Income Tax Appellate Tribunal - Delhi
Sunil Agarwal vs Assistant Commissioner Of Income Tax on 31 May, 2002
ORDER
R.K. Gupta, J.M.
1. This is an appeal by assessee against the assessment order under Section 158BC of the IT Act relating to block period from 1st April, 1986, to 20th June, 1996, relevant to asst. yrs. 1987-88 to 1997-98.
2. In first ground the assessee has objected the addition of Rs. 86 lakhs on account of cash seized. In ground No. 2 the assessee has objected the following additions :
Rs.
Asst. yr. 1994-95 50,11,964 Asst. yr, 1995-96 18,40,978 Asst. yr. 1996-97 26, 65,658 These additions were made on account of alleged commission on billing on job contract work in block period. In the third ground the assessee has objected the following additions made on account of billing commission on trading activities in the block period :
Rs.
1993-94 1,39,087 1994-95 12,46,828 1995-96 10,72,091 1996-97 56,736 In ground No. 4 the assessee has objected the addition of Rs. 1,36,41,971 made as unexplained cash credits. In ground No. 5 the assessee objected the following additions on account of jewellery as unexplained :
Rs.
1993-94 54,781 1994-95 5,396 1995-96 30,174 1997-98 2,48,602 In the sixth ground , the assessee has objected the addition of Rs. 1,15,000 on account various valuables as undisclosed, In last, the assessee has appealed for telescoping of the income earned in a particular year and the same should be telescoped in regard to another year's income.
3. Brief facts of the case are that a search and seizure operation was conducted on 20th June, 1996, at the residential and business premises of Shri Sunil Agarwal and his associated persons/concerns which continued till 30th July, 1996, when the last warrant of authorisation of search was executed. Notice under Section 158BC was issued on 30th Sept., 1996, requiring the assessee to prepare a true and correct return of his total income including the undisclosed income for the block period . No return was submitted within the time allowed, i.e., 16 days of the service of notice. However, the. assessee filed a return on Form No. 2B on 9th June, 1997. From the assessment order it is revealed that assessee had filed its regular IT return only for asst. yrs. 1993-94 and 1994-95. These returns were filed with ITO, Ward 3(11) , Jaipur; declaring an income of Rs. 31,590 and Rs. 33,655, respectively, only. As per the assessment order wherein it is mentioned that assessee has admitted to have earned undisclosed income to the tune of Rs. 2,27 crores for tax purposes. However, no such income was disclosed in the return filed by the assessee on 9th June, 1997. As per the order of the AO, the assessee's attitude was not co-operative with the Department because no reply in response to various notices was filed. The assessee started co-operating from 14th July, 1997, only, a date very close to the last date for completion of assessment, i.e., 31st July, 1997. It was found that assessee is interested in M/s. Polychem Traders (proprietorship concern of assessee); M/s. Petrochem Overseas (India), proprietorship concern of assessee; M/s. Petro Impex India (P) Ltd., a company where assessee is director and in M/s. Par Petrochem Ltd., wherein the assessee is one of the directors. As per the assessment order the assessee has filed the trading and P&L a/c as well as balance sheets of his proprietary concern from asst. yrs. 1990-91 to 1996-97.
4. During the course of search a cash amounting to Rs. 86 lakhs was seized from the premises of Canara Bank, Arya Samaj Road, Karol Bagh. This cash was seized from a person named Shri Gopal Singh, who was a trusted man of assessee--Shri Sunil Agarwal. The statement of Shri Sunil Agarwal was recorded on 20th June, 1996, where in reply to question No. 11, the assessee admitted that this sum of Rs. 86 lakhs was undisclosed income out of trading activity of Plastic Dana. It was also stated that in earlier years also the assessee and his associates were involved in trading activity which was not recorded in the books of accounts and the amount was earned which was not disclosed by the assessee or its concerns. It was also stated by the assessee that his total undisclosed income is about Rs. 2,70,00,000, on which he is ready to pay tax under Chapter XIV-B. During the course of assessment proceedings the assessee retracted from his earlier 'stand that this cash amount of Rs. 86 lakhs was not out of his undisclosed income, as the same is from disclosed sources of trading activities. It was explained through letter that assessee and his associates are dealing in trading activity of Plastic Dana and 70 per cent of this sale are to M/s. Polymer Ltd. (M/s PPL for short) and remaining sales were made in cash in the market. But the purchasers who were not interested to take the bills, therefore, certain bank accounts were opened in the names of various other persons and the cash received out of cash sales were deposited in these accounts and then cheques/drafts were issued to the various parties from whom the material was purchased or to the customs authorities, on account of payment of customs duty which was made for the release of imported material as assessee also imports raw material from overseas. It was duly explained that all the purchases are vouched, parties from whom material was purchased are identifiable. Therefore, genuineness of the purchases cannot be doubted and the receipts out of cash sales are routed through these various bank accounts. It was explained that Rs. 86 lakhs also was to be deposited in Canara Bank, Arya Samaj Road, Karol Bagh, New Delhi and for the same purpose the amount 'was handed over to Shri Gopal Singh, a trusted man of assessee. The amount could not be deposited because Shri Gopal Singh was intercepted by the IT persons in the premises of Canara Bank, Arya Samaj Road, Karol Bagh and the amount was seized. The explanation given by the assessee was not found satisfactory to the AO because of the assessee himself surrendered this amount during the course of search proceedings, wherein a statement on oath was recorded. Therefore, it was treated that the statement recorded at the time of search proceedings was a valid evidence as per provisions of law. Accordingly, an addition of Rs. 86 lakhs was made as unexplained cash under Section 68 of the Act.
5. The same submissions were made here before us as they were made before the AO through various letters. It was further stated that 90 per cent of the total purchases are out of import and the remaining 10 per cent of the total purchases were made from the local market. It was further stated that list of the -parties in local market were also given to the AO. Therefore, all the purchases are verifiable and genuine. It was further stated that out of these purchases 70 per cent sales were made to one party, i.e., M/s. PPL, who is a regular IT assessee and a limited company. Therefore, sale to this extent cannot be doubted, It was further added that remaining 30 per cent sales were made in cash in the local market. However, cash sales were routed through certain bank accounts which were opened in the names of some concerns who were agreed to open bank account in their names and they were charging some commission for this purpose. In short the submissions which were submitted in detail before the AO, were reiterated here before us. It was further explained that there was a purpose in depositing the amount in cash in the bank in account of various concerns because there is a statutory requirement of the ST Department. These parties were ready to issue the sales-tax forms for the purpose of sales-tax assessment and accordingly sales-tax forms were issued by these persons. They were duly deposited with the ST Department. It was further explained that Rs. 86 lakhs, which was seized from the premises of Canara Bank, was to be deposited in these accounts and the same amount was out of cash sale proceeds, It was further stated that a further cash of about Rs. 37 lakhs, which was lying in the bank, was also seized. This amount of Rs. 37 lakhs was also deposited out of cash sales made to various other parties. It was strongly submitted that this amount of Rs. 37 lakhs was treated as out of cash sales and the addition on this account was not made by the AO. Therefore, it is wrong to accept the contention of the assessee in half way, whereas it should have been accepted in full. It was further argued that a sum of Rs. 1.23 crores was surrendered out of cash sales by the assessee. However, the addition is made only of Rs. 86 lakhs. It means that the AO was satisfied for the remaining amount. Further, it was argued if Department people would have arrived five minutes late in the bank, then the amount would have deposited in bank account of various parties in the bank and for the same reasoning as was in regard to Rs. 37 lakhs, this amount of Rs. 86 lakhs would have also admitted as explained. Therefore, this addition is totally on wrong premises as the money was from regular source. It was further explained that trading and P&L a/c was filed, which was tallied and no addition on account of discrepancy in trading account was made by the AO. This amount of Rs. 86 lakhs is also shown in the trading receipts as out of sale of the material purchased by the assessee. Therefore, it amounts to double addition as the amount of Rs. 36 lakhs have already been shown in trading receipts. It was also emphasised that total quantity purchased tallies with the sale and the stock. The remaining stock was of Rs. 26 lakhs which was found during the course of search and this amount of closing stock tallied with the purchases and sales. Therefore, there is no question of any undisclosed income of Rs. 86 lakhs on account of cash seized during the course of search. The attention of the Bench was drawn on various pages of the paper book, where detail of trading account is attached.
6. On the point of retracting from the earlier stand, it was pointed out that at the time of search, the assessee got nervous and due to coercive actions of the Department people, he could not tell the truth and when he recollected his memory then only he retracted from his earlier stand. The retraction is rebuttable 'which is supported by the evidence, as purchases and sales are tallied. No excess stock was found. On this point the reliance was placed on Smt. Rajrani Gupta v. Dy. CIT (2000) 66 TTJ (Mumbai) 582 : (2000) 72 ITD 155 (Mumbai); Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. (1972) 91 ITR 18 (SC); S. Arjun Singh v. CWT (1989) 175 ITR 91 (Del) and (1973) 88 ITR 290 (sic).
7. On the other hand, the learned Departmental Representative strongly supported the order of the AO. It was further added that the assessee has himself admitted that the amount found in cash was his income from undisclosed sources. The attitude of the assessee was non-cooperative as assessee filed return as late as eight months from the date of notice issued by the AO and the assessee started cooperating only from 14th July, 1997, when only 15 days were left to complete the entire assessment proceedings. It was further stated that in initial stage any admission made by a person could not be brushed aside easily. However, in reply to a question from the Bench, it was fairly admitted by the learned Departmental Representative that if any statement given on initial stage is rebuttable with evidence, then of course the second statement can be admitted. It was further stated that there was no coercion from the people of the Department, as there is no admission by the assessee till the date of 14th July, 1997, neither there is any correspondence from the side of assessee that there was a coercion during the course of search proceedings. It was further stated that after a few days, the statement of the assessee was again recorded and he again admitted that the amount of Rs. 86 lakhs along with other amounts, was from his undisclosed sources of income . It was further stated that no return for asst. yrs. 1995-96 and 1996-97 were filed. Therefore, these purchases and sales cannot be treated as regular purchases and sales as they were not shown by the assessee. It was also stated that the assessee deliberately did not cooperate with the AO and started cooperation only at the fag end of the period, when the assessment has to be completed. Therefore, the contention of the assessee was not bona fide. It was further stated that the accounts in the names of various persons were opened with the introduction of one Shri Rakesh Mahajan, chartered accountant, who also admitted that the bank accounts were opened at the instance of Shri Gopal Singh, the trusted man of Shri Sunil Agarwal, the assessee, which clearly shows the connivance of the assessee who indulged in unfair means and illegal activities. The contention of the assessee is unsupported by any evidence, as the assessee was in full senses and was at liberty and his own command. Therefore, the statement recorded at the time of search proceedings was without any coercion and without any duress. Therefore, a different story which was told by the assesses at the time of assessment proceedings cannot be believed. It was also stated that there is no bar to show sale in cash. Entire sale proceeds were routed through three bank accounts which was a deliberate action of the assesses to give a colourable device to the black money for converting into white. Therefore, the rotation of cash through bank account is a story which is concocted by the assessee and an afterthought. The attention of the learned Departmental Representative was drawn by the Bench on pp. 115, 116 and 117 where a consolidated trading account along with cash tally was given. It was replied by the learned Departmental Representative that only p. No, 115 was filed during the course of assessment proceedings and no pages 116 and 117 were filed and it is difficult to tally at this juncture. It was further stated that it is tried to make a tally, but in fact these amounts are not tallied as the AO at the time of assessment proceedings has discussed and considered all the details. On legal proposition regarding initial statement, the reliance was placed on ITO v. Sadhu Ram Gupta (1998) 61 TTJ (Chd) 466 : (1998) 66 ITD 441 (Chd) and Smt. Vasanti Sethi v. Asstt. CIT (1993) 45 TTJ (Del) 503 : (1992) 43 TTD 447 (Del).
8. In reply the learned counsel stated that except the initial statement, there is no adverse evidence against the assessee, neither any material was found nor any excess stock was found. It was further stated that there was a non-cooperative attitude from the Department, as copies of the statement recorded at the time of assessment proceedings were not provided to the assessee in spite of various requests in writing. It was further stated that balance of convenience is in favour of the assessee, as all the purchases and sales are tallied, which includes the amount of Rs. 86 lakhs also.
9. Regarding addition on account of commission on billing, the brief facts are that during the course of search proceedings at premises No. F-37, Mansarover Garden, New Delhi, certain incriminating documents accounts/loose papers were found and they were inventorised as Annexures A-1, A-30, AA-1. Statement of Shri Sunil Agarwal was also recorded on 20th June, 1996, and in statement Shri Sunil Agarwal accepted that he had earned a commission of Rs. 26 lac during last three years and the same was surrendered by him on the date of search. However, during the assessment proceedings the assessee retracted from his earlier stand that he has earned any commission on account of billing of job work made for M/s. PPL. In fact, on the basis of the papers seized during search proceedings it was noted that assessee indulged in bogus billing on account of job work made for M/s. PPL. Various names of the parties were mentioned in the seized records. Dummy bank accounts were also found. These bank accounts were operated vide Serial Nos. 5825, 5826 and 5827 and various other account numbers were also operated in the names of various parties. The statement of the accountant was also recorded. The statement of one Shri Ramesh Minocha who was proprietor of M/s. Bhupinder Singh & Co. was also recorded. Statement of one Shri Rakesh Mahajan, C.A. was also recorded. The bank accounts mentioned above, were opened at the instance of Shri Rakesh Mahajan, who introduced the parties by verifying the signatures of the bank account holder. It was suggested by these statements that Shri Gopal Singh, trusted man of Sh. Sunil Agarwal was working for Sh. Sunil Agarwal. He approached Shri Ramesh Minocha.for issuing bogus bills on account of job work for M/s. PPL. Shri Rakesh Minocha chartered accountant also gave similar statement that Gopal Singh approached him and in lieu of introducing these parties in the bank the work of income-tax was assigned to Mr.1 Rakesh Mahajan, chartered accountant. Therefore, for this purpose he helped the assessee. From these statements and from other records, which were seized during the course of search proceedings, the AO formed an opinion that the only person who indulged in bogus billing on account of job work, was none other than Shri Sunil Agarwal because Shri Sunil Agarwal, the assessee, was mastermind who did all the work for M/s. PPL who floated bogus firms and issued bills on account of job work for M/s. PPL and earned a commission of 2 per dent on the gross receipts of job work. By making total of the job work done during asst. yrs. 1993-94, 1994-95 and 1995-96 the AO calculated the commission at Rs. 1,25,27,676, which was 2 per cent of the total gross turnover. However, he allowed a deduction @ 40 per cent, 50 per cent and 60 per cent for asst. yrs, 1993-94 to 1995-96, respectively. These deductions were allowed by the AO by holding that assessee made further expenses for getting the bills from Ramesh Minocha and other parties during these years. Accordingly he calculated the undisclosed profit on account of job work billing at Rs. 50,11,964, Rs. 18,40,978 and Rs. 26,65,658 for asst. yrs. 1993-94, 1994-95 and 1995-96, respectively and added the same in the total income of the assessee.
10. At the time of hearing the learned counsel of the assessee has submitted that initial statement should not be considered because that statement was under pressure and under coercion because a search party was around the assessee and the statement given by assessee was under influence of fear. It was further stated that during the course of assessment proceedings and earlier also, the assessee has stated that he has to do nothing with the job work because he only coordinated with M/s. PPL because M/s. PPL was his main customer who was buying 70 per cent of the total material sold by assessee and when he got complaint about the material from M/s. PPL then he coordinated with M/s. PPL and approached various jobbers in the unorganised sector and he approached, Mr. Ramesh Minocha to issue bills because petty jobbers did not agree to issue bills. It was further stated that M/s. PPL has also confirmed that he has not paid any commission to Shri Sunil Agarwal, The statement of general manager of M/s. PPL was also recorded who also admitted that Sunil Aggarwal coordinated with them for the purpose of job work. Therefore, no adverse inference should be drawn on the basis of initial statement. All the presumptions are rebuttable. There is no direct evidence with the Department which shows that assessee has earned commission of 2 per cent for the purpose of billing on account of job work for M/s. PPL. It was further stated that nowhere assessee's name is mentioned in the papers found during the course of search. Of course the names of other parties are there which might have kept by the assessee for getting their accounts settled. with M/s. PPL because assessee has approached the jobbers for the purpose of job work for M/s. PPL and the reason for approaching these jobbers was very clear because M/s. PPL was the only big customer of assessee, which was buying 70 percent of the total turnover. It was further stated that affidavit of Ramesh Minocha was also given to the AO, wherein it is clearly stated that he was under pressure at the time of recording the statement. Therefore, he could not narrate the actual instances. It was further stated that the assessee was not allowed to cross-examine these persons whose statements were recorded at the back of the assessee. Therefore, these are mere allegations. It was further stated that there is no evidence that assessee has received any money, neither there is any transaction in the name of assessee which shows that assessee has earned commission.
11. On the other hand, the learned .Departmental Representative strongly placed reliance on the order of the AO. It was further added that assessee has clearly admitted during the course of search that he has earned money on account of commission for getting job work billing for M/s. PPL., Shri Ramesh Minocha, in whose name the bank account was operated and who issued the bills, has also clearly admitted that he raised bills in the name of M/s. PPL and at the instance of Mr. Sunil Agarwal. Shri Rakesh Mahajan, C.A. has also confirmed that he introduced the persons in the bank for opening their bank accounts and that was at the instance of Shri Sunil Agarwal. Therefore, all evidences are against the assessee and the AO has rightly drawn a conclusion that assessee has earned commission. It was further stated that papers were found from the possession of Shri Om Prakash, accountant of Sh. Sunil Agarwal and he has clearly admitted that he has prepared the statement of account as per direction of Sunil Agarwal. It was further stated that onus was on assessee to prove that the transaction mentioned in the documents found at the time of search, was not belonging to assessee. Name of the parties were there, amounts were mentioned against those parties which clearly indicates that the assessee indulged in the activity of billing of job work and earned a huge profit. Retraction after a gap of eight months cannot be relied upon as the retraction is self-serving. Affidavit filed by Shri Ramesh Minocha is also a self-serving document. Therefore, the order of the AO is correct on this point. The reliance was placed on CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), Amrit Lal Agarwal v. Asstt CIT (1997) 59 TTJ (Cal 596 : (1998) 64 ITD 7 at 10 (Cal) and Sumati Dayal v. CIT (1995) 214 ITR 801 (SC).
12. In reply the learned counsel has stated that all the presumptions are rebuttable and accordingly the assessee has rebutted. The reliance was also placed on the decisions on which the reliance was placed earlier when the addition of Rs. 86 lakhs was discussed above.
13. Regarding the addition on account of billing of trading activity, it was noted by the AO that at page Nos. 14 and 15 of Annexure A-1, as per Panchnama drawn at S-37, Mansarover Garden on 20th June, 1996. The assessee is also involved in arranging the bills for transactions between M/s. PPL and various other concerns mentioned at page Nos. 14 and 15. These total billings were to the tune of Rs. 1,23,81,75,653, and by applying 18 per cent average net profit rate for asst. yrs. 1993-94 to 1996-97, the AO estimated the total commission on billing business for trading at Rs. 25,11,748 and added it to the income of the assessee as undisclosed income. The same submissions were made by the learned counsel as were made on account of job billing work and the same reply was given by the learned Departmental Representative.
14. Next issue is in regard to addition of Rs. 1,36,41,971, as unexplained cash credit. Brief facts regarding this addition are that during the assessment proceedings, it was noted that assessee has received a sum of Rs. 45,00,000 during asst. yr. 1996-97 from M/s. Nice International a proprietorship concern of Shri Sant Kumar Sharma of Bombay. It was further noted that a sum of Rs. 20 lakhs was taken as loan by the wife of assessee, Smt, Sunita Aggarwal; Rs. 45 lakhs were taken as loan by Shri Vinod Jain and Rs. 20 lakhs of loan was taken by Smt. Bina Jain. All these loans were taken from M/s. Nice International. The statement of Shri Sant Kumar Sharma was recorded under Section 133A(1) on 21st Nov., 1996 at Bombay wherein it was stated by Shri Sant Kumar Sharma, who was 24 years of age at that time, that he was an accounts clerk/assistant with M/s. Par Petrochem Ltd., who was fabricators of garments, etc. It was further stated that before this period he was also working part-time with Sewa International, Gaur International and Par Petrochem Ltd. and drawing a salary of Rs. 3,000 p.m. from Sewa International; Rs. 1,000 from Gaur International and Rs. 3,000 p.m. from Parpetrochem Ltd. It was further stated by Shri Sant Kumar Sharma that while he was working with another firm M/s. Graus Aparels (P) Ltd., the managing director introduced him with Mr. Sunil Agarwal. who was a cousin of Shri Sandeep Agarwal, the managing director of the company, who suggested me doing the export business and after that he registered his firm with Reserve Bank of India for the purpose of exporting garments. It was further stated that exports were made to Russia from Delhi under supervision of Shri Sunil Agarwal. It was further admitted by him that payments were received by him directly from Russia and after receiving the payments he advanced four loans as mentioned above, which were totalling Rs. 1,30 crores. It was also admitted by Shri Sant Kumar that purchases were made by Shri Sunil Agarwal and he has not made any payment for purchasing the material for the purpose of export. From the statement of Shri Sant Kumar Sharma, the AO drew an inference that assessee has done all the activities by purchasing raw material costing Rs. 78 lakhs and made from his undisclosed sources. Further expenses on account of customs, etc.. was also paid by Shri Sunil Agarwal and the receipts were received by Shri Sant Kurnar Sharma on account of exports, the same were taken as loan from him, just to cover up his black money through Shri Sant Kumar Sharma. The total export receipts were received by Shri Sant Kumar Sharma at Rs. 1,36,41,971, The entire receipts were treated as black money of the assessee and the same was added as unexplained cash credit under Section 68 of the IT Act.
14.1. It was stated by the learned counsel that confirmation of loans were filed. Shri Sant Kumar Sharma is a regular income-tax payer. The assessment records of Shri Sant Kumar was also produced. The export receipts were received by Shri Sant Kumar Sharma directly. Therefore, there is no involvement of the assessee. The payments on account of loans were received through proper banking channels and the bank account has also been disclosed by the assessee. Therefore, for this reason also no addition can be made as unexplained cash credit. It was further stated that assessee is maintaining regular books of accounts and Board's circular is also very clear that on the basis of regular books of accounts no addition can be made for the purpose of block period assessment. It was further stated that Shri Sant Kumar Sharma has exported the material directly and the deduction under Section 80HHC has also been availed by Shri Sant Kumar Sharma and the same has been accepted by the Department. The attention of the Bench was a)so drawn on the assessment order of Shri Sant Kumar Sharma enclosed in the paper book. The reliance was further placed on ITO v. Suresh Kalmadi; Ram Niwas & Sons v. Asstt. CIT (1993) 44 ITD 394 (Del); Sarogi Credit Corporation v. CIT (1976) 103 FTR 344 (Pat) and Asstt. CIT v. Hanuman Agarwal (1985) 151 ITR 15 (Pat).
