Income Tax Appellate Tribunal - Ahmedabad
Smt. Mumtazbanu M. Rafiqbhai vs Assistant Commissioner Of Income Tax on 3 January, 2000
Equivalent citations: (2000)67TTJ(AHD)202
ORDER
R.K. Bali, A.M. This is a first appeal against the order, dated 29-8-1996, passed by the learned Assistant Commissioner, (Inv.) Cir. 1, Bhavnagar for the block period 1-4-1985, to 3-8-1995, comprising of assessment years 1985-86 to 1996-97. The assessee has taken the following grounds ..
"On the facts and circumstances of the case and in law:
Legality and jurisdiction (1) There was no basis or reason with the Commissioner to record' his satisfaction before, issuing authorisation under section 132 because every fact, documents and other evidence found in the course of search was already available with and fully known to the survey party of the IT department, immediately before the issue of search warrant of authorisation under section 132 by Commissioner and, therefore, the block assessment made in consequence of such search was without jurisdiction against the Constitution and law and, therefore, null and void, (2) the order under section 158BC(c), dated 29-8-1996, is without jurisdiction and hence it is a nullity in law, and (3) the order under section 158BC(c) dated 29-8-1996, to the extent additions to the declared total incomes are based on DVO's report, is also without jurisdiction.
On merits (4) The learned assessing officer is not justified in making addition of Rs. 50,000 on account of construction and renovation of residential house basing the same merely on assessee's disclosure duly and validly retracted.
(5) The learned assessing officer is not justified in making additions of Rs. 50,975, Rs. 2,95,137 and Rs. 2,49,233 (total Rs. 5,95,345) on the basis of DVO's report.
(6) The learned assessing officer is not justified in making addition under section 68 at Rs. 7,00,000 on substantive basis and Rs. 10,20,000 on protective basis (total Rs. 17,20,000).
(7) On the facts and circumstances of the case and in law, the learned assessing officer assumed jurisdiction under various statutory provisions and made various additions mentioned in the foregoing grounds without properly considering and appreciating the explanation and replies submitted by the assessee.
(8) The learned assessing officer is not justified in making the following additions
(i) Rs. 45,962 On account of entry on page No. 57 of Ann. A. 1/1.
(ii) Rs. 2,00,000 As unexplained cash.
(iii) Rs. 4,69,961 On account of entries on loose papers seized during the course ~f search.
(iv) Rs. 15,846 As unexplained expenses as per Arm. A- 11.
(9) The appellant craves leave to add, amend or alter any of the above ground., at the time of hearing of the appeal.
2. Briefly the facts are that the assessee is running restaurant called Manila Restaurant at Bhavnagar and she is also proprietor of Hotel White Rose whose construction had been completed upto the date of the search i.e., 3rd/4-8-1995, but no business was started. In fact, hotel was going to be inaugurated on 10-8-1995.
3. Initially there was a survey operation carried out by the departmental Officers in the case of the assessee under section 133A on 2-8-1995. The survey continued till late hours in the evening of 3-8-1995 and subsequently it was converted into a search on 3-8-1995 at 11-30 P.M. after getting warrant of Authorisation from the Commissioner, Rajkot.
3.1. During the course of survey the documents, books, files, cash, etc. found were duly marked, identified and inventorised. As many as 86 items were numbered and inventorised comprising of documents/books during the survey. Copies of such documents have been filed before us at p. Nos. 2/1 to 2/8 of paper-book II filed by the assessee. From these documents it appears that the inventories were made on 2-8-1995, by the clerical staff but the same were signed by the officer in-charge of survey on 3-8-1995.
3.2. The cash of Rs. 2,45,669 found during the survey related to various concerns viz. Manila Restaurant, Hotel Apollo, STD/PCO, Hotel White Rose, Charity Fund of. However, no separate list of cash for each concern appears to have been prepared by the survey party/search party. The statement of Shri Rafiqbhal, husband of the assessee who was holding general power of attorney regarding the business matters of his wife, was recorded with regard to various documents found. Copies of the statement in Gujarati and free English translation have been given to us by the assessee at pp. 4 to 59 of the paperbook, From the statement it appears that it was recorded in two parts. From question No. 1 to question No. 34 and their answers were recorded during the survey operation and it appears that the survey was concluded after recording the answer to question No. 34. The relevant question and answer is reproduced hereunder :
Q. 34. Taking into consideration the proceedings so far do you want to surrender the unaccounted income of your and your wife, if yes, furnish reply in detail.
Ans. Yes sir, 1, on behalf of my wife, who is the proprietor of Manali Restaurant and Hotel White Rose declare Rs. 1,55,000, as unaccounted income for the year 1994-95 and 1 agree to pay the tax on that income at the earliest.
