AO has adopted one of the courses permissible in law and it has resulted in losses to revenue or where two views are possible, the AO has taken one view with which the CIT does not agree, the order cannot be treated as erroneous or prejudicial to the interest of revenue. He referred to the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC). He also referred to the decision of Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. (2007) 295 ITR 282 (SC). He further stated that the view taken by CIT on the basis of proposal sent by Addl. CIT, who himself has dropped the proceedings for imposition of penalty proposed to be imposed u/s. 271D and 271E of the Act for the same transaction involving seized document KP-19, where this amount refers to 25022.73 in the name of Pawan Babu as B/f as on 01.04.1999 is considered. Even Ld. Counsel argued that CIT in his revisional order nowhere stated what is erroneous which he wants the AO to revise but only thing he points out that the page 64 of KP- 19 refers only the amount Rs. 25022.73, which he treats the same as Rs.250 cr. by applying five '00000'. Finally, Ld. Counsel argued that CIT while exercising revisional power u/s. 263 of the Act has not come to any conclusion or any prima facie finding that there is material to support the said figure of Rs.25022.73, which represents Rs.250 cr. In view of these arguments Ld. Counsel stated that the assumption of jurisdiction u/s. 263 of the Act for revision of block assessment by CIT is on the basis of one permissible view taken by AO on same set of facts, which is not permissible in law. Accordingly, he urged the Bench to set aside the revision order passed by CIT u/s. 263 of the Act.
13. On the other hand, Ld. CIT, DR Shri D. R. Sindhal, first of all, referred to original block assessment order and argued that the block assessment order passed u/s. 158BC r.w.s. 144 dated 29.11.2002 does not reveal that the addition in respect of seized annexure KP-19 was 11 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 made by AO and hence, this was not the issue before CIT(A), ITAT or Hon'ble High Court, which is clear from the block assessment order. Ld. CIT, DR referred to para 4b of the block assessment order and stated that as referred by Ld. Counsel for the assessee that KPJ account mentioned in the last sentence of para 4b denotes KP-19 is not the fact. He stated that KPJ denotes K. P. Jain's account in PT-6 and not the seized annexure KP-19. Ld. CIT DR referred to annexure A, wherein entries relating to K. P. Jain are included in PT-6. However, Ld. CIT, DR admitted that para 4a of the block assessment order revealed that Rs.1,08,40,877/- was received in hire purchase business as per mutual family settlement dated 25.01.1991. According to Ld. CIT, DR para 4a and b of the block assessment order, put together, reveals that the observation of the AO in respect of K. P. J means Shri Kailash Prasad Jain's quantum of capital and not the seized document KP-19. But Ld. CIT, DR agreed that KP-19 is a seized pocket diary which contains undisclosed cash transactions of assessee. According to him, the AO has not made any observation in his block assessment order in respect to seized diary KP-
19. He further referred to the observations of ITAT, Kolkata while deciding the appeal of revision order passed by CIT u/s. 263 of the Act and stated that the observation of ITAT, Kolkata fully supports the case of the department that the block assessment order was not merged with the order of CIT(A). He also referred to AO's letter dated 18.11.2002 regarding KP-19 and the relevant argument is reproduced from his written submissions as it is:
iv] AO's letter dated 18/11/2002 --- " S)Regarding KP-19 In this diary a sum of Rs.25363.93 Lakhs has been credited (on the left hand side). The sum is proposed to be treated as unexplained Cash Credit and according your undisclosed income for the Block Period."
Assessee's reply dated 26/11/2002s regarding KP-19:
"All these cash transactions are reflected in the books of Raj & Raj referred to in seized book PT-6. The Audited profit & loss account and Balance sheet of Sri K.P. Jain incorporating therein the transactions under seized document PT-6 are shown in the Block return of the assessee. The Profit/Loss derived is included in the Block return of the assessee."
The above referred reproduction of AO's letter, assessee's reply thereon and the assessment record reveals that no inquiry was made by the AO in respect of the stereotype reply filed by the assessee which was accepted without making any further enquiry which was required in the facts and circumstances of the case as the KP-19 was containing the undisclosed cash transactions of the assessee as confessed by the assessee during the course of his statement recorded u/s. 132(4) during the course of search and seizure operation on 19/10/2000. The relevant portion of the statement is reproduced as under:
"Question 12 please explain seized annexure under mark of identification KP-19 and comment on the entries of the transaction mentioned therein."
12 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 "Answer to Question 12: This also contains details of undisclosed cash transactions of Annexure KP-19 as already replied and index to know the position of a particular account."
From above referred reproduction of the statement u/s.132(4) it is clear and undisputed fact that the KP-19 contains the entries of undisclosed cash transactions. Hence, addition was required to be made by the AO in respect of entire transactions recorded in KP-19. However, the AO has not made any enquiry and accepted the stereotype reply furnished by the assessee without conducting further enquiry which was warranted in the facts and circumstances of Assessee's case. Hence, the action of the AO clearly attracted the provisions of Section 263."
14. Ld. CIT, DR further argued that since the block assessment was finalized without taking into consideration the undisclosed cash credits shown in KP-19, this plea of the assessee was not correct that the loss which was arrived at after consideration of KP-19 but was disallowed by the AO. In this back ground of the matter, he further argued that this plea of the assessee is not tenable that the original order of block assessment dated 29/11/2002 was merged in the order of CIT(A) dated 28/09/2004 and consequently in the order of the I.T.A.T. and the Hon'ble High Court. He also argued that the seized Annexure KP-19 was a small Pocket Diary & not Chit of Papers as claimed by the assessee. Further, he argued and clarified that the seized annexure KP-19 was not a chit of papers as claimed by assessee at so many places in his reply before the bench but a small pocket diary containing undisclosed cash transactions. He further argued that the loss was allowed on the basis of audit report of the Chartered Accountant wherein the auditor has specifically referred to about PT-6 and KP-19 (Page 426 of P/B) is without any basis. He read out the page 426 of the paper book before the bench and stated that nowhere in this audit report the auditor has mentioned at all about the seized annexure KP-19 but he has specifically mentioned only about KP-6 in that audit report. Since the audit report did not mention at all of KP-19 in the audit report, the result of the Audit Report cannot be extended to KP-19 as claimed by assessee. Moreover, KP-19 admittedly contains undisclosed cash transactions. Hence, the issue of KP-19 was not at all before CIT(A) so the CIT was quite justified in invoking the provisions of explanation "c" to Section 263 of the Act. He argued that in assessee's case, the AO has not made any enquiry which was warranted on the basis of the seized materials marked as KP-19 and statements of the assessee who confessed u/s. 132(4) of the Act during search and seizure operation that KP-19 was containing his undisclosed cash transactions. Therefore, the AO's action in accepting the stereotype reply of the assessee without verifying the contents of the submission more so when KP-19 was having undisclosed cash transactions and Assessee's confession u/s. 132(4) clearly attracts provisions of Section 263 of the Act as the order of the AO was erroneous so far that was prejudicial to the interest of the Revenue. Hence, he argued that in this case additions was 13 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 required to be made in respect of the undisclosed cash transactions noted down by the assessee in seized KP-19. According to him, there are no two possible views in this case as claimed by assessee but only one view is possible there that in the facts and circumstances referred above additions was required to be made on the basis of the undisclosed cash transactions in respect of KP-19. Hence, CIT was justified in invoking the provisions of Section 263 of the Act as both the conditions having been fulfilled in the case of the assessee and there is no question of merger of AO's order in the order of CIT(A), I.T.A.T. and Hon'ble High Court. Hence the assessee cannot be benefited by relying on the decision supra in the case of Max India Ltd.
