Income Tax Appellate Tribunal - Madras
Kirtilal Kalidas & Co. vs Deputy Commissioner Of Income Tax on 17 October, 1997
Equivalent citations: [1998]67ITD573(CHENNAI)
ORDER
Abdul Razack, J.M.
1. The appellants mentioned above assail separate orders passed by the AO, namely The Dy. CIT Special Range-I, Coimbatore, on 31st March, 1997 stated to be under s. 158BD r/w s. 143(3) of the IT Act, 1961.
2. The orders of the AO are impugned on law, being without jurisdiction and in utter disregard and violation of the statutory provisions as well as the rules of natural justice and also on facts, that is to say; objecting to the computation of the undisclosed income (UDI) of the block period mentioned in the respective impugned orders. Our decision in these appeals depend upon the facts which we have ascertained from the appeal records as well as from the assessee's counsel Shri Santhanakrishnan and Sri Swaminathan, Chartered Accountant as well as the Departmental Representative, Shri T. Gorakanathan and Shri Krishna Rao, Assessing Officer. Since these are connected appeals, they are being disposed of through this single order for the sake of convenience.
FACTS
3. In terms of s. 132 of the Act, separate warrants of authorisation under the said provision in statutory Form No. 45 were issued by the Director of Income-tax, Investigation, Madras, on 26th August, 1995 for search of the below given premises :
(a) No. 91, Venkatasamy Road (West), R. S. Puram, Coimbatore;
(b) No. 86, Periasamy Road (West), R. S. Puram, Coimbatore; and
(c) 601, Raja Street, Coimbatore in which the business is carried on by the firm of M/s Kirtilal Kalidas & Co. Warrant of authorisation was also issued by the Dy. Director of Income-tax (Inv.), Coimbatore, dt. 30th August, 1995 to search Vispark Jewellery Manufacturers (P) Ltd., Mettupalayam Road, Coimbatore.
4. In the warrants of authorisation (search warrants) issued by the Director of Income-tax, Madras, it is mentioned that information has been laid before him and on the consideration thereof he had reason to believe that :
"If a summons under sub-s. (1) of s. 37 of the Indian IT Act, 1922, or under sub-s. (1) of s. 131 of the IT Act, 1961, or a notice under sub-s. (4) of s. 22 of the Indian IT Act, 1922, or under sub-s. (1) of s. 142 of the IT Act, 1961 issued to Mr. T. Shantakumar, 91, Venkatasamy Road (West), R. S. Puram, Coimbatore (name of the person) to produce, or cause to be produced, books of account or other documents which will be useful for, or relevant to, proceedings under the Indian IT Act, 1922 or under the IT Act, 1961, he would not produce, or cause to be produced, such books of account or other documents are required by such summons or notice."
On p. 2 of the Search Warrant the Director has stated as under :
"Shri T. Shantakumar is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, or jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed for the purposes of the Indian IT Act, 1922, or the IT Act, 1961; and whereas I have reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing have been kept and are to be found in No. 91, Venkatasamy Road, (W), R. S. Puram, Coimbatore."
He, therefore, authorised S/Shri M. Rathinasamy, Asstt. Director of Income-tax, K. Pradeepkumar, Asstt. Director of Income-tax, V. K. Nair, Asstt. Director of Income-tax, Dayasagar, Asstt. CIT, P. S. Sigamoney, Asstt. CIT, J. Thiagarajan, Asstt. Director of Income-tax, Sibichan Mathew, Asstt. CIT, Murugaboopathy, ITO, to do the following acts :-
"(a) to enter and search and said building/place/vessel/vehicle/aircraft;
(b) to search any person who has got out of, or is about to get into, or is in the building/place/vessel/vehicle/aircraft if you have reason to suspect that such person has secreted about his person any such books of account, other documents, money bullion, jewellery, or other valuable article or thing.
(c) to place identification marks on such books of account and documents as may be found in the course of the search and as you may consider relevant to or useful for the proceedings aforesaid and to make a list thereof together with particulars of the identification marks;
(d) to examine such books of account and document and make, or cause to be made copies or extracts from such books of account and documents.
(e) to seize any such books of account, documents, money, bullion, jewellery or other valuable article or thing found as a result of such search and take possession thereof;
(f) to make a note or an inventory of any such money, bullion, jewellery or other valuable article or things;
(g) to convey such books of account, documents, money, bullion, jewellery or other valuable article or thing to the office of the Dy. CIT or any other authority not below the rank of the ITO employed in the execution of the IT Act, 1961; and
(h) to exercise all other powers and perform all other functions under s. 132 of the IT Act, 1961 and the rules relating thereto."
5. Similarly the Dy. Director of Inspection (Investigation), Coimbatore, Sri V. S. Kothari, in the search warrant dt. 30th August, 1995 issued by him in statutory Form No. 45 has stated that information was laid before him and on the consideration thereof he had reason to believe that :
"if a summons under sub-s. (1) of s. 37 of the Indian IT Act, 1922, or under sub-s. (1) of s. 131 of the IT Act, 1961, or a notice under sub-s. (4) of s. 22 of the Indian IT Act, 1922, or under sub-s. (1) of s. 142 of the IT Act, 1961, is issued to Shri T. Shantakumar (name of the person) to produce, or cause to be produced, books of account or other documents which will be useful for, or relevant to, proceedings under the Indian IT Act, 1922, or under the IT Act, 1961, he would not produce, or cause to be produced, such books of account or other documents as required by such summons or notice."
Again on p. 2 of the said search warrant, it is stated as under :
"And whereas I have reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing have been kept and are to be found in Vispark Jewellery Manufacturers (P) Ltd., Mettupalayam Road.
This is to authorise and require you as given above (name of the Deputy Director of Income-tax or the Dy. CIT or the ITO)."
He, therefore, authorised S/Shri M. Rathinasamy, Asst. Director of Income-tax, Dayasagar, Asst. CIT, K. Rajagopal, ITO and Anoaso Ravindran, Asst. CIT, to do the following acts :
"(i) to enter and search the said building/place/vessel/vehicle/aircraft;
(ii) to search any person who has got out of, or is about to get into, or is in the building/place/vessel/vehicle/aircraft if you have reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing;
(iii) to place identification marks on such books of account and documents as may be found in the course of the search and as you may be consider relevant to or useful for the proceedings aforesaid and to make a list thereof together with particulars of the identification marks;
(iv) to examine such books of account and documents and make, or cause to be made, copies or extracts from such books of account and documents;
(v) to seize any such books of account, documents, money, bullion, jewellery or other valuable article or thing found as a result of such search and take possession thereof;
(vi) to make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing;
(vii) to convey such books of account, documents, money, bullion, jewellery or other valuable article or thing to the office of the Dy. CIT or any other authority not below the rank of the ITO employed in the execution of the IT Act, 1961; and
(viii) to exercise all other powers and perform all other functions under s. 132 of the IT Act, 1961 and the rules relating thereto."
6. Pursuant to these search warrants/authorisations, search operations were carried out on 30th August, 1995 and certain materials were seized duly recorded in the Panchnama drawn at the search place, copies of which were also given to the respective searched persons or their agents. Copies of four search warrants have been given by the AO on 12th August, 1997 along with the written submissions filed by him in these appeals.
7. On the basis of searches conducted on 30th August, 1995 an appraisal report was prepared on 14th November, 1995 by the Dy. Director of Income-tax (Inv.) Coimbatore, which was forwarded to the AO, who was possessed of the jurisdiction over these appellants by virtue of notification under s. 120 of the IT Act, 1961, from the CIT, Coimbatore, bearing No. 7/1988-89/CBE dt. 15th June, 1988, which was modified subsequently by the CIT, Coimbatore, through Notification No. 3/1991-92/CBE dt. 27th June, 1991. The CIT, Coimbatore by Notification No. 25/1995-96/CBE in C.No. 1439(25)/95-96 dt. 23rd January, 1996 by exercising powers under s. 127 of the Act transferred the cases of M/s Vispark Jewellery and Manufacturers (P) Ltd. (appellant No. 3 being ITA No. 95/MDS/1997), Sri T. Shantakumar, Smt. Dr. Usha K. Mehta (appellant No. 4 being ITA No. 96/MDS/1997), Smt. Sheetal Shantakumar and M/s M. R. Agro Trust, from various AOs to the Dy. CIT, Special Range-I, Coimbatore and the said notification came into effect from 31st January, 1996.
8. On the basis of the appraisal report, the AO issued notices to the above mentioned appellants in terms of s. 158BC of the Act r/w s. 158BD. These notices were served on the abovementioned appellants on 14th March, 1996. An oath statement on 1st January, 1995 was recorded by the Assistant Director of Inspection from Shri T. Shantakumar in terms of s. 132(4) wherein he admitted that he would be disclosed a sum of Rs. 40 lakhs for the block period to cover up any shortage or deficiencies in the group of search cases. Copy of the oath statement of Shri Shantakumar is filed in the paper-book, in the separate appeal relating to Shri. T. Shantakumar, being ITA No. 1883/MDS/1996.
9. Though the AO has framed the assessments on the above mentioned appeals under s. 143(3) r/w s. 158B of the Act of 31st March, 1997, yet he issued notices to all these appellants under s. 158BC of the Act and we deem it fit to reproduce the contents from one of the notice issued to M/s Kirtilal Kalidas & Co. (ITA No. 93/MDS/1997) :
"In pursuance of the provisions of s. 158BC of the IT Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of which you as individual/HUF/firm/company/AOP/BOI/local authority are assessable for the block period mentioned in s. (a) of the IT Act, 1961.
The return should be in the prescribed Form No. 28 and be delivered in this office within 16 days of service of this notice, duly verified and signed in accordance with the provisions of s. 140 of the IT Act, 1961."
The above mentioned appellants did not file their returns within the time given in the notices issued to them respectively under s. 158BC of the Act because according to them there was no undisclosed income for the block period of 10 years and moreover the notices issued on them were wholly illegal and without jurisdiction. However, subsequently, the returns for the block period were filed by the above mentioned appellants, the details of which are as follows :
(a) M/s Kirtilal Kalidas & Co. Nil income
(Appellant No. 1)
(b) M/s M. R. Agros. Rs. 1,47,162
(Appellant No. 2) (as income from other
sources as undisclosed income).
(c) M/s Vispark Jewellery & Nil income
Manufacturers (P) Ltd.
(Appellant No. 3)
(d) Dr. Ms. Usha M. Mehta Rs. 3,58,560
(Appellant No. 4) (as undisclosed income)
10. The AO after scrutinising the seized materials and after obtaining the details/clarifications from the respective appellants/ assessees, completed the block assessment on these appellants on 31st March, 1997 computing the UDI, details of which are extracted below :
(i) Kirtilal Kalidas & Co.
Subject to the above remarks, the total undisclosed income of the assessee is determined as under :
Rs.