The above is free English translation given by the assessee of the statement. However, the assessee has also filed free English transaction of p. 9 of the above statement at p. 59 of the paper-book which reads as under :
Ans. (34) Yes Sir, I on behalf of my wife who is proprietor of "Manali Restaurant" and "Hotel White Rose" declared unaccounted income of Rs. 1,55,000 for financial year 1994-95 and 1 agree to pay the tax thereon at the earliest, The above statement has been made by me with cool mind and without any coercion. This has been made as power of attorney holder of my wife. It is acceptable and binding to us. Above surrender unaccounted income made as constituted attorney is binding to me.
Before me Sd/-
Sd/-
Illegible Illegible 2nd Aug., 1995 2nd Aug., 1995 The statement was finally concluded on 3-8-1995, in the form of questions and answers running upto p. 22 with answer to question No. 93.
4. As mentioned earlier, the survey was converted into a search action under section 132 which commenced at 11.30 P.M. on 3-8-1995 and was concluded on 4-8-1995 at 11 AM, According to the assessing officer the assessee as well as her husband Shri Rafiqbhai during the course of statement recorded under section 132(4) admitted to concealment of Rs. 25 lacs the details of which have been given by the assessing officer at p. 2 of the assessment order which are as under
Rs.
(a) Bogus gifts received through NRE a/c 17,20,000
(b) Unaccounted cash 2,00,000
(c) F. D. out of books 1,15,000
(d) Unrecorded transactions as per pg. 199 of Annex. A 1/13 1,43,400
(e) Renovation of residential house 50,000
(f) Unrecorded construction of Hotel White Rose 2,71,600 Total 25,00,000
5. However, it appears that the assessee subsequently vide letter dated 4-10-1995 addressed to the Assistant Commissioner with copies to various authorities (viz. ADI Bhavnagar, Dy. CIT, Bhavnagar Range, Bhavnagar, Commissioner Rajkot, Director of income-tax, Ahmedabad and Director General (West) Ahmedabad, Chief Commissioner, Ahmedabad), retracted from the statement on the ground that the same was obtained under coercion and threats as the assessee as well as her husband were detained in the premises of Hotel Apollo from 11.30 AM on 3-8-1999 till 11 AM 4-8-1995. Copy of retraction letter given to us at pp. 1-3 of paper book 1. The AC, however rejected the retraction by observing that it i~,, general in nature and an afterthought made after two months and he proceeded to make the assessment on the basis of statement as well as documents/loose papers found during the course of search and accordingly issued notice under section 158BC to the assessee in response to which the assessee filed a return of undisclosed income declaring Nil undisclosed income. The assessing officer however, completed the assessment under section 158BC read with section 143(3) at a total income of Rs. 30.97, 110 which inter alia includes the following :
Rs.
Rs.
Rs.
Asst. yr. 1993-94 (1) Construction and renovation of house 50,000 Asst. yr. 1994-95 (1) On account of unexplained expenditure in construction of Hotel White Rose 50,975 Asst yr. 1995-96 (1) Gifts received from NRE a/c
(a) On substantive basis 7,00,000
(b) On protective basis 10,20,000 17,20,000 (2) Entiy on p. No. 57 of Anm. A1-1 45,962 On account of unexplained expenditure in construction of Hotel White Rose 2,95,137 20,61,099 Asst. yr. 1996-97 (1) Unexplained cash 2,00,000 (2) Entries on loose papers seized during the course of search, as per the body of the order 4,69,961 (3) Unexplained expenses as per Arm. A. 15,846 (4) On account of unexplained expenditure in construction of Hotel White Rose 2,49,233 9,35,040 Total undisclosed income ..
30,97,114 30,97,110 Assessed under section 158BC(c) of the Act, Calculate the tax @ 60% and issue demand notice and challan accordingly.
This order has been passed after getting approval of the Commissioner Rajkot vide his letter No. CIT. P,/HQ/30(158BC)/2/95-96, dated 22-8-1996."
6. Aggrieved with the order of the assessing officer the assessee has filed this first appeal and has challenged the order passed by the assessing officer by taking various grounds as reproduced in para 1 above.