14.2. On the other hand, the learned Departmental Representative has strongly placed reliance on the order of the AO. He further stated that DDI, Bombay gave" information and as per the provisions of Section 158BB these types of credits can be considered while completing the assessment under Section 158BC. The reliance was placed on (1997) 59 TTJ (Cal) 596-: (1998) 64 ITD 17 (Cal) (supra). It was further stated that circumstantial evidence are against the assessee, as all the materials were directly exported from Delhi from where the purchases were made and no' payments were made by Shri Sant Kumar Sharma as he was the man of no means. All the payments were made by Shri Sunil Aggarwal from his undisclosed sources. Therefore, there is no infirmity in the order of the AO. No returns were filed for asst. yrs. 1995-96 and 1996-97. Therefore, the books of accounts cannot be treated as regular books of accounts. No bank accounts were disclosed prior to the search. Therefore, any entry made in the bank account can be considered while completing the assessment under Section 158BC of the IT Act as the provisions are very clear.
15. Next addition is on account of jewellery found during the course of search. The AO was not satisfied with the explanation that all the jewellery found during the course of search is from disclosed sources. Accordingly he made addition on account of unexplained jewellery. The same submissions were repeated here before us also. Alternative, it was stated that assessee has surrendered a sum of Rs. 24 lakhs during last three years. Therefore, benefit of telescoping should be given, as the amount was available with the assessee for making investment in the jewellery. On the other hand, the learned Departmental Representative placed reliance on the orders of the AO.
16. Next addition is of Rs. 1,15,000 on account of various valuables. This addition was made on similar circumstances as in regard to jewellery. The similar arguments were put forward by the learned counsel and the learned Departmental -Representative.
17. Last ground is in regard to telescoping of the additions against the amount already surrendered by the assessee, which was available with the assessee for making investment, etc. The learned counsel submitted that telescoping has to be allowed, as this is a set principle of law. Lastly, it was argued that income should be assessed on a real income, as the premises of the assessee was searched and no assets other than declared, were found. Therefore, real income theory should be adopted and on this proposition, the reliance .was placed on the cases which are already stated by the counsel and referred above.
18. Though there is no ground in assessee's appeal in regard to any of the additions challenged by assessee in his grounds of appeal that, whether these grounds are out of purview of Chapter XIV-B for the purpose of assessment under Section 158BC or not, but there was an argument that the AO was not right in computing some of the incomes under Section 158BC as they were part of the regular books of accounts. We reject this argument of the learned counsel as there is no dispute in regard to filing the regular returns of income. The regular returns of income were filed only for two assessment years i.e., asst, yrs, 1993-94 and 1994-95, The returns were filed in Jaipur and the assessments completed by the present AO were on account of other incomes which were not disclosed in regular returns filed for two years. Therefore, there is no defect in the order of the AO in regard to computation of income under Section 158BC in Chapter XIV-B. Therefore, this argument of the learned counsel is rejected that certain incomes are out of purview of Chapter XIV-B for the purpose of assessing income under Section 158BC.
19. Now we will come on the grounds which are raised by the assessee in grounds of appeal. First ground is in regard to addition of Rs. 86 lakhs seized from the premises of the Canara Bank while a man of the assessee was going to deposit the same in bank account. The brief facts in regard to this issue have already been discussed above. While making this addition the AO has mentioned in his order that the attitude of the assessee was not co-operative during the assessment proceedings. The reasons for non-cooperation are mentioned at p. 2 of the order of the AO. One of the reasons stated by the AO is that the assessee has not furnished any Information in response to his office letters dt. 19th June, 1997, 2nd July, 1997, 7th July, 1997, 10th July, 1997 and 11th July, 1997. After perusing the order of the AO and the papers filed by the assessee in the paper book, we noted that assessee has furnished a detailed reply in regard to these letters to the AO. A copy of reply dt. 9th June, 1997, is placed at p. .25 of the paper book, whereby the information in regard to business activity of the assessee and assessee's concerns are given. The assessee has also explained the sales made to various parties. In this letter it is clearly mentioned that assessee has applied for the copies of the seized material and the dates of letters given by the assessee are 15th July, 1996, 9th Sept,, 1996 and 11th Oct., 1996, but there is no whisper in the order of the AO that why the request of the assessee was not acceded for supplying the copies of the seized material. On the contrary the order of the AO says that the assessee has not cooperated even though the copies of the seized material were supplied to the assessee. It is further mentioned in the order of the AO that the assessee has started pouring information only on 14th July, 1997; whereas the letter of the assessee, which is placed at p. 25 of the paper book, is dt. 9th June, 1997. There is another letter placed in the paper book at p. 28, is dt. 11th July, 1997/14th July, 1997 which is in regard to reply of letter No. 157, dt. 2nd July, 1997. Another letter is placed at p. 55 in the paper book, which is dt. 15th July, 1997, and this letter addressed to the AO which was in regard to queries raised on 14th July, 1997. In this letter it is clearly stated that the reply of letter dt. 11th July, 1997, has already been filed by the assessee. At p. 2 of this letter it is mentioned that the reply of letter No. 161, dt. 9th July, 1997 is also explained. Further replies were filed in regard to letters dt. 7th July, 1997, and 9th July, 1997. In this letter it is further stated that reply of letter dt. 10th July, 1997 and 11th July, 1997, is being prepared and will be filed, shortly. On 17th July, 1997, the reply of letters dt. 10th July, 1997, and 11th July, 1997, p-97was filed. This letter further says that letter No. 172 dt. 16th July, 1997, is being prepared and shall be filed shortly. This reply is placed at paper book p. 62. Another letter filed by the assessee is placed at paper book p. 66, which is of dt. 23rd July, 1997. By this letter the reply was given of letter dt. 22nd July, 1997, wherein it is mentioned that the reply has already been filed of letters dt. 11th July, 1997, 15th July, 1997 and 17th July, 1997. Last letter filed by assessee is placed at p. 90 of the paper book, which is of dt. 25th July, 1997, which was written to the CIT, Delhi (Central)-!! whereby the CIT was informed that assessee has explained all the queries raised by the AO and intervention of the CIT was sought in regard to apprehension of huge additions which were to be made by the AO, After perusing these replies it cannot be stated that assessee has not cooperated with the Department, of course the search was made on 20th June, 1996, and the return was filed after 8 months of search, but the bona fide of the assessee rejected outrightly because the assessee has requested for the copies of the seized material vide his letters dt. 15th July, 1996, 9th Sept., 1996 and 10th Nov., 1996. The learned Departmental Representative has not controverted these letters of the assessee. Therefore, the inference that assessee has not cooperated cannot be considered of much weight. Therefore, we are of the view that it cannot be presumed that assessee has not cooperated.
20. As we have already mentioned in the order above that the search and seizure operation was conducted on 20th June, 1996, at the residential and business premises of Shri Sunil Aggarwal and his associates persons/concerns : which continued till 10th July, 1996. The statement of the assessee was recorded on 20th June, 1996, and then on 24th June, 1996. As per the order of the AO the assessee during the course of search has admitted that the entire cash seized from his trusted man Shri Gopal Singh in the premises of Canara Bank, where he was just to deposit the amount in the bank account belonged to the assessee, which is unrecorded money earned out of business. The order of the AO says that in reply to question No. 11, this reply was given by the assessee. However, by going through the copy of the statement placed in the paper book at p. 13, no such reply was there in question No. 11. The question No. 11 was in regard to information for Birbal and Bhanwar Singh and in reply it was admitted that Shri Birbal and Bhanwar Singh had no knowledge of instructions given to Shri Gopal Singh and brother of the assessee. However, on a later stage the assessee has stated that during 2-3 years an income of Rs. 78 lakhs was earned in trading and the same was kept in cash. In reply to question No. 35 the assessee has stated as under :
"Ans. Detailed break up of the same is as under : though I would add that it is a broad narration.
(a) Unexplained investment in construction at G-73, Kirti Nagar, Delhi 7.50 lakhs (b) Fixed deposit kept in locker having key number which is in the name of my wife precise details of this locker shall be submitted shortly 2.00 lakhs (c) My personal car Maruti 800 No. HR-26-1156 1.50 lakhs (d) Loans to Mohan Aggarwal my brother 15.00 lakhs (e) Loans to M/s Tarun Sales 5.00 lakhs (f) Cash found seized from Sh. Gopal Singh as well as credited in CA A/c Nos. 5825, 5826 & 5827, as stated above. 1.23 crore (g) Sundry household and other expense 5.50 lakhs
21. In reply to question No. 36, which was the last question asked by the search party on 20th June, 1996, the reply was given as under :
"Nothing except that the disclosure of additional income amounting to Rs. 2.26 crores includes an income of Rs. 86 lakhs disclosed by me before the authorised officer in course of search proceedings at my residence bearing No. F-90, Kirti Nagar, Delhi,"
However, the statement was signed on 21st June, 1996. There were two witnesses also who signed on this date. Therefore, it cannot be stated that assessee has not given the above statement.
22. It is true that the cash of Rs. 86 lakhs was found from Shri Gopal Singh at the premises of Canara Bank. It is also true that there were some cash balances which were to the tune of Rs. 37 lakhs, which was balance in the Canara Bank account and the same was also seized by the raiding party. On a later stage the assessee has retracted from the above statement and stated that there was no unexplained income which was earned by the . assessee. All the incomes are recorded and explained as they were out of sale proceeds. Rs. 37 lakhs was deposited in the bank out of sale proceeds. Likewise Rs. 86 lakhs was also from cash sale proceeds which were to be deposited in the Canara Bank, but before depositing the same, the assessee's person Shri Gopal Singh was intercepted and the cash of Rs. 86 lakhs was seized. The AO relied on the first statement given by the assessee and accordingly he made an addition of Rs. 86 lakhs under Section 68, by holding that this amount was from undisclosed sources. While adding this amount the AO has observed that the statement given by the assessee during the course of search and seizure has evidentiary value and is valid evidence to be utilised in income-tax proceedings. Therefore, the later statement of the assessee was not accepted and the impugned addition was made.
23. After considering the rival submissions of both the parties and perusing the material on record, we noted that assessee has surrendered a sum of Rs. 2.26 crore which includes an amount of Rs. 86 lakhs on account of cash seized in the premises of Canara Bank. The detail on account of surrender, which was given in reply to question No. 35. has been given above. If we see those details, then we will find that there was an admission of unexplained investment in construction at G-73, Kirti Nagar, Delhi which was to the tune of Rs. 7.5 lakhs; Fixed deposits kept in locker was Rs. 2 lakhs; investment in personal car was Rs. 1.50 lakhs; loan to assessee's brother Shri Mohan Aggarwal--Rs. 15 lakhs; loan to M/s. Tarun Sales--Rs. 5 lakhs; cash found, seized from Smt'Gopal Singh as well as credited in C.A. Account Nos. 5825, 5826 & 5827 were to the tune of Rs. 1,23 crores and sundry household and other expenses were to the tune of Rs. 5.50 lakhs. If we total all these amounts it comes to Rs. 1.59 crores;. but if we see the addition . on account of cash found and seized was made only of Rs. 86 lakhs. An amount of Rs. 37.56 lakhs seized from account No. 5825; Rs. 3,000 in account No. 5826 and Rs. 26,000 seized from account No. 5827 in Canara Bank, totalling Rs. 37.85 lakhs was not added as the same was found as explained. It clearly establishes that assessee surrendered a sum of Rs. 1.23 crores; whereas the AO has made an addition of Rs. 86 lakhs only. It means the statement recorded on 20th June, 1996, was partly admitted, In the statement the assessee has surrendered a sum of Rs. 1.23 crores on account of cash seized. The AO ignored the later explanation given by the assessee that Rs. 86 lakhs is part of sale proceeds. It is not understandable that when assessee himself surrendered a sum of Rs. 1.23 crore, then why the AO is making addition of Rs. 86 lakhs. The explanation given by the assessee in regard to Rs. 37.85 lakhs was admitted and no addition was made. Then explanation in regard to Rs. 86 lakhs should have also been considered by the AO. From the order of the AO it is clear that assessee has filed its P&L a/c, balance sheet and trading account and after examining the chart of opening and closing stock and sale and purchase, it was found by the AO that there is no defect in purchase account and all purchases are genuine. When purchases are genuine then why sale proceeds should be doubted. In fact the assessee has opened three bank accounts in the name of Shri Rajender Singh, proprietor M/s. Central Elastic Syndicate; being account No. 5825; Shri Satyaveer Singh, proprietor M/s. New Fashion Plastic being A/c No, 5826 and Shri Kishore Kumar, proprietor India Plastics being A/c No. 5827. These three accounts were opened for adjusting the sale proceeds which were on account of cash sales. The assessee is dealing in business of plastic Dana which- was imported and purchased from local market. The purchases made from outside country and within the country were not doubted. Out of the total purchases 70 per cent sales were made to one party, i.e., M/s. PPL. These sales were not doubted. The amount of sale proceeds were received through proper banking channel. The remaining 30 per cent purchases were sold in the open market and all the sales were made in cash. However, no bills were taken by these purchasers. Therefore, the assessee adopted a procedure by opening three bank accounts and entire cash proceeds were deposited in these three bank accounts; then some of the intermediary parties were located and in the names of those intermediary parties the bills were issued and the payments were shown to be received from these parties. The cheques were issued from the three bank accounts stated above in the name of these intermediary parties or directly to the parties from whom the material was purchased by the assessee. It was explained before the AO that there was a reason to locate the intermediary parties because there was a requirement of sales-tax Department, as the sales-tax forms were to be furnished to the sales'-tax Department against the sales made by the assessee, otherwise the sales-tax liability could have been accrued. These intermediary parties issued sales-tax forms and the same were deposited to the sales-tax Department. Therefore, this method was adopted and the cash sales were routed through these three bank accounts and the bank accounts of the intermediary parties, A clarification was sought from the assessee in regard to these three bank accounts and other parties' accounts, the reply was given, by the assessee on 14th July, 1997, and again on 28th July, 1997, wherein the following reply was filed :
"The Current Account No. 5825, 5826 and 5827 with Canara Bank, Karol Bagh are the accounts of Shri Rajinder Singh, Prop. M/s. Central Plastic Syndicate, Shri Satyaveer Singh proprietor M/s. New Fashion plastic and Shri Kishore Kumar proprietor India Plastics who are all independent persons having independent existence and identities and assessed to income-tax for a period prior to opening of the bank accounts by them. The record reveals that introduction, of accountant under whose control or directions or in association availability of cash in these accounts, these persons have also been working for some of the customers of my companies as collecting agents. The fact remains that all these three accounts and intermediary accounts are independent persons having independent existence and operations. However, my companies were making sales of many consignments in cash and the said cash was being handed over to the various account holders to whom we have mentioned as collecting agents and who in turn used to transfer the money through cheques to various intermediary concerns in whose names we were issuing our sale bills for, which those intermediary concerns were making payments by cheques/drafts to my companies, meaning thereby, my company books show that all the sales have been made to the registered dealers, who used to issue sales-tax forms collected from Department against their purchases and payments were being made by them by cheques. And for issuing such . documents all such intermediaries firms were charging commission, from my companies through the sales were being-made in cash and such type of turnover is only 30 per cent of the total turnover and the balance 70 per cent is to the actual buyer M/s. Padmini Polymers Ltd. In this process, all my purchases and sales are duly vouched and quantitative tally is available and books of account have been seized and all the sales made are against the imports or purchases and are verifiable."
"Further to our earlier submissions, I am enclosing herewith a chart showing availability of materials purchased, datewise with sales thereof and the sales were made in cash but bills were issued in the name of intermediary concerns. The said cash sales were deposited in the Canara Bank accounts and also partly in the accounts of the intermediary firms as per date-wise details enclosed. The cash deposited in Canara Bank account routed back to me jn my business concerns through payment by cheques from Canara Bank account to the intermediary (debtors) firms and thereafter ultimately to me or sometimes to my creditors on my account as already explained. Copies of purchase account, bills, sales account and also the copies of the intermediary accounts shown as my debtors but for which actually sales are in cash are also enclosed to show that the funds have ultimately come back in the shape of cheques to me and thus no addition on this account should be made. Further to the submissions made in this letter, I wish to submit again that I have been making sales in cash and the said cash sale proceeds were channelised back in my business by depositing approximately 70 per cent and 30 per cent as cash in the three Canara Bank accounts and in the bank accounts of intermediary concerns in the name of 'which bills were issued by for which actually sales were made in cash in the open market. I did not have enough space for storage of the goods and, therefore, the sales in the open market was necessary besides being market conditions. Also that no stock belonging to any of the following concerns was found during the course of search. It also thus proves that whole of the material purchased were sold by us in the open market."
24. After considering the reply of the assessee and the explanation in regard to bank accounts, the AO was satisfied and in paras 5.12 and 5.13 the AO has stated the accounts of various parties are genuine. Therefore, no addition is made on account of trading. The observations of the AO given in paras 5.12 to 5.18, are reproduced here as under :
"5.12 The assessee has further submitted vide his letter dt. 28th July, 1997, that:
I also submit that my purchases are genuine and the details of creditors from whdm purchases or imports of plastic raw material have been, are given hereunder;
....Copies of account of various suppliers and in case of imports, the document account as appearing in the books of these firms and also the confirmed -copies of account are enclosed herewith, From this, it is clear that the purchases made by us are on credit of 30 days and more and in case of imports also, the purchases have been made on D.A. basis which are also on credit. The copies of purchase accounts are also enclosed herewith.
5.13. Keeping in view the submission of the assessee, examination of books of accounts enquiries conducted by the Department during the course of search and thereafter, the following facts emerge :
1. It is a fact that the raw materials purchased by the assessee have been duly accounted for in the books of accounts and purchases were made on credit and the alleged payments were made by cheques, by using the above three accounts and bank debtors account.
2. The accounts holders of 5825, 5826, 5827 and other accounts in the name of debtors have been used by Sh. Sunil Agarwal as front concerns. Enquiries indicate that these were non-existent. Therefore, he generated fictitious debtors in his books of accounts and deposited the cash realised on sale of the raw material outside the books of accounts in those fictitious debtors, bank accounts. Through these bank accounts and the debtors, account the assessee has attempted to bring back the cash sales in his books through those fictitious debtors for onwards payment to his creditors.
3. Suppliers confirmations submitted by the assessee indicate that they have given the rawmaterial on credit to the assessee. To make the payment to his creditors the assessee has adopted the above modus operandi by introducing his cash sale into his books of accounts through the above mentioned three bank accounts and the fictitious debtors.
4. Moreover, the premises searched clearly showed that he was not having much space to keep such big inventory of stock, which proves that he was making the sale in cash and issuing the bills in the name of the debtors to complete the formalities of the sales-tax Department.
5. Perusal of the books of accounts/ documents seized, three bank account Nos. 5825, 5826 and 5827 and the bank accounts of the debtors also indicate that payments were made directly on behalf of the supplier, to the Commissioner of Customs for payment of custom duties on import of raw materials, which established that he was controlling the three accounts and the debtors accounts and purchases were made from the suppliers. The cash deposited in these accounts are nothing but the sale realisation of the raw material.
5.14. Keeping in view the above facts and circumstances of the case and the modus operandi adopted by the assessee is reasonable and no addition on account of cash credit is called for out of these three accounts and the debtors accounts.
5.15. The amount of seizure of Rs. 37,85,000 from the bank balances lying in the above bank account have been taken into consideration in total of the cash deposited and the amounts credited in these accounts, for which necessary finding has been made in the above mentioned para Nos. 4.3 to 4.3.14 and, therefore, no separate addition on account of this seizure is called for.
5.16. During the search and seizure operation an amount of Rs. 11,140 was found and seized at the business premises No. WZ-95/2, Titarpur, Najafgarh Road, New Delhi. The assessee was asked to explain the source of this cash. During the search, books of accounts of M/s. Polychem Traders were not found. However, the assessee has furnished a balance-sheet as on 20th June, 1996, reflecting an amount of Rs. 11,140 under the head sundry debtors. Therefore, no separate addition is called for on this account.
5.17. The assessee has floated various concerns and done the billing work for mould, job work and trading. Bank accounts were also opened in the name of these concerns and utilised for depositing the cash. The detail of such bank account have been given as under:
S. No. Bank Account No. Name of concern
1.
5359/SBBJ M/s Bhupinder Singh & Co.
2. 5406/SBBJ M/s Ravi Plastic Moulders
3. 5362/SBBJ M/s New Era Trading Co.
4. 5356/SBBJ M/s Hindustan Engg. Works
5. 2231/PNB M/s JVS Enterprises
6. 2017/PNB M/s Malhotra Enterprises
7. 2252/PNB M/s Rayco Engg. Syndicate
8. 2254/PNB M/s S.K. Industries
9. 1678/SBI M/s Asif &. Co.
10. 1677/SBI M/s Fazil Enterprises
11. 2590/BOM M/s Harkaushal Plastics
12. 2631/BOM M/s Dee Kay Moulders
13. 2628/BOM M/s Punco Engg.
14. 2591/BOM M/s Punya Plastic
15. 2632/BOM M/s Diamond Plast India The copies of statements of the above accounts were obtained from the bank and examined. The substantial cash was deposited only in the accounts mentioned at SI. Nos. 1 to 3 and in the remaining bank accounts nominal cash was found deposited only for the purpose of opening the bank account. The assessee was asked to explain the source of deposits in these accounts vide this office letter dt. 23rd July, 1997. The assessee has submitted vide his letter dt. 28th July, 1997, that:
"We have already pointed out that certain accounts of intermediary firms which. have been used for bringing back the sale proceeds of cash in cheque back to our books and similarly cash was available with the assessee in the group companies, which otherwise has been shown as debtors recoverable. This amount has also been brought back as deposits in the name of such intermediary accounts but actually it is assessee's own cash sale money." , 5.18 The nature of the cash deposit in these three accounts were the same as discussed above in para Nos. 4.3 to 4,3.14, The funds were further diverted in the accounts of debtors, which brought back to the books of the assessee. Therefore, no addition on these cash deposits is called."