15. He further argued that CIT merely did not proceed on the basis of the proposal made by his lower officers but CIT came to his own conclusion after applying his mind which reveals from his satisfaction which is quite clear from para-1 & 2 of show-cause notice u/s.263 of the Act dated 06/09/2004. He argued that the revision proceedings in that case was initiated on the basis of non-enquiring into the undisclosed cash transaction recorded in the seized pocket diary, marked as KP-19 and confessional statements u/s. 132(4) of the Act. This plea of the assessee that the CIT has nowhere stated what was erroneous is not correct because by pointing out what was erroneous was clearly stated by CIT in last two pages of the revision order. He further argued that for invoking the provisions of Section 263 of the Act only prima facie satisfaction of CIT is a condition precedent and he need not to prove the erroneous and prejudice by bringing on record any concluding evidences. For this, he relied on the decision of Hon'ble Madras High Court in the case of CIT Vs. South India Shipping Corporation Ltd. (1998) 233 ITR 546 (Madras). However, in this particular case the CIT has passed the revision order after bringing on record concluding evidences in the form of undisclosed cash transaction recorded in seized KP-19 which were also confessed by the assessee during the course of his statements u/s. 132(4) of the Act recorded during the search and seizure proceedings. Further, he argued that this was also not a statutory requirement u/s. 263 of the Act because he has not added the figure of 250 crores to the total income of the assessee but he simply directed the AO to pass the Assessment order after making enquiry and after allowing a reasonable opportunity of being heard to the assessee. Hence, CIT proceeded on the basis of seized materials in the form of KP-19 and confessional statements of the Assessee recorded u/s. 132(4) of the Act and has passed a speaking order with proper reasons and materials. Hence, he urged the bench to confirm the revision order of CIT passed u/s. 263 of the Act.
16. We have heard rival contentions and gone through facts and circumstances of the case. The only dispute in this revision proceedings u/s. 263 of the Act is as regards to page 64 of KP- 19 where entry recorded reads as under:
14 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 "Pawan Babu 25022.73 BF. 1/4/99"
In the light of this entry now we have to know the nature of seized documents KP-19 and PT-6. PT-6 contains details of various receipts as recorded in the shape of Trial Balance, Ledger Account and Balance Sheet and this is computer print out. As admitted by the assessee the figures in PT-6 are mentioned by suppressing two '00'. All the entries of PT-6 are exactly incorporating in summary manner in KP-19 and on text check basis many of these entries were cross verified by us during the course of hearing and found that these entries are taken from PT-6. We further find that KP-19 contains entries incorporated from PT-6 in a summary manner, which is a pocket diary. The assessee has enclosed PT-6 in his paper book at pages 194 to 410 and KP-19 from pages 146 to 193. Only unique feature in KP-19 distinguishes it from PT-6 is that it misses five '00000' and this particular entry in the name of Pawan Babu at page 64 i.e. 25022.73 BF 01.04.99. This particular entry is recorded only in KP-19 and not in PT-6. The AO while completing block assessment vide order dated 29.11.2002 has referred to seized documents KP-1 to KP-23 and PT-1 to PT-7 as under:
"1(a) Search & Seizure action u/s. 132 of the I.T. Act was conducted at assessee's residence on 10.08.2000. The documents bearing mark of identification KP-1 to KP-23 were seized. Silver articles worth of Rs1,42,200/- jewellery worth Rs.23,24,912/- and cash of Rs.95,000/- were found. The statement of Smt. Kiran Jain, assessee's wife was recorded. The assessee's statements u/s. 132(4) on 19/10/2000 and u/s. 131 on 23/02/2001 were also recorded (b) Search & seizure action was also conducted in the case of M/s. Jain Udyog Ltd at Jamshedpur and document bearing mark of identification JU-1 to JU-17 and PT-1 to PT-7 were seized. Most of the documents pertain to the assessee. Shri K.P Jain (c) Search & seizure action on 01.11.2000 in locker No.4519B with Punjab National Bank, Clive Row Branch in assessee's name jointly with Shri P.L Jain, the assessee's brother was also conducted. Jewellery worth Rs.6,54,037/- was found but not seized."
Further, the AO has considered the issues of addition vide para 3, 4(a), 4(b) and 4(c) and 4(d) as under:
"3. As the source of acquisition of the assets found in the assessee's residence and the jewellery found in Locker No.4519B with Punjab National Bank, Clive Row Branch in assessee's name jointly with Shri P.L Jain have not been explained, the total sum of Rs.32,15,949/- [Silver articles worth Rs.1,42,200/-, Jewellery worth Rs.23,24,912/- and cash of Rs.95,000/- + Rs.6,54,037/- (jewellery found in locker No.4519B] is treated as assessee's undisclosed income for AY 2001-02 the year of search.
4. (a) As per Mutual Family Settlement (MFS) dated 25/1/1991 relating to the distribution of various properties and business assets among the assessee's father the assessee and the assessee's two brothers, the assessee was allotted Rs.2 Crore 9 Lakhs. Explaining the sum of Rs.18 Lakhs being the value of rental flat-Udaychal treated as intangible asset, the balance sum of Rs. 1 Crore 91 Lakhs besides the income from Nidhi Finance and Kiran Finance were treated in the reassessment order dated 30/03/2001 for the AY 1991-92 passed in pursuance of order dated 25.9.1999 of CIT(A) against the original assessment order dated 19/3/95 included in this taxed sum is Rs.1,18,70,550/- receivable by the assessee from Shri Prem Lia Jain, the assessee's as per the Mutual 15 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 Family Settlement. The assessee has stated in reply to question no. 8 of his statement dated 23/2/2001 before the DDIT that the source of Rs. 63,56,256/- being balance in Book a/c in trial balance of 'J' for 01/04/94 to 31/3/95 and of Rs.1,08,40,877/- received in hire purchase business in the name of Nidhi Finance Co. and Kiran Finance Co. is rs.1,16,70,550/- received by him in the form of debtors as per Mutual Family Settlement.
4.(b) During the assessment proceedings the course of search, three trial balances wer seized (i) Vide page 6 of KP-6 trial balance of 'J' for 01/04/94 to 31/3/95 (ii) Vide page 10 of KP-6, trial balance of 'J' for 01/04/95 to 31/3/96 & (iii Vide pages 21,22 of JU-5, trial balance of Raj & Raj for 01/04/96 to 16/1/2000. Further, trial balance of Raj & Raj for 01/04/98 to 31.03.99 was seized vide pages 3 & 4 of PT-6 & trial balance of raj & Raj fro 1/4/99 to 31/3/2000 was seized vide pages 90 & 91 of PT-6 Trial balance of Raj & Raj for 1/4/2000 to 10/8/2000- the date of search was also seized vide pages 182 & 183 of PT-6. The assessee's capital in these trial balance in Book A/c or KPJ Ac is less than Rs. 1,08,40,877/- as mentioned in sub-para(a) supra ( c) The assessee has furnished Audited Statement of Income & Balance sheet for each of the years comprised in the Block period along with the return of income and has accordingly shown following undisclosed income for different years.
Asst. Year Amount
1991-92 NIL
1992-93 123/-
1993-94 NIL
1994-95 NIL
1995-96 8,32,380/-
1996-97 5,88,930/-
1997-98 5,90,220/-
1998-99 3,90,590/-
1999-2000 (4,63,200/-)
2000-2001 (19,25,200/-)
2001-2002 (2,08,720
Total (1,94,877)
d) It is seen that the loss shown by the assessee for assessment year 1999-2000,
2000-2001 & 2001-2002 is mainly from Raj & Raj which comprises of assessee's undisclosed transactions. However, as the assessee has not furnished any evidence to explain the loss and the assessee's reply submitted on 28/11/2002 is not verifiable. The loss claimed by the assessee for these three years is disallowed. The income shown by the assessee for the other years i.e assessment years 1992-93, 1995-96, 1996-97, 1997-98 & 1998-99 in the return are treated as assessee's undisclosed income for these years.