7. Ground Nos. 1 and 2 relate to the legality of the assessment framed by the assessing officer on the ground that the jurisdiction assumed by the assessing officer to complete block assessment under section 158BC is legally incorrect as the search on the basis of which the jurisdiction was assumed by the assessing officer was illegal and bad in law. It was pleaded that the survey operations were conducted on 2-8-1995, which indicates that there was no information with the learned Commissioner justifying the authorisation issued by him for converting the survey operations into search on 3-8-1995. It was pleaded that the survey proceedings which started on 2-8-1995 were continuing on 3-8-1995 and the survey party has inventorised the documents/papers found during the survey and no new material was found during the search which is apparent from the numbers placed on the search annexures and the corresponding numbers of survey inventory. From the above, the learned authorised representative of the assessee submitted that it is clear that there was no information in possession of the learned Commissioner as envisaged in section 132 of the Act warranting/justifying the search warrant issued by the Commissioner on the basis of which the search was commenced at 11.30 PM on 3-8-1995. In this connection pointed reference was made to the statement of Shri Rafiqbhai with regard to question No. 34 and its answer given at p. 59 of the paper book which has also been reproduced by us in para 3.2. This page, according to the authorised representative was inadvertently left by the survey/search party at the premises of the assessee. It was submitted that from the above it is clear that the survey was concluded on 3-8-1995 and subsequently when the survey was converted into search, nothing new was found which was not disclosed and/or known to the department before the search and as such it is clear that the conditions necessary for initiating action under section 132 have not been fulfilled. Reliance was placed on the decision of the Allahabad High Court in the case of Motilal v. Preventive intelligence Officer (1971) 80 ITR 418 (All) which decision has subsequently been approved by the Hon'ble Supreme court in the case of CIT v. Tarsemkurnar (1986) 58 CTR (SC) 129 : (1987) 161 ITR 505 (SC). Reliance was also placed on the following decisions :
(i) L.R. Gupta v. Union of India (1992) 101 CTR (Del) 179 : (1992) 194 ITR 32 (Del),.
(ii) H.L. Sibal v. CIT 1975 CTR (P&H) 302..(1975) 101 ITR 112 (P&H);
(iii) Jagmohan Mahajan & Anr. v. CIT & Ors. 1976 CTR (P&H) 316.. (1976) 103 ITR 579 (P&H); and
(iv) Dr. C. Balkrishnan Nair v. CIT (1999) 154 CTR (Ker) 523.. (1999) 237 ITR 70 (Ker).
It was submitted that the composition of disclosure of Rs. 25 lacs noted by the assessing officer at p. 2 of the assessment order which was subsequently retracted by the assessee vide letter dated 4-10-1995, itself suggests that it was an extracted disclosure from the assessee because :
(i) the alleged bogus gifts from NRI were already on record and these were obtained by drafts from NRI accounts of the donors and these were then credited to the respective bank accounts of the donees viz. (a) the assessment. Mumtazbanu, (b) M. Nadim, son of the assessee and (c) Shri Rafiqbhai husband of the assessee. Copies of the bank pass books have been given to us at pp. 46 to 59 of the paper-book No. 2.
It was submitted that the assessing officer has wrongly taxed the amount of Rs. 7 lacs received as gift by the assessee from NRI account of Shri Manoj Patel and Smt. Nutan Patel and has further wrongly assessed the sum of Rs. 10.2 lac.. on account of bogus gifts received by the husband of the assessee Shri Rafiqbhai and the son of the assessee M. Nadim on protective basis by invoking section 68 which is not at all applicable as the credit in the bank pass nooks cannot be considered as credit in the account books of the assessee. It was submitted that the explanation of unaccounted cash was given by the assessee and he) husband during survey in answer to question Nos. 8 and 25 as under
"(Relevant Q. 8 (p. 29 of paper-book) (Q. 25 (p. 35 & 36 of paper-book) Rs.
(1) Manali Restaurant 7,674 (2) Hotel Apollo 54,484 (3) STD/PCO 45,000 (4) Madarsa Jakat Fund Nyaz Fund Charity 48,000 (5) White Rose 4,000 (6) B/L difference personal cash of Rafiqbhai 94,511 Total 2,45,669 The alleged expenditure of Rs. 50,000 on the renovation of house is without any basis as no renovation whatsoever was carried out by the assessee and the balance amount of Rs. 2,71,600 on account of unrecorded construction of Hotel White Rose has been written to make the total round figure of Rs. 25 lacs. It was submitted that none of the items mentioned in the assessment order can be considered as undisclosed income of the assessee within the meaning of section 158BA of Chapter XIV-B. It was further submitted that the assessee has duly recorded the expenditure incurred on the construction of Hotel White Rose in her books of accounts and the addition on account of unrecorded expenditure for the construction has been made on the basis of a report of the Valuation Officer which was received subsequent to the granting of approval by the CIT, Rajkot to the assessment order under section 158BG which is totally illegal and in any case the same cannot be considered as undisclosed income within the meaning of section 158BA. Accordingly it was pleaded that the assessment of the assessee framed under section 158BC read with section 143(3) was null and void because there was no valid ground as contemplated under section 132 to convert the survey into a search and consequently the block assessment framed by the assessing officer was without jurisdiction and also because of the fact that no undisclosed income as defined in section 158BA was discovered as a result of the search which itself was illegal on account of non-compliance with the statutory provisions of section 132.