Unexplained investment in gold as per Pt. 4 4,78,350
of para. 4.1
Unexplained shortfall in gold jewellery treated
as undisclosed income as per para. 4.3 86,17,816
Unexplained shortfall in gold jewellery under
repairs treated as undisclosed income as per
para 5.1 49,23.408
Unexplained cash treated as undisclosed income 5,05,227
-------------------
Total Income 1,45,24,800 (sic)
-------------------
(ii) M. R. Agros.
Undisclosed income as admitted in the return 1,47,162
Unexplained investments in land and building
including farm house and swimming pool made
out of undisclosed income as per paras
above (12,19,665 + 8,00,000) 20,19,665
-------------------
Total Income 21,66,827
-------------------
(iii) M/s Vispark Jewellery Manufacturers (P) Ltd.
Unexplained investments in gold and
undisclosed profits from unaccounted turnover 2,10,43,312
Wastage of gold 9,42,706
-------------------
Total Income 2,19,86,018
-------------------
(iv) Dr. Usha K. Mehta
Undisclosed income admitted by the assessee 3,58,560
Undisclosed investments in gold jewellery and
diamonds as per para 5.0 to 5.6 27,86,400
Unexplained cash (para 6.2) 10,000
-------------------
Total Income 31,54,960
-------------------
11. The AO also levied and demanded tax at 60 per cent of the undisclosed income computed by him in the respective block period assessment orders in terms of s. 113 r/w s. 158BA(2) of the Act. We also record the facts and the reasons for making the different additions by the AO in their respective block period assessment orders.
M/s Kirtial Kalidas & Co. (ITA No. 93/MDS/97)
12. The additional of Rs. 4,78,350 has been made on account of unexplained gold jewellery which has been dealt with by the AO in the impugned order in this appellant's case in para. 4 of the impugned order from pp. 2 to 5. According to the AO the gold jewellery as per the assessee's books on 30th August, 1995 was 1,60,433.250 gms. whereas as per the physical inventory made on that day, the quantity of gold and gold jewellery was to the extent of 137.986 kgs. The AO, through his letter dt. 8th May, 1996 demanded explanation for the shortfall of 22.447 kgs. and the assessee through its reply dt. 22nd May, 1996 had filed a reconciliation statement submitting that there were some mistakes in totalling and some items omitted to be totalled in the physical inventory prepared by the searching party. In para 4.1 the AO has recorded the assessee's stock statement of the quantity of gold jewellery which came to 1,60,433.250 gms in respect of total 11,838 items on different items of gold jewelleries. After exchange of letters and verification and cross-verification of different statements furnished by the assessee, the shortage was worked out at 1,042.154 gms. which was valued by the AO @ 459 per gram of 22 ct. gold as per information of Jewellery Association Manual and by doing so the addition worked out to Rs. 4,78,350 which was treated as undisclosed income for the block period.
12.1. The addition of Rs. 86,17,816 has been discussed elaborately in para 4.3 of the impugned order in the case of this appellant. According to the AO, the shortfall is 18774.600 grams, which was worked out as under :
Total gold jewellery as per assessee's book on 30th August, 1995 1,60,433.250 gms.
Less : Total gold jewellery as per physical
inventory of Department subject to
adjustments 1,41,658.650"
-------------------
Shortfall in gold jewellery 18,774.600 gms.
-------------------
This was valued by the AO @ 459 per gram and by doing so the addition worked out to Rs. 86,17,816 and this was treated as undisclosed income of the appellant firm for the block period.
12.2. The addition of Rs. 49,23,408 towards the unexplained shortfall in respect of gold jewellery repairs has been discussed elaborately by the AO in p. 5.1 of the assessment order. The shortfall is worked as under :
Outstanding stock of gold jewellery under repairs as per seized document and Annexure-II 13,508.52 gms.
Less Physical inventory of gold jewellery under repairs 1,200.00 gms
--------------
12,308.52 gms.
--------------
This shortfall of the gold jewellery under repairs to the extent of 12,308.52 gms. was taken @ Rs. 459 per gram but since the jewellery for repairs was old, the value was taken @ Rs. 400 per gram and by doing so, the addition worked out to Rs. 49,23,408. This was treated as undisclosed income of the block period by the AO.
12.3. The addition of Rs. 5,05,227 towards unexplained cash treated as undisclosed income has been discussed in para 6 of the impugned assessment order. According to the AO, the cash available at the counter on the search day was Rs. 20,96,500 whereas per books, it was only Rs. 15,91,273. Thus there was an excess cash of Rs. 5,05,227. It was explained by Shri T. Shanthakumar, one of the partners of the appellant firm that the excess cash belonged to M/s M. R. Agros, of which he was a trustee and the cash of the said trust was on account of sale of agricultural produce. It was also contended on the search day, by Shri T. Shantakumar, partner of M/s Kirtilal Kalidas & Co. and one of the trustees of M/s M. R. Agros that the cash is also evidenced and recorded in the cash book of the said trust. According to the oath statement of Sri Shantakumar given under s. 132(4) of the Act that the closing cash balance of M/s M. R. Agros on 30th August, 1995 was to the tune of Rs. 10,92,712 and the said cash was held by three different persons in the below given manner :
Rs.
Sr. T. Shantakumar 2,66,399
Dr. Usha K. Mehta 90,907
Sri Shyam Shir Sagar 2,20,406
The AO did not believe the explanation and treated the sum of Rs. 5,05,227 as undisclosed income of the block period of this appellant firm.
13. Thus the total undisclosed income for the block period was computed in a sum of s. 1,45,24,800 as recorded by us above and tax at 60% of Rs. 87,14,880 was demanded. This has given rise to the present appeal (ITA No. 93/MDS/1997) before this Tribunal.
M/s M. R. Agros (ITA No. 94/MDS/1997)
14. The assessee trust filed a return declaring undisclosed income of Rs. 1,47,162 and paid tax thereof of Rs. 88,297, at 60% as provided in section 113 r/w s. 158BA of the Act. The AO made a total addition of Rs. 20,19,665 as unexplained investment in land and building including farm house and swimming pool. According to the AO this was from undisclosed income. The AO, from a perusal of the seized documents relating to this appellant-assessee for the period 1st April, 1991 to August, 1995 (MR/S/B&D)/1952 to 55 dt. 1st September, 1995), found that the trust had credited sales without any narration from April to March for all the years. He has also given example that for the financial year 1994-95 at p. 11 of the seized document No. MR/S/B&D)/1955, sales have been credited from 10th April, 1994 to 29th March, 1995 aggregating to Rs. 6,87,335. The AO also noted from the said seized record that expenditure of seeds, fertilizers, labour charges, for the said period were also recorded but without any detail and narration. He, therefore, doubted the maintenance of the books of account of this appellant-assessee trust and was of the opinion that the account books were fabricated without any basis but only to build up the sources for making investments. From the detailed discussions made by the AO from pp. 4 to 8, he was of the opinion that the appellant-trust did not carry out any agricultural operations and did not even have the cash balance of Rs. 10,92,710 and the amount stated to be given to Sri T. Shantakumar, Dr. Usha K. Mehta and Sri Shyam Shir Sagar and M/s Kritilal Kalidas & Co. recorded by us above was in fact their own money and not belonging to this appellant-assessee trust. At p. 7 of the assessment order of this appellant, the AO has also recorded the answer given by Dr. Usha K. Mehta to question No. 5 on 31st August, 1995 under s. 132(4) of the Act. In para 5.2 at p. 8 of the order of this appellant, the AO has come to the conclusion that the investment made by the trust in land and building to the extent of Rs. 12,19,665 has been made from out of undisclosed income and therefore assessable under s. 158BC of the Act, namely the impugned order passed in the case of this appellant-trust. It is also mentioned in the said paragraph that the moneys found in the possession of the different parties belonged to those parties only and was not the cash belonging to this appellant-trust. In para 6 of the assessment order of this appellant-trust, the AO has estimated the cost of farm house on the agricultural land owned by the appellant-trust at Narasimhanaicken Palayam along with swimming pool in a sum of Rs. 8 lacs approximately. According to the AO the farm house had a built-up area of 3000 sq. ft. and there was also a swimming pool on the right side of the farm house and according to him the cost of construction/investment in the swimming pool will be approximately Rs. 1 lakh. The AO estimated the cost of construction of the farm house/building at Rs. 300 per sq. ft.
15. For the reasons given by the AO in paras 4 to 6, the total addition of Rs. 20,19,665 was made. This is challenged in this appeal before us on the ground that there has been no undisclosed income of the appellant-trust in a sum of Rs. 20,19,665 and whatever undisclosed income was there, has been disclosed in the return to the tune of Rs. 1,47,162.
M/s Vispark Jewellery Mfrs. (P) Ltd. (ITA No. 95/MDS/1997)
16. In this case, a sum of Rs. 2,10,43,312 is considered as undisclosed income of the assessee being unexplained investment in gold and undisclosed profits from unaccounted turnover. A sum of Rs. 9,42,706 is also treated as undisclosed income being wastage of gold. The total undisclosed income has been worked out in the assessment order in a sum of Rs. 2,19,86,020 and income-tax at 60% and surcharge at 15% of the tax has been worked out and demanded aggregating to Rs. 1,51,70,353. The detailed working of the undisclosed income and the tax is given at p. 7 of the assessment order of this appellant-company.
16.1. In para 4 of the assessment order, the AO has stated that from the seized document No. KR/S/75, KR/S/13, KR/S/19/76 & 77 consisted transactions in gold jewellery made by the assessee with third parties. In the same paragraph the AO has worked out the total turnover of 1,83,466.062 gms. as unaccounted turnover from May, 1994 to December, 1994. This unaccounted turnover has been worked out by the AO from the seized document No. KR/S/19 and we deem it fit to reproduce from the assessment order the alleged turnover :
gms.