We further find that the block assessment was completed on the basis of Chartered Accountant's report, who prepared these accounts and audited the same for the block period on the basis of seized documents including PT-6 and KP-19. The relevant report filed before us reads as under:
"We have audited the balance sheet of Sri K. P. Jain as at 31st March of each year attached hereto separately comprised in the Block period 1.4.1990 to 10.8.2000 and also the profit and loss account covering the Block period 1.4.1990 to 10.8.2000 annexed thereto and report that:
We have checked the Xerox copy of documents seized u/s. 132 of the I. T. Act, 1961 as per annexure 1 and the information and explanations given to us during the course of our audit.
16 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit.
The said Balance sheet and P.L. Account are in agreement with the seized document referred to herein above.
In our opinion and to the best of our information and according to the explanations given to us, the said accounts given a true and fair view.
In the case of Balance Sheet of the State of affairs of the assessee as at 31st March of each year attached hereto separately comprised in the Block period 1.4.1990 to 10.8.2000 and, In the case of profit and loss account of the results for the Block period covered under audit."
17. We find that AO after considering this audit report and audited accounts accepted the income of the assessee declared as undisclosed income but has not accepted the loss declared in the audited accounts. The assessee challenged by filing appeal before CIT(A) and CIT(A) accepted the grounds of the assessee allowing the claim of loss. The revenue carried the matter before ITAT and Hon'ble High Court and revenue's appeal was dismissed. In the meantime, revenue also initiated penalty proceedings u/s. 271D and 271E of the Act relying on the transactions mentioned in PT-6 and KP-19. When it was explained before Addl. CIT, who initiated penalty proceedings u/s. 271D and 271E of the Act, that it was assessee's own money which was invested and recorded in PT-6 and KP-19 is only index of PT-6. During penalty proceedings it was explained by assessee before Addl. CIT that peak transactions in PT-6 was less than Rs.1,08,40,877/- which was assessee's own capital received on family partition in the year 1990-91. The assessee stated that loan transactions in PT-6 was suppressed by two '00' and AO has duly considered PT-6 in his block assessment order vide para 4b. The assessee also filed detailed loan transactions in PT-6 read with KP-19 year wise, which are as under:
Assessment Year Amount (Rs.)
1995-96 11,45,000/-
1996-97 43,00,000/-
1997-98 57,50,000/-
1998-99 86,25,000/-
1999-00 76,50,000/-
2000-01 2,15,19,23,100/-
2001-02 39,00,000/-
Total 2,54,32,93,100/-
As argued by Ld. Counsel that this figure of Rs.25022.73 recorded in KP-19 page 64 (as per search party page 68) in the name of Pawan Babu but not recorded in PT-6 is included in detailed loan transactions filed before Addl. CIT during penalty proceedings. Before Addl. CIT it was admitted that KP-19 is only index of PT-6 wherein loan transactions of PT-6 were recorded in summary manner i.e. for a loan of Rs.5 lacs only the figure '5' was mentioned.
17 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 This means that five '00000' are missing in KP-19, because KP-19 was a pocket diary of the assessee for his convenience and to get first hand information on his investment as and when required. Assessee admitted that all the transactions except this figure of 25022.73 in KP-19 is not available in PT-6. The Addl. CIT in view of this reply dropped the penalty proceedings u/s. 271D and 271E of the Act and sent proposal for initiation of revision proceedings u/s. 263 of the Act. AO accordingly forwarded a proposal to CIT and CIT issued show cause notice as to why the transactions recorded in seized documents KP-19 should be brought to tax as the same has not been taxed or verified by the AO during the course of block assessment proceedings and in that event the order of the AO is erroneous and prejudicial to the interest of revenue.
18. We find from the block assessment order dated 29.11.2002 passed u/s. 158BC r.w.s. 144 of the Act, the AO has no where considered the seized documents KP-19, which is a pocket diary containing details of investment and particularly the transaction recorded on page 68 of KP-19 in respect to the amount of Rs.25022.73 i.e. balance BF of 01.04.1999 in the name of Pawan Babu. It means that the block assessment order clearly reveals that no addition in respect of seized annexure KP-19 in respect to the particular entry on page 68 for an amount of Rs.25022.73 was not considered by the AO and it is if applied five '00000', it will become 250 cr. We are also not in agreement with the Ld. Counsel that KPJ accounts mentioned in para 4b of the block assessment order denotes KP-19 because there is no discussion about entries containing loan transactions of KP-19. But we are convinced that the other entries are incorporated in PT-6 qua the entries of KP-19 except the entry of Pawan Babu for an amount of Rs.25022.73 and this fact also admitted by assessee. It is also a fact that para 4b of the block assessment order reveals that the assessee's capital in Trial Balances, ledger accounts and Cash Book the peak of KPJ account is less than Rs.1,08,40,877/- as mentioned in para 4a of the same order. It is also a fact that this amount was received in lieu of family settlement dated 25.01.1991. It is also a fact that KPJ means the assessee Kailash Prasad Jain. Hence, the fact noted in the block assessment order cannot be treated that KP-19 was considered, which contained undisclosed cash transactions as noted in PT-6 and KP-19. We have also gone through audit report of Chartered Accountant but noticed that nowhere in this audit report the auditor has mentioned anything about seized document KP-19. Since audit report did not mention KP-19, the audit report cannot be claimed that it has included the transactions relating to KP-19 and particularly the transactions relating to the amount of Rs.25022.73 i.e. after applying five '00000' it will be 250 cr. In the present case, the AO has made no enquiries in respect to seized material KP-19 even though assessee confessed u/s. 132(4) of the Act, during the course of search and seizure operation, that seized documents KP-19 contain undisclosed 18 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 loan transactions but this is index of PT-6. The assessee's reliance on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) rather favours the case of revenue, wherein it is held that the CIT noted that the ITO passed the order of nil assessment without application of mind. Further, Hon'ble High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It was found that the resolution passed by the Board of the assessee- company was not placed before the ITO and therefore, there was no material to support the claim of the assessee that the said amount represented compensation for loss of agricultural income. The ITO accepted the entry in the statement of the account filed by the assessee in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. Therefore, Hon'ble Supreme Court was of the opinion that Hon'ble High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263 of the Act was justified.
19. Further, reliance placed by assessee on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. (2007) 295 ITR 282 (SC) wherein facts considered are that as on March 5, 1997, at the time when there were prevalent two views of the word profit in section 80HHC of the Act, the CIT purported to exercise his power u/s. 263 of the Act to revise the assessment order on the ground that order passed by AO was prejudicial to the revenue. Hon'ble Supreme Court held that sec.80HHC of the Act was amended 11 times and different views existed when CIT passed revision order and the mechanism of Sec. 80HHC of the Act had become so complicated over the years, the subsequent amendment to sec. 80HHC of the Act, even though retrospective would not be attracted. Hon'ble Supreme Court held that the law as it stood when CIT passed the revision order on 05.03.1997, had to be taken into account and CIT had no jurisdiction to interfere in exercise of his powers of revision u/s. 263 of the Act. But in the present case before us, the facts are entirely different that a particular entry amounting to Rs.250 cr. was not considered prima facie by the AO and once a particular entry from seized document is not considered or even looked into, the block assessment order is erroneous and also prejudicial to the interest of revenue prima facie. We are of the view that CIT u/s. 263 of the Act does have the power to set aside the assessment and send the matter for fresh assessment if he is satisfied that further enquiry is necessary and that the order of AO is prejudicial to the interest of revenue. As in the present case, AO has not made any enquiry, which was warranted on the basis of seized material KP-19 clubbed with statement of assessee and KP-19 contains his undisclosed cash/loan transactions particularly page 68 of KP-19 the entry relating to the amount of 25022.73 in the name of Pawan Babu, which admittedly is 19 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 missing five '00000'. Even from the block assessment order nothing is coming out that KP-19 was considered by AO and even from the audited accounts filed by assessee there is no reference of KP-19. Hence, we are of the view that non-consideration of page 68 of KP-19 and particularly the aforesaid entry in the name of Pawan Babu makes the block assessment order erroneous and also prejudicial to the interest of revenue.