8. The learned departmental Representative strongly supported the order of the assessing officer. It was submitted that it is a matter of record that during the survey on 2-8-1995 unaccounted cash of Rs. 2.45 lacs and voluminous incriminating documents were found and the assessee and her husband during the course of statement recorded under section 133A(1) had accepted various unaccounted income and expenditure. It was pleaded that the material found during the course of survey prima facie showed that the assessee was in possession of undisclosed income and evidence which it had not disclosed or was not likely to disclose to the IT department. Accordingly, it was submitted that the material information found during the survey justified the search action under section 132. It was pleaded that the satisfaction of the CIT/Director of Income-tax in authorising the search is subjective satisfaction and so long as some relevant material existed before the CIT/Director of Income-tax (DIT) at the time of authorising the search for formation of reasonable belief, the Tribunal/Court cannot substitute their opinion to fudge the validity of the action of the CIT/DIT. It was pleaded that the argument that search is invalid because nothing new was found during the search, is both misconceived and irrelevant because the validity of the search is not dependent on the results of the search. It was submitted that the validity of the search is dependent upon the existence of the conditions prescribed under s, 132(1) at the time of authorising the search and in the facts of this case such conditions existed when the warrant under section 132 was issued.
8.1. During the course of hearing of this appeal, the Bench required the learned departmental Representative to show the satisfaction note recorded by the Commissioner for authorising the search action but the same was not produced and in support of that, written explanation was filed by the CIT, Rajkot as well as the opinion of the standing counsel which are as under :
"2. The "Satisfaction Note" recorded for authorising the search action in this case, is not in the custody of the assessing officer or the CIT. Even otherwise, it cannot be produced before the Tribunal for the following reasons :
(1) The "Satisfaction Note" is not a part of the assessment records or the records of the CIT's office. The same is a secret document in the custody of the Directorate of Income-tax (Inv.). The assessing officer or the Commissioner has no authority to direct the Directorate of Income-tax (Inv) to produce the same.
(2) The "Satisfaction Note" has not been referred to or in any manner, used in the assessment order. Neither was the same available to the assessing officer.
(3) It is well settled that the powers of the appellate authorities in an appeal arising from an assessment order are co-terminus with the powers of the assessing officer. They can do what the assessing officer could do and they cannot do what the assessing officer has no power to do. It is also well settled that during assessment proceedings the assessing officer has no power to examine the validity of a search authorised by the Commissioner or the Director of Income-tax (Inv.). Therefore, in an appeal arising from such an assessment order, the appellate authorities will also have no power to examine the validity of the search.
(4) The first ground of appeal, relating to legality of the search, is not maintainable, as the Tribunal, while hearing an appeal against an assessment. order, has no authority/power to examine the legality of action under section 132 taken by the CIT/DIT prior to the commencement of assessment proceedings The only remedy for challenging the legality of a search is a writ before the High Court, which the assessee has chosen not to avail.
(5) In any event, the main submissions of the assessee for having the search declared as illegal, are that it emanated from a survey, and that no new material was found during the search. It is a matter of, record that during the, survey on 2-8-1995, unaccounted cash of over Rs. 2.45 lacs and voluminous incriminating documents were found. It is also a matter of record that in the statements recorded under section MAW (sic) on 2-8-1995, the assessee, her husband Shri R.A. Ghoghabori and son Shri M.R. Ghoghabori had accepted various unaccounted incomes/expenditure. Therefore, the material found during survey prima facie showed that the assessee was in possession of undisclosed income and evidence, which it had not disclosed, was not likely to disclose to the IT department. The assessee does not deny the recovery of these assets/records during the survey. Therefore, even the assessee's argument shows that, as a result of the survey, material information was found justifying search under section 132. It is well established that satisfaction o! the CIT/DIT in authorising a search is a subjective satisfaction, and so long as some relevant material existed before the CIT/DIT at the time of authorising the search for formation of a reasonable belief, the Courts cannot substitute. their opinion to judge the validity of the action of the CIT/DIT. It is well settled that sufficiency of reasons recorded by CIT/DIT is not justiciable. In this case, it is not a dispute that such material came out as a result of the survey on 2-8-1995, and was before the CIT/DIT, when he authorised the search on 3-8-1995. The argument that search is invalid because nothing new was found during the search, is both misconceived and irrelevant because the validity of a search is not dependent on the results of the search. Instead, it is dependent on existence of the conditions prescribed under section 132(1), at the time of authorising the search. In this case, it is obvious, ex facie, that such conditions existed when the warrant under section 132 was issued.