25. We noted that the AO has considered the purchases and sales and after considering the purchases and sales no addition of Rs. 37.85 lakhs was made which was lying in the bank. However, the addition of Rs. 86 lakhs was made because the assessee has surrendered this amount. In our considered view, this addition of Rs. 86 lakhs has no legs to stand, as the AO has not said anything about the sale out of cash sale proceeds, which includes Rs. 86 lakhs and the same was part of the compilation chart placed at paper book p, 115. The AO has admitted in his order that assessee has filed a summarised detail of sales made to intermediary concerns and funds diverted from their accounts from 1st April, 1995 to 20th June, 1996. The total sales were made of Rs. 65,60,95,296. The total amount received through these three bank accounts was at Rs. 55,63,48,102 and there was a balance amount which was to be received from the debtors, that was of Rs. 9,97,46,194. This amount of Rs. 9,97,46,194 includes Rs. 8,73,33,956 which was balance from these intermediary parties; Rs. 37,56 lakhs which was seized from the Canara Bank accounts; Rs. 86 lakhs which was seized in cash in the premises of the Canara Bank and Rs. 56,238 was cash-in-hand on 20th June, 1996. The details of these items are placed at pages 116 and 117. The details are tallied with the chart prepared and placed at p. 115. The AO has also stated that summarised details of sales made to intermediary concerns were filed; they' were correct and tallied. Therefore, no addition was made. The addition was made by only considering the statement of the assessee made on 20th June, 1996, which was retracted by the assessee on a later stage. In our considered view there is no doubt that primary statement recorded on 20th June, 1996 is a good piece of evidence for the purpose of assessment under IT Act, but if it is. rebuttable then the rebuttal should be considered and if it is found satisfactory, then the retraction should be admitted. If by omission or by any other reason the assessee stated something on the occasion of primary statement but if this statement can be rebutted with evidence or proof then it should be admitted, This is a set principle of law which meets the end of natural justice. There is no finding of the AO that cash amount of Rs. 86 lakhs received out of cash sale proceeds were invested somewhere else. If this amount was not invested somewhere else, then, of course it is the same cash which was found from the person of the assessee who was going to deposit in the bank, The earlier amount deposited in the bank has been admitted by the AO as explained. The amounts were not in small, The earlier amounts deposited in the bank were about Rs. 65 crores, out of which Rs. 55 crore has already been accepted as routed transactions through these bank accounts and the remaining amount of Rs. 9 crore or odd were to be received from the intermediary parties or to be deposited in the bank. Purchases are genuine; sales are tallied with the purchases then where the amount of sales have gone. When there is no finding that where the sale amount has gone, then it should be admitted that the amount of Rs. 86 lakhs belongs to the sale proceeds and the sale proceeds are tallied. Therefore, in our considered view, no addition could be made.
26. Though we have discussed all the facts of the case in regard to addition of Rs. 86 lakhs, however, for the sake of completeness, we will like to mention here some more facts in regard to retraction. The assessee's statement was recorded on 20th June, 1996, where he surrendered some income which was unexplained and was not recorded in the books of accounts. The assessee filed first reply at the time of assessment proceedings on 14th July, 1997. The details of assessee's companies were given. In para 4 the assessee has stated the facts in regard to retraction, which are reproduced here as under:
"That the surrender was made with mistaken belief and without looking into books of account and without understanding law and also I was compelled by the occurrence of various circumstances and perturbed by events of search and wherein I had no opportunity either to consult my advocates, my staff or my books of accounts etc. The pressure of search was built so much that I had to make this surrender without having actual possession of the assets or unexplained investments or expenses incurred and hence there being no such income as undisclosed. The money seized or other assets already stand declared and available out of knbwn sources and hence the said surrender is meaningless and I don't admit this surrender as a voluntary surrender supported by actual possession of any assets giving.rise to any undisclosed income."
After this explanation the assessee further gave explanation in regard to items which were surrendered at the time of search, This explanation was given in regard to construction at G-73, Kirti Nagar; fixed deposits of Rs. 2 lakhs; investment in Maruti car; loan to Mohan Aggarwal of Rs. 15 lakhs; loan to Tarun Sales--Rs. 5 lakhs; cash found and seized--Rs. 1,23,35,000, which includes cash seized in the premises of Canara Bank at Rs. 86 lakhs; and balance in three bank accounts at Rs. 37,56,000. Rs. 3,000 and Rs. 26,000, Again at p. 4 of this reply (Ps 31) the assessee has stated that "the cash found in the premises of bank or bank balances were not undisclosed income but it was undisclosed sales of the disclosed purchases", which are verifiable from the records and the books of accounts. The explanation in regard to sundry household was also given. After considering this reply of the assessee, the AO has not made any addition on account of surrender made by the assessee on 20th June, 1996, However, only an addition of Rs. 86 lakhs was made. In our considered view, when the AO has accepted the other explanation, then the explanation in regard to Rs. 86 lakhs should have also been considered as.the same was verifiable from the sale statement filed before him and admittedly was before him.
27. There is one another letter which is of dt. 15th July, 1997. In this letter also assessee clarifies his position in regard to surrender. In para 3, the assessee has stated as under :
"(iii) I am thankful to you for having enlightened me on the fact and on law that the Department does not have the police powers. It was only this fear and also the presence of so many police constables and guards and there being no books of account or vouchers or evidence produced for verification and also since no assistance of a professional man or of the accounts man of my Department was allowed and also it is but natural that as a human nature any onee in a similar situation will like to get rid of the grilling circumstances. Accrual or arising of the income is not a matter of statement but is a matter of records and evidence."
After that the assessee has again clarified the position of cash found and seized from the bank premises. Nowhere the AO has made any discussion in regard to these replies filed by the assessee. The AO has only placed reliance on the initial statement and made the addition of Rs. 86 lakhs.
28. One more fact which emerges from the above facts and the same goes to prove the bona fide of the assessee's retraction. This was that assessee issued some cheques in the names of various parties which were issued on 19th June, 1996, but they could not be encashed because the entire amount lying in banks, that was about Rs. 37.56 lacs and Rs. 36 lacs, which was to be deposited in the bank on 20th June, 1996, for honouring the cheques issued by assessee on a previous date was seized. These cheques, which were issued by the assessee, were to the tune of Rs. 1.25 crore. These cheques were returned back as the amount had already been seized by the Department. The details of these cheques are placed in the paper book at p. 36. if assessee could have deposited Rs. 86 lakhs, then the amount in the bank would have been at Rs. one crore twenty-five lakh or odd, as there was a bank balance of Rs. 37.56 lakhs or odd already. As the Department seized the amount, hence Rs. 86 lakhs could not be deposited and cheques were returned back. The bank statement showing returning of cheques are placed at pp. 37 and 38 of the paper book. The AO has admitted somewhere in his order that assessee made payment to customs authorities for clearing the material which was imported by the assessee and this payment was made through these three bank accounts, which clearly establishes the bona fide of the assessee in regard to cash sale routed through these three bank accounts. Therefore, also we are of the view that the addition of Rs. 86 lakhs could not have been made if the explanation of the assessee was considered which was with cogent reasons. The reason for surrendering the income was also explained vide assessee's letters dt. 14th July, 1997, and 15th July, 1997, which are self-explanatory.
29. One more point emerges from the facts, as discussed above, that was that a stock of Rs. 26,11,000 was found and after verification of the purchase and sale, the stock was released. It shows that the Department was satisfied with the explanation in regard to purchases and sales. Therefore, the stock was released. The details of purchases are placed in the paper book at p. 33 and the sale summary is placed in the paper book at p. 115. This also proves the bona fide of the assessee. Therefore, also we are of the view that the addition of Rs. 86 lakhs could not have been made.
30. Now we will see the legal position regarding the facts of the present case. The learned Departmental Representative has placed reliance in the case of Smt. Vasanti Sethi v. Asstt. CIT (1993) 45 TTJ (Del) 503 : (1992) 43 JTD 447 (Del) and in the case of ITO v. Sadhu Ram Gupta (1998) 61 TTJ (Chd) 466 : (1998) 66 YTD 441 (Chd), wherein the statement recorded on primary stage was admitted. In the case of Smt. Vasanti Sethi, the initial admission regarding ownership of the deposits was considered. The matter travelled up to the stage of Tribunal and therein it was held that Sub-section (4) of Section 132 was clearly attracted and, therefore, the initial admission regarding ownership of the deposits had to be treated as an evidence in the proceedings for assessment. Subsequent retracting from the earlier statement could not be called a statement made by such person during such examination, but the stand was revised long after the statements were recorded not only in 1987 but also in January, 1988, coupled with filing of return of income originally. The brief facts of this case were that there was a search operation under Section 132 on 10th Dec., 1987. The Department found certain deposits in the name of the assesses. On the day of search the assessee-admitted ownership of the deposits but in a statement recorded during the course of assessment proceedings she denied having any knowledge as to the source of the deposits. On 8th Jan., 1988, i.e., after a month of the statement at the time of search, she again admitted the ownership and also declared the amount as her income. Thereafter, after the lapse of 16 months, the assessee filed returns under Section 148 wherein the amounts invested in deposits were declared as income. However, subsequently after about 7 months, the assessee submitted revised returns showing reduced income by excluding investments in deposits on ground that they did not belong to her and were made at the behest of her father-in-law. The AO, however, rejected the assessee's claim on the ground that she had services of a chartered accountant right from the beginning and had stated everything about the deposits, etc. and, therefore, it could not be at the behest of her father-in-law that she admitted the deposits and further that it took exactly two years to revise the statement which was after the death of the assessee's father-in-law; moreover, the assessee was educated lady, a graduate and had claimed to have taken tuitions and had earned income therefrom, had signed the application form for fixed deposits and had also lodged claim before the liquidator for the return of money with interest. On appeal this order of the AO was confirmed by the CIT(A) and on second appeal the order of the AO was also confirmed with the finding as stated above. In this case relied upon by the learned Departmental Representative, the lady could not explain the deposits even after reducing of the deposited amount from the return of income. However, in the present case the assessee is discharging his onus by showing the sale proceeds which tallied with the purchases made by the assessee. Therefore, facts are distinguishable from the facts in the case of Smt. Vasanti Sethi. Here the primary statement is rebutted with evidence, but in the case of Smt Vasanti Sethi (supra), relied upon by the learned Departmental Representative, no explanation was given in regard to deposits in the bank. By merely saying that these amounts were, not belonging to her, the initial admission cannot be brushed aside. However, in the present case the retraction is for a valid reason.
31. In the case of ITO v. Sadhu Ram Gupta, (supra), the Tribunal has held that initial statement made by a person about a particular state of affairs carries more weight and a subsequent statement made retracting from the earlier position should be on good ground, supported by cogent and relevant evidence. There is no dispute in these findings. If a person can support his retraction by a cogent and relevant evidences then retraction has to be admitted and if he cannot support his retraction by a cogent and relevant evidence then primary evidence is a good evidence.
32. Now we will see the cases as relied upon by the learned counsel of assessee, In the case of S. Arjun Singh v. CWT (1989) 175 H'R 91 (Del), the Hon'ble Delhi High Court has held that an admission is an important piece of evidence but it is not conclusive.
33. In the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. (supra), the Hon'ble Supreme Court has held that admission is an extremely important piece of evidence, but it cannot be said that it is conclusive, It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts. The brief facts of this case were that entries made by the assessee in the account books treating a portion of the general expenditure as expenses towards immature plants and capitalising such portion amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year for the purpose of Expln. (2) to Section 5 of the Kerala Agrl. IT Act, 1950. The Hon'ble Supreme Court has held that if the entries of the books of accounts can be explained that it cannot be presumed what income or wealth assessed on the basis of book entries are correct. Therefore, the assessee has to be given an opportunity to show that the books of accounts do not disclose the correct state of affairs.
34. In the case of Pushpa Vihar v. Asstt. CIT (1994) 48 TTJ (Bom) 389, the Tribunal Bombay Bench 'Dr held that if retraction is with cogent reasons and evidence, then retraction can be made. The brief facts and conclusion 'of this case, is as under:
"B, who is a partner of the firm, admitted in original statement the amount of concealed income. Later on, there was retraction and it was stated that what he stated originally was in relation to the sale and not in relation to the income. Also he is a non-matriculate and the juniormost partner in the firm. The possibility of committing a mistake by him in explaining the affairs of the firm cannot be ruled out altogether. There is no cogent material on record to support or to justify the veracity or falsehood of the statement. The Revenue agreed to accept what B stated at that time. No incriminating document was seized. Even on 2nd Dec., 1987, when another survey operation was conducted at the assessee's premises, nothing significant was found. The argument of Revenue that there were possibility of getting higher figures of sales but same could not be obtained as during the survey the management stopped the A.C. room and also stopped making special preparations despite customers' requests, appear to be genuine. This allegation is not based on any material which could be relied or accepted as evidence. The principle upon which the case falls to be decided is simply this : "Whether the system of law permits the assessee to alter the admission made before the tax officials in the course of survey proceedings?" It is incumbent on the Revenue to follow the fine norms of jurisprudence. Else the whole process of law will be set at naught, The CIT(A) observed in his order that the assessee did not give any figures to support the declared income of Rs. 3 lacs as done in the second statement. Both the declarations are ad hoc declarations. There is no material to accept that the 'assessee's first statement was not correct in the sense that the amount of Rs. 9,25,000 represented sales figure and not concealed income that the assessee's second statement is the correct one. Since neither of the two statements is supported by any evidence, there is no apparent choice between the two. However, since the first statement was made during the survey operation and since the figure of Rs. 9,25,000 as concealed income was given by the assessee spontaneously in a statement under oath, there is a preponderance of probability that this statement was the correct one rather than the second statement given later when the assessee had obviously time and scope to manipulate the book figures, It is not possible to accept this reasoning. As a matter of fact, no defect of any reckon was pointed out in the books. The addition was wholly on the basis of assessee's admission. There is absolutely nothing on record to justify that the book results were manipulated. It is quite possible, that the partner who at the time of survey gave this statement might have misunderstood the contents comprised in the statement concerning his disclosure. In the surrounding circumstances, and having regard to the given facts, it cannot be concluded that what the assessee said originally was sacrosanct and the assessee is not at liberty or it does not lie in his mouth to correct the error, originally committed by giving a different version of truth. In the absence of any other material apart from the original admission, there is nothing to support the addition.
It is not possible to agree with the CIT(A). Accordingly the AO is directed to delete the addition made on this count."
While holding so the Bombay Bench of Tribunal has placed reliance on a decision decided in the case of Kishore A. Meswani in ITA No. 7161(B)/87, dt. 7th Aug., 1990, and on a decision of Supreme Court in the case of Shri Krishan v. Kurukshetra University, AIR 1976 SC 376, wherein the Hon'ble apex Court had held that :
"any admission made in ignorance of legal rights or under duress cannot bind the maker of the admission. It is an accepted position that what is admitted by the party to be true, must be presumed to be true, unless the contrary is demonstrated. However, mere admission cannot be bed rock or foundation of an assessment. It is always open to the assessee who made the admission to show that what he admitted was not correct. Thus, it cannot be said that the admission made by a person is relevant in deciding the matter. But it is not always conclusive. The person who admitted the fact is at liberty to explain or clarify the circumstances and the nature of statement and also the correct facts, It is well settled that the effect of an alleged admission depends upon the circumstances in which it was made. Therefore, it can. be said that an admission is the best evidence that Revenue can rely upon and though not conclusive, is decisive of the matter unless successfully withdrawn and proved erroneous."
34.1 The facts of the above case and the facts of the case here before us are similar. In that case the assessee admitted in original statement that amount is of concealed income. Later on, there was retraction and it was stated that what he stated originally was in relation to sale and not in relation to income. Here in the case before us, as we have already stated, the situation is similar. In initial statement given on 20th June, 1996, the assessee surrendered the amount seized in cash, but on a later stage it was stated that this amount is out of sale and not on account of any other unexplained income. The retraction was with cogent reason and evidence. The statement of the assessee was accepted by the AO which was in regard to routed sale through the above noted three bank accounts. There was huge amount of about Rs. 65 crore which was deposited in these three bank accounts. The AO has admitted this amount by accepting the statement of the assessee. Therefore, the AO should have also accepted the explanation in regard to Rs . 86 lacs which was on account of cash sale proceeds as explained above. This is also not the case of the Department which we have already stated that the AO could not give any finding that if this amount of Rs. 86 lakhs is on account of unexplained income, then what happened about the amount of cash sales. The AO is accepting all the purchases by holding that all the purchases are genuine. There is no stock found during the course of search which was not recorded in the books of accounts of its concerns. All the stock which was found during the course of search was tallied with the purchases. Therefore, this is not the case of the Department that assessee has made purchases which were not recorded in the books of accounts. When there is no purchases which was not found unrecorded, then there cannot be any sale outside the books. Sales are tallied with the purchases as there is a clear finding of the AO. Chart was produced before him which was accepted and no separate additions were made. Therefore, in view of all these facts and circumstances and in view of the legal position, as narrated above, we are of the view that this addition of Rs. 86 lakhs was not justified and accordingly we delete the same. This ground of the assessee is allowed.
35. The next ground is in regard to addition on account of commission on job work billing business and billing commission on trading activity. After hearing rival submissions and considering the material on record we noted that this addition was made on the basis of documents found from the possession of one Shri Om Prakash, a person belonging to assessee and statements recorded of Shri Ramesh Minocha, proprietor of Bhupinder Singh & Co. and Shri Rakesh Mahajan, CA. The main facts of the case have already been discussed while disposing of ground in regard to addition of Rs. 86 lakhs. However, we will like to state some more facts briefly.
36. The assessee has admitted during initial statement recorded on 20th June, 1996, that he has earned a profit of Rs. 2.26 crores which was not disclosed by him. It was further admitted by him that three bank accounts, bearing numbers 5825, 5826 and 5827, were opened in Canara Bank and they were Benami bank accounts and all the incomes, which were not recorded in the books of accounts, were deposited in these three accounts. This money includes Rs. 86 lakhs seized from the premises of Canara Bank; Rs. 37 lakhs or odd cash balance in these accounts and Rs. 26 lakhs which was earned in last 2-3 years on account of commission. The AO gathered impression that assessee is indulging in arranging job work for M/s. PPL and charging commission (c) 2 per cent on entire job work payments. While doing so the AO heavily placed reliance on the statement of Shri Rakesh Mahajan and Shri Ramesh Minocha. The fictitious bank accounts were opened in the name of Shri Ramesh Minocha, who was issuing job work bills to M/s. PPL as nobody was ready to issue the bills in unorganised sector. Accordingly, he issued bills and charged commission. As per his statement the terms of commission were settled through Shri Sunil Aggarwal who arranged the payments on account of commission on these bills. Again the reliance was placed on the statement of Shri Rakesh Mahajan C.A., who admitted that these three bank accounts belonging to Mr. Ramesh Minocha were opened with his introduction as he was getting income-tax work through Shri Ramesh Minocha. It was also admitted by Rakesh Mahajan that Mr. Ramesh Minocha brought Mr. Gopal Singh to him who assured him to get more work of income-tax. Therefore, he introduced these persons to bank for opening the bank accounts. From the material and the statement gathered at the time of search, the AO formed an opinion that assessee has earned commission income on job work billing. Accordingly, he made the impugned addition by calculating 2 per cent on job work payments. Again we found that AO made this addition only on account of initial statement of the assessee as well as statements of Shri Rakesh Mahajan and Shri Ramesh Minocha.
37. After perusing the submissions made by both the parties and considering the other material, i.e., assessment order and replies filed by the assessee from time to time, we found that AO has not applied his mind properly. The AO discussed this addition at pp. 10 to 24 of his order. At p. 10 in paras 6.1, the AO has reproduced the part of the statement given on 20th June, 1996. For the sake of convenience we reproduce the reply given by the assessee in regard to question No. 34 :
"Ans : Yes, I have gone through annexures and on oath, I confirm that income from following transactions has not been disclosed before any IT authority. I further confirm that these transactions have not been accounted for in my regular books of accounts. The details are as under :
(a) That the bank accounts bearing Current A/c Bis, 5825, 5826 and 5827 in Canara Bank, Arya Samaj Road are in reality my Benami accounts and all the money lying therein of late as well as past belongs to me. These deposits represented undisclosed income not recorded in regular books of accounts, earned from trading of plastic raw material by me. Quantum of such income is that an amount of Rs. 86,00,000 found and seized from Shri Gopal Singh on 20th June, 1996, at Canara Bank, Branch Arya Samaj Road, Karol Bagh together with Rs. 37 lakhs being added in the three above noted accounts, represents my current recent in this business has been carried out by me about 2-3 years during which an income of Rs. 78,00,000 earned in similar way by resorting to trading in cash.
(b) I have to further add that as stated earlier regarding my liaison activities, I have actually earned profit of around Rs. 26,00,000 in the last 2-3 years from activities noted at page No. of Annexure AA showing total liaison turnover of Rs. 5 crores. I have earned a profit of Rs. 10,00,000 @ 2 per cent, being my commission, The balance amounting to Rs. 10,00,000 has been earned in earlier years specific details of the same I do not possess at this moment, This commission was earned for arranging business transaction for indicated parties, Thus, I confirm that I have earned undisclosed income of Rs. two crore twenty-six lakhs and the same is hereby voluntarily offered for taxation for the block assessment proceedings."
38. After perusing this reply we noted that assessee has admitted that he has earned a profit of around Rs. 26 lakhs in last 2-3 years on account of some liaison work. We further noted that assessee has already filed return for the block period for three years, 'whereby he surrendered about Rs. 24 lakhs and the tax has already been paid. There is no dispute about this. The copy of the return is placed at p. 1 of the paper book. On going through this receipt of return, we noted that assessee has shown incomes of Rs. 91,430; Rs. 91,310; Rs. 1,03,180; Rs. 2.92.370; Rs. 10,28,910 and Rs. 9,11,820 from asst. yrs. 1991-92 to 1996-97, respectively. We further noted that on total undisclosed income of Rs. 24,50,310, the assessee has shown tax paid at Rs. 14,70,190, We further noted that this income was disclosed by the assessee on account of statement of assets and balance sheet placed at p. 12 of paper book. The total capital is shown at Rs. 21,71,658.32 as on 20th June, 1996, The return under block period was filed upto this date i.e., 20th June, 1996. After perusing the material and the assessment order of the AO, we do not find anywhere that the search party found any other assets belonging to assessee, which was not disclosed by him, except the assets shown in the balance sheet, It is also not the case of Department that there was no time to unearth the reality as the search was started on 20th June, 1996 which continued upto 30th July, 1996, when the last of the warrant of authorisation of search was executed. The AO merely placed reliance on the statements given by Shri Ramesh Minocha and Shri Rakesh Mahajan and gathered impression on the papers found from the possession of Shri Om Prakash and the admission of Shri Om Prakash that he prepared the accounts on the instructions of Shri Sunil Aggarwal, the assessee. Otherwise there is no material with the AO to infer that assessee has earned any commission on account of job work made on behalf of M/s. PPL from the unorganised sector through the companies of Shri Ramesh Minocha, We have also seen that nowhere the assessee has admitted that he had earned any commission on account of coordination made by him to M/s. PPL. On the contrary the assessee has categorically denied from the day one that he has earned any commission on account of job work made for M/s. PPL, though he has admitted that M/s. PPL is his primary customer who buys about 70 per cent of the total turnover of assessee. It has been, further stated by him that he received some complaint from M/s. PPL and just to maintain his business relations because M/s. PPL was the main customer, he coordinated with him by getting the job work done from the unorganised sector and the bills were routed through the bank accounts opened in the names of Shri Ramesh Minocha through Shri Rakesh Mahajan, C.A. In para 5,3 of the order of the AO, it is very clearly mentioned by the AO that a survey operation was conducted on 12th March, 1996, in the premises of M/s. PPL at Okhla for finding out the connection of Shri Sunil Aggarwal with M/s. PPL and statement of general manager (commercial) and general manager (Accounts) of M/s. PPL were recorded. In their statements the general managers have confirmed that Mr. Sunil Aggarwal coordinated and assisted in job work for M/s. PPL through number of outside parties. But it is nowhere mentioned in the order of the AO that there was any confirmation from these general managers that they have paid commission on account of job work. We further noted that a confirmatory letter dt. 24th July, 1997, was also filed before the AO. This confirmatory letter was - written and signed by one Shri Munesh Bhatia, general manager (Accounts) of M/s. PPL. The contents of the letter, which is placed at p. 158 of the paper book, are reproduced here as under:
"Confirmation This is to confirm that Shri Sunil Agarwal son of Shri B,L, Agarwal, resident of N-37, Kirti Nagar, New Delhi, has not worked as our liaison/commission agent at any time during the last ten years, There was no contractual obligation in this regard as there was no such agreement also. We have not paid any commission or service charges to Shri Sunil Agarwal and his associates.