(a) May, 1994 - 12,458.402
(b) June, '1994 - 20,443.350
(c) July, '1994 - 29,916.700
(d) August, '1994 - 18,850.150
(e) September, '1994 - 24,442.000
(f) October, '1994 - 22,017.000
(g) November, '1994 - 17,731.830
(h) December, '1994 - 37,606.630
---------------
1,83,466.062
---------------
16.2. The AO demanded explanation from the assessee in respect of this alleged unaccounted turnover from seized document No. KR/S/19 and the assessee through letters dt. 7th March, 1997 and 19th March, 1997 furnished explanations which have been discussed by the AO in para 4.2 at p. 3 of the assessment order. The assessee submitted that it had issued issues and receipts to third parties during the period May, 1994 to December, 1994 in respect of the following third parties, the details of which are as under :
Name of the party Issues Receipts Making charge (Rs.) Rajesh Exports Ltd. 7,168.600 7,168.600 1,48,160 Sri Krishna Jewellers 2,162.900 2,162.900 25,421 Arihanth Jewellers 3,619.020 3,619.020 10,858
It is the claim of the assessee that it received gold for manufacture of various jewellery and after manufacturing the same, they were returned to third parties after recovering and collecting the making charges. The sum and substance of the assessee's argument is that it had only made gold jewellery and all the transactions are recorded in the receipt and issue vouchers. There was a total denial by the appellant-assessee that it had purchased any gold for manufacture and sold gold jewellery after manufacturing it. The AO did not accept any of the explanations tendered by the assessee and he examined two persons, namely, Shri L. Radhakrishnan and Shri Pushparaj and recorded their oath statement on 31st March, 1997, that is to say on the day when the impugned assessment in this case was made and finalised. The relevant portion of the statement of Shri Radhakrishnan has been recorded by the AO at p. 4 of the assessment order. Though the AO has stated that he has recorded the oath statement of Shri Pushparaj on 31st March, 1997, the relevant portion or the pertinent answers given by the said deponent have not been extracted in the assessment order nor a copy of the same has been given by the Departmental Representative or even by the AO, who was present during the course of hearing of all these appeals. After discussing the sanctity of the various seized documents, the AO concluded that the total transactions in gold jewellery in terms of quantity was to the tune of 1,96,416.58 gms. and the value of gold jewellery prevailing at the market rate was adopted by him @ Rs. 459 per gram. The total unaccounted turnover according to the AO in terms of rupees was taken at 9,01,55,210. On this alleged unaccounted turnover, the AO adopted a profit rate of 5% on the basis of the profit disclosed for the asst. yr. 1995-96 by another assessee M/s Anugraha Jewellers whose reported turnover was nearly Rs. 263.10 lakhs. By doing so, the profit on the alleged unaccount turnover was worked out by the AO at Rs. 45,77,605 (See p. 6 of the assessment order). This was considered by the AO as undisclosed income of the assessee from unaccounted turnover of gold jewellery.
16.3. The AO did not stop here. According to him, the entire quantum of gold jewellery transaction denied by third parties was to the tune of 12,950.52 gms. and the quantum of 22,923. kgs. being the monthly average of the unaccount turnover of 1,83,466.062 gms. made by the assessee allegedly through its employees was also treated as unexplained investment by the assessee in the gold for the balance period up to the date of search, viz. 30th August, 1995. Thus the total unexplained investment in gold in terms of quantity was worked out by the AO at 35.973 kgs., the value of which was taken by him was @ 459 per gram and by doing so, the unexplained investment in gold was estimated at Rs. 1,64,65,707. Thus the total unexplained investment in gold and undisclosed profit on unaccounted turnover was worked out at Rs. 2,10,43,312 and this was brought to tax at 60%.
16.4. In para 6, the AO has stated that the assessee by letter dt. 19th March, 1997 submitted that the net excess of gold of 2,053.826 gms., after reconciling the stock position as on 30th August, 1995, represented wastage and the value of it was claimed as admitted in the current return as in last year. The AO did not believe this version and was of the opinion that the wastage of gold of 2,053.826 gms., @ Rs. 459 per gram as on 30th August, 1995, should be considered as undisclosed income of the appellant-assessee for the block period. Thus, the addition of Rs. 9,42,706 was made towards wastage of gold treating the same as undisclosed income of the appellant-assessee for the block period. This has given rise to the present appeal before this Tribunal.
Dr. Usha K. Mehta (ITA No. 96/MDS/1997)
17. During the course of search of residence of Smt. Maniben K. Mehta situated at 86, Periasamy Road, R. S. Puram, Coimbatore-2, who is the mother of this appellant, the following assets were found :
(a) Gold Jewellery-22 cts. 3,168 gms.
(b) Gold Jewellery-14 cts. 781 gms.
(c) Jattar (20% gold) 754 gms.
(d) Diamonds 101.22 gms.
(e) Cash Rs. 90,907
17.1 In response to notice under s. 158BC dt. 11th March, 1996, which was served on the appellant-assessee on 19th March, 1996, a return was filed declaring undisclosed income in a sum of Rs. 3,58,560 and tax of Rs. 2,15,136 was paid along with a letter dt. 3rd February, 1997. In reply to queries raised by the AO in letter dt. 6th March, 1997 replies were filed on 14th March, 1997, and 27th March, 1997. The explanation of the assessee in respect of the items of gold jewellery and diamond as well as cash was explained as under :
------------------------------------------------------------------------
Found and Admitted in the name of
inventorised in ------------------------------------
Items the course of Own Mother Total
search on
30-8-1995
------------------------------------------------------------------------
22 ct. GJ 3,168 gms. 2,065.700 3,705.800 5,771.500
14 ct. GJ 781 gms. - 359.100 359.100
Jattal 754 gms. (20% gold)
- - -
Diamonds 101.22 cts 20.50 cts. 86.23 cts.
3.52 cts. 110.25 cts.
Cash Rs. 90,907
------------------------------------------------------------------------
17.2. The appellant through letter dt. 13th March, 1997, in order to explain the discrepancy raised by the AO in letter dt. 6th March, 1997, it was submitted that 14 ct gold jewellery was converted into 22 ct. gold jewellery and on conversion the gold jewellery found and the gold jewellery available with her and her mother Smt. Maniben K. Mehta were as under :
------------------------------------------------------------------------
Items Quantity found Explained by the
assessee & mother in WT
Return
------------------------------------------------------------------------
22 cts gold jewellery 3,168 gms. 5,771.500 gms.
14 cts.-22 cts. Net 497 gms. 228,500 gms
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3,665 gms. 6,000.000 gms
------------------------------------------------------------------------
It was further submitted that the difference between the quantity of gold found at the time of search and admitted for wealth-tax purposes by them was 2,335 gms., and that her mother's jewellery was deposited with M/s Kirtilal Kalidas & Co. totalling 1,737.700 gms. and in regard to the balance of gold jewellery which remained unexplained totalling 593.300 gms., the assessee submitted that the same has been regularly used by her mother on periodical visits. In regard to diamonds, it was submitted that on the day of search diamond to the extent of 101.22 cts. were found and that in her and in her mother's wealth-tax returns 110.20 cts. have been admitted leaving a different of 9.02 cts. which the assessee told to the AO that her mother during her visits to Bombay might have left the diamonds with her brothers. In the course of hearing on 27th March, 1997, the AO informed the authorised representative of the appellant that the assessee in the course of her statement under s. 132(4) had submitted that she purchased the gold jewellery weighing 902.800 gms. from April to July, 1995, for which the ITO demand explanation. The AO also wanted to know from the assessee that the difference in quantity of 14 cts gold jewellery should not be treated as her unaccounted investment. To these, the assessee's representative M/s Suri & Co. through their letter dt. 27th March, 1997, submitted as under :
"The assessee has already submitted that the purchase of jewellery mentioned by her at the time of search operation was only remarking of various jewellery as per the designs and latest styles. It is submitted on behalf of the assessee that the assessee has not acquired any fresh goods during the period. It is further submitted that the assessee had substantial jewellery already in her possession and she has not further purchased any gold but only has made frequent changes in the designs.
In the reply already submitted the assessee has already considered the gold at 22 ct. equivalent weight even in respect of 14 cts of gold as for the purpose of wealth-tax, the valuation was taken only on equivalent basis. It is submitted that the entire quantity of 14 cts. of gold of 781 gms. was considered at 497 gms. in the reply submitted by the assessee in page No. 2 of letter dt. 14th March, 1997. Similarly for the tallying the total jewellery held by the assessee and her mother all the gold jewellery has been considered on equivalent weight of 22 ct. for easier tallying. It is submitted that the assessee has considered the entire jewellery including 14 ct. jewellery."
17.3. The assessee had admitted in her wealth-tax return (latest wealth-tax return filed for asst. yr. 1993-94), gold jewellery of 22 cts. of 2,165.700 gms, and diamonds of 20.50 cts. After taking into account these items admitted, the balance of gold jewellery and diamonds explainable are as under :
22 ct. gold jewellery 1,002.30 gms.
14 ct. gold jewellery 781.00 gms.
Jattar 754.00 gms.
Diamonds 80.72 cts.
17.4. The assessee submitted that the above gold jewellery belonged to her mother and her mother had declared the same in her wealth-tax return also. But the AO did not accept this in view of the sworn statement given on 30th August, 1995 under s. 132(4), in answer to question No. 6 she had stated that none of her jewellery or diamond is available in the house. The precise question and answer given by the assessee's mother is as under :
"Q. No. 6 : Approximately, how much gold/diamonds jewellery do you have in this house ?
Ans : I don't have any jewellery in this house but my daughter, Usha's jewellery is available in this house. She is not able to tell as to the quantity."
17.5. The assessee in the course of statement recorded under s. 132(4) of the IT Act on 30th August, 1995 that she hereself categorically submitted that she had purchased gold jewellery and diamonds and coloured stones studded jewellery during the months of April to May, 1995 and July to August, 1995. The exact question and answer is extracted below :
"Q. No. 4 : Your wealth-tax statement relevant for the asst. yr. 1993-94 shows your jewellery holding to be 2,165.7 gms. and diamonds to be 20.50 cts. On physical verification, it was found that there is jewellery as follows as belonging to you :-
(a) 22 ct. gold jewellery 3,168 gms. (b) 14 ct. gold jewellery 781 gms. (c) Jattar (which approximately contains 20% gold) 754 gms. (d) Diamonds 101.22 cts. How do you explain the difference ?
Ans : 497 gms., being s. No. 76, 78, 79, 80 & 89, are the gold jewellery purchased by me during July-August, 1995. Further, I have also purchased diamonds and coloured stones studded jewellery in gold, being items Nos. 62, 64, 65, 66, 67, 68, 69 and 71, aggregating 405.8 gms. were purchased during April-May 1995. The balance of 251 gms., I am not able to explain at present. All the 14 ct. jewellery have been bought in foreign countries an as they are not valued much in India. I have not declared them in my wealth-tax statement. Regarding the Jattar jewellery which has less gold content, have been discussed in my wealth-tax return.
As stated in earlier para, some diamond studded jewellery have been purchased during the year. The difference in weight can be reconciled only after the diamonds are valued by an approved diamond valuer."
The specific items which the assessee has clearly identified as purchased by her are as under :
-----------------------------------------------------------------------
No. Name Nos. Gold Diamond
content content
1. 2. 3. 4. 5.
-----------------------------------------------------------------------
gms. cts.
-----------------------------------------------------------------------
62. 4 green stoned diamond bangles 4 53. 2.50.
64. Red-stone diamond bangles 4 43.8. 1.75.
65. Blue and diamond bangle 4 55.0. 1.5.
66. Diamond bangales-single lined 2 38.0. 7.0.
67. Diamond bangles-single lined small 2 38.0.. 5.0.
68. Gold chain with diamond pendant and studs 1 set 91.0. 4.0.
69. White gold necklace and pendants and studs 1 set 40.0. 13.0.
71. Diamond necklace-double lined 1 No. 47.0. 5.0.
----------------- -----------
Purchased in April-May 1995 405.8 39.75.
----------------- -----------
76. Gold bangles 6 72.0.
78. Gold necklace 2 132.0.
79. 12 rows. long chain 95.0.