20. Another aspect argued by assessee's counsel regarding merger of block assessment order in the order of CIT(A), after going through the facts of the case, we are of the view that page 68 of KP-19 i.e. the entry relating to the amount of 25022.73 in the name of Pawan Babu BF as on 01.04.1999 was never the subject matter before CIT(A), even though the claim of assessee that KP-19 is considered in PT-6 and block assessment order is based on the transactions recorded in PT-6. We are of the view that this particular entry in the name of Pawan Babu in page 68 of KP-19 for an amount of Rs.25022.73 was not included and even admitted by assessee. Once a particular issue is not subject matter of appeal, w.e.f. 01.06.1988, as a result of insertion of clause (c) of the newly substituted explanation in section 263(1) by the Finance Act, 1988 and subsequently amended by Finance Act, 1989 are to extend and to deem always to have extended to such matters as has not been considered and decided in such appeal. With effect from 1st June, 1988, as a result clause (c) of the newly substituted Explanation to section 263(1) by the Finance Act, 1988, and subsequently amended by the Finance Act, 1989, where any order passed by the Assessing Officer, which may be amenable to the revisional jurisdiction under section 263(1) had been the subject matter of any appeal filed on or before or after 1.9.1988, the powers of the Commissioner under section 263(1) are to extend and to deem always to have extended to such matters as had not been considered and decided in such appeal. The aforestated clause (c) has, thus, given a statutory recognition to the view discussed above. Thus, matters not considered by the first appellate authority can be amenable to the revisional jurisdiction under section 263 of the Act. In the present case before us also the subject matter i.e. the seized document KP-19 page 68 entry relating to Pawan Babu amounting to Rs.25022.73 was never considered by the AO or even by CIT(A), Tribunal and Hon'ble High Court. In that eventuality, the subject matter was never considered by appellate authority in the present case. Basically, unless the appellate authority has applied its mind to the original order and any issue arising in appeal while passing the appellate order, the doctrine of merger will not apply. Hon'ble Supreme Court in the case of CIT Vs. Shree Arbuda Mills Ltd. (1998) 231 ITR 50 (SC) held that the consequence of clause (c) introduced with retrospective effect is that the power u/s. 263 of the Act of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and 20 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 decided in an appeal. Thus, an order of assessment passed by AO cannot be said to have merged with that of the appellate authority in respect of items which were not the subject matter of first appeal so as to exclude the jurisdiction of CIT u/s. 263 of the Act. In view of the above factual and legal matrix of the case, we uphold the revision order of CIT on jurisdiction. This issue of assessee's appeal is dismissed.
21. Coming to the issue on merits in IT(SS) 15/Kol/2008. For this, assessee has raised following grounds:
"1. For that the order of the Ld. C.I.T.(A) is arbitrary , illegal, excessive and bad in law.
2. For that the Ld. C.I.T(A) erred in confirming the addition of Rs.2,54,32,93,100/- which was made by the AO without even given the basis of computation of the said amount of Rs.2,54,32,93,100/-.
3. For that the Ld. CIT(A) erred in holding the view that the seized diary KP-19 contained the undisclosed cash loans when the said diary was an Index of the entries contained in KP-6, PT-6 and Trial Balance --J and contained all most all the contra entries except an entry of the sum of Rs. 25,033/- and the entries in those books were duly accepted as explained.
4. For that the Ld. C.I.T(A) erred in holding the views that the said KP-19 contained loan transactions for which the assessee could not produce any evidence when it was duly accepted of the Ld. Addl. Commissioner in the proceedings u/s. 271D and 271E that the amounts mentioned in the said diary were assessee's rotated in different names pick of which was less than Rs. 1.08 Crores and the same was duly covered by the assessee's own capital.
5. For that the Ld. C.LT(A) erred in confirming the sum of Rs. 25,033/- as Rs. 2,50,33,00,000/- when there was not a scintilla of evidence to support the above conclusion and further the amount was also shown as b/f and there was no evidence that any amount was taken or given during the block period.
6. For that on the facts and circumstances of the case the addition of Rs.2,54,32,93,100/- was not justified and may be deleted."
The only issue emerges from the above grounds is whether the CIT(A) erred in confirming the addition of Rs.2,54,32,93,100/- made by AO without any basis or evidence.
22. The AO framed block assessment u/s. 158BC/158BD of the Act dated 29.03.2006 in consequence to revision order passed by CIT, Central-III, Kolkata dated 29.11.2004. Here, in the present case now, we are concerned with only one entry appearing in page 68 of seized diary KP-19 under the name Pawan Babu shown as BF 01.04.1999. The AO required the assessee to explain the following:
"Explain the issue and also the entry appearing in page 68 of seized diary KP-19 under the head "Pawan Babu.
21 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 Explain how and for what purpose transactions were entered into."
The assessee explained vide letter dated 10.03.2006 and the relevant portion of the letter reads as under:
"Further there is a single entry at page 38 being B/F entry as on 01.04.99 in the name of Pawan Baboo the value of which have been taken at more than 250 crores. Firstly, this entry was specifically examined as mentioned in the show cause notice of the AO. Further this amount cannot be treated as 250 crores which is shown as BF. In fact wherever small figures are shown there is transaction in the same name in full figures in PT-6 or KP-6 or trial balance Raj & Raj but there is not corresponding transaction of this Pawan babu 25033/- in any book. This therefore can be taken as total sum of Rs.25033/- only and not 250.33 crores. Further the amount is shown as BF there is no trace when the amount is taken or given it is not mentioned that the amount has been taken or given. No adverse inference therefore loan be drawn that the amount was received during the year or paid during the year and even for arguments sake no addition can be made of this amount which does not show the date of transaction. Even practically no human being can presume that I could have paid or received a sum of Rs.250 crores or above."
The AO was not convinced with the reply for the reason that the entire scenario of cash loan taken as per seized diary KP-19 reflects that this diary is in ledger form and transactions are party wise and date wise. According to him, pages 1 to 4 of KP-19 are actually index of parties and other pages are respective party account. The AO explained a uniform pattern followed in writing the figures as under:
"For example, an amount of Rs.5,00,000/- is written as "5.00 (Page 30) and an amount of Rs.2,00,000/- is written as "2.00" (page 24). Similarly, Rs.20,000/- is written as "0.20"
(page 9) and so on. During post search investigation assessee admitted while deposed u/s. 132(4) that :
"This also contains details of undisclosed cash transaction. I use KP-19 as a Ready Reckoner and need index to know the position of a particular account."