(6) Since the survey had brought out unaccounted assets and incriminating documents, which could not be taken possession of under section 133A, it was considered necessary by the then Commissioner Rajkot, to authorise action under section 132. A copy of the appraisal report dated 18-9-1995, of ADIT (Inv), Bhavnagar, giving details of the various unaccounted assets and incriminating documents, found during the search, is enclosed. This also covers the confessional statements of various persons under section 131A(I) (sic) on 2-8-1995, i.e. before the search on 3-8-1995, The same can be placed before the Tribunal as it was also before the assessing officer when he completed the assessment.
3. It the Tribunal still insist on production of the "Satisfaction Note", they may be requested to pass a formal order directing the DIT (Inv) Ahmedabad to produce the same."
Opinion of standing counsel of IT department "We refer to your letter bearing No. CIT.R/Jud/MRG/99-2000, dated 24th Nov., 1999.
As recorded in your letter the Tribunal has directed the senior authorised representative to furnish copy of the Satisfaction Note recorded before issuing the warrant of authorization under section 132.
We had discussed the issue with Mr. R.K. Gupta, senior authorised representative.
We are given to understand that satisfaction note contains details with regard to informant. An assurance is given by the department to the informant that his identity will not be disclosed to any person. This therefore, is a privilege document and can be placed on record of proceedings.
We are further given to understand that the subject-matter of appeal is riot based on sufficiency or otherwise of the satisfaction recorded. In other words Satisfaction Note is not relevant for the proceedings before the Tribunal.
Based on the above, we are of the opinion that the department can legitimately file an affidavit claiming privilege. If the Tribunal members so insist, the Satisfaction Note can be given for perusal of the members only, with a proviso that the same shall not be placed on record so as to be made available to the assessee or its counsel."
In view of the Commissioner's written submissions as well as opinion of the standing counsel, the learned departmental Representative submitted that the plea of the assessee's counsel that the assessment framed is null and void having been made on the basis of illegal search, is without any merit and is required to be rejected.
9. We have considered the rival submissions and have also gone through the order passed by the assessing officer as well as the submissions made by the Commissioner as well as the opinion of the learned standing counsel, The Tribunal is an authority constituted under the Income Tax Act and as such cannot question the validity of the vires of any provision of the Act. However, since by exercise of powers under s 132 of the Act, a serious invasion is made upon the rights, privacy and the freedom of the taxpayer, the powers must be exercised strictly in accordance with law and only for the purpose for which the law authorise it to be exercised. If the action of the officer issuing authorisation is challenged, the, officer concerned must satisfy the Court/Tribunal about the regularity of his action. Accordingly the Tribunal is competent to decide as to whether the conditions precedent for invoking powers given to the learned Commissioner under section 1312 are. exercised in accordance with the provisions of section 132. In accordance with the provisions of section 132(13) the provisions of Cr.PC relating to search and seizure shall apply, so far as may be, to search and seizure under sub-section (1) and section (IA). In accordance with section 165 of the Cr.PC a search can be authorised only when the competent authority record in writing grounds of his belief and specify in such writing, so far as possible, the things for which search is to be made. In the present case it is not known as to whether any such satisfaction was recorded by the learned Commissioner before issuing warrant of authorisation. The undisputed facts are :
(1) There was survey at the premises of the assessee on 2-8-1995, which continued till late hours in the night of 3-8-1995, and it was converted into a search on 3-8-1975 at 11.30 P.M. only and was concluded at 11 AM on 4-8-1975.
(2) Although the assessee against whom the search warrant was issued was a Muslim lady, yet the search party which comprised of 16 persons did not contain a single lady officer/Inspector- From the Panchnama, the names and designation of the various officers along with the Inspectors who assisted their are as under :
Name Full Designation
1. K.K. Kanwat Dy. CIT, Bhavnagar
2. L.R. Meena Asst. DIT (Inv), Bhavnagar.
3. R. B. Rande Assistant Commissioner (Inv) Circle 3
4. C.R. Ogawa Income Tax Officer, Ward 5, Bhavnagar
5. B. K. Sataria Income Tax Officer, Survey
6. V.R. Bhayow Inspector
7. J.L. Deshi Inspector
8. B.K. Chauhan "
9. A, T. Vadher "
10. I.M. Dave "
11. M. B. Gohil "
12. M.V. "
13. N.K. Joshi "
14. M. N. "
15. J.V. Joshi "
16. K.M. "
From the above it is clear that on 2-8-1995, there was no information with the learned Commissioner warranting search and no informant as involved at whose instance or on the basis of whose information the Satisfaction Note authorising the search was recorded by the CIT. At the most it could be on the basis of a report given by the officer- in- charge of the survey on the basis of which the warrant was issued by the Commissioner and yet the department has chosen to claim privilege in not disclosing the Satisfaction Note to the Tribunal. It is pertinent to note that in para 3 of the submissions sent by the learned Commissioner through the learned departmental Representative, it is mentioned "if the Tribunal still insists production of satisfaction note, they may be requested to pass a formal order directing the DIT (Inv), Ahmedabad to produce the same." From the above it appears that the warrant of authorisation was issued by the DIT (Inv) Ahmedabad whereas in the Panchnama filed by the assessee which showed that the search commenced at 11.30 P.M. on 3-8-1995, and ended on 4-8-1995, at 11A.M. it is clearly mentioned that the warrant of authorisation was issued by the Commissioner, Rajkot and not by DIT (Inv), Ahmedabad as mentioned by the learned Commissioner in para 3 of his submissions which we have extracted in para 8.1 above.