80. Canadian gold coins (4 bag & 1 small) 5 133.0.
89. Diamond watch with gold chain 1 65.0. 25.0.
----------------- -----------
Purchased in July-August, 1995 497.0. 25.0.
----------------- -----------
Grand total 902.8. 64.75.
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After exchange of letters in respect of gold jewellery and diamonds which we have extracted above, the AO drew inference that the assessee has failed to explain satisfactorily the sources of gold jewellery and diamonds. According to the AO, the unexplained gold jewellery and diamonds was to the tune of Rs. 27,86,400 which was treated as undisclosed income of the block period. The details which are worked out by the AO at p. 7 of the assessment order, as under :
Estimated value Rs.
Gold jewellery 22 cts. 1,002.300 gm.
14 ct. gold jewellery (on conversion to
22 cts. 497 gms.) 781.0 gm.
@ 400 6,00,000
Jattar 754.000 gm. 7,000
Diamonds 80.72 cts. 2,179.000
@ 27,000 per ct.
-------------
27,86,400
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Accordingly this sum of Rs. 27,86,400 was treated as undisclosed income and brought to tax.
17.6. Regarding the cash of Rs. 90,907 found in the residence, it was explained as under (in answer to question No. 5) :
"A sum of Rs. 50,000 is out of my accumulated savings. Sum of Rs. 18,800 found in several envelopes represent gifts received by me on various occasions. Sum of Rs. 20,000 has been drawn from my bank account at Indian Overseas Bank, R. S. Puram branch. The balance amounts to the payments to be made for the Purchase of sarees, received from my friends."
But during the course of assessment proceedings, it was submitted that Rs. 80,000 belonged to her and Rs. 10,000 was given by M/s M. R. Agros in which she was a trustee and it was received by her for the purpose of agricultural and other developmental activities in the land owned by the trust. The assessee was also unable to give the exact details of expenses spent for agricultural operations of the land belonging to the trust.
17.7 The AO did not believe the explanation tendered by the assessee and was of the opinion that the sum of Rs. 10,000 was not belonging to M. R. Agros Trust and the same was not handed over to her for agricultural purposes. This sum was, therefore, treated by the AO as undisclosed income of this appellant-assessee of the block period and subjected to tax. Thus, the total undisclosed income of Dr. Usha K. Mehta (the appellant-assessee, in this case) was worked out in a sum of Rs. 31,54,960 on which tax of Rs. 18,92,976 at 60 per cent as per s. 113 of the Act was levied and demanded. This has given rise to the present appeal before us.
18. Shri Santhana Krishnan appearing for the assessees assisted by Shri Swaminathan, C.A. submitted as under :
18.1. According to him all the assessments made on 31st March, 1997 are barred by limitation as provided in s. 158BE(1) as there were search operations under s. 132 of the Act on 30th August, 1995 at the respective premises of all the appellants as is evident from the copies of search warrants dt. 28th August, 1995 and 30th August, 1995, issued by the Director of Investigation, Madras and Dy. Director of Inspection, Coimbatore, given by the AO along with his written submissions during the course of hearing of all these appeals. It is contended by the assessee's counsel that the AO also issued notices to each of the assessees (appellants) on 11th March, 1996 under s. 158BC of the Act on the basis of the appraisal report of the DDI, IT Department, Coimbatore, dt. 14th November, 1995 and drew our attention to the copies of those notices placed in the paper books of her respective appeals. It is the contention of Shri Santhana Krishnan that the assessments on all the appellants/assessees should have been completed on or before 30th August, 1995 in terms of s. 158BE(1) of the Act and the enlarged period as provided in s. 158BE(2) was not available to the AO because the assessments on all these assessees were not completed in terms of s. 158BD of the Act after recording satisfaction as per that provision. According to him, the AO on the basis of search warrants of Director of Inspection and Dy. Director of Inspection and the appraisal report of the DDI, Coimbatore and on the basis of the seized material, was fully satisfied that the case of each of the appellants-assessees fell in terms of s. 158BC of the Act and not under s. 158BD of the Act and it is for this reason that the AO issued notices to all the appellants on 11th March, 1996 under s. 158BC of the Act. In fact, similar notice under s. 158BC of the Act was also issued to Shri Shantakumar, a partner in the firm of M/s Kirtilal Kalidas & Co. (Appellant No. 1) and a director in M/s Vispark Jewellery Manufacturers (P) Ltd. (Appellant No. 3). Arguing further, Shri Santhana Krishnan submitted that the AO in order to cover the lapse in failing to complete the assessments on or before 30th August, 1996 and with a view to bring all the block assessments impugned in all these appeals within the limitation period prescribed under s. 158BE(2) deliberately mentioned in the respective assessment orders that they were framed and completed under s. 158BD r/w with s. 143(3) of the Act. In fact, according to Shri Santhana Krishnan all the assessments were framed under s. 158BC only and took us to the contents and observations made by the AO in the impugned assessment orders of the respective appellants/assessees. On this ground of limitation, the assessees counsel pleaded for annulment of these assessments made by the AO on 31st March, 1997.
18.2. It was next contended by the assessees counsel that all the assessments impugned in these appeals were also required to be annulled by this Tribunal as the assessments were made not by the AO acting independently on the basis of the seized material or evidence found or recovered in the course of search operations on 30th August, 1995, but at the behest and upon the directions of the Dy. Director of Inspection Coimbatore, as contained in his appraisal report dt. 14th November, 1995, prepared by him after the search operations on 30th August, 1995, scrutinising the seized materials recovered from the premises of the respective appellants in search operations on 30th August, 1995. It was the case of the assessees' counsel that assessment proceedings are judicial proceedings and, therefore, no directions or instructions are to be given to the AO for framing the assessments and he has to make the assessment on his own without being guided, instructed or directed by any outsider or any authority how high-so-ever he may be. On this count, the assessees' counsel pleaded for quashing of the assessments made on 31st March 1997 by the AO of each of the respective appellants-assessees.
18.3. It was further argued by the assessees' counsel that as per the proviso to s. 158BG of the Act, the assessments cannot be made except without the previous approval of the CIT and the CIT has given approval in all these cases excepting that of Shri T. Shantakumar on 31st March, 1997, in a mechanical manner without giving any reasons for according approval to the AO for framing the assessments in such a manner. According to the assessees' counsel according of approval by the CIT was a quasi-judicial act and no assessment order can be passed except without the prior approval of the CIT . It is for this reason that the approval becomes a quasi-judicial act and according to him as per the settled law no quasi-judicial act can be performed or any order passed pursuant thereto without observing the rules of natural justice that is to say without hearing the concerned party against whom such an approval adverse to him is to be given by such an authority, namely the CIT . In order to support this line of argument, the assessees' counsel drew our attention to the copy of the letter of the CIT, Coimbatore, dt. 31st March, 1997 (copy of which was given by the AO in these appeals at the time of hearing). Since the approval has been given by the CIT in a mechanical manner without application of mind and without hearing the appellants-assessees, the assessments framed on the basis of such an llegal approval cannot be sustained in law and, therefore, all the impugned orders should be vacated, submitted the assessees' counsel, Shri Santhakrishnan.
He also relied on the below given decisions :
(a) Union of India vs. Tulsiram Patel AIR 1985 SC 1416;
(b) Smt. Maneka Gandhi vs. Union of India AIR 1978 SC 597;
(c) Mohinder Singh Gill vs. Chief Election Commissioner AIR 1978 SC 851; and
(d) K. V. Panduranga Rao vs. Karnataka Dairy Development Corporation-Indian Factories Journal.
18.4. The approval order of the CIT was also assailed by the assessees' counsel on the ground that it contained no reasons whatsoever. Sri Santhanakrishnan submitted that as per settled law every order passed by an quasi-judicial and judicial authority has to be supported by reasons and a speaking order is essential. Since the approval order to the CIT dt. 31st March, 1997 is silent, the assessment orders passed by the AO on 31st March, 1997 impugned in these appeals were required to be annulled, according to him.
18.5. It was also contended by the assessees' counsel that the CIT in order to give his previous approval, has to study the draft orders prepared by the AO and placed before him and the CIT thereafter has to apply his mind on the contents of the draft assessment order, refer to the seized material and other materials gathered by the AO during the course of the enquiry for framing the assessment and then to apply his mind and give or refuse to give the approval under s. 158BG to the AO. But, in the instant case such an exercise has not been done at all because of all the assessments were made on 31st March, 1997, and in the case of M/s Vispark Jewellery Manufacturers (P) Ltd. (appellant No. 3) the AO has stated in the assessment order that he was making enquiries and recording the statements from 4 witnesses whose names are mentioned in the order. The assessment orders in all the present four appeals run into 51 pages and it is humanly impossible, submitted the assessees' counsel, for the AO to prepare draft assessment orders in the case of all the appellant-assessees on 31st March, 1997, place it before the CIT on 31st March, 1997, the CIT to study all the assessment orders on 31st March 1997 with reference to the appraisal report of the DDI and seized material and then apply his mind and accord his final approval and the AO thereafter to retype the same finally on 31st March, 1997, prepared demand notices, challans, etc. According to Shri Santhanakrishnan, all these acts were not performed or undertaken at all by the AO on 31st March, 1997 for getting the approval of the CIT under s. 158BG of the Act, as all the cumulative acts put together were not capable of performance on a single day, namely on 31st March, 1997. The approval by the CIT on 31st March, 1997 to the impugned assessments in all these cases including that of Shri T. Santha Kumar was only an idle formality to give a semblance of compliance to the mandatory provision of s. 158BG of the Act on the ground according to Shri Santhana Krishnan all the impugned assessment on all the appellant-assessees are vitiated requiring cancellation by this Tribunal.
18.6. On merits, it was submitted that there has been no undisclosed income found during the course of search operations in the case of any of the appellants assessees, as is evident from the contents of the assessment orders passed and impugned in these appeals. Sri Santhanakrishnan submitted that the provisions of Chapter XIV-B are enacted as a special procedure for assessment of search cases brought on the statute book by Finance Act, 1995, and the purpose is to subject to tax, as quick as possible, the undisclosed income as defined in sub-s. (b) of s. 158B of the Act. According to Shri Santhanakrishnan, no undisclosed income as defined in s. 158B(b) has been found during the course of search operations in the premises of any of the appellant assessees and, therefore, the assessments framed under s. 158BC are wholly illegal and should be declared as void and assessment cancelled. In order to buttress this argument, Shri Santhanakrishnan took us through the contents of the various additions made in the hands of the appellant-assessees in these cases. According to him, the AO has not understood the various accounting entries and stock position reflected in the accounts and registers in the cases of M/s Kirtilal Kalidas & Co. (Appellant No. 1) and M/s Vispark Jewellery Manufacturers (P) Ltd. (Appellant No. 3) and that he has unnecessarily assumed about investments in goods and manufacture of gold jewellery and other assets without judiciously considering the explanations and replies and reasons given by the appellants through various letters recorded in the assessment orders of the respective appellants. The assessees' counsel also drew our attention and referred to several documents placed in the voluminous paper-books of each of the appeals including the accompanying different inventories forming part of various Panchanamas prepared on the search day by the search party. The assessees' counsel laboured hard to convince us that there has been no undisclosed income in any of these cases and, therefore, the assessments should not be upheld or alternatively the additions made by the AO, considering the same as undisclosed income, should be deleted. Closing the case of the appellants, the assessees' counsel strongly pleaded that there was a good case for annulment of the impugned orders on the basis of the arguments advanced by him and on the basis of various authorities of the apex Court as well as different High Courts.