He had supplied plastic raw material on principal to principal basis from his following companies/concerns of his group and all the purchases made by us are duly entered in our accounts as per copies of account already submitted to the Asstt. CIT, Central Circle 10, New Delhi, in response to notice under Section 131 issued.
1. Polychem Traders proprietor Mr. Sunil Agarwal.
2. Petrochem Overseas (India) proprietor Mr. Sunil Agarwal.
3. Aar Vee Plastic Prop. Mr. V.K. Jain, We are assessed to income-tax with Asstt. CIT, Central Circle-9, New Delhi vide GIR No. 198-P. For Padmini Polymers Ltd.
Sd/-
(Munesh Bhatia) General Manager, Accounts."
39. We further noted that Director of Income-tax (Investigation) issued summons under Section 131 to one Shri Ramesh Kumar Arora proprietor M/s. Arun Moulders, These summons were issued regarding the proceedings of the case of Shri Sunil Agarwal. The reply of summons under Section 131 was filed vide letter dt. 29th Aug., 1996, by the proprietor of M/s Arun Moulders. Copy of the same is placed at p. 42 of the paper book. By this letter it was informed to the Department that the assessee is engaged in the business of fabrication of Plastic moulding goods on contract basis in the name of M/s. Arun Moulders, It was further clarified that during financial years 1993-94 and 1995-96 the moulding business was done on contract basis for M/s. Padmini Polymers Ltd,, for which the raw material and moulds were supplied by the said company and during financial year 1994-95 the said job was done for various other persons also. It was further replied that the job work was got done through M/s. S.P. Singh & Co., New Era Plastic Trading, Bhupinder Singh & Co. and also from JVS Enterprises, etc., most of which was processed from various cottage industries and jobbers in the unorganised sector in Khyala, Vishnu Garden, Nangloi, Peeragarhi Nawada Village etc. in Delhi under his overall supervision. The inspection of finished goods was also got done routinely and after approval of the moulded materials, the finished products were despatched to the principal i.e., M/s. PPL. It was further confirmed that the payments were received by cheques in regular course of business and the income-tax ward was informed where this assessee was assessed. From the contents of this letter, it is also very clear that the job work was done on contract basis in the unorganised sector and the same was done on behalf of M/s. PPL, of course this was routed through some parties which were issuing bills and charging commission. Charging of commission was also not disputed and the same was stated that it was settled by Shri Sunil Agarwal only. Now it has to be seen that in fact who made these payments. The position is very clear. The payments were made on behalf of M/s. PPL and not on behalf of Shri Sunil Agarwal. Shri Sunil Agarwal was only a coordinator, who coordinated for, getting the job work done in unorganised sector and proper billing was done through these parties who were ready to issue bills and they issued bills and got their commission after settling by Shri Sunil Agarwal. Shri Sunil Agarwal settled the account of job work, but it does not mean that Shri Sunil Agarwal have received some commission. Confirmation from M/s. PPL was also filed where they categorically denied having paid any commission to Shri Sunil Agarwal. The statements of two general managers were recorded, who also not admitted making any payment; rather they admitted that Shri Sunil Agarwal coordinated in getting the job work done for their company. We have also seen that some papers were found and seized and they were shown to the assessee during the course of assessment proceedings, but nowhere the assessee had admitted that these papers belonged to him or he has earned some income. Some of the questions raised by the search party on 6th Aug., 1996, and the reply given by the assessee, are part of the assessment order and for the sake of convenience and clarification, we will like to reproduce some of the questions, which goes to the root of the case. At p. 11 in para 6.6, the relevant portion of the statement of Shri Sunil Agarwal is mentioned as under:
"6.6. Statement of Sh. Sunil Aggarwal was recorded on 6th Aug., 1996. The relevant portion of the statement is reproduced as under :
In response to Q. No. 7 he replied as "I supply plastic raw material to M/s. Padmini Polymers Ltd. They get job work done from other parties. I was getting complaints from M/s. PPL that my raw material quality is not good and their jobbers are complaining about the same to them. However, the quality of my raw material was of a good standard. I feared that if action is not taken by me, I might lose the business from M/s. PPL (Padmini Polymers Ltd.). I, therefore, coordinate with jobbers in unorganised sector, from which I got the goods manufactured for M/s. PPL. In same cases we were not getting proper bills of the parties (jobbers) refused to accept cheques for the work done by them. I might have procured the bills from some parties, though work was not done by them but the work was done by the jobbers in the unorganised sector.
Q. No. 8 : So you agree that bogus billing for job work was done by a number of concerns, though no actual job work was done here the fig. Concerns uninvolved in bogus billing of job work :
(i) M/s. Bhupinder Singh & Co. proprietor Shri Ramesh Minocha
(ii) M/s. New Era Plastics Trading Co., proprietor Smt. Kamal Minocha.
(iii) M/s. Ravi Plastic Moulders, proprietor Shri Anil Oberoi
(iv) M/s. JVS Enterprises, proprietor Shri Jagvinay Singh
(v) M/s. S.P. Singh & Co. Prop. Sh. Surinder Pal Singh Ans: I have already stated that job work for M/s. Padmini Polymers Ltd. was actually done but in some case, where the work was done by the jobbers in the unorganised sector, the bills for job work might have been taken from some of the above parties in cases where jobbers in unorganised sector did not provide bills or cheque payments were not accepted by them for the job work actually done by them. M Q. No. 9 : I am showing you p. 250, Annexure A47, Party No. 7, where some stages of work to be done starting from bills of bank opening, signature verification, audit report etc. are written, what are these stages.
Ans : I am not in a position to say anything at this moment. They are not in my.....
Q. No. 10; Was any commission was paid for document of bills.
Ans : I don't remember.
Q. No. 11 : On p. 251, Annexure A47, Party No. 7, Account of New Era Plastic, Bhupinder Singh, JVS Enterprises, S.P. Singh & Co. for year 1994-95 is given. The total is Rs. 10,54,37,339.20. The amount of commission for the first stage @ 7P = 73,806 & 2/3A stage @ 7+ 12P (per Rs. 100) = 2,00,330 matches with the figures written on the page. Is the commission paid at various stages.
Ans : I don't remember anything. However, I can tell only after taking copies of seized material and reconciliation of my accounts if any of the transactions relates to me.
Q. No. 12 : I am showing you pp. 14 and 15 of Annexure Al, Party 8, which gives names of number of concerns along with Dr/Cr. figures. Why these papers were maintained by you and what do these papers contain?
Ans : These papers were not maintained by me or they were found from me. However, I can further say only after examining all the seized material and reconciliation of my account.
Q. No. 13 : I am showing you pages 11 and 12 on which details of TDS deducted, details of place of assessment, date of filing of return, TDS refund due, TDS refund received and income-tax assessment portion is given for a number of parties. Why these details were maintained by you?
Ans : I am unable to recollect anything at the moment. However, I can tell after verification.
Q. No. 14 : I am showing you papers Annexure Al, Party No. 6, pp. 22, 23, 24, 25, which gives certain details of transactions done in accounts in Canara Bank, UBI, SBI & PNB/CP. What are these papers . Please give details of these bank accounts.
Ans : I will be in a position to reply only after taking copies of seized maintained and checking from bank statements.
Q. No. 15 : Page 25 of these documents (Annexure A1 Party 6) is a computer printout giving details of cash deposited into banks for 3rd June, 1996, to 15th June, 1996. The banks are Canara Bank, PNB, SBI, UBI & BOM, Please inform source of these deposits?
Ans : As I have already stated, I can explain only after verification of seized material and reconciliation of my accounts,"
40. From the perusal of these questions and answers asked on 6th Aug., 1996, one thing emerges, that nowhere the assessee had admitted that he has earned any commission. One more thing which emerges, is that the assessee has asked that after reconciling these papers then he will be able to reply accordingly. It shows that .no copy of the material seized by the Department was got available to the assessee for his proper reply, Only some papers were shown and then the reply was given. After perusing, further, the order of the AO we noted that portion of statements of Shri Ramesh Manocha, of Bhupinder Singh & Co. and Shri Rakesh Mahajan, CA were reproduced and after perusing the portion of statements of these two persons we find that they have also confirmed that the work was done for M/s. PPL and not for Mr. Sunil Agarwal. Only one thing which was admitted by Shri Ramesh Manocha and Shri Rakesh Mahajan, that was that Shri Gopal Singh introduced Shri Sunil Aggarwal with Ramesh Manocha and Ramesh Manocha introduced these persons to Shri Rakesh Mahajan for getting his help for billing of job work. Accordingly, Mr. Ramesh Manocha opened some bank account through his introduction and helped him in getting the bills of job work and others. We further noted that assessee has categorically stated that the persons who opened the bank accounts were independent and they were introduced in the bank by Shri Rakesh Mahajan, CA, therefore, he should be responsible. It was further clarified that Shri Ramesh Manocha, who opened the bank accounts in his name or in the name of his associate concerns, issued bills and got commission, Therefore, he can be held responsible for the commission or billing commission and not the assessee. However, the AO was not satisfied. The name of the assessee was taken. Therefore, the AO drew inference that assessee got commission for getting .job work done for M/s. PPL and after reconciling total of all the job work done, then he calculated the commission (c) 2 per cent and made impugned addition in three years, as stated above. Jn our considered view, the addition is not sustainable. The facts of the case are very clear. No evidence was found that assessee has earned commission; rather evidence which was found, was in favour of the assessee. The statements of two general managers of M/s. PPL were recorded and they confirmed to this extent only that the assessee has coordinated for getting the job work done for their company, but nowhere they have said that Shri Sunil Agarwal had earned any commission. Confirmatory letter was also filed by another general manager, Accounts, The premises of M/s. PPL was surveyed and no incriminating evidence which was against the assessee, was found. Therefore, by presuming that assessee has earned commission cannot be sustained in the eyes of law or on facts of the case, The documents which were found were also of no use because in no papers it was mentioned that any commission income was earned by Mr. Sunil Agarwal. Only accounts of the various parties were found. We have also seen that these accounts were found with various parties i.e, Rakesh Mahajan and Ramesh Manocha and his associates, but no paper was found with the assessee. The assessee clearly stated that he can only reply after seeing these papers and after reconciling these papers, otherwise he is not in a position to say anything.
We further noted that Shri Ramesh Manocha has filed an affidavit that the statement which was given in the premises of Shri Rakesh Mahajan, was under pressure, He admitted that he has done business independently and earned income independently which has already been shown by him. From the affidavit, which was in shape of retraction, if any inference can be drawn, then only the inference can be drawn that Shri Ramesh Manocha retracted from his earlier stand, Firstly he stated that he earned income on account of job work billing and he will declare all the income in due course. On a later stage he retracted from his earlier stand and denied. Copy of letter of his denial which is dt. 29th Aug., 1996, is placed at p. 52 and affidavit in support of his contention is placed at pp. 53 and 54 of the paper book. We have also seen the statement of Shri Rakesh Mahajan, who also confirmed that he knows Mr. Ramesh Manocha, who introduced Shri Gopal Singh and Shri Sunil Agarwal and for getting the income-tax work he helped them by opening of bank accounts in the names of various persons known to him. As we have already stated that on the basis of these facts and circumstances the addition made by the AO is only on account of presumption that assessee has earned income, There is no direct evidence which supports the view of the AO, neither any assets was found which belongs to assessee, which can be said that undisclosed income was invested in those assets. There was ample time with the Department as search continued for more than one month, but Department could not succeed in finding any asset or cash. Only a cash of Rs. 86 lakhs was found and seized from the premises of Canara Bank, Arya Samaj Road. A separate addition was made on account of cash found, which we have already dealt with and disposed of. That cash amount cannot be considered as commission amount, as we have already held that the cash amount of Rs. 86 lakhs was belonging to cash sales made by the assessee. We have also seen various letters filed by the assessee during the course of assessment proceedings, whereby he categorically denied having earned any commission on job work. He also requested to allow cross-examination of the persons who have given statement against him. It was also mentioned by him, if there is any beneficiary, that is Mr. Rakesh Mahajan or Mr. Ramesh Manocha , but not the assessee in any case, All these replies and all other facts we have already discussed above, clears that there was no evidence with the Department that assessee has earned any commission on account of job work done for M/s. PPL, Therefore, in view of these facts and in the circumstances of the case no addition can be made on account of commission of job work.
41. Now we will like to see the legal position. Regarding retraction, we have already dealt with legality of retraction above. We have considered the case laws, where we have held that if retraction is with cogent, reason, then no addition can be made. Here we find that the retraction is on more sound footing, as assessee has admitted that he has earned only about Rs. 26 lakhs. The same has already been declared by him and paid tax. No other admission was made in regard to earning of any commission, rather he has categorically denied that he has not earned any commission, only he coordinated with M/s. PPL.
42. Regarding cross-examination the assessee has requested to cross-examine Shri Rajesh Mahajan and Shri Ramesh Manocha, but no opportunity was given. In the case of Kishin Chand Chela Ram v. CIT (1980) 125 ITR 713 (SC), the Hon'ble Supreme Court has held that without allowing any opportunity to cross-examine no addition can be made. The brief facts in the case of Kishin Chand Chela Ram were that "the assessee had an office in Bombay and one in Madras. On receiving information that a sum of Rs. 1,07,350 was remitted by the assessee by two telegraphic transfers from Madras to Bombay through a bank, the ITO wrote two letters to the manager of the bank dt. 14th Jan. and 10th Feb., 1955, making enquiries about the remittance. These two letters were neither disclosed to the assessee nor brought on record. The manager replied, by a letter dt. 18th Feb., 1955, to the effect that a telegraphic transfer of Rs. 1,07,350 sent by the assessee from Madras was received by the bank at Bombay on 16th Oct., 1946, and the amount was paid to N, an employee of the respondent, on the same day. This letter also was not disclosed to the assessee. The application for the telegraphic transfer was signed by one T describing himself as : "T C/o M/s. K. Chellaram". There were at the relevant time two employees of that name, both of whom had left service long back. There was another letter dt. 9th March, 1957, addressed by the bank to the assessee wherein it was stated by the manager that the bank had received a telegraphic transfer from the Madras office on 16th Oct., 1946, favouring N and this amount was remitted by the assessee through their Madras office. In a copy of this letter forwarded to the ITO, there was an endorsement referring to a summons dt. 3rd March, 1957, issued by the ITO, which was also not disclosed to the assessee. Relying upon the two letters dt. 18th Feb.,1955, and 9th March, 1957, the Tribunal held that the sum of Rs. 1,07,350 was the undisclosed income of the assessee for the reason that the assessee could not show that the amount did not belong to it, which it could have done by examining the respective employees and the bank officers. On a reference, the High Court held that there was material before the Tribunal to justify the finding that the amount remitted by T to N was the undisclosed income of the assessee. On appeal to the Supreme Court:
Held, reversing the decision of the High Court, (i) on the facts, that the two letters dt. 18th Feb., 1955 and 9th March, 1957, did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs. 1,07,350 was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding. The statements of the manager in those two letters were based on hearsay, as, in the absence of evidence, it could not be taken that he must have been in charge of the Madras office on 16th Oct.,1946, so as to have personal knowledge. The Department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. It was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dt. 18th Feb., 1955, it could be taken into'account as evidence. But before the IT authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him. Nor was there any explanation regarding what happened when the manager appeared in obedience to the summons referred to in the letter dt. 9th March, 1957, and what statement he had made.
(ii) That, even assuming that the two letters were to be taken into account, those letters would at the highest establish that T, an employee, remitted the amount frorq. Madras and N, another employee, received it at Bombay. From this it did not follow that the remittance was made at Madras and received at Bombay on behalf of the assessee. The burden was on the Department to show that the money belonged to the assessee by bringing proper evidence on record and.the assessee could not be expected to call T and N in evidence to help the Department to discharge the burden that lay upon it.
(iii) That there was no evidence on the basis of which the Tribunal could come to the finding that the sum of Rs. 1,07,350 was remitted by the assessee and that it represented the undisclosed income of -the assessee."
43. Here in the present case the situation is similar; rather we can say that the situation is more favourable to the assessee. In the case of Kishin Chand Chela Ram (supra), some amount was transferred and was verified by the manager. The addition was confirmed upto the stage of High Court. However, the Hon'ble Supreme Court reversed the finding of High Court by holding that the bank manager must have been produced to assessee to controvert his statement, which was not done and accordingly the finding of High Court was reversed. Here in the present case the statements of Shri Rakesh Mahajan and Shri Rarnesh Manocha were recorded at the back of assessee. A request was made to cross-examine which was not allowed, neither there is any whisper in the order that they were called for cross-examination. Only an inference was drawn that assessee has earned commission on job work; whereas the assessee from the day one is stating that he has not earned any income. However, he coordinated with M/s. PPL just to maintain his business relations as M/s. PPL was his main customer who was buying 70 per cent of the total turnover made by the assessee". The AO has not discussed in his order in regard to reply filed by him. He just made the addition by drawing an adverse inference that assessee has surrendered while making initial statement at the time of search and again by drawing the adverse inference from the statements of two persons as mentioned above. The ratio of the decision of the Hon'ble Supreme Court (supra) directly helps the case of the assessee.
44. In the case of Addl. CIT v. Hanuman Agarwal (1985) 151 ITR 150 (Pat), the Hon'ble Patna High Court has confirmed the order of the Tribunal that confession made in a third party's case cannot be used against the assessee. It was further observed that the confession made by the third party was not made available to the assessee. Therefore, also there was no defect found in the order of the Tribunal.
45. In case of Gargideen Jawala Prasad v. CIT (1974) 96 ITR 97 (All), the Hon'ble Allahabad High Court has observed that statement made by two witnesses, but permission to cross-examine the witnesses was given to the assessee without furnishing copies of the statements made by the witnesses or conveying the substance of their statements or even giving the names of the witnesses and the assessee was not permitted to inspect the record. Then it was held that assessment was vitiated by violation of principles of natural justice, as the permission given for cross-examination of the witnesses was illusory.
46. In case of Smt Raj Rani Gupta v. Dy. CIT (2000) 66 TTJ (Mumbai) 885 : (2000) 72 ITD 137 (Mumbai) at p. 160, the Tribunal has observed that though deposition of patients were taken before assessee but he was not given opportunity to cross-examining them before making addition, prejudice was done against her. Held, yes. In this case also the reliance was placed on the decision of the apex Court in the case of State of Keiala v. K.T. Shaduli Grocery Dealer AIR 1977 SC 1627, wherein it was held that cross-examination has to be afforded, where the statement of a deponent forms an integral part of the material on the basis of which the order is passed by the taxing authority. Further the reliance was placed in the case of Suraj Mal Mohta & Co. v. A.V. Vishwanathan Shastri (1954) 26 ITR 1 (SC) as also the decision of apex Court in case of Kishin Chand Chela Ram (supra).
47. After considering the ratio of these valuable decisions we find that the facts of the case are squarely covered by these decisions and they are applicable on the facts of the present case. No opportunity to cross-examine were allowed to the assessee. Therefore, we are of the view that addition made on the basis of statements given by Shri Rakesh Mahajan and Shri Ramesh Manocha cannot be sustained. However, we will like to discuss here the case laws relied upon by the learned Departmental Representative also.
48. In the case of Amrit Lal Agarwal v. Asstt. CIT (1997) 59 TTJ (Cal) 596 : (1998) 64 ITD 7(Cal), the additions were confirmed by the Tribunal. Facts in this case were that on receipt of certain vital information found in the seized documents about the assessee's business activity in sanitary goods, which was admitted by him under Section 132(4) and large amount of credit in few bank pass books in the name of the assessee and his minor sons, the assessments were reopened and the additions were made. Assessee could not explain the entries in the books of accounts; neither any evidence was brought on record to controvert the reasoning given by the AO or by the CIT(A). Accordingly the addition was sustained.
49. Here in the present case the facts are entirely different. The information was received by the AO, but the same was controverted successfully. No further evidence against assessee was brought on record except his preliminary statement. Therefore, the facts in the above case are distinguishable and this is not helpful to the Department.
50. In the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) it was held by the Supreme Court "that though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals."
51. Here in the present case again the position is reversed. Assessee made a surrender. On a later stage it was retracted with cogent reasons. The explanation was filed. It was further stated that cross-examination was not allowed and if any self-serving recitals were filed they were filed by Shri Ramesh Manocha and not by the assessee. Firstly, Ramesh Manocha admitted that he has earned some income which is not disclosed. On a later stage he retracted from his earlier statement by filing an affidavit that he has already shown income as the same was received by cheques and earlier statement should not be taken into account as the same was given under pressure. The assessee has not stated anything by filing any document. He explained the position where it was stated that neither any assets were found nor any other evidence which goes against the assessee was found. If any evidence was found, that was in favour of assessee, like statements of two general managers of M/s. PPL; confirmation of general managers of M/s. PPL saying that no commission has been paid, reply under Section 131 of one party saying that he has done job work for M/s. PPL. All these evidences are in favour of assessee". Therefore, we are of the view that this decision is also not helpful to the Department.
52. Last case on which the reliance was placed by the learned Departmental Representative was the decision in the case of Sumati Dayal v. CIT (supra). In this case the Hon'ble Supreme Court has held that surrounding circumstances and the test of human probability has to be considered. In this case some jackpot in horse riding were won. The jackpots were won in three different stations. Assessee could not furnish any detail in regard to withdrawals for expenses for these three stations, which were situated at three different directions, namely, Madras, Bangalore and Hyderabad. Then the Settlement Commission found that the assessee has converted his black money into white by showing prize money through jackpots. The Hon'ble Supreme Court confirmed the finding of the Settlement Commission by holding that human probabilities and surrounding circumstances were examined by the Settlement Commission and they were against the assessee.