The assessee contended that PT-6, which is a Trial Balance, Ledger Account, Cash Book and Balance Sheet and whatever transactions were recorded in respect of loans are also recorded in KP-19 being index. According to assessee, all loan transactions of PT-6 and KP-19 tallied except the entry of Pawan Babu at page 68 of KP-19. But the AO has not accepted the plea of the assessee and made addition of this entry by applying five '00000' to the figure of 25022.73 and made addition of undisclosed income for the assessment year 2000-01 falling in the block period 01.04.1992 to 10.08.2000. Aggrieved, assessee preferred appeal before CIT(A).
23. CIT(A) confirmed the consequential Block Assessment Order passed by AO by giving following findings:
"6.1. The submissions on behalf of the appellant and by the assessing officer are carefully considered. That the dispute for adjudication in this matter is neither frivolous nor, without any foundation in the seized material should be apparent from the seriousness with which Hon'ble Tribunal examined the question of whether action u/s 263 22 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 by CIT for the purpose of examination this issue again in the second assessment order, was justified or not. It is also not disputed that the seized document KP-19 was not examined in the first assessment order. The dispute arising from the second assessment order is about the interpretation of once specific entry in the seized diary KP-19. On page No. 68 "The following entries made:
"Pawan Babu 25,022.73 B.F - 1-4-99"
The diary itself contains an index of the accounts in the names of fictitious proprietary concern in which the appellant put his finance. The name of Pawan Babu is entered in the index part of the diary indicating that the account is on page No. 64. However, the entry is found on page No. 68. On more careful perusal of the diary, it is found that the page Nos. assigned by the search party are not identical with the page Nos. given by the appellant who maintained this diary. The undisputed fact is that the diary is maintained by the appellant himself to keep track of his finance flowing through several fictitious proprietary concerns. The appellant himself entered the page Nos. on left side of the top end of the diary and the search party gave its own page Nos. on the right side of the end of the diary. The numbers assigned by the search party is encircled whereas the number given by the appellant is not so marked. Now the name of Pawan Babu on page No. 64 in the index of the diary is correlated with page No. 64 marked by the appellant in the index part of the diary. This page No. 64 given by the appellant is page No. 68 according to the numbers given by the search party. What is emphasized herein is that the entry in the name of Pawan Babu is not a stray entry. There is a correspondence between the entry in the name of Pawan Babu in the index part of KP/19 with the page No. indicated in the index as 64. If the appellant has carefully co-related all the entries in the index to the diary with the relevant pages thereof with the further admission about suppression of 5 digits and also of the fact that the entry indicates undisclosed cash circulating in his business, the appellant cannot take the position that the entry in the name of Pawan babu in the index part of the diary indicating page No. 64 with corresponding entry for the amount of Rs. 25,022.73 on page No. 64 of the diary (page 68 assigned by the search party) is a stray and careless entry without any meaning.
6.2 If the index entry and the amount mentioned on page No. 64 (page 68 assigned by the search party) are as genuine reference to the undisclosed cash of the appellant as the amounts mentioned in any other entry in KP-19, then the appellant cannot argue that 5 digits were suppressed while making all other entries except the entry in the name of Pawan Babu on page No. 64 (Page No. 68 assigned by the search party). The entry is similar in nature as any other entry, in the seized diary. It is given similar treatment both in the index to the diary and on the relevant page in the diary. There is a strong presumption that it should be treated in the similar manner as all the other entries in KP-
19. This presumption can be rebutted by proper argument and evidence. However, no attempt at rebuttal is made in the course of appeal proceedings. On the other hand it is argued that the entry is a meaningless entry and that the appellant does not know anybody with the name of Pawan Babu.
6.3 In fact all the proprietary concern entered in the diary are fictitious proprietary concern for channeling the undisclosed cash of the appellant. The name of Pawan Babu is no exception. If the entry in his name is Rs 25,022.73, the suppression of 5 digits must be presumed for this entry as well. When the name in the index is corroborated by the entry on the page number indicated in the index to KP-16, the entry cannot be some stray figure.
6.4 The suppression of 5 digits is a presumption consistent with manner in which the appellant agreed to interpret all the entries in the diary KP-19. That such suppression must be presumed in the entry for Pawan Babu is supported by the entry itself. Without suppression of 5 digits the entry should mean Rs. 25,022 and 73 paisa., Now it would be completely incomprehensible to have an entry for the odd amount of 73 paisa. It can make 23 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 sense only if it is treated as a coded expression for a higher amount. Since the suppression of 5 digits is consistently applicable on admission by the appellant as well, the reference to 73 paisa becomes perfectly intelligible if it is Rs.73,000/-. Therefore, the inference of the assessing officer is perfectly logical that the entry in the name of Pawan Babu recorded in the index at page No. 64 and made on page No. 64 of the diary (page No.68 assigned by the search party) as Rs. 25,022.73/- is, as a matter of fact Rs. 250,22,73,000/- by application of the code of suppression of 5 digits.
7.1 In this context several legal issues have to be referred to. The first point is whether the seized diary can be treated as a book of account for the purpose of section 68. This should not be disputed since the appellant never objected to the treatment of the diary as a record of his undisclosed business and amounts invested in it as far as all the other entries in the diary are concerned. The same document cannot cease to be a book of account for the purpose of section 68 in the context of one entry if it amounts to a book of account for all other entries.
7.2 The entry is not on a loose sheet of paper but a diary containing systematic entries with an index for such entries. Such document has to be treated as a rough book of entries. In the case of Hazi Nazir Hussain vs Income Tax officer (271 ITR -- A.T. -- 14) the question was whether a note book found in the course of survey operation and containing certain cash transaction should be treated as books of account for the purpose of section
68. It was held by the 3rd member that "whenever any money is received by the assessee and is entered in the cash book, it can be said that the same is credited in the books of the assessee even though corresponding credit entry in the ledger a/c may be made subsequently. If the contention of the assessee is accepted then it would amount to circumventing the provision of section 68 which would further amount to allow the dishonest assessee to bring the accounted money in the books without paying any tax. Such construction of the provisions, in my considered opinion is not permitted. In the present case there is no dispute that the note book/rough cash book relates to the business of the assessee. There is also no dispute that the cash receipts are recorded in this books on various dates. Hence the provisions of section 68 would squarely apply to the entries in this book." In my opinion these observations of the Hon'ble ITAT are fully and squarely to the facts of this case.
7.3 It is true that application of section 68 is not mandatory in respect of every unexplained entry. However, in the fact of this case when all the other entries in the diary are admitted to be in respect undisclosed cash transaction, making an exception for one specific entry would have to be justified by proper argument. No such arguments are advanced except that the entry should be ignored as a stray entry thoughtlessly made. This is not an acceptable argument for making an exception of one entry for the purpose of application of section 68.
7.4 It is obvious from the above that there is a coded expression in a rough cash book maintaining meticulous record of the rotation of undisclosed fund, admitted to be so by the appellant both in his statement u/s 132(4) as well as subsequent written submission. The code consistently applied is suppression of 5 digits. There is no reason why the same code should not be applied to the entry of Rs. 25,022.73 in the name of Pawan Babu. In fact the expression would make sense only as a coded expression without which .73 as 73 paisa would be completely inexplicable. The only problem is that the total amount is a staggering figure of 250,22,73,000/-. The question is : is it proper not to treat the expression as a coded expression on the sole ground of the argument that the expression would be a huge amount? In my opinion section 68 is not only a rule of evidence but a deeming provision. If it is held that section 68 is applicable, then the unexplained entry of credit must be treated as income of the assessee and charged to income tax. In the facts of this case the assessee offered no explanation. In the context of the total background of the admission by the appellant, it appears that KP-19 contains entries of the undisclosed cash circulated by the appellant through several fictitious proprietary concern. There is 24 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 no reason why the entry in the name of Pawan Babu should not be treated in the same way as any other entry in KP-19. It remains unexplained. In that case it has to be charged to income tax as income of the assessee. There is no further requirement in the law to find out the actual existence of the money credited in the books of account of the appellant. It is enough that no explanation is offered about the nature and the source of the credit entry to the satisfaction of the Assessing Officer and that the Assessing Officer has reasonable grounds to treat the credited amount as the income of the assessee.