19. The Departmental Representative, Shri Goraknathan assisted by Shri Krishna Rao, the AO vehemently repelled all the arguments and submissions of the assessees' counsel, Shri Santhanakrishnan. According to the Departmental Representative, the search operations were carried out only on Shri T. Santhakumar and the searches at the premises of other appellants-assessees were only consequential and collateral and, therefore, the assessments made on 31st March, 1997 were not barred by limitation under s. 158BE(1) of the Act, but were saved pursuant to the provisions of s. 158BE(2), as all the assessments impugned in these appeals were made under s. 158BD of the Act r/w s. 158BC for which notices were issued on 11th March, 1996. In order to convince us the Departmental Representative drew our attention to the name of Shri T. Shanthakumar appearing on the first page of the search warrants issued by the Director of Inspection, Madras, as well as the Dy. Director of Inspection, Coimbatore. According to Shri Goraknathan, the search has to be considered in the case of Shri T. Santhakumar only, who was the main man behind the firm of M/s Kirtilal Kalidas & Co. (Appellant No. 1), M/s Vispark Jewellery Manufacturers (P) Ltd. (Appellant No. 3) and M/s M. R. Agros (Appellant No. 2). Accordingly to him since the assessments were made on the present appellant-assessees in accordance with the provisions of s. 158BE(2) they were within the limitation period and this Tribunal should not annual or quash the impugned assessments.
19.1. Regarding the directions in the appraisal report of the DDI, Shri Goraknathan, submitted that this is the general practice in the Department that after search and seizure operations an appraisal report is prepared by the investigation-wing of the Department and after the approval by the CIT the same is given to the AO to help him to make the assessment after proper enquiry. According to Shri Goraknathan, this was an internal document between the investigation-wing and the AO and it was a private and confidential document and neither the assessee nor any other person can look into or take copies for the appraisal report of the DDI. According to him the impugned assessments have been framed by the AO independently without being influenced or carried away by the directions contained in the appraisal report of the DDI and, therefore, the plea of annulment by the assessees counsel is wholly unjustified and the Tribunal should reject the same and uphold the impugned assessments.
19.2. Countering the arguments of the assessees counsel in relation to the previous approval of the CIT, it was argued that given approval was only an administrative act and not a judicial act and, therefore, the CIT was not obliged in terms of section 158BG of the Act to afford or give any hearing to any of the appellant-assessees and, therefore, the assessments were valid and were not vitiated requiring the cancellation as pleaded by the assessees' counsel. It was further submitted by Shri Goraknathan and Shri Krishna Roa, AO that the CIT was at Coimbatore and the AO was also based at Coimbatore and it was, therefore, not difficult to prepare the draft assessment orders running into 51 pages, send it to the CIT on the very day and it was not difficult or humanely impossible task for the CIT also to study the draft assessment orders with reference to the seized material and other evidence collected by the AO and then to give approval. The approval given by the CIT was neither an idle formality nor the approval was granted in a mechanical manner without application of mind as contended by the assessees counsel. Since the approval has been given by the CIT in accordance with law, after due application of mind, the impugned assessments are valid and legal and deserve to be upheld, submitted the Departmental Representative.
19.3. Countering the arguments of the assessees' counsel, both the Departmental officers submitted that search operations on all the appellant. Assessees revealed the existence of undisclosed income in the shape of investments in various assets as are discussed elaborately in the different assessment orders and, therefore, it is not correct on the part of the assessees' counsel to argue that no undisclosed income was found and the assessment of such undisclosed income is not warranted or proper. In order to convince us that there has been undisclosed income as defined in s. 158B(b) of the Act, our attention was drawn to the contents of the various assessment orders an the relevant observations of the AO in the different assessment orders. It was emphasised by the AO that he has brought to tax the undisclosed income found as a result of search and seizure operations conducted on 30th August, 1995 and, therefore, this Tribunal should not be carried away by the arguments of the assessees' counsel and should not give any relief or delete any addition made in the case of all the appellant-assessees. In the end it was pleaded by the Departmental officers appearing for the Revenue that the impugned assessments being valid and proper as per law are required to be upheld dismissing the appeals filed by all the appellant-assessees before this Tribunal.
20. To a specific query by us the AO Sri Krishna Rao submitted that the draft assessment orders in these cases as well as in the case of Shri T. Santhakumar (ITA No. 1883/MDS/96) were taken by him personally to the CIT, Coimbatore, on 31st March, 1997, and were not forwarded to the CIT through any covering letter or any other communication. The AO fairly conceded before us that the CIT did not call for or examine the seized materials from him for the purpose of according approval. The AO upon questioning by us was also unable to give approximate timings of taking the draft assessment orders is all these cases to the CIT and the return of those draft assessment orders by the CIT with his letter dt. 31st March, 1997, approving the assessments in all these cases as well as in the case of Shri T. Santhakumar. The AO and the Departmental Representative both declined to give us a copy of the appraisal report dt. 14th November, 1995 of the DDI sent to the AO consequent to search operations though we specifically gave directions for filing of a copy of the same because specific grounds have been raised and arguments advanced that the AO did not act independently in framing the impugned assessments, but was guided, influenced and carried away by the contents and the directions given by the DDI in such an appraisal report. Upon our directions, the Departmental Representative, Shri Goraknathan, filled a written memorandum on 12th August, 1997 declining to give the copy of the appraisal report for our perusal and consideration which was submitted by him in the Tapal section of the registry (Inward No. 1191). The said written memo of the learned Departmental Representative is placed in the file of Shri T. Santhakumar (ITA No. 1883/MDS/96).
21. After hearing the representatives appearing before us for both sides and after carefully studying the material brought on record and the case law on the subject-matter of appeals, we are of the considered, but firm opinion that all these appeals are required to be allowed by quashing the impugned assessments made on 31st March, 1997.
22. We find considerable force in the argument of the assessee's counsel Shri Santhanakrishnan that the assessments framed on 31st March, 1997, in the case of all the above mentioned four appellant-assessees are barred by limitation that is to say, all the impugned assessments are made beyond the time prescribed under s. 158BE(1) of the IT Act, 1961. We cannot agree with the Departmental Representative that search operations under s. 132 of the Act on 30th August, 1995 were carried out and conducted only on Shri T. Santhakumar, who is a partner in the firm of M/s Kirtilal Kalidas & Co. (Appellant No. 1), a director in M/s Vispark Jewellery Manufacturers (P) Ltd. (Appellant No. 3) and a trustee of M/s M. R. Agros Trust (Appellant No. 2) and that the searches on 30th August, 1995, were not on these appellant-assessees. From the copies of search warrants dt. 26th August, 1995 and 30th August, 1995 of the Director of Inspection (Investigation), Madras and the Dy. Director of Inspection (Investigation), Coimbatore respectively filed before us in these appeals by the AO and the Departmental Representative clearly, without any shadow of doubt, say that the searches were conducted and carried out at the concerned premises of each of these appellant-assessees on the building/ premises mentioned on p. 2 of the respective search warrants. The recovery and seizure of cash, jewellery, account books, registers and other material during the course of search operations and the various lengthy inventories prepared by the search party on the search day forming part of the different Panchnamas in respect of each of the premises and person establishes firmly that such searches were conducted in terms of s. 132 of the Act and that being the case, the provisions of s. 158BE(1) clearly applied and governed the instant cases. By no amount of vehemence or force of any argument it cannot be accepted by us that the search operations were only on Shri T. Santhakumar and not on these appellant-assessees. The contents of various search warrants at p. 2 clearly reveal that certain specified officers of the IT Department were authorised and ordered by the Director of Inspection (Investigation) and Dy. Director of Inspection (Investigation) to search pointed, identified and referred buildings/premises as both the authorising IT authorities formed a reasonable belief, that too based on information placed before them, that unaccounted money, bullion, jewellery, etc. as mentioned therein will be found if search operations are conducted. At p. 1 of the different search warrants, the authorising IT authorities stated after forming reasonable belief based on information place before them that Shri T. Santhakumar will not produce any account books, documents, etc. etc. mentioned therein if summons or notices are issued to him either under the IT Act, 1922 or under the IT Act, 1961. But one thing is clear that both the authorising IT authorities did also form reasonable belief as is evident from the contents at p. 2 of their respective search warrants that certain buildings/premises mentioned therein had unaccounted money, bullion, jewellery, valuable article or thing, etc. It is very belief of the authorising IT authorities that prompted them to act in accordance with the provisions of s. 132 of the Act and authorised searches on the persons and the buildings where they were residing. Had there not been any search warrants or authorisations to the search party/authorised officers from the competent IT authorities, then the search party had no right or authority to enter such buildings or premises and carry out or conduct any search seizer a single paise or shred of paper from such buildings/premises. The seizure of valuable articles, things, assets and other material pursuant to search operations can lead to only one conclusion that search operations were carried on under s. 132 of the Act and for that purpose proper warrants of authorisation were issued. Can all these acts by the searching party be said that there were no search operations on all these appellant-assessees ? The obvious answer definitely is no. More significantly the DDI prepared an appraisal report on 14th November, 1995 on the basis of seized material pursuant to such search operations and forwarded it to the AO with directions to issue notices under s. 158BC of the Act to all these appellants calling upon them for filing of block period returns in respect of undisclosed income and the AO did issue such notices to all these appellant-assessees and the same were also complied by these appellant-assessees by filing block period returns. The issuance of a notice by the AO on 11th March, 1996 to all these appellant-assessees after the search operations on the basis of the appraisal report of the DDI clearly establishes that there were search warrant cases and, therefore, the provisions of s. 158BE(1) governed it. It is too late in the day for the Departmental officers to contend that the impugned assessments were not search warrant assessments but assessments made in terms of s. 158BD of the Act. From the conduct of the AO in issuing the notices to all of them under s. 158BC of the Act and, framing of the assessments clearly demonstrates that the assessments are to be governed by the provisions of s. 158BE(1) of the Act and not in terms of s. 158BE(2) of the Act. The AO has not issued notices under s. 158BD of the Act after being satisfied on the basis of search material found in the case of Shri T. Santhakumar. The contents of the various impugned assessment orders clearly forces us to conclude that the assessments were not made under s. 158BD of the Act but they were the assessments made under s. 158BC of the Act and, therefore, the provisions of s. 158BE(1) governed the limitation period. The impugned assessments in all these cases made on 31st March, 1997 are thus barred by limitation being made beyond the period prescribed, namely within one year from the month in which the search warrants were issued. The search warrants were issued on 26th August, 1995 and 30th Aug, 1995 by the Director of Inspection (Investigation) and the Dy. Director of Inspection (Investigation) respectively. The assessments, therefore, ought to and should have been made by the AO on or before 30th August, 1996 and not any day later to that. The assessments made on 31st March, 1997 on all the appellant-assessees are thus out of time and require annulment as per law.