53. Here in the case at hand, the situation is different. Neither any money was found which was invested somewhere else, nor any assets were found. Only preliminary statement was there and some statements of two different persons were recorded, who stated that Shri Sunil Agarwal was assisting them for preparing the bills on behalf of M/s. PPL. Nowhere they have said that Shri Sunil Aggarwal has earned commission on job work. Therefore, human probabilities and surrounding circumstances were not against the assessee. In view of these legal propositions also, we are of the view that no addition can be sustained. Accordingly, we delete this addition.
54. The second part of addition is on account of billing commission on trading activities. This addition was made of Rs. 25,11,742. This addition was also made on the basis of initial statement that assessee has surrendered the amount by confessing that he earned income out of billing business. We have already discussed the facts while disposing of the addition on account of job work commission. The facts are similar and the arguments were also similar,
55. After perusing all the material and reply of the assessee we noted that nowhere the assessee has said that he has earned income out of billing of tracing activity, except making a statement on 20th June, 1996/6th Aug., 1996 that he has earned income of about Rs. 26 lakhs out of liaison work and the same has already been surrendered by him by disclosing it in the return filed under Section 158BC and paid tax. Except this surrender, at no stage the assessee has stated that he has earned any income out of billing of trading activity. Again the AO made this addition on the basis of initial statement, by calculating the profit as declared by assessee in various years. In our opinion, again this addition is without any basis, as no asset or money was found with assessee. Only certain bank accounts were found opened through Shri Rakesh Mahajan, where certain cash were deposited out of cash sale proceeds. This issue we have already discussed while disposing of the addition of Rs. 86 lakhs, where we have found that cash proceeds were out of cash sales which were duly accounted for. No other evidence was found, which shows that assessee has done any billing business of trading activity for others. Neither there is any confirmation or evidence from any other source that assessee issued bills for their trading activities, nor the assessee has issued in his name. Therefore, in absence of any cogent evidence, no addition is sustainable. One more important fact which we noted that AO while making these huge additions has not considered the reply filed by him from time to time. However, he placed reliance on the last para of the letter where he has mentioned that, without prejudice to the submissions on merit made there in earlier letter if any addition which is being made on account of commission for job work or on account of any other activities, then the deduction should be allowed on account of expenditure, which were made in making payments to various jobbers and other billing agents. The AO only relied on this alternative submission and without discussing the submissions and considering on merit, he made these two impugned additions which, in our considered view, are not sustainable either on facts of the case or on the basis of real income theory. There should be a real income which can be assessed. This theory has been settled by the apex Court that the real income can only be assessed [See CIT v. Shoorji Vallabh Das & Co. (1962) 46 ITR 144 (SC)\. In this case the Hon'ble apex Court had held that income-tax is levy on income. No doubt the IT Act takes into account two point of time on which the liability to tax is attracted, viz., the accrual of income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping an entry is made about a hypothetical income which does not materialise.
56. Here in the present case, even there is no entry in the books of accounts, neither any cash or asset was found which can be said that assessee has earned out of the undisclosed sources, whether it is job work billing or trading billing. Therefore, in view of these facts and circumstances, this addition is also deleted.
57. Now we will discuss about the addition of Rs. 1,36,41,971 made on account of unexplained cash credit. Brief facts of the case have already been discussed above. After hearing rival submissions and considering the material on record, we are of the view that this addition has no legs to stand. The AO on receipt of some information from DDI, Bombay, made an enquiry from the assessee that what is the source of loan taken from M/s. Nice International, a proprietorship concern of Shri Sant Kumar Sharma of Bombay. Confirmation letter and relevant evidence were filed. However, the AO was of the view that there is no loan, as all the transactions of export were made by assessee, though in the name of Shri Sant Kumar Sharma. Therefore, he treated all the export receipts as receipts of assessee and accordingly he made impugned addition under Section 68 of the IT Act. In our view, this action of the AO cannot be sustained either on the facts of the case or in the eyes of law. Facts are very clear which have already been discussed above though for the sake of clarification purpose, some portion of those facts we would like to repeat here. Facts were that the statement of Shri Sant Kumar Sharma was recorded by the income-tax officials at Bombay and copy of that statement was sent to the AO here at Delhi and on the basis of that information the AO raised certain queries to the present assessee and the same was replied by stating that assessee and his family members have taken a loan of Rs. 1.30 crore from Shri Sant Kumar Sharma. 'All the confirmation and relevant material/evidences were filed. The statement of Shri Sant Kumar Sharma was not got available to the assessee for preparing reply, neither Sant Kumar Sharma was produced before assessee for the purpose of cross - examination.
58. In the case of Kishinchand Chela Ram (supra), the Hon'ble Supreme Court has held that no addition can be made if the person, on the basis of whose statement the additions were made, was not produced before assessee for the purpose of cross-examination and in the result the additions sustained upto the level of High Court, were deleted by the Hon'ble Supreme Court. We have also discussed so many other cases while disposing the other ground of the assessee in the present case and we have held that of course the information from a person is a material evidence, but it is not conclusive. It was further held that if the person, on the basis of whose statement, the addition was made if he is not produced before the assessee for cross-examination then no addition can be sustained. Here in the present case the addition was made only on the basis of information gathered by the income-tax official at Bombay from one Shri Sant Kumar Sharma and only on the basis of some statement of Sant Kumar Sharma recorded at Bombay, the AO drew an adverse inference against the assessee that all the exports are done by the assessee and not by Shri Sant Kumar Sharma. He has totally overlooked and ignored that all'the export receipts are received by Sant Kumar Sharma through proper banking channels at Bombay. The licence for exports was obtained by Mr. Sant Kumar Sharma only at Bombay. The orders were executed by Shri Sharma and none else. Of course the purchases were made from Delhi and they were sent directly to the Russia. If purchases are only made from a third place and they were despatched from that place directly to the destination then it does not prove that the party belonging to that place is the owner of export proceeds. Bill of lading is in the name of proprietary concern of Shri Sant Kuraar Sharma and all the records were before him. The return filed by Shri Sant Kumar Sharma claiming deduction under Section 80HHC was before the AO. The statement of Shri Sunil Kumar Agarwal, the assessee, that export receipts have been accepted by the IT Department of Bombay, it means the deduction under Section 80HHC has been allowed in the hands of Shri Sant Kumar Sharma. Copies of all these informations are placed in the paper book filed before us and after examining all the evidence, we are of the view that all these details prove that the export was done by Shri Sant Kumar Sharma who has received the export proceeds. The return was filed by Shri Sant Kumar Sharma claiming deduction under Section 80HHC and the same has been accepted by the Department itself. The learned Departmental Representative has also not controverted these arguments of the assessee and the factual position which was explained by the learned counsel of the assessee here before us. If the assessment has already been completed in the hands of Shri Sant Kumar Sharma accepting the return, in which the deduction under Section 80HHC was claimed, then in that situation also that amount cannot be assessed in two hands. One more reason for not sustaining the addition here is that when one person has already disclosed the income in his regular return, then it cannot be treated as undisclosed income in the hands of other person because the same amount has already been disclosed before the Department well in time. For this reason also this addition cannot be sustained by treating undisclosed income in the hands of assessee.
59. We have also seen the statement of Shri Sant Kumar Sharma recorded at Bombay, which is part of the assessment order and after going through the statement of Sant Kumar, nowhere we found that Shri Sant Kumar Sharma had stated that he has not made the export business. On the other hand, he has categorically accepted that the export business was done by him only, of course Shri Sunil Kumar Agarwal helped him. Rendering some help to another person does not prove that the person who rendered the help is liable for any penalty or he is owner of the income earned by the other person. Shri Sant Kumar Sharma has clearly stated that Shri Sunil Kumar has promised him to return his money upto March, 1997 along with interest @ 1.5 per cent p.a. This also shows that Sant Kumar Sharma was the real owner of export business transaction. We have also seen the case laws relied upon by the learned Departmental Representative and are of the view that they were distinguishable on facts. The facts in the case of Sumati Dayal (supra), we have already discussed somewhere in above para, while disposing the other ground of this appeal and held that they are distinguishable on facts. Therefore, in view of these facts, circumstances and the legal position, we hold that this addition was made on wrong premises. Accordingly we delete the same.
60. Last ground of appeal is against the addition made on account of jewellery and on account of various valuables. The learned counsel has stated that these jewelleries and valuables were purchased from the known sources. It was further argued that assessee has surrendered a sum of about Rs. 24 lakhs or odd and paid tax accordingly. This amount was available with the assessee to purchase these items of jewellery and other valuables. Therefore, there should not be any separate addition.
60.1. After perusing the material and the arguments of the parties, we restore these two grounds to the file of the AO to examine the same afresh. If the AO finds that these items are covered from the amount surrendered by the assessee, then there should not be any separate addition. Otherwise he can make these additions again if finds so. However, he is directed to allow an opportunity to the assessee to explain his case again.
61. The last argument was in regard to telescoping. We have already deleted the main additions and restored the two additions which were on account of jewellery and valuables, therefore, there is no need to give any finding on account of telescoping.
62. In the result, the appeal of the assessee is partly allowed.
R.S. Syal, AM.
1. I have considered the order of my learned Brother, meticulously. In spite of my best persuasion, I fail to fall in line with the observations and conclusions of my learned Brother in respect of ground Nos. 2, 3 and 5. I, therefore, record my dissent as under :
2. Ground Nos. 2 and 3 deal with commission on billing work in the block period. In ground No. 2 the assessee is aggrieved against the addition of Rs. 95,18,600 made by the AO spread over asst. yrs. 1994-95 to 1996-97 on account of commission on billing on job work contract work. In the 3rd ground the assessee's grievance relates to addition of Rs. 25,14,742 made by the AO spread over financial years 1993-94 to 1996-97 on account of billing commission on trading activities.
3. The facts in brief are that the assessee was subjected to search and seizure proceedings on 20th June, 1996, and on this same day the statement of the assessee was recorded wherein he conceded that he had earned profit of around Rs. 26 lakhs in last two years from the activities noted in Annexure "AA" showing total liaison turnover of Rs. 5 crores. He further conceded that he had earned a profit of Rs. 10 lakhs at the rate of 2 per cent being his commission and the balance amount of Rs. 10 lakhs had been earned in the earlier years. He voluntarily offered a sum of Rs. 2 crores 26 lakhs for taxation' in respect of his undisclosed income earned by him during the block period. During the course of search proceedings, which continued upto 30th July, 1996, the search party laid its hands over certain incriminating documents, accounts and loose papers. These were inventorised as Annexures "Al", "A-3D" and "AA-1". On the basis of these seized papers it was noticed that the assessee was engaged in bogus billing on account of job work for M/s. Padmini Polymers Ltd. (in short "PPL"). Dummy bank accounts were also found during the search. During the course of investigation Annexure "AA, Party No .8, p. 11 was found from one Shri Om Prakash, the accountant of the assessee. This paper contained the details of 23 cheques in the names of certain parties. Shri Om Prakash stated that the paper was prepared on the direction of Shri Sunil Agarwal and the entries were not recorded in the regular books of accounts. When this paper along with the statement of the accountant was shown to the assessee, he stated that he had acted as a liaison officer between the concerns listed in the paper and M/s. PPL, for which he had earned undeclared profit of Rs. 26 lakhs at the rate of 2 per cent being his commission.
4. However, during the block assessment proceedings, the assessee retracted from his earlier stand that he had earned any commission on account of billing of job work for M/s. PPL. When the assessee's statement was again recorded on 6th Aug., 1996, he stated that he supplied plastic raw materials to M/s. PPL and they got job work done from other parties. It was further submitted that he was getting complaints from M/s. PPL that the raw material supplied .by him was not of good quality and their jobbers were complaining about the same, He, however, maintained that the quality of raw material was of good standard. He further stated that he feared that if action was not taken by him, he might lose the business from M/s. PPL. The assessee further stated that he co-ordinated with the jobbers in unorganised sectors from whom the goods were got manufactured for M/s. PPL. It was further stated that in some cases he was not getting proper bills of the jobbers, who refused to accept the cheques for the work done by them. He also admitted that he procured bills from some parties though work was not done by them but was done by jobbers in the unorganised sectors. In reply to question No. 8 he stated that he obtained some of the bogus bills from the following five parties :
(1) Bhupinder Singh & Co., proprietor Shri Ramesh Manocha.
(2) M/s. New Era Plastics, proprietor Smt. Kamal Manocha.
(3) Ravi Plastic Moulders, proprietor Shri Anil Oberoi (4) M/s. JVS Enterprises, proprietor Jagvinay Singh.
(5) M/s. S.P. Singh & Co., proprietor Shri Surinder Pal Singh.
The AO during the course of search operations recorded the statement of Shri Ramesh Manocha on 12th July, 1996, in which he submitted that he was the proprietor of M/s. Bhupinder Singh & Co. and in M/s. New Era Plastics, his wife was proprietor and in M/s. Ravi Plastic Moulders, Shri Anil Oberoi, was the proprietor. Shri Ramesh Manocha admitted that these three concerns had shown to have done job work for five other concerns. He submitted that actually no job work was done but these three concerns were making invoices and chaUans by showing job work done for making plastic moulder items like filters, mugs, buckets, etc. In response to a question as to what commission he earned and who gave the commission to him, Shri Ramesh Manocha stated that Shri Sunil Aggarwal used to make payments in cash on account of his making the said bills in the bill books of his three concerns. The rate of commission was stated to be 40 paise per Rs. 100. He further stated that the total amount of commission received by him for and on behalf of these three concerns from time to time during the financial year 1993-94 was Rs. 3,20,000 on total job work done worth Rs. 8 crores.
5. Shri Ramesh Manocha vide his letter dt. 15th July, 1996, further confirmed that M/s. JVS Enterprises and M/s. S.P. Singh & Co. had also made bills for plastic moulders job work done by them for M/s. PPL. through Shri. Sunil Aggarwal though nothing was done in reality. He further submitted that Shri Jagvinay Singh and Surinder Pal Singh, the proprietor of these two concerns, sought his help in preparing the bills and the bills were prepared at his own residence. He further confirmed that they also charged the same commission of 40 paise per Rs. 100. It was further submitted that both of them had filed their income-tax returns for the asst. yrs. 1994-95 and 1995-96 and their books of accounts, bill booKs and income-tax records were all in the premises of Shri Sunil Aggarwal, the assessee in question. Later on Shri Ramesh Manocha filed an affidavit before the Director of income-tax (Investigation) on 29jh Aug., 1996 submitting that his statement on 12th July, 1996 was recorded in a panic situation and he was not in his proper state of mind. In this affidavit he retracted from his earlier statement recorded on 12th July, 1996.
6. Ttie statement of Shri Rakesh Mahajan, chartered accountant was recorded on 26th Aug., 1996 and on 2nd June, 1997. On 12th Aug., 1996 a survey operation was carried out in the premises of M/s. PPL for pointing out its connection with Sunil Aggarwal and the statements of general manager (commercial) and general manager (accounts) were also recorded in which it was confirme'd that Shri Sunil Aggarwal actually coordinated and assisted job work for M/s. PPL through a number of parties from outside. However, a confirmation was given by general manager of accounts of M/s. PPL that no commission or service charges had been paid to Shri Sunil Aggarwal.
7. During the course of block assessment proceedings, the AO confronted various annexures and papers to the assessee on 6th Aug., 1996, when the assessee gave vague replies. Some of the relevant questions and answers are reproduced below :
Q. No. 9 : I am showing you p 250, Annexure A-17, party No. 7, where some stages of work be done starting from bills of bank opening, signature verification, audit report, etc. are written, what are these stages ?
Ans. : I am not in a position to say anything at this moment. They are not in my handwriting.
Q. No. 10 Was any commission was paid for document of bills? Ans.: I don't remember.
Q. No. 11 : On p. 251, Annexure A-17 party no. 7, account of New Era Plastic, Bhupinder Singh, JVS Enterprises, S.P. Singh & Co. for year 1994-95 is given. The total is Rs. 10,54,37,339.20. The amount of commission for the first stage & 1 P=73,806 and 2/3A stage @ 7+12 P. (per Rs. 100) = 2,00,330 matches with the figures written on the page. Is the commission paid at various stages?
Ans : I don't remember anything. However, I can tell only after taking copies of seized material and reconciliation of my accounts if any of the transactions relates to rne.
Q. No. 12 : I am showing you pp. 14 and 15 of Annexure Al, party 8 which gives names of a number of concerns along with Dr./Cr. figures. Why these papers were maintained by you and what do these papers contain?
Ans.: These papers were not maintained by me or they were found from me. However, I can further say only after examining all the seized material and reconciliation of my account.
Q. No. 13 : I am showing you pp. 11 and 12 on which details of TDS deducted, details of place of assessment, date of filing of return, TDS refund due, TDS refund received and income-tax assessment portion is given for a number of parties. Why these details were maintained by you?
Ans.: I am unable to recollect anything at the moment. However, I can tell after verification.
Q. No. 14 : I am showing you papers Annexure A1, party No. 6, pp. 22, 23, 24, 25 which gives certain details of transactions done in accounts in Canara Bank, UBI, SBI & PNB/CP. What are these papers? Please give details of these bank accounts.
Ans.: I will be in a position to reply only after taking copies of seized maintained and checking from bank statements.
Q. No. 15 : Page'25 of these documents (Annexure Al, party 6) is a computer printout giving details of cash deposited into banks for 3rd June, 1996 to 15th June, 1996. The banks are Canara Bank, PNB, SBI, UBI & BOM. Please inform source of these deposits?
Ans. : As I, have already stated, I can explain only after verification of my accounts.
8. On the basis of these papers seized during the course of search and seizure operations and the statements recorded by the AO of the assessee himself and Shri Ramesh Manocha and Shri Rakesh Mahajan, the AO made party-wise details of billing work done by the assessee in the names of various concerns for transactions relating to M/s. PPL and worked out the total on which he applied the rate of 2 per cent for calculating the gross total commission at Rs. 1,25,27,676 spread over in the years 1993-94 1994-95 and 1995-96.
9. The assessee vide his letter dt. 28th July, 1997, addressed to the AO stated as under:
"Any addition which is being made on account of commission for job work on mould work done by Padmini Polymers Ltd. allegedly done through me, you are requested to allow deduction of expenditure @ 0.40 per cent 0.50 per cent and 0,60 per cent for the asst. yrs. 1994-95, 1995-96, 1996-97 or thereafter respectively as the said evidence is available in the seized records Annexure A-47, page Nos. 249, 250 and 251 and the rate being applied by you is otherwise also excessive." Keeping into consideration the submissions and materials on record, the AO allowed deduction in respect of expenses as claimed by the assessee vide his letter dt. 28th July, 1997, and accordingly worked out the addition under the head "Commission on bills for job work and mould work" at Rs.95,18,600 spread over in three assessment years viz., 1994-95, 1995-96 and 1996-97.
10. The AO noticed on the basis of seized documents at p. Nos. 14 and 15 of Annexure "Al", as per Panchnama drawn on 20th June, 1996 that the assessee was also involved in arranging the bills for transactions between M/s. PPL and ten other concerns and for some other concerns also. He worked out the total of these transactions at Rs. 12,34,32,045.
11. The assessee vide his letter dt. 28th July, 1997, addressed to the AO requested that any addition on the basis of trading done by M/s. PPL and others allegedly done through him, the profit rate of the same could not be applied more than the net profit earned by him in his own business. The extract of this letter in this regard is reproduced as under :
"That any addition which may be made on account of trading done by Padmini Polymers Ltd. and others allegedly done through me, the profit rate of the same cannot be applied more than the net profit earned by me in my own business of Polychem Traders as while doing my own trading I have to employ actual funds and working capital besides therebeing other administrative, selling and management expenses, etc. It is thus submitted that the profit rate in no circumstances should be taken more than my net profit rate as the same then also is otherwise excessive in case of nature of addition being made."
12. Agreeing with the submissions made by the assessee, the AO worked out the addition of Rs. 25,11,742 in respect of asst. yrs. 1993-94 to 1996-97 by applying the net profit rate earned by the assessee in his own business,
13. During the course of hearing before the Bench, the learned counsel for the assessee submitted that the initial statement of the assessee should not be considered for making the addition for the reason that the same was given under pressure and coercion. He further submitted that the assessee had stated that he had coordinated with M/s. PPL only for the purpose that the said M/s. PPL was buying 70 per cent of his total material sold by him and the assessee had to co-ordinate in view of his apprehension that he may lose the customer if the job work was not got done through people who do not make any complaints about the materials supplied by the assessee to M/s. PPL. It was further stated that the general manager of M/s. PPL had also admitted that the assessee only coordinated the job work done on behalf of M/s. PPL and no commission was paid to him.
14. The learned counsel further submitted that Shri Ramesh Manocha had also furnished his affidavit on 29th Aug., 1996, retracting from his statement recorded by the AO, which was also given by him under coercion. He therefore, submitted that since the assessee as well as Shri Ramesh Manocha both have retracted from their statements there was no question of relying on those statements and making addition on that basis. He contended that any person who had given his statement can successfully retract in view of the judgment in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. (1973) 91 ITR 18 (SO). For the same proposition he placed reliance on some other judgments also.
15. The learned counsel for the assessee also contended that the assessee during his statement on 6th Aug., 1996, had nowhere admitted that he had-earned commission on billing work.
16. The learned counsel also contended that the AO had violated the principles of natural justice inasmuch as he had not confronted the assessee with the statement of Shri Ramesh Manocha and had used the same against the assessee. Relying on the judgment of the Hon'ble Supreme Court in the case of Kishanchand Chetiaiam v. CIT (1980) 125 ITR 713 (SC). He contended that the additions made on the basis of statements given by Shri Ramesh Manocha and Shri Rakesh Mahajan, chartered accountant should be deleted because these statements were not confronted to the assessee and no opportunity was given to the assessee to cross-examine these two persons. He also relied on some other judgments for the proposition that the addition made by the AO under these circumstances, should be deleted.
17. On the other hand, the learned Departmental Representative contended that the assessee himself during the course of search had admitted that he had earned income on account of commission for getting job work of billing for M/s. PPL. He relied on the statements of Shri Ramesh Manocha and Shri Rakesh Mahajan, C.A., and contended that Shri Ramesh Manocha had clearly stated on 12th July, 1996 that he had done bogus billing to the extent of Rs. 8 crores for the financial year 1993-94. he further contended that as against the statement of Shri Ramesh Manocha who admitted to have done bogus billing to the tune of Rs. 8 crores and earned commission thereon amounting to Rs. 3,20,000, the assessee had in his original statement on 20th June, 1996, had admitted to have done total liaison turnover only worth Rs. 5 crores. He further submitted that the falsity of the claim of the assessee is obvious in view of the fact that the bogus turnover worth Rs. 8 crores was only in respect of three concerns of Shri Ramesh Manocha and that too only for one year. As against this, the learned Departmental Representative contended that the raid party had enough evidence that the assessee was engaged in this liaison turnover in respect of many more parties running through three financial years, i.e., 1993-94 to 1995-96.