The absence of any lady officer or any lady Inspector in the search party of the IT department clearly indicates that the Commissioner while issuing the authorisation has not applied his mind and has not followed the guidelines issued by the Board as well as the provisions contained in the Cr.PC relating to the searches of females referred to in the Charter of Rights and Duties of person searched reported in 280 ITR (St) 5.
10. The disputed facts are as under
(i) It is alleged by the assessee that the survey was concluded on 3-8-1995, when the statement of Shri Refiqbhai was recorded after recording the answer to question No. 34 where the assessee agreed to disclose unaccounted income of Rs. 1,55,000 only for financial year 1994-95 which is apparent from p. 9 of the statement copy of which is given to us at p. 59 of the paper-book and is in Gujarati whose free English translation has been reproduced by us in para 3 above. On the other hand, the claim of the department is that the survey was not concluded and the statement was continued further in the form of questions and answers and was concluded with answer of question on. 93 on 3-8-1995.
(ii) According to the assessing officer, the assessee as well as her husband voluntarily disclosed the income of Rs. 25 lacs in the statement recorded under section 132(4) on 4-8-1995 during the search. However, the allegation of the assessee is that the alleged surrender was not voluntary but was under threat and coercion because the assessee was called by the IT authorities on 3-8-1995 at 11 30 AM. from her residence at Hotel Apolo, where the survey was in progress "2nd Aug., 1995, noon and she was confined to one place till 4th Aug., since ' 1995 11 A.M. and the search was concluded only with signature of the assessee and her husband on the alleged voluntary declaration of Rs. 25 lacs on account of unaccounted income. The so-called voluntary surrender was retracted by the assessee by filing letter, dated 4-10-1995, addressed to the Assistant Commissioner (Inv) Circle, Bhavnagar referred in para 5 above.
A comparison of the list/inventory of account books, etc. found and not seized at the time of survey and these subsequently seized after the search, clearly indicates that some documents which were inventorised at the time of survey were subsequently seized. In this connection the assessee has furnished the details of books and documents found and inventorised during the survey on 2-8-1995 at pp. 1 to 8 of the paper-book No. 3 and the books and documents seized during the search on 3-8-1995 at pp, 9 to 16 of the paper-book. From the list of inventory prepared at the time of survey it is clear that the same was started on 2-8-1995, but the authorised officer signed it on 3-8-1995, Sr. No. 60 of the list prepared at the time of survey from pp. 6 to 8 is identical with Sr. No. 1/60 to 1/85 of the list of account books seized given at pp. 14 and 15 of the paper book. The other documents seized mostly contains regular and rough account books of the Hotel White Rose, Hotel Apollo. Manila Restaurant. Thus, it is clear that as a result of search nothing new has been found which was not disclosed and/or was known to the department who was carrying survey at the premises of the assessee and, therefore, the conditions requisite for initiating action under section 132 are not satisfied. In this connection, the observations of the Hon'ble Allahabad High Court in the case of Motilal v. Preventive IntelLigence Officer (supra) at p. 422/423 are as under :
In my opinion, the power conferred under section 132(1) is contemplated in relation to those cases where the precise location of the article or thing is not known to the IT department and therefore, a search must be made for it, and where it will not be ordinarily yielded over by the person having possession of it and therefore, it is necessary to seize it .........
I am unable to accept the contention on behalf of the IT department that section 132(3) will include a case where the location of the article or thing is known and where ordinarily the person holding custody of it will readily deliver it upto the IT department. Such article or thing, I think, requires neither search nor seizure The aforesaid decision was approved by the Supreme court in the case of CIT v. Tarsemkumar (1986) 58 CTR (SC) 129 : (1987) 161 ITR 505 (SC) (relevant p. bl I) -
The same is the opinion of Hon'ble Delhi High Court in the case of L.R. Gupta v. Union of India (1992) 101 CTR (Del) 179 : (1992) 194 ITR 32 (Del), Punjab & Haryana High Court in the case of HL. Sibal v. CIT 1975 CTR (P&H) 302 . (1975) 101 ITR 112 (P&H) and Jagmohan Mahalan & Anr. v. CIT & Ors. 1976 CTR (P&H) 316 : (1976) 103 ITR 579 (P&,H). "
In this connection, it is useful to refer to the safeguards provided under section 165 of the Cr.PC which applies to search under the Income Tax Act, in view of section 132(13) and they are :
(i) the empowered officer must have reasonable ground for believing that anything necessary for the purpose of assessment/recovery of tax is to be found in the place in respect of which authorisation is issued.