23. According to the provision of s. 158BE(1) of the Act, the AO was empowered to perform the act of passing the assessment orders on or before 30th August, 1996 but the same was not performed in accordance therewith. The AO, therefore, lost complete jurisdiction, power and authority to make or pass any order of assessment in terms of s. 158BC r/w s. 143(3) of the Act. The provisions of s. 158BE(1) and (2) are absolute and they impose a fetter upon the AO to make an assessment after the expiry of the periods mentioned in those sub-sections. This is a statutory fetter and neither the assessee nor the AO can relax or waive the same by consent or contract. In other words, the power to make assessment under s. 158BC lapses completely upon the expiry of the periods mentioned in those sub-sections. Therefore, the impugned assessment orders in all these cases made after the expiry of 30th August, 1996 are wholly without jurisdiction and therefore, non est, nullity and unenforceable in the eye of law.
24. The Supreme Court in the case of Poona City Municipal Corpn. vs. Dattatraya Nagesh Deodhar AIR 1965 SC 555 have held "that the benefit of a statutory provision would be available to any authority only if it is done or purported to be done in pursuance or execution or intended execution of the statute. For what is plainly prohibited by the Act cannot be claimed to be done in pursuance or execution or intended execution of the Act". It is similarly held by the Supreme Court also in the case of Municipal Corporation vs. Sri Niyamatullah (1969) 2 SCC 551. The Hon'ble Supreme Court again in the case of J. N. Ganatra vs. Morvi Municipality (1996) 9 SCC 495 at p. 498 in para 4 have laid down that an act or a power under a statute has to be done or exercised in accordance with the provisions of the statute otherwise it is illegal and void and cannot be treated as being done or performed in pursuance or execution or intended execution of the statute. On the basis of these authorities the impugned assessments cannot stand and are liable to be quashed.
25. Not only the impugned assessments are barred by limitation but are also lawfully not sustainable for other reasons also, as contended by Shri Santhana Krishnan. It was the contention of Shri Santhana Krishna that the AO did not act independently in making the enquiries and in framing the impugned assessments but was greatly influenced and carried away by the directions/instructions issued by the Dy. Director of Inspection (Inv.) as contained in his appraisal report dt. 14th November, 1995 and therefore the impugned assessments are vitiated in law being illegal and liable to be struck down. We find considerable force and merit in such an argument advanced by Sri Santhana Krishnan.
26. The enquiries by the AO for making the assessment of income are quasi-judicial proceedings and the act of framing the assessment is quasi-judicial act. It is a trite law that a judicial or quasi-judicial authority should act independently and that there shall not be any interference, nor any advice, opinion, instructions, directions can be given to any IT authority in such proceedings, etc., by any stranger/outsider even if such stranger/outsider is higher or highest authority in the hierarchy of the Department. If an order is passed or a decision is rendered by an IT authority in such quasi-judicial proceeding at the behest of or upon the directions or instructions, of any superior officer or authority then such an order/decision is illegal and a nullity in law because it shall be deemed in law that such an order/decision is not of that quasi-judicial authority but of some other authority who directed or issued orders/instructions to the lower authority to act and thereafter pass an order/decision in a particular manner. Though there are several decided case law on the subject we would only refer to and discuss few decisions in this regard as below :
(i) The Hon'ble Supreme Court in the case of M. Chockalingam & M. Meyyappan vs. CIT (1963) 48 ITR 34 (SC) at p. 40 have laid down as under :
"The authorities acting under the Indian IT Act have to act judicially and one of the requirements of judicial action is to give a fair hearing to a person before deciding against him."
(ii) As far back as in August, 1967, the Hon'ble Andhra Pradesh High Court in the well known case of Raja V. V. V. R. K. Yachendra Kumara Rajah of Venkatagiri vs. ITO (1968) 70 ITR 772 (AP) have laid down as under :
"It is now well settled that the assessment proceedings before the ITO are quasi-judicial in nature and while making assessments the ITO has solely to be guided by the provisions of law. He cannot avail of any instruction or direction given by his higher authorities including the Central Board of Direct Taxes for making a particular assessment. While passing assessment orders he is only bound by what has been decided by the appellte authorities mentioned in the IT Act and the opinion expressed by the High Court or the Supreme Court. It is also now well settled that, as far as the income-tax is concerned, the principle of res judicata is not applicable and the ITO is not bound by the decisions rendered by him in an earlier order in regard to the same assessee. When these principles are kept in view, it becomes clear that the orders, instructions or directions that can be issued under s. 119(1) are administrative directions which cannot in any manner fetter the discretion of the ITO in making the assessment. This becomes more clear from the proviso to sub-s. (1) of s. 119 which says that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the AAC in the exercise of his appellate function. The AAC's functions are not executive. They are only judicial and this proviso has been enacted to make it clear that the orders, instructions or directions of the Board will not interfere with the judicial or quasi-judicial functions."
(iii) The Hon'ble Supreme Court again in the case of Sirpur Paper Mill Ltd. vs. CWT (1970) 77 ITR 6 (SC) have clearly stated as under :
"The power conferred by s. 25 is not administrative : it is quasi-judicial. The expression "may make such inquiry and pass such order thereon" does not confer any absolute discretion on the CIT. In exercise of the power the CIT must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice : he, cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Sec. 13 of the WT Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of officers of the Department in matters administrative but not quasi-judicial."
27. In the instant cases there is no denial that the DDI had given directions/instructions to the AO in his appraisal report to make enquiries in a particular manner and frame the block period assessments. The case of the assessee's counsel is that had there been no directions/instructions from the D.D.I. to the AO the impugned assessments would have been totally different and perhaps beneficial to the appellants. But since the mind of the AO was controlled by the directions/instructions of the D.D.I. as contained in the appraisal report, the AO had no other option or choice left except to make enquiries as dictated by the D.D.I. and frame assessments as per the wishes and desire of the D.D.I. as contained in the appraisal report. The written refusal by the Senior Departmental Representative to furnish us a copy of the questioned appraisal report or at least to place the said appraisal report for our perusal and study compel us to accept the arguments of the assessees' counsel that the impugned assessments are vitiated and illegal. It is well-established principles of law of evidence that if a particular document is not filed or produced or withheld deliberately by a party to a proceeding who is having the possession and custody of such document, then, the Court will be perfectly justified in presuming and drawing an inference that the contents of such a withheld document are favourable to the opposite side and adverse to the party possessing such document and refusing to part with it or file before the Court for the purpose of determination of the lis. In the instant case such a situation prevails. The Departmental authorities are in custody and possession of the appraisal report of the D.D.I which according to the appellants are adverse to their interest inasmuch as the AO has been influenced, dictated and directed to act not on his own independently but as directed and dictated by the superior officer in a particular document, namely, in the instant case the appraisal report of the D.D.I. It is on account of this conduct and attitude of the Departmental authorities in withholding the appraisal report which compels us to draw an inference that what the assessees' counsel Sri Santhana Krishnan submitted is true and correct and, therefore, we believe the same to be true, correct and acceptable. It is on the account of these reasons that the impugned assessments, as contended by Sri Santhana Krishnan, are vitiated and are not sustainable in law requiring vacation.
28. We now proceed to deal with the other contention of the appellants counsel that the CIT had given approval to the draft assessment orders of the AO in all these cases without hearing the appellants-assessees and without giving or recording any reasons in the approval order, copy of which has been given, by the Departmental Representative, in these appeals.
29. The proviso to s. 158BG put an embargo on the power of the AO that no order of assessment for the block period shall be passed without the previous approval of the CIT . A careful reading of the phraseology 'with the previous approval' employed in s. 158BG makes it abundantly clear that the granting of previous approval by the CIT is not an idle formality. The legislature in its proper wisdom knew that making of an order of assessment for the block period under Chapter XIV-B will adversely affect and deprive the citizens of their properties and other rights guaranteed under the Constitution, and, therefore, mandated that the AO shall not make any order of assessment of the block period until he obtained the previous approval of the CIT. From the scheme of Chapter XIV-B it is clear that the AO does not afford any opportunity to the assessee to raise any objections or hearing after the enquiries are completed on the basis of seized material and before passing of the order of assessment of the block period, though such person/assessee is likely to be affected by the final order of assessment of the block period after the enquiries conducted and completed by him. After the enquiry is completed by the AO he has to apply his mind and then frame an order of assessment of the block period under s. 158BC or under s. 158BD and at that stage the assessee or any other person cannot enter the mind of the AO and discern or find out the result of the enquiry, i.e., to say whether he is going to pass a favourable or an adverse order. It is for this reason the legislature in its wisdom thought that a senior officer of the department of the rank of CIT should give approval to the proposed draft order of assessment of the block period framed by the AO pursuant to enquiry conducted by him as provided in the relevant provisions of the IT Act, 1961. One thing we bear in mind that after the passing of the order of assessment by the AO after the granting of approval by the CIT under s. 158BG of the Act only one appeal has been provided to the aggrieved person and that is the appeal to this Tribunal. No further appeal has been provided after the disposal of the appeal by this Tribunal except the matter resting with the High Court by way of reference of questions of law under s. 256 of the Act. Since only one appeal has been provided, we think the legislature thought that no order of assessment of the block period framed in terms of Chapter XIV-B of the Act to be passed until the CIT being a very senior officer of the Department goes through the draft assessment order and grants his approval either for or against such an order of assessment. From the scheme of the special provisions in relation to search cases enacted in Chapter XIV-B and the phraseology employed by the legislature in s. 158BG empowering the CIT to give previous approval before final order of assessment is made by the AO. This makes abundantly clear that granting of previous approval by the CIT is not an idle formality.
30. The AO as well as the Senior Departmental Representative maintained that granting previous approval by the CIT to the proposed order of assessment of the block period is only an administrative act and neither a judicial nor a quasi-judicial act and, therefore, the question of affording any hearing to any person/assessee before granting approval to the proposed order of the AO does not arise and therefore, not essential or necessary. It is also the contention of the Departmental Representative before us that granting or refusing approval is an internal matter between the AO and the CIT to find out whether the proposed order of assessment of the block period framed by the AO is proper and valid and in accordance with the provisions of the Act and, therefore, the grant of previous approval by the CIT is not even a proceeding requiring or giving of a hearing to any person/assessee. This approach of the AO as well as the Senior Departmental Representative regarding the understanding of the provisions of s. 158BG is wholly fallacious and erroneous.