7.5 There is a further question of the expression 'brought forward' in the entry. In my opinion brought forward credit entry is also a credit entry unless the appellant comes forward that an explanation as to the earlier accounting record from which it is brought forward. Considering all the aspects of the matter both of legal and factual nature ground Nos. 4 & 5 are dismissed."
Aggrieved, assessee is in appeal before us.
24. We have heard rival submissions and gone through facts and circumstances of the case. We have considered the consequential block assessment order and the order of CIT(A). We have also gone through the block assessment records. The dispute arises now before us is about the interpretation of once specific entry found in the seized diary KP-19 at page 64 (page no. 68 is given by search party), which is as under:
"Pawan Babu 25,022.73 B.F - 1-4-99"
The Ld. Counsel for the assessee argued that all the entries of KP-19 was duly covered in the peak statement and also incorporated in PT-6 (which is Trial Balance, Ledger Accounts & Cash Book of seized documents and it is a computer printout). But the entry in the name of Pawan Babu for an amount of 25022.73 B/F 01.04.99 is not incorporated in PT-6 for the reason that this entry in the name of Pawan Babu is not supported by any other entry in the entire seized documents even though all other entries were supported and found recorded in PT-6. Ld. Counsel stated that this entry has no supporting evidence or any leg to stand upon. He stated that for making assessment of any entry there has to be some evidence, even circumstantial, to support a cash entry of over Rs.250 cr. Ld. Counsel for the assessee argued that one has to see the status of the assessee and whether he can borrow or lend such an amount like Rs.250 cr. According to him, such impossibility cannot be assumed simply by making presumption on the basis of a stray entry in the seized paper. He stated that the assessee himself has computed peak investments on the basis of seized documents KP-1 to KP-23 and PT-1 to PT-7, which works out to Rs.1,08,40,877/- and this was less than the amount received at Rs.1.91 cr. by way of family partition as in 1991. It was further argued that there is no basis to treat this credit or debit entry in this block period as this is a B/F entry, as per narration noted, not linked to any assessment year or financial year then how a presumption can be made that cash credit 25 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 appeared in the block period unless it is supported by any other material. Ld. Counsel stated that if this entry in KP-19 is not corroborated by entries in other seized material such entry does not have any relation with the assessee's business and according to him it is some stray figure in the loan taken or given but five '00000' cannot be added to this stray figure. He also stated that, leaving aside this entry, all other entries are corroborated in the ledger wherein all the entries in KP-19 are ledgerized in PT-6. However, Ld. Counsel for the assessee has not made any argument in respect to legal argument as regards to this seized diary KP-19 that it cannot be treated as books of account.
25. Ld. Counsel for the assessee further argued that the order sheet entries of assessment file clearly reveals that there was communication between AO and CIT-III, which is available in assessee's paper book at the back side of page 101 and he referred to order sheet entry dated 19.12.2005, whereby additional CIT has written a letter to CIT-III through proper channel. On this, Ld. CIT, DR was asked to produce assessment records and he produced the communication of the AO to CIT dated 19.12.2005 but made his argument vide written submissions as under:
" The A/R argued that from back side of Page 101 i.e. the order sheet of the AO it appears that a communication was made to the Ld. CIT-III by the AO through proper channel and the said communication of the Ld. AO and the Addl.CIT may be brought on record since the very next line of the said order sheet says that the issue was discussed with the Addl.CIT and CIT-III with reference to seized material KP-19 and claimed that whether the AO has taken independent decision or was influence by the decisions of the Higher Authorities while making the addition is very crucial for the jurisdiction of the AO to make the addition and the AO has to take his own decision and Higher Authorities cannot ask or influence to make the addition since it makes the whole assessment invalid.
In this regard as directed by the Hon'ble Bench the letter written by AO vide his letter No.CC-XX/AADFK2056P/05-06/593 dated 20/12/2005 to CIT-III was shown to Hon'ble Bench and copy of the same was supplied to the Bench. However, no copy thereof was given to the A/R as the same was internal correspondence of the Department hence I refused to give the copy to the A/R. In this regard, I argued that the AO's letter was never replied by the CIT-III or the Addl. CIT and to support my this argument I produced the entire assessment record for kind perusal of the Hon'ble Bench and made it clear from assessment record itself that the CIT-III or the Addl. CIT has not given any kind of direction to the AO in response to AO's above referred letter dated 20/12/2005. Further, there is nothing in assessment record to suggest that any kind of directions have been issued by the CIT or the Addl. CIT to the AO for making the addition in respect of undisclosed cash transactions relates to seized Annexure KP-19. The AO's order sheet entry dated 19/01/2006 also does not reveal of any specific directions from CIT or the Addl. CIT in respect of making any addition in respect of KP-19 or not. Hence, it cannot be inferred from the order sheet noting dated 19/01/2006 and AO's letter dated 20/12/2005 that any specific direction has been given by CIT or the Addl. CIT to AO in respect of KP-19. Hence plea of the A/R is on presumption, surmises, conjecture and without any base and therefore that cannot be presumed or inferred that the assessment order was passed as dictated by the CIT or the Addl. CIT. In the light of above discussion the assessment order cannot be treated as an invalid assessment as inferred from the order sheet and the letter referred above."
26 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02
26. The Ld. Counsel for the assessee argued that the AO never wanted to make addition in view of communication of AO dated 19.12.2005 but it is clear from the order sheet entry dated 19.01.2006 that the issue was discussed with Addl. CIT and CIT, Central-III and he was directed to frame assessment in reference to seized material KP-19 and according to him, this addition was made on persuasion of the CIT and Addl. CIT.
27. Ld. CIT, DR stated that entry relating to Pawan Babu in KP-19 is not an isolated entry rather there are numerous and voluminous entries pertaining to Pawan Babu were found in KP- 19 and the same were translated in PT-6 also. He referred to many of the entries in the name of Pawan Babu during the course of hearing and demonstrated before Bench that this is not the isolated entry in the name of Pawan Babu. He argued that the argument of assessee's counsel is not correct that this entry has no supporting evidence or any leg to stand because there are numerous entries relating to Pawan Babu were found in KP-19 and PT-6 but Ld. CIT, DR admitted, on query from the bench, that this entry in the name of Pawan Babu is not recorded in PT-6 correspondingly. As regards to suppression of five '00000' Ld. CIT, DR argued that the transactions recorded in seized diary KP-19 are mentioned in PT-6 and have been taken by adding five '00000' to the figures mentioned in the said diary. But he admitted that leaving aside this entry all other entries are corroborated in the ledger PT-6 where all the entries of KP- 19 are ledgerised. Ld. CIT, DR referred to entries recorded in KP-19 and PT-6. He also relied on the judgments of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC) & CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC), wherein Hon'ble Apex Court held that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality of recitals. Though an apparent must be considered real until it was shown that there was reason to believe that the apparent was not the real, in a case where party relied on self serving recitals in documents, it was for that party to establish the truth of those recitals.
28. First of all, we have gone through the order sheet entry referred by Ld. Counsel of 19.12.2005, as recorded in the assessment file by the AO, which reads as under:
"19.12.2005 : Issued letter to the CIT, C-III, Kol, through proper channel"
The relevant letter reads as under:
"Office of the Assistant Commissioner of Income Tax, Central Circle-XX, Kolkata. "Poddar Court 5 Floor, 18 Rabindra Sarani, Kolkata-700 001, Ph-('033) 22343534 No. CC-.XX/AADFK2O56P/05-06/ 593 Dated 19.12.2005.