(ii) He must be of the opinion that such thing can not be otherwise got without any undue delay.
(in) He must record in writing the grounds for his belief.
(iv) He must specify in such writing so far as possible the thing for which the search is to be made.
Apparently none of these has been done in this case and the search warrant has been given without complying with the requirements of section 132 read with s, 165 of the Cr.PC.
11. The matter can be looked from another angle. Chapter XIV-B is meant to tax undisclosed income unearthed as a result of search. In the case before us the assessee had disclosed the construction of Hotel White Rose in her books of account for the respective years. The alleged bogus gifts were received by the assessee, her son, and her husband by bank drafts through NRI accounts of the donors., these were credited into bank pass books of the assessee which are meant to be disclosed to the IT department. During the course of assessment proceedings for the block year the assessee has given various explanations to the queries raised by the assessing officer by producing the pass books and other documents indicating the cash in hand in respect of various concerns and has also tried to explain the various loose papers found during the survey. The estimation of undisclosed income by the assessing officer is mainly on the basis of the statement of the assessee or her husband which was subsequently retracted and a reference even to the statement of the husband particularly question and answers Nos. 35, 38/39, 44, 45, 46 to 52, 89, 90 and 91 clearly indicates that so called surrender of income of Rs. 25 lacs was through coercion and undue influence. The relevant questions and their answers are reproduced hereunder:
Q. 35 The following details have been found from the accounts books and the files (1) Smt. Mumtazbanu have received gifts as under:
3,00,000 27-05-1994 Manoj Patel & 2,00,000 03-06-1994 Nutan B. Patel 2,00,000 11-05-1994
2. Shri Nadeembhai have received gifts as follows:
2,70,000 12-10-1994 3,00,000 30,000 50,000
-11-1994 1,50,000
-12-1994
3. Shri Raliqbhai have received gifts as follows :
3,00,000 12-10-1994 1,00,000 17-10-1994 1,20,000 06-03-1995 By perusing your file it is found that you have obtained signature of the person giving the gift on blank paper. This means that you have paid him (person giving the gift) in cash and you have been given the gift from the NRI account in lieu thereof. There are reasons to believe that this is a true fact. How do you reply to, 'this ? Please explain this. The above contention is true. The aforesaid amount has been received as gift draft from NRI account by paying cash. The cash amount so paid is from my unaccounted income and I have received gift draft from Manoj Patel and Nutan B. Patel.
Rs.
Smt. Murritazbanu 7,00,000 Shri Nadeembhai 5,00,000 Shri Ralikbhai 5,20,000 17,20,000 The aforesaid amount is paid in cash from my unaccounted income and I have received gift draft from Shri Manoj Patel and Nutan B. Patel, from NRI account I undertake to pay the taxes on unaccounted income of Rs. 17,20,000 at the earliest and 1 surrender this as un-accounted income during the year 1994-95.
Q. 38139.-Please explain for refusing to sign page Nos. 9, 7, 10 of the statement which is now being recorded.
Ans. The amount received from NRI account has been correctly show on page Nos. 9 & 10 but the question No. 35 and the details of the reply to it written on pp. 9 & 10 are not correct.
Q 44.-You have received huge amount of Rs. 3,00,000 and Rs. 5,00,000 by way of gift. It is, therefore, but natural that you should know that person. You must be having good relationship. You are, therefore, requested to say since how long you know Manoj Patel & Nutan B. Patel. How do you know them ? Please furnish in detail their full addresses.
Ans. Shri Manoj Patel & Nutan B. Patel met me at Vadodara. I came to know them through my friend. 1 do not know the name of the said friend. 1 had asked for a gift and they have given me the gift.
Q. 45. From your above reply it is observed that in the statement recorded tinder s 131 of the Income Tax Act it is seen that you have been replying to the IT department by giving replies which are intentionally false and are misguiding. You are now made to understand clearly and in a simple manner that as per the provisions of Income Tax Act the statement given before the IT authorities it are subsequently found to be false, incomplete or misguiding, then such person giving statement can be taken up under the act of penalty and even prosecution can be launched. You are therefore once again asked to (sic) and furnish reply to my question No. 44.