18. The learned Departmental Representative further submitted that the assessee himself asked for deduction on account of expenses from billing commission done for job works and also requested the AO to apply the profit rate not more than the one earned by the assessee himself in respect of billing commission on trading activities.
19. As regards the statement of the general manager of M/s. PPL to the effect that no commission was paid to the assessee, the learned Departmental Representative contended that the commission can be paid either by the payer or by the payee i.e., either M/s. PPL could have made the payment of commission or those persons in unorganised sectors who did job work for M/s. PPL in respect of which the assessee was instrumental in procuring job work for them. Since the assessee had himself admitted at the time of search that he had earned commission at the rate of 2 per cent, the learned Departmental Representative contended that there was no case for the assessee to retract from his statement.
20. Insofar as the retraction by Shri Ramesh Manocha is concerned, the learned Departmental Representative submitted that it was not permissible to retract from one's own statement in such a light manner that one gets up in the fine morning and states that his statement recorded on an earlier date was given under coercion. The learned Departmental Representative also relied on the orders of the Tribunal in the case of ITO v. Sadhu Ram Gupta (1998) 61 TTJ (CM) 466: (1998) 66 ITD 441 (Chd) and also some other orders to the same effect.
21. I have considered the rival submissions in the light of material placed before me and all the case laws cited by both the sides which have been discussed by my learned brother in his order. In order to decide these two grounds of appeal, it is necessary to decide whether any person can retract from his statement and if so under what circumstances. And, secondly, what is the effect of the situation where the AO frames the assessment without confronting the assessee with the material gathered by him.
22. The mam case relied on by the learned counsel for the assessee in respect of validity on retraction is that of Puliangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. (supra). In this case it was held that admission by a person is an extremely important piece of evidence but it cannot be said that it is conclusive. It was further laid down that it is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of accounts do not show the correct state of facts. Thus, it is obvious that in order to successfully retract from one's own statement, it is incumbent upon that person to prove beyond the shadow of any doubt that his statement earlier recorded was incorrect and it is also incumbent upon that person to establish his retraction with cogent reasons and evidence.
23. In the case of Thiru John V. Subramhamanyan v. The Returning Officer and Ors., AIR 1977 SC 1724 it was laid down that the party's admission is a substantive evidence and is the best evidence against the party making it and though not conclusive. It was further laid down that what a party himself admits to be true may reasonably be presumed to be so and until the presumption is rebutted the fact admitted must be taken to be established.
24. Thus, on the basis of these two citations it is obvious that the burden very heavily lies on the person retracting from his earlier statement to prove without any iota of doubt that his earlier statement was incorrect. When these principles are applied to the situation under consideration, it comes to light that the assessee initially stated that he had earned the commission at the rate of 2 per cent on total liaison turnover of Rs. 5 crores and the assessee also voluntarily surrendered Rs. 26 lakhs on this account in respect of this commission earned by him in the last 2-3 years. Now if the assessee wants to come out of the clutches of his earlier admission, the onus heavily lies on him to establish that he has not received any such commission. As against this, the AO on the strength of various papers found during the search applied the rate of 2 per cent being the commission on the total job work arranged by the assessee. In order to come out of his earlier statement, it was obligatory upon the assessee to establish that he had not arranged any billing work. In his earlier admission on 20th June, 1996 he has nowhere stated that he has earned the commission from M/s. PPL. When a sum is paid by one person to another and the third person is intermediary between the two who accepts that he has earned commission it is quite likely that he might have earned the commission either from the one who pays the amount or from the other who received -the amount. There is no dispute about the fact that M/s. PPL has given a certificate to the effect that they had not paid any commission. But there were many other people involved in the unorganised sectors, who at the instance of the assessee did the job work for M/s. PPL. If the assessee had not received any commission from M/s. PPL, he might have received from such other persons. His further argument before the AO to allow deduction at the rate of 6 per cent, 5 per cent and 4 per cent for asst. yrs. 1996-97, 1995-96 and 1994-95, respectively, goes to establish the fact that he earned commission. If it was to be the case of the assessee that he has not earned any commission at all, he would not have claimed deduction on account of expenses from the AO, which was duly allowed. Then the assertion of the assessee that he had to coordinate between M/s. PPL and the labour employed in the unorganised sectors in view of his fear that M/s. PPL may not stop lifting goods- from him as they were the largest buyers procuring around 70 per cent of the goods sold by him. Nothing has been brought on record by the assessee to establish the genuineness of his fear. No evidence whatsoever was furnished from the side of M/s. PPL safevouching the authenticity of the assessee's fear. Under the circumstances, I am of the opinion that the assessee has not successfully retracted from his earlier statement made at the time of search.
25. The second retraction by Shri Ramesh Manocha is also very interesting. His statement was recorded on 12th July, 1996, wherein he conceded that he was engaged in issuing bogus bills in respect of which he was earning commission from the assessee in respect of his three concerns. Later on Shri Rajesh Manocha vide his letter dt. 15th July, 1996, again confirmed the same and also stated that Shri Jagvinay Singh and Shri Surinder Pal Singh, the proprietors of the two other concerns were also involved in issuing bogus bills and the bills were prepared at his own residence. Then came the retraction on 29th Aug., 1996, stating that his statement recorded on 12th July, 1996, was under a coercion. If these facts are tested on the judgment in the case of Puttangode Rubber Produce Co. Ltd. (supra), the retraction can only be said to be unsuccessful. If the statement recorded by the AO on 12th July, 1996, was under threat, his voluntary letter dt. 15th July, 1996, stating the similar facts cannot be said to be made under any threat or fear or coercion. These two things happened on different dates and had a gap of three days. In the light of these facts, the retraction made by Shri Ramesh Manocha on 29th Aug., 1996, in respect of statement dt. 12th July, 1996, does not stand to pass the test laid down in the precedents cited in this connection.
26. The main argument of the learned counsel for the assessee for the deletion of additions in issue is that the statements of Shri Ramesh Manocha and Rakesh Maliajan were not confronted to the assessee and he was not afforded opportunity to cross-examine these two persons.
27. In the case of Kishanchand Chellaiam (supra) it was held by their Lordships of the Hon'ble Supreme Court that the assessment was vitiated for violation of principles of natural justice as the permission given for cross-examination of witnesses was illusory.
28. The Hon'ble Supreme Court has dealt with the issue of opportunity of hearing to the assessee vis-a-vis setting aside of the order on several occasions. In the case of Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC), the appellants failed to furnish return within the prescribed time and the ITO proceeded to impose penalty without affording a hearing. The AAC set aside the order imposing penalty and directed refund of any penalty that might have been recovered. On receipt of the AAC's order the ITO issued a further notice calling upon the appellants to appear before him so that he might be given opportunity of being heard. The apex Court was called upon to determine whether it was open to the ITO to take up the matter at the point at which the illegality supervened and to correct the proceedings or vitiate the proceedings. In this case it was held that the notice issued to the appellants to show cause why penalty should not be imposed on them, did not cease to be operative because the AAC pointed out an illegality which vitiated the proceedings after they were lawfully initiated. It was further held that the ITO was well within the jurisdiction to continue the proceedings from the stage at which the illegality had occurred and to assess the appellants to a penalty, if any, which the circumstances of the case may require. It is pertinent to note that this judgment was given by a Bench comprising three Judges, whereas the judgment of Kishanchand Chelia Ram was rendered by a Bench comprising of two Judges and further the case of Guduthur Brothers (supra) was not brought to the notice of the Hon'ble apex Court. View similar to Guduthui Bros, (supra) was taken by the summit Court in the case of Kapurchand Shrimal v. CIT (1981) 131 ITR 451 (SC).
29. In a recent case of CIT v. Jai Piakash Singh (1996) 219 ITR 737 (SC) a return was filed voluntarily by one out of ten legal representatives disclosing entire income of deceased. The assessment was completed in this case when the legal representative complied with the notices under Sections 142(1) and 143(2). Later on an objection was raised for the first time in the appeal that the notice had not been issued to the other legal representatives, and it was claimed that the assessment so made should be held to be null and void. In this case the Hon'ble Supreme Court held that an omission to serve notice or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions. It was further laid down that any such omission or defect may render the order irregular, depending upon the nature of the provision not complied with but certainly not void or illegal. The broad principles that emerge from the judgments of the Hon'ble Supreme Court noted above, are that an irregularity is a deviation which does not take away the foundation or the authority for the proceedings, whereas the nullity is a proceeding which is taken without any foundation. A proceeding is a nullity when the authority taking up the proceeding has no jurisdiction. The test to determine whether the order passed is invalid or irregular, is to see whether order is lack of jurisdiction or procedural fault. Where there is a total lack of jurisdiction, any order passed by an authority could be null and void but when the jurisdiction is improperly or irregularly exercised, the order does not become void. The defect in procedures will not ordinarily amount to lack of jurisdiction. Any procedural omission or irregularity in observing those provisions in a given case, would not render the assessment void. The lapse or omission on the part of the AO has no impact on his jurisdiction to pass a. valid assessment order after correcting the infirmity and thereafter to effect the final assessment order. It is always open to the concerned authority to take up the matter at the point at which the illegality supervened to correct those proceedings. Section 142(3) provides that the assessee shall be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry and proposed to be utilised for the purpose of assessment. The provisions of Section 142(3) fall in Chapter XIV which bears the caption "Procedure for assessment". It thus comes out that the provisions of Section 142(3) are only procedural in nature and part of the assessment , proceedings. Any non-compliance with this will be irregularity to be cured from the point from where it had occurred. In the case of Bhagwat Prasad v. CIT, it was held as under:
"Assessment order which was made in violation of the requirements of Section 144B otherwise also in breach of the principles of natural justice suffered from a procedural irregularity which was curable."
Taking into consideration the entire conspectus of the case, I am of the considered opinion that there is no point in deleting the additions made by the AO as agitated by the assessee in these two grounds of appeal. 30. However, it is clearly borne out from the statement of the assessee recorded on 6th Aug., 1996, the relevant portion of which has been extracted above that the assessee has time and again stated that he did not remember anything in respect of the documents shown by the AO. The assessee submitted that he could tell only after taking copies of the seized material and on reconsideration of accounts of the transactions related thereto.: In response to question No. 13 he stated that he was unable to recollect anything at the moment. However, he could tell after verification. In response to question Nos. 14 and 15 also the replies were similar. In spite of that, the AO worked out the additions in respect of commission on billing business and job work without confronting the assessee with the seized material, which the assessee wanted to verify. I also find force in the submissions of the learned counsel that the AO made the additions on the basis of statements of Shri Rakesh Aggarwal and Shri Ramesh Manocha recorded by the AO without confronting the same to the assessee for giving a reasonable opportunity to cross-examine. Under these circumstances, I am of the considered view that it would be in the interest of justice if the issue relating to ground Nos. 2 and 3 is set aside and restored to the file of the AO with a direction to decide the same afresh after giving adequate opportunity to the assessee of being heard and also allowing cross-examination of these two persons on the statements, if he so desired by the assessee.
31. Ground No. 5 relates to the addition of Rs. 1,36,41,971 as unexplained cash credit holding the same as undisclosed income under Section 158BC. So far as this ground is concerned, I agree with the decision of my learned brother, that no addition is called for on this count in the block assessment. However, I would like to add that since the AO has included the amount of Rs. 1.36 crores and odd in the block assessment and we both are of the considered view that it cannot be said to be the undisclosed income of the assessee, in my view, the AO should be given the liberty to consider the taxability of this very sum in accordance with law.
REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 26th My, 2000 Since there is a difference of opinion between the Members of the Bench, we state following point of difference and refer the same to the Hon'ble President for further necessary action as envisaged under Section 255(4) :
Q. 1 "Whether, on the facts and in the circumstances of the present case the addition of Rs. 95,18,600 and Rs. 25,14,742 disputed by the assessee in ground Nos. 2 and 3 should be deleted or the matter should be restored to the file of the AO for deciding afresh?"
Q. 2 "Whether, on the facts and in the circumstances of the present case the observations that in my view the AO should be given the liberty to consider the taxability of this very sum in accordance with law' are correct, when both the Members are of the considered view that the addition of Rs. 1,36,41,971 cannot be said to be the undisclosed income of the assessee?"
R.M. Mehta, Vice President (As A Third Member)
1. The following questions have been referred to me under Section 255(4) of the IT Act, 1961 :
"1. Whether, on the facts and in the circumstances of the present case, the addition of Rs. 95,18,600 and Rs. 25,14,742 disputed by the assessee in ground Nos. 2 and 3 should be deleted or the matter should be restored to the file of the AO for deciding afresh?"
"2. Whether, on the facts and in the circumstances of the present case, the observations that 'in my view the AO should be given the liberty to consider the taxability of this very sum in accordance with law' are correct, when both the Members are of the considered view that the addition of Rs. 1,36,41,971 cannot be said to be the undisclosed income of the assessee ?"
2. Before I proceed to answer these questions the background and relevant facts of the case are required to be adverted to and these are that there were search and seizure operations at the residential and business premises of the assessee as also associated persons and concerns on 20th June, 1996, and the last of the warrants of authorization for search was executed on 30th July, 1996.
3. Notice under Section 158BC was issued on 30th Sept., 1996, asking the assessee to file return of income including the undisclosed income for the block period within 16 days of the service of the notice, but such a return admittedly was filed only on 9th June, 1997, i.e., after a gap of 8 months. A perusal of the return showed that certain income, which the assessee had offered during the search had not been included in the return.
4. Certain other relevant facts as noted by the AO are :
(1) The only tax returns filed by the assessee were for asst. yrs. 1993-94 and 1994-95 with the ITO at Jaipur declaring nominal income, the sources being salary income and profits and gains of business and profession. The assessee had not filed any returns before and after the aforesaid two assessment years;
(2) After the search the assessee did not cooperate with the Department inasmuch as :
(i) he retracted from his earlier statement recorded on oath wherein he admitted earning income not disclosed to the Department and offered for tax, i.e., Rs. 2.27 crores;
(ii) Information was not provided by the assessee in response to numerous letters sent by the AO on one pretext or the other despite the fact that copies of seized material were provided;
(iii) The assessee did not attend office on relevant dates to explain the transactions recorded in the seized material;
(iv) The assessee started responding to the requirements of the AO only from 14th July, 1997, onwards.
5. The assessee during the proceedings claimed doing business in plastic raw material (plastic granules), software chemicals and mining equipment through the medium of two sole proprietorships and two companies.
6. At this stage I would like to refer to certain other additions made by the AO and although some of these are directed to be deleted by the unanimous opinion of the learned Members of the Division Bench, a reference thereof is necessary for dealing with the main point of dissent.
7. During the search a sum of Rs. 86 lakhs was seized from the premises of Canara Bank, Karol Bagh, being carried by one, Shri Gopal Singh and the assessee confessed the ownership of this cash and stated that it represented his undisclosed income from trading in plastic raw material. He also offered for tax purposes a total amount of Rs. 2.27 crores which included the said sum of Rs. 86 lakhs.
8. During the course of search the statement of the assessee was recorded i.e. on 20th June, 1996, and in response to Q. No. 11 he detailed the modus operandi which led to the generation of the said amount, but there was a categorical assertion that it represented income from undisclosed sources not recorded in the books of accounts. It may be mentioned that subsequently during the course of assessment proceedings the assessee changed his version contending that the cash represented realization of cash sales.
9. For the reasons both factual and legal, stated in the order the AO added the sum of Rs. 86 lakhs as the undisclosed income in asst. yr. 1997-98.
10. During the course of search three bank accounts were found being used for depositing huge amounts of cash and making withdrawals and these were in the Canara Bank, Arya Samaj Road, Karol Bagh, New Delhi. Incidentally these were in the names of 3 different persons. On the date of search a total of Rs. 37.85 lakhs was found deposited in these accounts and same was seized.
11. Shri Gopal Singh stated to be an employee of the assessee admitted in his statement recorded on 20th June, 1996, at the bank premises that he was regularly depositing cash to the tune of several lakhs in the three accounts, the same being handed over to him by the assessee or his brother, Shri Mohan Aggarwal.
12. The Department on verifying from the bank came across the following facts:
S. no.
A/c No. Name of A/c holder Address of the A/c holder.
1. 5825
Sh. Rajinder Singh, Prop. M/s Central Plastic Syndicate.
3813, David Street, Darya Ganj, N. Delhi.
2. 5826 Sh. Satyaveer Singh, Prop. M/s New Fashion Plastics.
711, Chawri Bazar, New Delhi.
3. 5827 Sh. Kishore Kumar, Prop. M/s India Plastics.
E-95, Amar Colony, Lajpat Nagar-IV, New Delhi.
13. It transpired that one Shri Rakesh Mahajan, C.A. had "introduced" the aforesaid 3 accounts verifying the address shown in the account opening form. The following facts, however, came to light when said Shri Rakesh Mahajan was examined under Section 131 :
(i) He did not know any of the three persons in whose names the accounts were opened;
(ii) One Shri Gopal Singh who was known to him through one of his clients, Shri Ramesh Manocha, had brought these persons to him and got their bank account opening forms signed by him as "introducer On the temptation of giving large quantity of work of his own employer" i.e., Shri Sunil Aggarwal;
(iii) That although he had audited some books of accounts allegedly belonging to these persons, the details thereof were not available with him;
(iv) That he had not met the three persons since the date of signing of the account opening forms;
(v) The addresses given to the bank were either of his cousin or his own office address and that no business was carried on at the said addresses.
14. The assessee when his statement was recorded on oath on 20th June, 1996, accepted that the said three accounts were his Benami accounts and all money deposited in the past and lying as on date of search belonged to him and that the source thereof was his undisclosed income from trading in plastic raw material. This fact was reconfirmed on oath when his statement was again recorded on 24th June, 1996. A surrender of Rs. 2.27 crores was in fact made vide answers to Q. Nos. 3 and 4 of the said statement.
15. On further examination of the three bank accounts it was seen that these were opened on the same date i.e., 18th May, 1995, and huge deposits were made and there were substantial withdrawals by cheques/drafts from the said accounts. The assessee was asked to explain the nature of the deposits and withdrawals from the aforesaid three bank accounts and written replies were furnished dt. 14th July, 1997, and 28th July, 1997, and these are discussed in paras 5.7 to 5.9 of the assessment order.
16. The AO further obtained from the assessee copies of eight bank accounts in the names of various parties and asked him to explain the deposits therein. The same explanation as in the case of the 3 accounts in Canara Bank, Karol Bagh, were tendered.
17. Summons were also issued to the various concerns aforesaid, but which were returned back with the remarks "no such concerns exists". On being confronted the assessee filed affidavits wherein it was stated that these persons had acted as name-lenders for the assessee's companies for a consideration of Rs. 100 on each Rs. 1,00,000 deposited in their bank accounts.
18. The ultimate conclusions drawn by the AO vide paras 5.13 and 5.14 of the assessment order were as follows :
"5.13 : Keeping in view the submission of the assessee, examination of books of accounts, enquiries conducted by the Department during the course of search and thereafter, the following facts emerge :
1. It is a fact that the raw materials, purchased by the assessee, have been duly accounted for in the books of accounts and purchases were made on credit and the alleged payments were made by cheques, by using the above three accounts and bank debtors account.
2. The account, holders of 5825, 5826, 5827 and other accounts in the name of debtors have been used by Shri Sunil Aggarwal as front concerns. Enquiries indicate that these were non-existent. Therefore, he generated fictitious debtors in his books of accounts and deposited the cash realized on sale of the raw material outside the books of accounts in those fictitious debtors, bank accounts. Through these bank accounts and the debtors' account the assessee has attempted to bring back the cash sales in his books through those fictitious debtors for onwards payment to his creditors.
3. Suppliers' confirmations submitted by the assessee indicate that they have given the raw material on credit to the assessee. To make the payment to his creditors the assessee has adopted the above modus operand! by introducing his cash sale into his books of accounts through the above mentioned three bank account and the fictitious debtors.
4. Moreover, the premises searched clearly showed that he was not having much space to keep such big inventory of stock, which proves that he was making the sale in cash and issuing the bills in the name of the debtors to complete the formalities of the ST Department.
5. Perusal of the books of accounts / documents seized, three bank accounts No. 5825, 5826 and 5827 and the bank accounts of the debtors also indicate, that payment were made directly on behalf of the supplier, to the Commissioner of Customs for payment of customs duties on import of raw materials, which established that he was controlling the three accounts and the debtors accounts and purchases were made from the suppliers. The cash deposited in these accounts are nothing but the sale realisation of the raw material.
5.14 : Keeping in view the above facts and circumstances of the case and the modus operand! adopted by the assessee is reasonable and no addition on account of cash credit is called for out of these three accounts and the debtors accounts."
19. In view of the aforesaid findings no separate addition was found necessary on the part of the AO in respect of the cash balances aggregating Rs. 37.85 lakhs. The AO also came across 15 other bank accounts in the names of various concerns floated by the assessee, but on the same facts and line of reasoning no addition was made.
20. With the aforesaid I now come to the addition on which there has been a difference of opinion between the learned Members of the Division Bench and which has the heading "Commission on billing business" in the assessment order. Apart from the business of trading in plastic raw material, the assessee was stated to be involved in bogus billing for alleged job work, moulding and trading for one M/s. Padmini Polymers Ltd. During his statement recorded on 20th June, 1996, at the time of search the assessee confirmed that he had earned commission at 2 per cent on billing for job work. The AO referred to question No. 34 in the statement and the answer thereto and the reproduction is at pp. 10 and 11 of the assessment order. The assessee in fact accepted that current bank accounts bearing Nos. 5825, 5826 and 5827 in Canara Bank, Arya Samaj Road, were in reality his Benami accounts and all money lying therein belonging to him. It was also stated by him that the amounts lying deposited represented his undisclosed income not recorded in the regular books of accounts The following items were indicated i.e., a sum of Rs. 86 lakhs seized from Shri Gopal Singh on 20th June, 1996, at the bank premises plus the sum of Rs. 37 lakhs lying in the aforesaid three bank accounts on the date of search plus an income of Rs. 78 lakhs stated to have been earned in the aforesaid business carried out for a period of two to three years plus profit of around Rs. 26 lakhs earned in the last 2 to 3 years. It was stated by the assessee that commission was earned for arranging business transactions "for indicated parties" and the total undisclosed income earned was rupees two crores and twenty-six lakhs and the same was voluntarily being offered for taxation for the block period. I may mention that the total of the aforesaid four figures comes to Rs. 2.27 crores.