To The Commissioner of Income Tax, Central-III, 27 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 Kolkata.
[THORUGH PROPER CHANNEL] Sir, Sub.: Assessment for the Block Assessment years 1991-92 to 2001-02 in pursuance to the order u/ s 263 dated 29.11.2004 and further order dated 23.03.05 in the case of Shri Kailash Prasad Jam PAN:AFLPK4136K- Matter regarding Kindly refer to the above.
A search and seizure action was conducted in the office as well as residential premises of the assessee on 10.08.2000. Subsequently, block assessment was completed on 29.11.2002 u/s 158BC r.w.s. 144 of the Act .
Order U/s 263 was passed on 29.11.2004 wherein it was held that transactions being in the nature of cash taken and given by the assessee outside the books of accounts recorded in the seized diary marked KP-19 totaling an amount of Rs. 254,32,93,100/- has not been considered in the block assessment and therefore, the order was erroneous. A supplementary order in continuation of the above order was subsequently passed on 23.03. 2005 and deposit of Rs.598648/- in assessees S.B.A/c with Vaisya Bank has been ordered therein for consideration.
I have gone through the above orders and I have also examined the seized material marked KP- 19. It is a small diary having few pages. In each page there are certain entries under certain individual account. Entries have been made in two column appears to be debit and credit sides. Prima facie, each page looks like a ledger of a particular person having both debits and credits. But, most importantly, it is noticed that the figures are of very small amount and totality of such debits and credits is far away from the above figure of Rs. 2543293100/-, not even a crore. Now, the question arises as to bow the above figure of Rs.2543293100/ - has been arrived at. The basis of such figure has not been clarified in the order itself. A detail working in this regard is available in the assessment record but lacking of the basis of such working.
However, I would like to draw your kind attention to the second para of page 4 of the order wherein it has been mentioned that; -
"The statement recorded u/s. 131 and u/s. 132(4) of the I.T. Act of Shri K. P. Jain during the course of search proceedings reveal that the assessee had admitted that the said register contained details of undisclosed cash transactions."
I have also gone through the statements recorded during the search and post search operations. As a matter of fact, Statements of Shri K. P. Jain were recorded u/s 132(4) twice on 19.10.2000 and 01.11.2000 and further u/s 131 on 23.02.2001. On all the occasions, not a single question was asked in respect of seized diary KP- 19 except on 19.10.2000 when a question (Q.No. 12) was put before the assessee as under:
Q.No. 12 Please examine seized loose bunch bearing mark of identification KP- -19 & comment on the nature of transactions mentioned therein.
12A. This also contains details of undisclosed cash transactions. I use KP-19 as a ready reckoner and index to know the position of a particular account.
(Remark - It is a small diary as per Panchanama and not loose bunch as stated above) 28 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 The above admission of the assessee although clearly proves the undisclosed nature of the transactions but the quantum of such transactions appears to have never been analyzed.
Thus, the figure of Rs.2,54,32,93,100/- is not at all ascertainable from the above statement. -
In view of above, 1 find it very difficult to ascertain the above figure of Rs. 2,54,32,93,100/- from the seized material. KP-19 and the tax implication of such amount. It is observed in the reversionary order that the above figure is a total of cash taken and given by the assessee, Cash so received may be brought to tax u/s.68 of the Income Tax Act but in that case, only the peak credit is required to be considered for the purpose of this section which is also too difficult to ascertain as each page of the diary stated to be the Ledger of a particular person. However, I am of the opinion that under no circumstances, the cash so given can be considered for the purpose of determining undisclosed income.
Under the facts and circumstances laid down above, I request that the reversionary order vis-a--vis seized material marked KP-19 may kindly be examined once again and invite your honor's directions which may enable me to examine the issue in its real perspective and to complete the assessment correctly."
Further, the AO discussed the issue with Addl. CIT, R-V(c) Kol and CIT, C-III, Kol and for this the following order sheet entry was recorded on 19.01.2006 (which is enclosed in assessee's paper book at the back of page 101), which reads as under:
"19.01.2006: Issues have been discussed with Add. CIT, R-V(C)Kol and CIT, Central-III, Kol in ref. to seized material KP-19.
Issued notice u/s. 131 and letter as directed."
29. We find from the above correspondence between the AO and CIT, C-III that the issue regarding KP-19 was discussed and it seems that the AO before discussion was of the view that it is very difficult to ascertain this figure of Rs.2,54,32,93,100/- from the seized material KP-19 and tax implication of such amount. The AO was of the view that only peak credit is required to be considered but the same is too difficult to ascertain as each page of the diary KP-19 stated to be the ledger of a particular person and in view of this he was of the opinion that under no circumstances the cash so given can be considered for the purpose of determining undisclosed income of the assessee. It means that the Addl. CIT and CIT, C-III might have impressed upon the AO to make this addition because there is order sheet entry dated 19.01.2006 which speaks of directions. But, it is not clear from the order sheet entry or it will not be sufficient to deal with the issue, whether CIT or Addl. CIT interfered in framing assessment or not. We are of the view that the AO is within the limits assigned to him under the Act a Tribunal of exclusive jurisdiction for the purpose of assessment of income tax. He has under the Act to decide whether a particular receipt is income, and is not predicated that he must makes some person or body other than the assessee who may be concerned with the assessment as a party to 29 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 the proceedings before he decides the question. Hence, we are of the view that this cannot be considered as interference by CIT or Addl. CIT in framing of assessment.
30. We find that the CIT(A) has dealt with the issue of suppression of five '00000' and noted in his appellate order that there is a consistent presumption with the manner in which assessee agreed to interpret all the entries in seized diary KP-19. Hence, he presumed that the entry in the name of Pawan Babu is with suppression of five '00000' and for this, he reasoned that without suppression of five '00000' the entry should mean Rs.25,022.73. According to him, it makes no sense for anybody to enter this 73 paise and it makes sense only if it is treated as a coded expression for a higher amount. Accordingly, he drew presumption that there is suppression of five '00000' which is consistently applicable on admission by assessee to this figure also. According to CIT(A), the seized diary KP-19 contained systematic entry with index for such entries. He finally held that there is a coded expression in seized diary KP-19 maintained meticulously for rotation of undisclosed funds and admitted by assessee in his statement u/s 132(4) of the Act and subsequent written submissions also. But now the question arises before us, whether this entry in the seized diary KP-19 at page 64 (page 68 referred by search party) giving narration 'Pawan Babu 25,022.73 B/F 1.4.99' is correspondingly recorded or not. Admittedly, this is not recorded in PT-6 which is a seized document and contains Trial Balance, Ledger Account and Cash Book, which is the basis of block assessment and computation of peak credit of Rs.1,08,48,877/-. Even this entry is not appearing in any of the seized material except KP-19 and assessee is maintaining these seized documents on double entry system of accounting. It is also a fact that KP-19 is only index of PT-6 wherein transactions of PT-6 were recorded in summary manner as admitted by assessee and even by revenue i.e. for a loan of Rs.5 lacs only the figure '5' was mentioned. And this is because KP- 19 was a pocket diary handy for getting knowledge of investments. In such circumstances, can this entry of Rs.25022.73 can be staggered to a figure of Rs.250,22,73,000/-. For this, now we have to examine the asset base of the assessee. For this, assessee has filed Balance Sheet for the year ending 31st March, 2010 where the capital account shows the capital at Rs.1,89,07,987/- and the total worth as per this Balance Sheet including assets and liabilities is at Rs.2,39,10,355/-. The assessee also referred to the net worth considered during first search conducted on the assessee u/s. 132 of the Act on 26.07.1994, whereby Tribunal has dealt with the issue in ITA No.209/K/2003 for the AY 1991-92 vide order dated 19.12.2003 and found that on partition of family business assessee received consideration of Rs.1,18,70,550/- (this figure is given at page 8 of Tribunal's order). Even during search from the premises of the assessee silver articles worth Rs.1,42,200/-, jewellery worth Rs.23,24,912/- and cash of 30 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 Rs.95,000/- was found. Further, jewellery worth Rs.6,54,037/- was found from the joint locker of PNB, Clive Row Branch, Jamshedpur, maintained with his brother Shri P. L. Jain, but not seized. In effect, assessee's total worth is not more than Rs. 2.15 cr. as on the date of search i.e. 10.08.2000.