Ans. 1 have no intention to misguide on account of present indisposition. 1 could not sleep the whole night and hence 1 shall answer to the question while in a state of calm and leisure.
(and 15 minutes rest is allowed) Q. 16. 11 you have now rested sufficiently and your health is normal please furnish details in respect of name and full address of Manoj Patel and Nutan B. Patel.
Ans. I do not recollect at present, 1 will furnish the same later.
Q. 47.-From you reply there are reasons to believe that there are chances of your implanting bogus benami individuals.
Ans. While requesting I assure you that I have no such intention. The names are correct but I am un-aware of their addresses. According to my belief and knowledge I know that no inquiry is being made in respect of gift received from NRI.
Q. 48. The intention of NRI gift is to earn foreign exchange for India and hence it is tax-free. But where the foreign exchange has come to India only on account of inter se transfer of foreign exchange and if it is shown so and is proved to be false, it is a criminal offence do you know that ?
Ans. Yes, Sir, I so understand but I reiterate that my earlier answer is true.
Q. 49. In reference to your answer to question No. 44, you are once again asked that where the persons giving NRI gift are residing at present ? What is their business ? And furnish details in respect of their addresses.
Ans. I have already stated earlier that I am not aware of addresses of the persons who have given NRI gift. I will furnish it later.
Q. 50. It is clear from your above reply that the NRI gift received is not true and correct and you have attempted to bring the unaccounted income on record by false means. If in reality you have received NRI gift how it is possible that you are unaware of the name and address of the person giving the gift please explain.
Ans. In reply to above question, I have to submit that, as stated earlier the names of the persons who have given the gift are correct but I have no addresses, I therefore, fail to understand as to why this question is asked to me repeatedly Q 51. You have been clearly explained the provisions of section 131 of the Income Tax Act (in the question No. 45) still however you have not been furnishing time and complete information in respect of gift received by you. And in addition you have been misguiding the IT department and your behaviour is non- cooperative. In this connection you are clearly made to understand that if you do not make available proof/evidence in respect of gift received by you, then at the time of assessment the gift is liable to be considered as unaccounted income and tax, interest and penalty would be recovered on the same. Hence if you now desire to give proof/evidence in respect of gift received please give information.
Ans. I do not have any proof other than the zeroxed of the draft.
Q 52. Please furnish information in respect of household expenditure. How do you meet with the household expenses and from what sources of income.
Ans. I have no information in respect of household expenditure. The details of household expenditure is available on the books. The details in respect of expensess will be furnished by my wife.
Q89. Why do you refuse to sign the statement as on p. 9 & 10 ?
Ans. I do not feel that the reply is correct (reasonable), Q90. You were asked question at Q. No. 35, a reply to which you have furnished yourself and has been exactly been recorded. What is unreasonable in it.
Ans. On account of keeping awake continuously since yesterday, I am unwell and hence I do not know what answer has been given by me to Question No. 35
0. 91. Your action in refusing to sign is interpreted as an attempt to sneak from the tax liability. What is your explanation.
Ans. I have no such intention.
(Emphasis, italicised in print, supplied by underlining by us) Further, we may point out that under Chapter XIV-B an assessment could be made only in respect of undisclosed income found during the search and not on the basis of alleged difference of cost of construction on account of the report of the Valuation Officer dated 27-8-1996 (which admittedly is after the draft order forward by the assessing officer was approved by Commissioner under section 158BG on 22-8-1996) estimating the cost of construction and the cost of construction shown in the books because Chapter XIV-B does not authorise the assessing officer to review the assessment completed by making a reference to the Valuation Officer until and unless there is any direct or clinching evidence to indicate that the assessee has understated the cost of construction in the books. On this account also the addition made on the basis of the report of the Valuation Officer is not justified.
Thus keeping in view the totality of the facts and circumstances of the case and the discussion in the earlier part of the order, we are of the opinion that the block assessment framed in the case of the assessee is bad in law as the search authorised by the Commissioner, Rajkot is held to be invalid being not in accordance with the provisions of section 132 as no proper reasons appear to have been recorded by the learned Commissioner before authorising the search as the same were not produced before us although specifically asked for.
Before parting, we may observe that although we have held the assessment framed under section 158BC read with section 143(3) as invalid, the departmental Authorities will be justified in utilising the material found during the search, which we have declared as illegal, in the absence of recording of satisfaction by the Commissioner, while framing the regular assessment in the case of the assessee for the respective assessment years to which the documents/information relate in view of the decision of the Supreme court in the case of Pooran Mal v. Director of Inspection (In v.) IT & Ors. in 1974 CTR (SC) 25 : (1974) 93 ITR 505 (SC).
12. In the result, the appeal is allowed.