21. During the course of investigation the assessee was shown certain documents, which included a paper containing details of 23 cheques in the name of certain parties and which was found on the person of one Shri Om Prakash, his accountant. The said accountant stated that the paper was prepared on the directions of the assessee and that the entries were not recorded in the regular books of accounts. The assessee in turn stated that he had acted as a liaison officer between the concerns listed in the paper and M/s. Padmini Polymers Ltd, and had earned an undeclared profit of Rs. 10 lakhs @ 2 per cent commission charges. He further confirmed that another sum of Rs. 16 lakhs had been earned in an earlier year as commission in a similar manner and which was also undeclared. The total of the aforesaid two figures came to Rs. 26 lakhs.
22. Several operations were also conducted on 12th Aug., 1996, at the premises of M/s. PPL at Okhla for ascertaining the connection between the assessee and the said company and statements were recorded of the general manager (commercial) and the general manager (accounts). In such statements both of them confirmed that the assessee coordinated and assisted in job work for M/s. PPL through a number of outside parties. The AO initiated survey operations at some of the premises / concerns in whose name the alleged job work had been shown, but it is noted from para 6.4 of the assessment order that no such concerns were functioning at the addresses given. Summons issued to such concerns were received back unserved with the remark that they did not exist.
23. The AO referred to the statement of the assessee recorded on 6th Aug., 1996, and reproduced question Nos. 7 to 16 at pp. 11 to 13 of the assessment order. These make interesting reading since in response to question No. 7 the assessee replied that he supplied plastic raw material to M/s. PPL and they got job work done from other parties and insofar as the assessee was concerned, there were complaints from M/s. PPL about the quality of raw material, etc., but the assessee stated 'during the course of the. statement that the quality of raw material supplied by him was of a good standard and he in fact feared that if he did not take any action, then he might lose the business from M/s. PPL. The further explanation was that he coordinated with persons in the unorganized sector from whom he got the goods manufactured for M/s. PPL. The further explanation was that in cases where proper bills were not available or some of the parties refused to accept cheques for the work done by them, then there was a possibility that bills had been obtained from parties, who had not done any work and which in fact was done by persons in the unorganized sector.
24. As regards specific queries raised in questions beginning No. 9 and ending with No. 16 the assessee either did not give any reply or explanation on the ground that he could only do so after taking copies of seized material or after reconciling his own accounts.
25.1 would next refer to the statement of Shri Ramesh Manocha recorded on 12 July, 1996, wherein he was queried at length on the purpose of his visit to the office of Shri Rakesh Mahajan, C. A., located at E-95, Amar Colony, New Delhi, and what was the nature of business / work carried on by him. As regards the purpose of the visit, it was stated that there was a matter being dealt with by the C.A. in the Company Law Board in respect of a company belonging to the assessee and insofar as the nature of work was concerned, this was also explained, but the relevant answers bring out the following :
(i) That the three concerns, namely, M/s-Bhupinder Singh & Co., of which Shri Ramesh Manocha was the proprietor, M/s. New Era Plastic Trading Company, whose proprietor was the wife of Shri Ramesh Manocha, and lastly, M/s. Ravi Plastic Moulders, whose proprietor was a friend and nominee of Shri Ramesh Manocha had been shown to have undertaken job work for 5 other concerns and which were stated to have worked for M/s. PPL;
(ii) That no job work as such had been done by the three concerns of Shri Ramesh Manocha/his wife etc., but invoices and challans had been made for the aforesaid 5 concerns by showing job work actually done;
(iii) That for preparing the aforesaid bills and challans, Shri Ramesh Manocha got a commission @ 40 paise for every 100 rupees of the amount of bill made by the said three concerns;
(iv) That the commission was paid in cash by the assessee and who was the main party, on whose directions Shri Ramesh Manocha had acted;
(v) That the assessee decided the terms of the working and preparation of bills as also the commission to be paid to Shri Ramesh Manocha and the total commission received on behalf of the three sole proprietorships from time to time more specifically the period financial year 1993-94 was Rs. 3,20,000 approximately on total job work shown to have been done worth Rs. 8 crores;
(vi) That Shri Gopal Singh, an employee of the assessee used to come to Shri Ramesh Manocha, every 2 to 3 months with necessary details such as dates, quantum, names of parties, amounts used for preparing the bills, etc. and which was done by Shri Ramesh Manocha in his own handwriting and further blank bill books were brought by Shri Gopal Singh to Shri Ramesh Manocha, but which were got printed by Shri Ramesh Manocha from various printers from time to time;
(vii) That the cheque books and pass books for the numerous bank accounts had been collected by the assessee through Shri Gopal Singh and these contained the signatures of Shri Ramesh Manocha on blank cheques as also two signatures on the back of each cheque. Whatever cheques were issued or money was withdrawn from the said account was known only to the assessee;
(viii) That there was no expenditure relatable to the job work since no job work was done and that he i.e., Shri Ramesh Manocha only prepared bills. That all books of accounts and bill books were kept and controlled by the assessee;
(ix) That although income-tax returns had been filed for asst. yrs. 1994-95 and 1995-96 in respect of the three concerns of Shri Ramesh Manocha he did not remember how the expenses had been shown since the accounts were prepared by and on behalf of the assessee and he i.e. Shri Ramesh Manocha only signed the relevant papers for income-tax assessment through Shri Rakesh Mahajan, C.A.; and
(x) As regards the expenditure against the commission income, which was @ 40p per hundred rupees, expenditure at 5p per hundred rupees was deducted by the assessee on account of book-writing as also fees to chartered accountant for income-tax assessments, etc. That expenditure on printing of bills and conveyance was his own expenditure i.e., Shri Ramesh Manocha. That at present he was not doing any such work of preparing bills without undertaking job work for the assessee or anybody else. That what had already been done was not correct and that he was willing to pay the tax on the correct income for the various years.
26. It transpires from p. 15 of the assessment order that Shri Ramesh Manocha categorically appended on the statement recorded on oath that it was without any coercion or pressure and that replies had been given voluntarily.
27. The said Shri Ramesh Manocha by a written communication dt. 15th July, 1996', to the AO confirmed various facts with reference to his statement recorded on 12th July, 1996, at the office of Shri Rakesh Mahajan, C.A. In the said communication he reconfirmed the preparation of bills by one M/s. JVS Enterprises, proprietor Shri Jag Vinay Singh and M/s. S.P. Singh & Co., proprietor Shri Surinder Pal Singh and a perusal thereof shows that the modus operand! was the same as in the case of Shri Ramesh Manocha. In other words, service charges were @ 40p per hundred rupees and the books of accounts of the said two parties along with other records were all in the possession of the assessee.
28.1 next come to the statement of Shri Rakesh Mahajan, which was recorded on 26th Aug., 1996, and a reading of the same vis-a-vis para 6.9 of the assessment order reveals the following :
(i) That he initially did not know the assessee and the introduction between them was through Shri Ramesh Manocha;
(ii) That the introduction of Shri Rakesh Mahajan to Shri Kishore Kumar, Shri Satyaveer Singh and Shri Rajinder Singh was through Shri Gopal Singh, who in turn had been introduced by Shri Ramesh Manocha. That Shri Rakesh Mahajan did not have any personal relationship with the aforesaid three persons; (iii) That books of accounts and other documents of the aforesaid three persons were brought to his office by Shri Gopal Singh for carrying out audit and preparation of income-tax return and this was done in the office itself;
(iv) That Shri Rakesh Mahajan introduced M/s. New Era Plastic; M/s. Indo Plastic and M/s. Central Plastic Syndicate for the opening of their bank accounts in Canara Bank, Karol Bagh, where he did not himself have a bank account;
(v) That the signatures of Shri Rakesh Mahajan on the account opening forms of the aforesaid three parties were attested by his bank and no check was made whether the said parties were actually in the business specified in the books of accounts and further there was no check whether the parties really existed on the addresses given in the account opening forms. That Shri Rakesh Mahajan categorically stated that the address was filled up subsequent to the signatures being attested and the forms were handed over to Shri Gopal Singh;
(vi) There was no correspondence / communication between Shri Rakesh Mahajan and the said three parties on the one hand and between Shri Rakesh Mahajan and the bank with reference to the opening of the bank accounts;
(vii) That Shri Rakesh Mahajan merely filled up the "introduction" part of the bank account opening forms in Canara Bank, Karol Bagh, which included his name, account No. and address and the names of the parties, their occupations and addresses were left blank and filled up later on;
(viii) That addresses given by M/s. India Plastics and M/s. New Fashion Plastics were those of the firm of chartered accountants i.e., M/s. R. K. Mahajan & Co., whereas the third address was not of Shri Rakesh Mahajan, but of a relative of his;
(ix) That the three parties in question were small and petty assessees and the addresses given by them for income-tax purposes were normally those of the C.As.;
(x) Fees for auditing of the three concerns, etc. were stated to have been paid by Shri Gopal Singh; and
(xi) That the fact of some concerns doing bogus billing business vis-a-vis the statement of Shri Ramesh Manocha recorded on 12th July, 1996, in the office of Shri Rakesh Mahajan came to the latter's knowledge only after the search operation in June, 1996.
29. Another statement of Shri Rakesh Mahajan was recorded on 2nd June, 1997, from which the following facts emerge :
(i) Shri Rakesh Mahajan vide written communication dt. 5th May, 1997, to the AO had asked for time to file the audited balance sheets, P&L a/c and the acknowledgements of filing the returns of income in the cases of Central Plastic Syndicate, New Fashion Plastics and India Plastics, but stated during the course of the recording of the statement that he had contacted on telephone as also personally the assessee and Shri Gopal Singh and had asked them to make available the necessary documents which they declined, but promising to furnish these to the AO;
(ii) That the use of the addresses of Shri Rakesh Mahajan at Chawri Bazar and Amar Colony, Lajpat Nagar, New Delhi, for purposes of opening bank accounts by some of the persons was at the behest of the assessee and Shri Gopal Singh. This was done in spite of the fact that Shri Rakesh Mahajan did not have any bank account with Canara Bank, Karol Bagh Branch, but he got his signatures verified from his bankers. This was done with a promise of sufficient professional work;
(iii) Whether Shri Rakesh Mahajan had met the proprietors of the aforesaid three concerns and whether they were able to explain their activities of depositing huge amounts of cash in the said bank accounts and issue of cheques therefrom the reply was that they had been brought by Shri Gopal Singh and every fact was confirmed and commitment made by Shri Gopal Singh, which was not only honoured by the assessee, but accepted by the three persons as well;
(iv) That it was clarified by the same medium that the few concerns of the assessee would show the work got done through certain other parties to be named and arranged by the assessee;
(v) That the meeting between Shri Rakesh Mahajan and the three persons in question was in the summer of 1995 when the bank accounts were opened; and
(vi) That the records of the three parties were taken away by Shri Gopal Singh after the search and Shri Rakesh Mahajan was not aware as to the whereabouts thereof.
30. The AO vide paras 6.11 and 6.12 of the assessment order highlighted the alleged system of bogus billing carried out by the assessee and there is a detailed discussion on the documents seized from certain premises of Delhi as also from a scooter, which was in the possession of Shri Gopal Singh. On the basis of the seized material and further investigations the AO came to the conclusion that various concerns had not done any activities of alleged job work/moulding work or trading activities and these were found /alleged to have done billing work only. It also came forth that bank accounts of all these numerous parties had been introduced by the assessee and his associates and that the transactions of billing were also managed by him. The conclusion, in other words, was that the assessee was the real beneficiary of these accounts and which had been utilised for billing purposes of M/s. Padmini Polymers Ltd. (hereinafter referred to as PPL).
31. At pp. 23 and 24 of the assessment order the AO vide para 6.15 set out the details of the parties, nature of work as also the quantum of billing for the period 1993-94, 1994-95 and 1995-96, the total thereof coming to a figure of Rs. 62,63,83,781. At the rate of 2 per cent of commission the AO arrived at a figure of Rs. 1,25,27,676. Considering the assessee's claim for deduction on account of expenditure set out in para 6.16 of the assessment order the AO arrived at a net. figure of Rs. 95,18,600 for the asst. yrs. 1994-95 to 1996-97 and which was added.
32. It was further observed by the AO that documents seized from premises No. F-37, Mansarovar Garden, New Delhi, indicated that the assessee was also involved in arranging bills for transactions between M/s. PPL and certain other concerns numbering 10 in all and the period being the asst. yrs. 1994-95 to 1996-97. The total of these was worked out at Rs, 1,23,81,75,653. The AO observed that the three bank accounts, namely, 5825, 5826 and 5827 opened with Canara Bank, Karol Bagh; New Delhi, had also been utilized for providing billing entries to certain other concerns as well and which also included Shri Rakesh Mahajan. According to the AO the assessee had admitted in his sworn statement recorded on 20th June, 1996, to have indulged in such billing business and the total of the transactions was quantified at Rs. 12,34,32,045.
33. As regards the profit earned by the assessee on the aforesaid transactions there was a written communication dt. 28th July, 1997, which has been reproduced by the AO at p. 25 of the assessment order. This categorically states that rate of profit cannot be more than the net profit rate earned by the assessee in his own business. Considering the aforesaid facts and the submissions made on behalf of the assessee the AO quantified the income from commission at Rs. 25,11,742 with a consequential addition of the same amount.
34. On appeal before the Tribunal, the following main submissions were made on behalf of the assessee :
(i) The initial statement should not be considered as the same had been made under pressure and under coercion, because a search party was around the assessee and there was an element of fear;
(ii) The assessee had always stated that he had nothing to do with the job work since he only coordinated with M/s. PPL, which was his main customer and buying 70 per cent of the total material sold by the assessee;
(iii) On getting a complaint about the material supplied from M/s. PPL, the assessee approached various persons/parties in the unorganized sector and which included Shri Ramesh Manocha;
(iv) That M/s. PPL had also confirmed that they had not paid any commission to the assessee and the general manager of M/s. PPL, whose statement had been recorded had also admitted that the assessee coordinated with them for the purpose of job work,
(v) There was no direct evidence with the Department, which would show that the assessee had earned commission at 2 per cent for the purpose of billing' on account of the job work for M/s. PPL;
(vi) Assessee's name was found nowhere in the papers found during the course of the search although the names of other parties were mentioned and which might have been kept by the assessee for getting the accounts settled with M/s. PPL since the assessee had approached certain parties for the purpose of job work for M/s. PPL;
(vii) That Shri Ramesh Manocha had also filed an affidavit before the ITO wherein it had been clearly stated that he was under pressure at the time of recording of his statement;
(viii) The assessee was not allowed to cross-examine various persons whose statements were recorded behind his back and, therefore, what such persons had stated wore mere allegations.
35. The main thrust of the arguments of the learned counsel was that presumptions and assumptions drawn by the Department were rebuttable and in this case there was ample material or the lack of it, which could cogently and validly rebut such allegations.
36. The learned Departmental Representative arguing on behalf of the Department before the Division Bench vehemently supported the order of the AO. His main arguments were as follows :
(i) The assessee had clearly and categorically admitted during the course of the search that he had earned money on account of commission for obtaining job work billing for M/s. PPL;
(ii) Shri Ramesh Manocha had categorically admitted that he had raised bills in the name of M/s. PPL at the instructions of the assessee;
(iii) Shri Rakesh Mahajan, C.A., had also confirmed that he introduced certain persons in the bank for opening their bank accounts and this was also done at the instructions of the assessee;
(iv) Whatever evidence was found was against the assessee and the conclusions, therefore, drawn were correct and these pointed to the assessee having earned commission;
(v) Papers were found from the possession of Shri Om Prakash, the accountant of the assessee and he clearly admitted that he had prepared the accounts as per the directions of the assessee;
(vi) Onus was on the assessee to prove that the transactions mentioned in the documents found at the time of search did not belong to the assessee;
(vii) Documents found during the course of the search gave names of the parties as also the amounts indicated against their respective names and these clearly proved that the assessee indulged in the activity of billing of job work earning in the process huge profits; and
(viii) Retraction more specifically by the assessee after a gap of 8 months could not be relied upon and the affidavit filed by Shri Ramesh Manocha, was also a self-serving document.
37.' In support of the aforesaid arguments, the learned Departmental Representative placed reliance on two judgments of the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) and in the case of Sumati Dayal v. CIT (1995) 214 ITR 801 (SC).
38. In reply the learned counsel for the assessee reiterated that the various presumptions drawn by the Revenue were rebuttable and he placed reliance on the following reported decisions;
(i) Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. (1973) 91 ITR 18 (SC);
(ii) S. Arjun Singh v. CWT (1989) 175 ITR 91 (Del); and
(iii) Smt. Rajrani Gupta v. Dy. CIT (2000) 66 TTJ (Mumbai) 582 : (2000) 72 ITD 155 (Mumbai).
39. The same submissions as highlighted aforesaid were made by the parties in respect of the addition of Rs. 25,11,742 the earlier ones relating to the addition of Rs. 95,18,600.
40. The learned JM, who wrote the initial order proceeded to delete both the additions amounting to Rs. 95,18,600 and Rs. 25,11,742 on the following facts and line of reasoning :
(i) That the addition was made on the basis of documents found from the possession of one Shri Om Prakash as also the statements recorded of Shri Ramesh Manocha and Shri Rakesh-Mahajan, C.A.;
(ii) The assessee had admitted during the recording of his initial statement on 20th June, 1996, that he had earned a profit of Rs. 2.26 crores, which was not disclosed by him and he further admitted that the three bank accounts bearing Nos. 5825, 5826 and 5827 were opened in the Canara Bank and they were his Benami accounts and all incomes, which were not recorded in the books of accounts were deposited in these three accounts;
(iii) The AO had gathered the impression that the assessee was indulging in arranging job work for M/s. PPL and charging commission at 2 per cent on the entire job work payments and in doing so the AO heavily relied upon the statements of Shri Rakesh Mahajan, C. A., and Shri Ramesh Manocha;
(iv) That the fictitious bank accounts were opened "in the names of Shri Ramesh Manocha." who was issuing job work bills to M/s. PPL, as nobody was ready to issue bills in the unorganized sector; (Portion underlined italicised in print by me does not appear to be a correct fact).
(v) As per the statement of Shri Ramesh Manocha, the terms of commission were settled through the assessee, who also arranged the payment on account of commission on such bills;
(vi) Shri Rakesh Mahajan, C.A., at the time of recording of his statement admitted that the three bank accounts belong to Shri Ramesh Manocha, who opened them with his introduction and he was getting income-tax work through Shri Ramesh Manocha;
(vii) It was also admitted by Shri Rakesh Mahajan that Shri Ramesh Manocha brought the trusted employee of the assessee i.e., one Shri Gopal Singh, who in turn assured him of more income-tax work;
(viii) The AO made the additions only on account of the initial statement of the assessee as also the statements of Shri Rakesh Mahajan, C.A., and Shri Ramesh Manocha;
(ix) That the AO had not applied his mind properly to the facts of the case and a reference was made to the detailed answer given by the assessee to question No. 34 at the time of recording of his statement on 20th June, 1996 (p. 51, of the order of the JM);
(x) The search party did not find any assets belonging to the assessee, which had not been disclosed by him in the balance sheet;
(xi) The AO merely placed reliance on the statements of Shri Ramesh Manocha and Shri Rakesh Mahajan, C.A., and gathered further impression from the papers found from the possession of Shri Om Prakash and the admission of the latter that he prepared the accounts on the instructions of the assessee;
(xii) There was no material with the AO to prove that the assessee had earned any commission on account of job work pertaining to M/s. PPL from the unorganised sector through the companies of Shri Ramesh Manocha;
(xiii) In the survey operations conducted on 12th Aug., 1996, in the premises of M/s. PPL at Okhla the statements of two senior and responsible persons of the rank of general manager were recorded and both of them confirmed that the assessee had coordinated / assisted in the job work for M/s. PPL through the outside parties and there was no mention in the order of the AO that these senior officers confirmed paying commission on account of job work;
(xiv) That a reading of letter dt. 29th Aug., 1996, sent by the proprietor of M/s. Arun Moulders in response to issue of summons under Section 131 by the D.I. (Investigation) led to the conclusion that the job work was done on contract basis in the unorganized sector and the same was done on behalf of M/s. PPL and the same was routed through certain parties, which were issuing bills and charging commission. That charging of commission was not disputed, but that it was only settled by the assessee;
(xv) It was quite clear that payments were made on behalf of M/s. PPL and not on behalf of the assessee, who only coordinated for getting the job work done for the unorganized sector and billing was done through certain parties, who had issued the bills got their commission after the supply was done by the assessee; and that settling did not mean that the assessee also received some commission;
(xvi) That replies to certain questions asked from the assessee at the tune of recording of his statement on 6th Aug., 1996, showed that nowhere had the assessee admitted that he had earned commission;
(xvii) It also merited consideration that the assessee had sought time to reply on the ground that he could do so only after reconciling the papers. That this showed that copies of the material seized by the Department were not made available to the assessee for his proper reply and only some papers were shown;
(xviii) That certain observations in the order of the AO as also certain portions of the statements of Shri Ramesh Manocha and Shri Rakesh Mahajan, C.A., showed that these persons also confirmed that the work was done for M/s. PPL and not for the assessee;
(xix) That the only thing, which was admitted by Shri Ramesh Manocha and Shri Rakesh Mahajan, C.A., was that Shri Gopal Singh introduced the assessee to Shri Ramesh Manocha, who in turn introduced certain persons to Shri Rakesh Mahajan, for obtaining his help for job work billing;
(xx) The assessee had categorically stated that the persons, who opened the bank accounts were independent and they were introduced to the bank by Shri Rakesh Mahajan, C.A., and who, therefore, should be held responsible;
(xxi) That Shri Ramesh Manocha, who opened the bank accounts in his name or in the names of his associate concerns issued bills and got commission and, therefore, he should be held responsible for the commission and not the assessee;
(xxii) No evidence was found that the assessee had earned commission and evidence, which was found was in favour of the assessee. Even the premises of M/s, PPL, which were surveyed revealed no incriminating documents against the assessee;
(xxiii) That the accounts / evidence were of the persons other than the assessee i.e., Shri Rakesh Mahajan and Shri Ramesh Manocha and his associates and the assessee clearly stated that he could only reply after seeing ,these apers and reconciling them;
(xxiv) That Shri Ramesh Manocha had filed an affidavit to the effect that the statement, which was given in the premises of Shri Rakesh Mahajan was under pressure;
(xxv) That the assessee admitted doing business independently and earning income independently and which had already been shown by him;
(xxvi) That the filing of the affidavit meant that Shri Ramesh Manocha had retracted from his earlier stand;
(xxvii) That the assessee requested for opportunity to cross-examine the persons, who had given statements against him, but which was not allowed by the AO; and (xxviii) If there was any beneficiary on the aforesaid facts and circumstances, then it was either Shri Rakesh Mahajan or Shn Ramesh Manocha, but not the assessee.