31. In view of the above fact that the assessee's worth is not more than Rs.2.15 cr., which is not contested by revenue at the time of hearing before us, we presume the same as correct on the basis of evidences filed by assessee. It is also a fact that the loan transactions and investments recorded in PT-6 are summarily recorded in KP-19 and all entries are cross verified from PT-6 to KP-19, which were found recorded in PT-6 and taken in KP-19 as only index. The only exception is as regards to entry in the name of Pawan Babu for the amount of Rs.25022.73 as recorded in KP-19 was not correspondingly recorded in PT-6. PT-6 contains Trial Balance, Ledger Account and Cash Book which includes the entries in the name of Pawan Babu also but not this entry. If this entry is further added by five '00000' after taking a presumption it will make the income of the assessee at Rs.250,22,73,000/- (more than Rs.250 cr.) as undisclosed income and assessee's total worth is not more than Rs.2.15 cr. In our view, once this entry is not incorporated in PT-6, which is a basic document for framing assessment and considering all the seized material including the peak credits of Rs.1,08,40,877/-, will give absurd results and that cannot be made basis for assessment. Even though the entry is in the name of Pawan Babu but same is not supported by any other seized material and this entry has no supporting evidence or correlation with the undisclosed income of the assessee for the block period. For making such huge assessment even circumstantial and surrounding factors are to be considered and for that one has to see the status of the assessee including his total wealth. Such an impossibility cannot be assumed simply by making presumption on the basis of a stray entry in the seized paper. Even the AO in his letter to CIT dated 19.12.2005 found difficulty by observing as under:
"In view of above, 1 find it very difficult to ascertain the above figure of Rs. 2,54,32,93,100/- from the seized material KP-19 and the tax implication of such amount. It is observed in the reversionary order that the above figure is a total of cash taken and given by the assessee, Cash so received may be brought to tax u/s.68 of the Income Tax Act but in that case, only the peak credit is required to be considered for the purpose of this section which is also too difficult to ascertain as each page of the diary stated to be the Ledger of a particular person. However, I am of the opinion that under no circumstances, the cash so given can be considered for the purpose of determining undisclosed income"
32. The case law of Hon'ble Delhi High Court in the case of CIT Vs. Anil Bhalla (2010) 322 ITR 191 (Del) has confirmed the conclusion arrived by Tribunal that addition cannot be sustained in the absence of any corroborative evidences in the cases of block assessment 31 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02 completed in lieu of search and seizure conducted on the assessee. Hon'ble High Court held as under:
"The third dispute in the present appeal is with regard to the addition of Rs. 35 lakhs made by the Assessing Officer as unexplained expenditure of the assessee under section 69C of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) in this behalf observed that no independent material or evidence had been brought on record by the Assessing Officer to establish that the notings/jottings recorded on the loose sheet of paper represented an unaccounted transaction. The Commissioner of Income-tax (Appeals) accepted the explanation of the assessee that the sum of Rs. 35 lakhs represented requirement of funds for different purposes and did not represent any receipt or outgoing for any such purpose. The Commissioner of Income-tax (Appeals) considered the material on record at length and came to the following conclusion:
"4.2 I have considered in detail the material on record. From the notings on page 47 of annexure A-2, it cannot be said that any actual expenditure is represented by such notings which is not recorded in the books of account. To support the addition on account of unexplained expenditure on the basis of jottings on a loose sheet of paper, it is necessary to establish that the notings represent unaccounted transaction, with the help of independent corroborative evidence. In this case apart from the notings, on the said paper, no other independent material or evidence has been brought on record. Moreover, the explanation submitted by the appellant is supported by relevant entries in the books of account of VTPL. Accordingly, the allegation of unexplained expenditure outside the books of account has not been established in the assessment order. The addition of Rs. 35 lakhs is, therefore, deleted."
The Tribunal upheld the deletion made by the Commissioner of Income-tax (Appeals) in this behalf by holding that the entries in question belonged to M/s. Vatika Township Private Limited (VTPL) inasmuch as the assessee could explain from the books of VTPL that these projects were undertaken by it. The Tribunal further held that the loose sheet does not represent any expenditure incurred by the assessee and dismissed this ground of the Revenue by holding as follows:
"27. A propos ground No. 2, we find that the inscription contained various names like farms house, resort, Mussoorie project, office, etc. There is neither any description of any expenditure in respect of any particular head or item, the figures are round figures and do not bear description of lakhs or thousands. The Commissioner of Income-tax (Appeals) has considered the explanation of the assessee against each and every entry. We have already indicated that each and every paper found may not represent undisclosed income or expenditure. The entries in question belonged to VTPL inasmuch as the assessee could explain from the books of VTPL that these projects were undertaken by it. In view thereof, we uphold the findings of the Commissioner of Income-tax (Appeals) holding that the loose sheet does not represent any expenditure incurred by the assessee. This ground of the Revenue is dismissed."
The findings arrived at by the Tribunal are pure findings of fact and do not warrant any interference by this court. Consequently, the appeal filed by the Revenue does not raise any substantial question of law."
32 IT(SS)A 15/K/2008 Kailash Prasad Jain B.P. 1990-91 to 2001-02
33. We are of the view that this entry made by assessee and especially when they go against the averment of assessee, are an extremely important piece of evidence but it cannot be said that these are conclusive. The assessee before us has demonstrated that KP-19 is only index for the loan/investments entries recorded in PT-6. All entries of PT-6 are incorporated in summary manner in KP-19 and all entries were cross verified by the AO from PT-6 to KP-19 and found recorded all in PT-6 and then taken to KP-19, which is only an index. In such situation and above discussions on merits, we are of the view that this is a stray entry not corroborated by any evidence because it is not correspondingly recorded in any other seized material. Hence, we reverse the findings of CIT(A) and the AO and this issue on merits is allowed in favour of the assessee.
34. In respect to the issue of jurisdiction assumed by CIT u/s. 263 of the Act, we uphold the order of CIT on jurisdiction but on merits, we delete the addition and reverse the findings of CIT(A) and AO and this issue is decided in favour of assessee.
35. In the result, appeal of assessee is partly allowed.
36. Order pronounced in open court on 13.03.2012.
Sd/- Sd/-
एस. भी. मेहरोऽा लेखा सदःय वीर िसंह, Ûयायीक सदःय
महावी
महावीर
(S. V. Mehrotra) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated : 13th March, 2012
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - Shri Kailash Prasad Jain, 46A, Rafi Ahmed Kidwai Road, Kolkata-700 016 2 ू×यथȸ/ Respondent, ACIT, CC-XX, Kol
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/CIT, Kolkata
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, सहायक पंजीकार/Asstt. Registrar.