31. It is patently obvious that in order to enable the CIT to grant his previous approval, the AO has to forward to the CIT the entire record containing all the facts, seized materials and other evidence collected by him during the course of his enquiry embarked for the purpose of making block period assessments under s. 158BC/158BD along with his report on the findings arrived at by him on such enquiry or the proposed draft of the order of assessment of the block period to be passed by him in terms of s. 158BC/158BD of the Act. It is, therefore, lawfully expected that the CIT after receipt of such report or draft order of assessment with the record, seized materials and other evidence from the AO has to apply his mind by carefully studying the entire record of the proceedings in relation to the framing of the order of assessment of the block period and then to make a final order by the AO which may be either beneficial or prejudicial to any person/assessee. Thus, this act or function to be performed by the CIT in granting previous approval requires an enquiry and a judicial approach on the entire facts, materials and evidence. In law where any act or function requires application of mind and judicial discretion or approach by any authority it partakes of and assumes the character and status of a judicial or at least quasi-judicial act particularly where such act or function is likely to affect any person or his rights prejudicially, and where, more so, such right is civil right, namely, the property and assets which the assessee will be required to part with after the passing of the final order of assessment of the block period.
32. Under the provisions of s. 110(1) of the Customs Act, 1962, the officer has power of seizure if he has a reasonable belief that any goods are liable for confiscation under the Act. Further sub-s. (2) of s. 110 lays down that a notice under s. 124 has to be given within six months of the seizure of the goods to the person from whom the seizure was effected and if no such notice is given within that period then the seized goods shall be returned by such officer to the person from whose possession the goods were so seized. A proviso is added to s. 110(2) that the period of six months may, on sufficient cause being shown, be extended by the Collector of Customs for a further period not exceeding six months.
32.1. In the case of one, the Customs Officer failed to give notice under s. 124 to the person from whose possession the seizure was effected and he applied to the Collector to extend the time under the proviso to s. 110(2). The Collector, without any hearing to the concerned person, gave his approval to the Customs Officer and extended the time for issue of notice under s. 124. The order of the Collector made under proviso to s. 110(2) was challenged on the ground that the Collector had granted extension of time to the officer, without any hearing to the concerned and affected person, while granting extension of time was to be based on sufficient cause being shown by the officer for his failure to issue the notice under s. 124 within the six-month period and further, after the causes were shown by the officer, the Collector had to apply his mind and use his discretion and arrive at a finding or decision whether the causes shown by the officer were sufficient or not and this could be only done by the Collector upon inquiry of facts, namely material on record and, therefore, such act was a quasi-judicial act or at least an act requiring quash-judicial approach.
32.2. The Supreme Court in the case of Asstt. Collector of Customs vs. Charan Das Malhotra AIR 1972 SC 689 following and drawing assistance from its earlier decision in the case of A. K. Kraipak vs. Union of India AIR 1970 SC 150 held that on the expiry of the six-month period fixed under s. 110(2) of the Customs Act, the right to restoration of the seized goods, which is a civil right, accrues to the person from whose possession the goods were seized and such a valuable right cannot be taken away by the Collector by use of his power under proviso of s. 110(2) without affording any opportunity of hearing to the person from whose possession the goods were seized because 'the power to be exercised by the Collector under the proviso to s. 110(2) was not an administrative function but a quasi-judicial one, or at any rate one requiring judicial approach'.
33. In view of the above-mentioned two authoritative decisions of the apex Court, one in the case of A. K. Kraipak (supra) and the other in the case of Charan Das Malhotra (supra) it can certainly be said that the power exercised by the CIT in granting approval to the order of the AO is a quasi-judicial function and not an administrative function as contended by the Departmental authorities.
34. The term 'quasi-judicial' means 'like judicial though not exactly judicial' and its proceedings must be like judicial. And once it is judicial, then as per the requirement and rule of modern administrative law and that of Anglo-Saxon system of administration of law and justice followed by the Courts in India, it must essentially conform with, adhere to and follow the cardinal principles, commonly known as rules of 'natural justice'.
35. The 'principles of natural justice' demand that no man should be condemned without any hearing and that nothing should be done behind the back of any person who is likely to be adversely affected. This is based on the very well accepted maxim audi alteram partem, i.e., hear the other side. The fundamental idea of observance of the principles of natural justice is the recognised basic right of a human being to a fair trial or fair play in action or fairness in decision making process whether it is administrative, judicial or quasi-judicial. The observance of the principles of natural justice was sanctified by the Supreme Court, first in the year 1967 while rendering the decision in the case of State of Orissa vs. Dr. (Miss) Binapani Dei AIR 1967 SC 1269 and later on again in the year 1970 in the case of A. K. Kraipak (supra) as an essential part of any enquiry, function, act or process irrespective of its nature. This trend was further fortified by the Supreme Court in its landmark judgment in the year 1978 in the case of Smt. Maneka Gandhi (supra) and later in the case of Mohinder Singh Gill (supra).
36. It is now a well-established tenet laid down by the Supreme Court in the judgments rendered in the case of Swadeshi Cotton Mills vs. Union of India AIR 1981 SC 818 and in the case of Liberty Oil Mills vs. Union of Indian AIR 1984 SC 1271 following the decisions rendered in the cases of Dr. (Miss) Binapani Dei (supra), A. K. Kraipak (supra) and Smt. Maneka Gandhi (supra), that not only the principles of natural justice should be followed in all administrative and quasi-judicial processes and functions but 'breach' or 'violation' of the 'principles of natural justice' will render any decision or order void and a 'nullity'.
37. Very recently the Supreme Court in the case of Surinder Nath Kapoor vs. Union of India (1988) 39 Taxman 374 had observed :
"16. There can be no doubt than when an order is made for the payment of a fictitious sum without giving any opportunity to the person against whom the order is made, to show cause against the passing of such an order for the said sum, the order is nullity. In other words, in the eye of law it will be deemed that there was no existence of such an order and any step taken pursuant to or in enforcement of such an order will also be a nullity. ......"
Again the Supreme Court in the case of R. B. Shreeram Durga Prasad and Fatehchand Narsing Das vs. Settlement Commissioner (1989) 43 Taxman 34 (SC) had an occasion to pronounce that any order passed in violation of the rules of natural justice is a nullity by observing :
"6. We are definitely of the opinion that on the relevant date when the order was passed, that is to say, 24th August, 1977, the order was a nullity because it was in violation of principles of natural justice. See in this connection, the principles enunciated by this Court in State of Orissa vs. Dr. (Miss) Binapani Dei AIR 1967 SC 1269 as also the observations in administrative law by H. W. R. Wade, 5th Edn., pp. 310-11 that the act in violation of the principles of natural justice or a quasi-judicial act in violation of the principles of natural justice is void or of no value. In Ridge vs. Baldwin (1964) AC 40 and Anisminic Ltd. vs. Foreign Compensation Commission (1969) 2 AC 147 the House of Lords in England has made it clear that breach of natural justice nullifies the order made in breach. If that is so then the order made in violation of the principles of natural justice was of no value. ......."
On the question whether a person should be heard before any adverse order is passed against him, the Rajasthan High Court in the case of CIT vs. Suresh Chandra Gupta (1988) 173 ITR 407 (Raj), held as under :
"...... It is a basic requirement of law that a person, who is likely to be adversely affected by an order, should have an opportunity to show cause why such adverse order should not be made. ....."
Once it is established that there is non-observance of the principles of natural justice, it consequently follows that a 'prejudice' is caused to a person, that is to say, there has been 'miscarriage of justice'. The Supreme Court has laid down in the case of Delhi Cloth Mills AIR 1981 SC 136 at p. 147 (sic) that it is not essential, necessary for any person to further establish or prove that prejudice is caused to a person due to the non-observance or violation of the principles of natural justice.
38. In Smt. Maneka Gandhi's case (supra) the passport of the petitioner therein was impounded by the Government of India under s. 10(3)(c) of the Passports Act, 1967. The petitioner under Art. 32 of the Constitution challenged the action of the Government as being null and void for denial of an opportunity of hearing. The Hon'ble Supreme Court ruled that although there were no positive words in the statute requiring that the party shall be heard, yet, the justice of common law would supply the omission of the legislature. Their Lordships of the Supreme Court held that if the statute was silent with regard to the observance of the rules of natural justice, those principles shall be 'read' into the statute. Justice Bhagwati of the Hon'ble Supreme Court (as he then was) emphasised that audi alteram partem is a rule devised by Courts to ensure a reach just decision by the statutory authority and is calculated to act as a healthy check on the abuse or misuse of power and its reach and applicability cannot be allowed to be circumscribed. Thus, it is too late in the day to urge that since the legislature did not specifically provide in s. 158BG of the Act that the affected party shall have a right of hearing before previous approval under that section is given, the Courts would not insist upon compliance with at least the minimal rules of audi alteram partem to be followed particularly by a superior authority of the IT Department exercising quasi-judicial powers under s. 158BG of granting approval to the proposed order of assessment of the block period. We are unable to accept the argument that since the approval under s. 158BG is taken by a senior officer of the IT Department, who is supposed to act fairly justly and reasonably and not arbitrarily and therefore there is no need to follow the rule of audi alteram partem. Fair hearing is a postulate of decision-making by a statutory authority exercising quasi-judicial powers. Of course, undue expansion of natural justice without reference to the administrative realities and other factors of a given case is not desirable, but the fact remains that it is "untenable heresy to lock-jaw the victim or act behind his back" by tempting invocation of administrative necessity. Even where there is a clearest case of public interest or public injury, there is no justification for non-observance of even an abridged form of fair hearing, preferably before a clear decision is taken or where a hearing before the decision is not practical or reasonable. A hearing to the affected party is thus an essential attribute of quasi-judicial action and it would be ceased to be unfair if the affected or aggrieved party is denied this fairness in action.
39. One principle which is now well-settled by a catena of decisions, few of which we have discussed above is that even if the statute is silent with regard to grant of hearing to the person affected but the decision taken by the authority involves civil consequences or adverse consequences, at least a minimal hearing is essential, and not only desirable. An order suffering from non-observance of the principles of natural justice would, under the circumstances, be void and a nullity.
40. The Departmental authorities appearing before us have not been able to convince us that giving a hearing to the appellant before granting previous approval was against public interest or public good or hearing would have caused public injury. In such circumstances, we are very clear in our mind that the previous approval by the CIT under s. 158BG is a quasi-judicial act requiring application of mind and judicial discretion and, therefore, the observance of rules of natural justice or the cardinal rule of audi alteram partem should have been scrupulously observed by the CIT.
41. In these cases, the CIT has passed an order granting approval under s. 158BG of the Act through a single order passed on 31st March, 1997, without giving any reason whatsoever, As we have recorded elsewhere above, the draft assessment orders of the block period in all these cases were made on 31st March, 1997, and on the very same day, i.e., on 31st March, 1997, the CIT grants approval and that too without giving or recording any reasons whatsoever. The approval order does not disclose the points which were considered by the CIT and the reasons for accepting them. In our view, this is totally an unsatisfactory method of granting approval in exercise of judicial power vested in the CIT.