41. In addition to the aforesaid facts and reasoning, the learned JM dealt at length with the "legal position" on the question of retraction and this spans paras 41 to 53 of his order. In para 42, the learned JM reiterated the request of the assessee for cross-examining Shri Ramesh Manocha and Shri Rakesh Mahajan, which was not allowed and referred to the judgment of the Hon'ble Supreme Court in the case of Kishan Chand Chela Ram v. CIT (1980) 125 ITR 713 (SC) for the proposition that where such an opportunity is not allowed, then addition cannot be made. According to the learned JM, the situation in the assessee's case was more favourable, than the case before the Hon'ble Supreme Court since statements of Shri Ramesh Manocha and Shri Rakesh Mahajan were recorded behind the back of the assessee, and request for cross-examination was not acceded to. .The other decisions relied upon by the learned JM were as follows:
(i) Addl CIT v. Hanuman Agarwal (1985) 151 ITR 150 (Pat);
(ii) Gargi Din Jwala Prasad (1974) 96 ITR 97 (All); and
(iii) CIT v. Ashok Leyland Ltd. (1969) 72 ITR 137 (Mad).
42. The decisions relied upon by the learned Departmental Representative were also adverted to by the learned JM and which included : CIT v. Durga Prasad More (supra).
43. A perusal of the order of the learned JM shows that the decisions relied upon on behalf of the assessee were found to be squarely applicable whereas those relied upon on behalf of the Revenue were found to be not applicable / distinguishable.
44. As regards the addition of Rs. 25,11,742, the learned JM made the following further observations :
(1) Nowhere had the assessee stated that he had earned income out of billing except for statements on 20th June, 1996, and 6th Aug., 1996, to the effect that he had earned income of Rs. 26,00,000 and odd out of liaison work and which stood surrendered in the return filed under Section 158BC;
(2) The AO had made the addition with reference to the initial statement, but which was without any basis as no asset or money was found with the assessee and there were only certain bank accounts opened through Shri Rakesh Mahajan where cash was deposited out of sale proceeds;
(3) No evidence was found which showed that the assessee had done any billing business and neither was there any confirmation or evidence from any other source which would show that the assessee had issued bills for their trading activities, etc.;
(4) The AO while making the huge additions had not considered the replies filed before him from time to time and the assessee's alternative claim for expenditure had weighed heavily with him in making the main addition itself; and (5) The theory of real income had been given a go-bye by the AO and this had been settled by the Hon'ble Supreme Court in CIT v. Shoorji Vallabh Das & Co. (1962) 46 ITR 144 (SC). That in the present case there was no entry in the books of accounts and neither was any cash or asset found which would show that the assessee had earned'any income out of undisclosed sources.
45. The learned AM, however, did not concur with the view expressed by the learned JM in respect of the two additions aforesaid. The relevant facts of the case have been discussed by him in his order beginning at p. 82 and the relevant paras being 3 to 12.
A close reading of these shows that his recording of facts is quite identical and does not differ from the order of the learned JM. The submissions of the parties are recorded thereafter and these, in my opinion, are relevant and required to be referred to as under :
On behalf of the assessee
(i) That the initial statement of the assessee should not be considered as the same was given under pressure and coercion;
(ii) The assessee had stated that he had coordinated with M/s. PPL only because the said M/s. PPL was buying 70 per cent of the material sold by the assessee and there was an apprehension that the assessee may lose the customer in case the job work was not done through people who did not make any complaints about the material supplied by the assessee to M/s. PPL.
(iii) That the general manager of M/s. PPL had admitted that the assessee only coordinated the job work done on behalf of M/s. PPL and no commission was paid to him;
(iv) That Shri Ramesh Minocha had furnished an affidavit on 29th Aug., 1996 retracting from his earlier statement recorded by the AO and which was also given under coercion and pressure;
(v) That since the assessee as also Shri Ramesh Minocha had retracted from their earlier statements, there was no question of relying on such statements and making an addition thereof;
(vi) That a person who had given his statement could successfully retract in view of the judgment of the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. (supra); (vii) That the assessee during the recording of his statement on 6th Aug., 1996, had nowhere admitted that he had earned commission on billing work;
(viii) That the AO had violated the principles of natural justice inasmuch as he had not confronted the assessee with the statements of Shri Ramesh Minocha and Shri Rakesh Mahajan and had used the same against the assessee; and
(ix) That the additions made on the basis of statements of Shri Ramesh Minocha and Shri Rakesh Mahajan should be deleted, because these statements were not confronted to the assessee and no opportunity for cross-examination had been allowed, On behalf of the Revenue
(i) The assessee himself during the course of the search had admitted that he had earned income on account of commission for getting job work of billing for M/s. PPL;
(ii) That Shri Ramesh Minocha had clearly stated on 12th July, 1996, that he had done bogus billing to the tune of Rs. 8 crores for the financial year 1993-94 and as against the aforesaid statement the assessee had in his original statement on 20th June, 1996, admitted having total liaison turnover to the tune of Rs. 5 crores only;
(iii) That the falsity of the claim of the assessee was obvious in view of the fact that the bogus turnover worth Rs. 8 crores was only in respect of three concerns of Shri Ramesh Minocha and that too only for one year;
(iv) That the 'search party had enough evidence, which would show that the assessee was engaged in such liaison work in respect of many more parties running through three financial years i.e., 1993-94 to 1995-96;
(v) The assessee himself had asked for deduction on account of expenses from the billing work done and had also, requested the AO to apply a profit rate, which was not more than the one earned by the assessee himself in respect of the billing commission on trading activities;
(vi) As regards the statement of the general manager of M/s. PPL to the effect that no commission was paid to the assessee the submission was that commission could be paid either by the payer or the payee i.e., the latter being the persons in the unorganized sector, who did job work for M/s. PPL;
(vii) The assessee himself had admitted at the time of search that he had earned commission @ 2 per cent and there was, therefore, no case for the assessee to retract from his earlier statement; and
(viii) As regards the retraction by Shri Ramesh Minocha, the submission was that it was not permissible in law to retract from one's own statement in such a light manner merely saying that the statement recorded earlier was under coercion.
46. The learned Departmental Representative on behalf of the Revenue relied on the judgment of the Chandigarh Bench of the Tribunal in the case of ITO v. Sadhu Ram Gupta (1998) 61 TTJ (Old) 466 : (1998) 66 ITD 441 (CM) as also certain other decisions to the same effect.
47. In considering the aforesaid submissions of the parties with reference to the facts of the case, the learned AM in para 21 at p. 92 of the order set out two broad propositions, which were required to be examined and decided and these being :
(i) Whether a person could retract from a statement given earlier, and if so, under what circumstances; and
(ii) What was the effect of a situation where the AO framed an assessment without confronting the assessee with the material gathered by him,
48. The learned AM then referred to certain reported decisions beginning with Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. (supra) for the proposition that if a person wanted to successfully retract from one's- own statement given earlier, it was incumbent upon that person to prove beyond the shadow of any doubt that the statement recorded earlier was incorrect and further it was also incumbent to establish the retraction with cogent reasons and evidence.
49. The next decision was that- of the Hon'ble Supreme Court in the case of Thiru John V. Subiamhamanyan v. The Returning Officer and Ors. AIR 1977 SC 1724 and the learned AM culled out the legal propositions end which were to the effect that the admission of a party was a substantive evidence and was the best evidence against the party making it though not conclusive and further what a party himself admits to be true could reasonably be presumed to be so and until the presumption was rebutted the fact admitted must be taken to be established.
50. Relying on the aforesaid two decisions the learned AM opined that the burden lay heavily on a person, who wanted to retract from his earlier statement and such a person was required to prove beyond doubt that the earlier statement was incorrect. Applying the aforesaid principles to the facts of the case, the learned AM took note of the following facts :
(i) The assessee initially stated that he had earned commission @ 2 per cent on total liaison turnover of Rs. 5 crores and the assessee also voluntarily surrendered Rs. 26 lakhs on this account in respect of the commission earned by him in the last two-three years;
(ii) In case the assessee wanted to come out of the earlier admission, then the onus lay heavily on him to establish that he had not received any such commission;
(iii) The AO on the strength of various papers / documents found during the course of the search applied a rate of 2 per cent being the commission on the total job work arranged by the assessee;
(iv) It was obligatory on the part of the assessee to establish that he had not arranged any billing work and in his earlier admission on 20th June, 1996, he had nowhere stated that he had earned the commission from M/s. PPL although there was no dispute about the fact that M/s. PPL had given a certificate to the effect that they had not paid any commission;
(v) There were many people in the unorganized sector, who at the instance of the assessee did job work for M/s. PPL and if the assessee had not received any commission from M/s. PPL he might have received the same from such other persons;
(vi) The assessee himself had made a claim for deduction on account of expenditure before the AO and this would not have been done in case he had not earned any commission at all;
(vii) The assessee had stated that he had to coordinate between M/s. PPL and the persons employed in the unorganized sector apprehending that M/s. PPL may stop dealing with him, but nothing was brought on record by the assessee to establish the genuineness of such a fear.
51. In view of the aforesaid facts, the learned AM opined that the retraction by the assessee from his earlier statement made at the time of search was not successful.
52. Coming to Shri Ramesh Minocha, the learned AM noticed that in his statement recorded on 12th July, 1996, he had conceded that he was engaged in issuing the bogus bills in respect of which he was earning commission from the assessee in respect of his three concerns.
53. Further vide letter dt. 15th July, 1996, Shri Ramesh Minocha confirmed the aforesaid facts and further stated that Shri Jagvinay Singh and Shri Surinder Pal Singh, proprietors of two other concerns were also involved in issuing the bogus bills and such bills were prepared at his own residence. After this the learned AM referred to the retraction, which took place on 29th Aug., 1996, wherein the plea was that statement recorded on 12th July, 1996, was under coercion. In applying the law laid down in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Am. (supra), the learned AM opined that the retraction was not successful, According to him if the statement recorded on 12th July, 1996, was under threat, then voluntary letter dt. 15th July, 1996, stating the same facts could not be said to be made under any threat or fear or coercion. A gap of three days between the two events was noticed and in conclusion the learned AM took the view that the retraction made by Shri Ramesh Minocha on 29th Aug., 1996, in respect of the statement dt. 12th July, 1996, did not pass the test laid down by the precedents cited.
54. The learned AM then referred to the submissions of the assessee's counsel about the statements of Shri Ramesh Minocha and Shri Rakesh Mahajan being recorded behind the back of the assessee and no opportunity of cross-examination being allowed. To consider the aforesaid submissions of the assessee's counsel, the learned AM referred, to numerous reported decisions at pp. 96 to 99 of his order ultimately taking the view that it would be in the interest of justice if the issues relating to the relevant grounds, i.e., Nos. 2 and 3 were set aside and restored to the file of the AO asking him to give adequate opportunity to the assessee of being heard and allowing cross-examination of Shri Ramesh Minocha and Shri Rakesh Mahajan. However, prior to such directions, the learned AM in para 27 of his order at p. 99 referred to the statement of the assessee recorded on 6th Aug., 1996, wherein he had time and again stated that he did not remember anything in respect of the documents shown by the AO and he could reply only after taking copies of the seized material and on examination of accounts of the transactions related thereto. According to the learned AM the AO made the additions without confronting the assessee with the seized material. This was also a ground on which the matter was restored back to the file of the AO.
55. Before me the learned counsel for the assessee vehemently supported the order passed by the learned JM in respect of the first point of difference, which contains the two additions discussed at length in the earlier part of the present order. I would like to go to the extent of saying that the learned counsel reiterated the submissions made at the time of hearing before the Division Bench and which have been duly taken note of by the learned Members in their separate orders. It was emphasized that there was neither any unexplained cash or a bank account which remained to be explained. According to him, the additions in question had been made primarily on the basis of the statement recorded at the time of search and quite a few "additions" had not even been made by the AO himself. According to the learned counsel, there was no material on record, which would show or prove that any income had been earned, more so, of the nature indicated by the AO. Further, according to him, there was nothing to show that the assessee had received any money. The further submission was to the effect that the statement of Shri Ramesh Minocha recorded after the search did not relate to M/s. PPL and this was also the position in respect of the statement of the CA i.e., Shri Rakesh Mahajan.
56. The learned counsel laid much emphasis on the retraction of their earlier statements by the assessee and Shri Ramesh Minocha contending that such retraction was on good ground since the earlier statements had been recorded under coercion and pressure, The learned JM, according to the learned counsel, had decided ,the matter considering the direct evidence and further the assessee had never asked for an opportunity to cross-examine Shri Ramesh Minocha and Shri Rakesh Mahajan before the Division Bench and there was no prayer even on the part of the Department for a set aside on the same ground. The plea, in other words, was that since no material/evidence had been found during the course of the search to link to the assessee any undisclosed income, more so, the revealing of any undisclosed. unexplained assets the natural corollary, which was to be drawn was that the view taken by the learned JM to delete both the additions was the correct one and required to be approved. According to the learned counsel, the learned AM had made observations in his separate order, which were not borne out from the record and there were also observations on certain points, which had not been raised by any of the parties. Inasmuch as the other submissions of the learned counsel were identical to those tendered before the Division Bench, I need not say anything more.
57. In support -of his arguments and more so in support of the- order of the learned JM, the learned counsel placed reliance on the following decisions :
(i) Jhantala Investments Ltd. v. Asstt. CIT (2001) 71 TTJ (Mumbai) 886 : (2000) 73 ITD 123 (Mumbai);
(ii) Tatia Skyline & Health Farms Ltd. v. Asstt. CIT (2000) 66 TTJ (Mad) 203 : (1999) 70 ITD 387 (Mad);
(iii) Narayan Ganesh Prabhu Zantye (P) Ltd. v. /TO (1995) 55 ITD 74 (Pune);
(iv) United Commercial Bank v. CIT (1982) 137 ITR 434 (Cal);
(v) Pathikonda Balasubba Setty (Deed.) v. CIT (1967) 65 ITR 252 (Mys);
(vi) Sona Builders v. Union of India and Ors. (2001) 251 ITR 197 (SC); and
(vii) Kishinchand CheUaram v. CIT (supra).
58. The learned Departmental Representative, on the other hand, supported the order passed by the learned AM. It was submitted by him that the learned JM had deleted the additions on two grounds, the first being that proper and adequate opportunity had not been given by the AO and the second being that the assessee had successfully rebutted all the adverse facts brought on record by the AO. According to the learned Departmental Representative, there was a clear contradiction in the order of the learned JM in respect of the aforesaid two grounds inasmuch as on the one hand it was being held that proper opportunity was not given and on the other the assessee had rebutted all the adverse facts brought on record. It was the submission of the learned Departmental Representative that the latter was not possible without the former. It was also emphasized by the Departmental Representative that both the learned Members had agreed on a proper opportunity not having been given by the AO and the learned counsel for the assessee was wrong in stating that such an opportunity was not asked for; A reference was made to p, 63 of the order of the learned JM. The learned Departmental Representative in fact went on to state that the learned JM had devoted a good part of his order to the question of opportunity and his observations in para 40 of his order led to only one conclusion i.e., denial of natural justice.
59. It was the further plea of the learned Departmental Representative that once it was held that proper opportunity had not been given, then the only course open was to set aside the matter so that opportunity, which had been denied earlier should be given. According to the learned Departmental Representative, the learned AM considering the facts of the case, taking into account the submissions of the assessee's counsel and those of the Departmental Representative before the Division Bench had restored the matter back to the file of the AO and which was justified and warranted in law.
60. The further submission of the learned Departmental Representative was to the effect-that Shri Ramesh Minocha and Shri Rakesh Mahajan were persons closely associated with the assessee and their statements were recorded with reference to the search conducted at the assessee's premises and the learned JM had accepted the retraction not only of the assessee, but also of Shri Ramesh Minocha, but in the process it was clearly overlooked that the first statements were on oath and signed by the chartered accountant as well and subsequent retraction could not be on whims and fancies and the same had to be for valid reasons. According to the learned Departmental Representative the retraction could not carry more weight than what was said earlier in the initial statements by all concerned. The further submission on the part of the learned Departmental Representative was that the assessee should not be afraid of having the matter reprocessed by the AO and in the name of natural justice, the Department should not be hit below the belt.
61. I have considered the rival submissions and have also perused the orders passed by the learned Members constituting the Division Bench. The decisions cited at the Bar by the parties before me as also the Division Bench have been duly taken into account along with the weighty paper book filed at the stage of the earlier proceedings before the Division Bench.
62. In the view of the learned JM, there is adequate material on record or the absence thereof to delete both the additions and the further view is to the effect that the retraction from earlier statements recorded by the AO was on good grounds and he in fact agreed with the assessee's counsel when it was contended by the latter that the earlier statements of the assessee as also Shri Ramesh Minocha were given under pressure and coercion. As against this the learned AM took the view that the retraction was not on any good or valid ground and statements, which bad been recorded on oath in the first instance could not be lightly brushed away. The learned. AM also took into account the submissions of the assessee's counsel made before the Division Bench that the statements of Shri Ramesh Minocha and Shri Rakesh Mahajan were recorded behind the back of the assessee and no opportunity for cross-examination had been allowed. I may mention that the learned counsel, in the present hearing before me categorically stated that no such opportunity had been asked for, but this is belied by the recording of the facts by both the learned Members of the Division Bench in their separate orders.
63. The learned AM, in my opinion, has rightly opined by taking into account the reported decisions that retraction by Shri Rakesh Mahajan and the assessee from their earlier statements was improper and without any valid ground, more so when relevant facts in both the statements were stated and reiterated and in one of the cases i.e. of Shri Ramesh Minocha, reconfirmed in writing a few days after the recording of the initial statement. According to the AM, if the statement recorded was under threat or coercion, then could it be said that even voluntary letter written a few .days later was under threat or fear or coercion. It is noted from para 25 of the order of the learned AM at p. 95 that the retraction came nearly one and a half month later from the recording of the initial statement. The learned AM, in my opinion, rightly held that the onus lies heavily on the assessee, who wants to retract from his earlier statement.
64. Coming to the cross-examination of Shri Ramesh Minocha and Shri Rakesh Mahajan, I. need only to refer to p. 14 of the order of the learned JM where he. has recorded the submissions of the. assessee's counsel to this effect and a similar argument has been recorded by the learned AM in para 26 of his order at p. 96.
65.1 would also refer to para 27 of the order of the learned AM wherein he has referred to the statement of the assessee recorded on. 6th Aug., 1996 wherein the response to certain questions was that he did not remember and nothing could be stated in the absence of documents and seized material. The view of the learned AM accordingly can be summed up as follows :
(i) The additions had been made without, confronting the assessee with the seized material, which the assessee himself wanted to verify;
(ii) The additions had been made with reference to the statements of Shri Rajesh Mahajan and Shri Ramesh Minocha recorded by the AO without confronting the same to the assessee and allowing him a reasonable opportunity to cross-examine;
(iii) The "retraction" from their earlier statements by the assessee and Shri Ramesh Minocha was not on, sufficient ground. No doubt, both the learned Members have referred to numerous decisions while writing their respective orders and coming to the point of retraction they have brought out the legal propositions, but in' my opinion, the view taken by the learned AM is the correct one on the facts and circumstances of the case. It must be appreciated that this is a case in which there was a seizure of cash amounting to Rs. 86,00,000 and the assessee straightaway offered for taxation a sum of Rs. 2.27 crores. Three bank accounts in the name of three different persons were unearthed by the Department and the assessee in his initial statement accepted that these were his Benami accounts. The huge amount of cash was seized from one Shri Gopal Singh, a trusted employee of the assessee;
(iv) The aforesaid three bank accounts were introduced by Shri Rakesh Mahajan, C.A., and it clearly emerges that he did not know the three persons at all and he had probably put his signatures on blank introduction forms with the expectation that some professional work from the assessee / Shri Gopal Singh would come his way, The said Shri Rakesh Mahajan in his statement did mention about some audit work being done and income-tax returns being prepared and books in respect of which were left at his office by Shri Gopal Singh; and
(v) Coming to Shri Ramesh Minocha he also in his initial statement confirmed receiving commission on billing work and which according to him was received in cash from the assessee. He also referred to Shri Gopal Singh, the trusted employee of the assessee being instrumental in preparation of bill books, etc. and there is also a mention of the signatures of Shri Ramesh Minocha, appearing on blank cheques. In other words, there is a "relationship" between . Shri Rakesh Mahajan and the assessee through Shri Gopal Singh and similarly between Shri Ramesh Minocha and the assessee, once again through Shri Gopal Singh.
66. I would like to emphasize on the facts of the present case that the statements of the assessee. Shri Ramesh Minocha and Shri Rakesh Mahajan were recorded at different points of time and the last two in their statements did mention the assessee as also Shri Gopal Singh being instrumental in some billing work and earning of commission and the assessee in his initial statement had also categorically referred to such activities being carried on. I have already held in the earlier part of the present order that the view taken by the learned AM on the question of retraction is the correct one as against the view expressed to the contrary by the learned JM and this being the situation, the additions could not have been deleted on mere assertions on the part of the assessee's counsel and the assessee, on the other hand, could not be burdened with such huge additions without allowing an opportunity to cross-examine Shri Ramesh Minocha and Shri Rakesh Mahajan., who had made statements, which were adverse to the assessee. In other words, there is a common thread in the statements of the assessee, Shri Ramesh Minocha and Shri Rakesh Mahajan and the additions in question could not have been made by the AO without confronting the assessee with the statements of the last two and similarly retraction by both of them could not have been accepted or viewed in isolation and treated as proper and valid as has been done by the learned JM. In case any coercion or pressure is alleged, then the onus is on the person, who alleges so.
67. The matter can go on and on, but I would not like to make observations' or comments in my order, which would prejudice the case of any party before the AO to whose file the learned AM has restored the two additions and with which view I concur. The learned JM in one part of his order has referred to the real income theory, but it must be appreciated that this is a search and seizure case, where additions are made on the basis of the seized material and documents and an appellate authority would delete such additions only if it finds that there is lack of material or inadequacy thereto, The observations of the learned JM at pp. 74 and 75 of his order are, therefore, not found to be relevant/applicable.
68. Coming to the second point of difference, both the learned Members of the Division Bench were of the view that the addition was required to be deleted, but the learned AM in conclusion observed that "the AO should be given liberty to consider the taxability of this very sum in accordance with the law".
69. After hearing both the parties, I am of the view that this observation made by the learned AM is superfluous and not at all relevant to the point at issue. Once the learned Members of the Division Bench had agreed between themselves that the addition of Rs. 1.36 crores and odd could not have been made in the block assessment, then there was no need to make any further observation. In this view of the matter, the aforesaid observation made by the learned AM in para 28 of his order at pp. 100 & 101 would stand deleted,
70. The matter may now be placed before the learned Members of the Division Bench for passing an order in accordance with the majority opinion on both the questions.