42. In Travancore Rayons Ltd. vs. Union of India AIR 1971 SC 862, the law regarding recording of reasons which lead to the passing of the order have been succinctly stated thus :
"Necessity to give sufficient reasons which disclose proper appreciation of the problem to be solved, and the mental process by which the conclusion is reached in cases where a non-judicial authority exercises judicial functions, is obvious. When judicial power is exercised by an authority normally performing executive or administrative functions, this Court would require to be satisfied that the decision has been reached after due consideration of the merits of the dispute, uninfluenced by extraneous considerations of policy or expediency. The Court insists upon disclosure of reasons in support of the order on two grounds; one that the party aggrieved in a proceeding before the High Court or this Court has the opportunity to demonstrate that the reasons which persuaded the authority to reject his case were erroneous, the other, that the obligation to record reasons operates as a deterrent against possible arbitrary action by the executive authority invested with the judicial power."
43. Again, in Liberty Oil Mills' case (supra) while dealing with cl. 8B of the Imports and Exports (Control) Act, which does not provide for a pre-decisional opportunity to the affected party and also lays down that an order may be made "Without assigning any reason", their Lordships opined thus (paragraph 22 at p. 1287) :
"Ours is a constitutional Government, an open democracy founded upon the rule of law not a cloak and dagger regimen. It is inconceivable that under our constitutional scheme a decision of the kind contemplated by cl. 8B which may have the effect of bringing to a standstill the entire business activity of the person affected and which may even spell ruin to him, should be made and implemented without being communicated to that person. Intertwined is the question of observance of natural justice and how can natural justice be satisfied if the decision is not even communicated ? It would be most arbitrary and quite clearly violative of Arts. 14 and 19(1)(g) of the Constitution if cl. 8B is to be interpreted as excluding communication of the decision taken. There is nothing in cl. 8B to suggest that the decision is not to be communicated. On the other hand, the expression 'without assigning any reason' implies that the decision has to be communicated, but reasons for the decision have not to be stated. Reasons of course must exist for the decision since the decision may only be taken if the authority is satisfied that the grant of licence or allotment of imported goods will not be in the public interest. We must make it clear that 'without assigning reasons' only means that there is no obligation to formulate reasons and nothing more. Formal reasons may lead to complications when the matter is still under investigation. So the authority may not give formal reasons, but the skeletal allegations must be mentioned in order to provide an opportunity to the person affected to make his representation. Chapter and verse need not be quoted. Details may not be mentioned and an outline of the allegations should be sufficient."
The recording of reasons and conveying the same, thus, is one of the norms of 'natural justice'.
44. In Mahabir Prasad Santosh Kumar vs. State of U.P. AIR 1970 SC 1302, Shah, J., speaking for the Bench, opined that recording of reasons in support of a decision by a quasi-judicial authority is obligatory as it ensures that the decision is reached according to law and is not a result of caprice, whim or fancy or reached on ground of policy of expediency. A party to the dispute, observed Shah, J., is entitled to know the grounds on which the order adverse to his interests had been passed. It would serve no purpose if the reasons are recorded but the party to the dispute is kept in the dark about the same. Non-communication of reasons deprives the affected party of knowing the grounds on which the authority exercising quasi-judicial powers had acted adversely to his interests and lands him into a serious handicap for further course of action.
45. Koshal, J. in Uma Charan vs. State of M.P. AIR 1981 SC 1915, speaking for the apex Court, once again emphasised the importance of the communication of reasons in an order affecting the rights of a person in the following terms :
"Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable."
It is, therefore, no longer re integra that a reasoned order is the essential condition of judicial disposal because the obligation to give reasons introduces clarity and excludes, or at any rate, minimises chances of arbitrariness. It gives satisfaction to the party against whom the order is made and enables an appellate or a supervisory Court to keep the Tribunals within bounds by testing the correctness of these reasons. Communicating an order but withholding the reasons for the order is thus an idle and a meaningless formality of conveying the order.
46. It, therefore, follows from the above authoritative decisions that an approval order of a quasi-judicial nature without reasons is a wholly defective order in the eye of law.
47. It is, therefore, too late now for the IT authorities to contend that there is no necessity to follow the principles of natural justice nor any need for giving any hearing to a person likely to be adversely affected by granting approval. The law of 'fair hearing to the other side' has become fully ingrained and crystallised as an implicit and inherent part of any statutory provisions by virtue of several decisions of the Supreme Court (followed by High Court also in several cases), so that any order or decision rendered in non-observance or breach of the principles of natural justice shall be void and nullity, that is to say, that no such decision or order came into existence in the eye of law. Such orders are liable to be quashed as held by the Supreme Court in the case of Collector of Central Excise & Land Customs vs. Sanawarmal Purohit 1979 ELT 613 and also by the Calcutta High Court in the case of Himalayan Plywood Industries (P) Ltd. vs. Collector of Customs (1986) 9 ECC 72.
48. For these reasons also, we agree with the assessees counsel, Shri Santhana Krishnan, that the impugned orders of assessment of the block period in all these cases are nullity and cannot be upheld.
49. Since we are holding that all the impugned assessments are not sustainable in law and vacating it, there is no need for us to consider or give any decision in respect of the various additions made in each of the cases. But since the appellants have raised contention challenging the various additions made by the AO as undisclosed income (UDI) in terms of Chapter XIV-B, we wish to deal with the same, but briefly.
50. The provisions of Chapter XIV-B have been brought on the statute book enacting special provisions for assessment of search cases of a block period of 10 years. The provisions of s. 158BC read with other relevant provision under the Act authorise the AO to pass order of assessment determining undisclosed income of block period in the manner laid down in s. 158BB of the Act. What is undisclosed income is clearly defined in sub-s. (b) of s. 158B of the Act. We reproduce the same below :
"158B(b). "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entire in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."
From the facts of each cash, which we have recorded elsewhere above in this order and the additions by the AO, it is clear that no undisclosed income was detected or found pursuant to the search operations conducted on the premises of the various appellants. The AO assessed M/s Kirtilal Kalidas & Co. (Appellant No. 1) in respect of undisclosed income worked out in a sum of Rs. 1,45,24,800 (see details at p. 11 of this order). Out of this undisclosed income, a sum of Rs. 86,17,816 has been considered as undisclosed income on account of unexplained shortfall in gold jewellery treating the same as undisclosed income. We fail to understand as to how shortfall in gold jewellery can be considered as an undisclosed income. The searching party found that the actual gold in the business premises was less than recorded in the account books and stock registers. We can understand had there been more stock of gold jewellery in the business premises at the time of search operations, over and above what is recorded in the account books. The treat the excess gold found unrecorded in the accounts as undisclosed income could have been valid and proper. But to add the value of gold jewellery found less than record in the account books treating it as undisclosed income is rather preposterous keeping in view the spirit and scheme of Chapter XIV-B of the Act and the definition of undisclosed income in s. 158B(b) of the Act, which we have extracted above.
51. Similarly, we do not find any justification for the addition of Rs. 49,23,408 in the case of the first appellant (M/s Kirtilal Kalidas & Co.) towards unexplained shortfall in respect of gold jewellery under repairs treating the value as undisclosed income. The addition of Rs. 5,05,227 in the case of the first appellant treating it as unexplained cash when the raiding party as well as the AO was told that this represented monies belonging to the trust styled as M. R. Agros. The availability of cash in the case of the trust has been found recorded in its regular account books. How the cash came into the possession of the trustees of the said trust are found recorded in the account books. Such being the case, we find no justifiable reason for the AO to consider the same as undisclosed income in the hands of the first appellant to the extent of Rs. 5,05,227 because the amount is found recorded in some documents which were found during the course of search operations in the business premises of the appellant M/s Kirtilal Kalidas & Co. in which one of the partner, Shri Santhakumar is a trustee of the trust of M/s M. R. Agros.
52. Similarly, we find no justification for treating the aggregate sum of Rs. 20,19,665 as undisclosed income considering the investment made by the trustees in the land and building including farm-house and swimming pool particularly when the expenditure for construction of these properties/assets are found recorded in the account books of the said trust. If the test laid down defining undisclosed income in s. 158B(b) of the Act, then the addition of Rs. 20,19,665 in the case of M. R. Agros as undisclosed income becomes unsustainable.
53. In the case of M/s Vispark Jewellery Manufacturers (P) Ltd. the AO has also committed an error in considering a sum of Rs. 2,10,43,312 as undisclosed profit from unaccounted turnover treating the same as unexplained investment in gold. The reasoning given by the AO in the assessment order passed in the case of M/s Vispark Jewellery Manufacturers (P) Ltd. is that there are issues for booking orders through various salesman which he picked out from one issue register and seized during the search operations. The explanation of the assessee that there are also receipts for corresponding bookings and making of ornaments, details of which are contained in separate receipt register has been totally ignored by the AO. The addition has been made purely on conjectures and surmises that there has been unaccounted turnover picking of few instances for a couple of months from one of the seized register, which according to the assessee, is maintained in the regular course of the business. We cannot agree with the AO that these recorded transactions in the issue register for booking orders by various employees could be considered as unexplained investment in gold and undisclosed profits from unaccounted turnover to be treated as undisclosed income for the purposes of Chapter XIV-B of the Act. The addition of Rs. 2,10,43,312 is thus wholly unjustified and unwarranted and cannot be sustained.
54. The addition of Rs. 9,42,706 in the case of M/s Vispark Jewellery Manufacturers (P) Ltd. towards wastage of gold also cannot be sustained as undisclosed income of the block period. We do not know by what stretch of imagination or argument wastage of gold can be considered as undisclosed income for the purposes of block period assessment in terms of provisions of Chapter XIV-B of the Act. This addition also is wholly illegal requiring deletion.
55. When we look into the assessment of Dr. Usha Mehta, we find that the AO has added a sum of Rs. 27,86,400 as undisclosed investment in gold jewellery and diamond as discussed by him in paras 5 to 5.6. The case of this assessee is that the gold jewelleries and diamond are accounted for and declared in her wealth-tax returns and she had tendered explanation to the AO through her authorised representative during the course of hearing. The AO instead of appreciating the explanation tendered supported by evidence considered the same as undisclosed income and added it. On going through the contents of the letter, copy of which has been placed in the paper-book and seeing the copies of the wealth-tax returns filed by this assessee, we are convinced that the sum of Rs. 27,86,400 was not required to be considered as undisclosed income and added it to the total income.
56. Similarly we also do not find any justification on the part of the AO to treat the cash of Rs. 10,000 as undisclosed income in the case of Dr. Usha Mehta particularly when satisfactory explanation was given.
57. From the facts which we have discussed in relation to each of the appellant-assessees, we are of the view that no undisclosed income was found as a result of search operations requiring to be assessed under s. 158BB r/w s. 158BC or s. 158BD under Chapter XIV-B of the Act.
58. In result, the orders of assessment for the block period impugned by each of the appellant-assessees are hereby quashed and the appeals are allowed.