Income Tax Appellate Tribunal - Amritsar
Mrs. Purnima Beri vs Deputy Commissioner Of Income Tax on 28 May, 2002
Equivalent citations: [2002]82ITD137(ASR), [2003]264ITR54(ASR)
ORDER
R.K. Bali, A.M. 1st Oct., 1997
1. This is a first appeal by the assessee against order dt. 31st Dec., 1996, passed by the AO under Section 158BC(c) of the IT Act, 1961.
2. The assessee has taken the following grounds of appeal :
"(1) That the AO was not justified in holding that the assessee has paid a sum of Rs. 90,93,600 towards the cost of 5,052 shares of M/s Leader Valves Ltd. to Shri Vijay Sehgal, out of books and, he, therefore, erred in treating the same as undisclosed income. The AO has failed to apply his mind to the explanation filed as well as statements of the assesses and the witnesses made during the assessment proceedings.
(2) the AO has failed to take note of the factual position brought to his notice that even after the search, the assessee is making payments to Mr. Vijay Sehgal, through cheques only.
(3) The order of the AO is against law and facts of the case."
3. There was search and seizure operation on 13th Dec., 1995, at the residence of the assessee and her husband Shri J.K. Beri and thereafter in response to this a show-cause notice was issued under Section 158BC(c) on 28th Feb., 1996.
The assessee filed her return for the block period from 1st April, 1985, to 13th Dec., 1995, in Form 2B on 2nd May, 1996, declaring therein the undisclosed income at 'Nil'. As per the return filed in Form 2B, the details of income comprised in the block period is as under :
Asst yr.
Details of total income of the previous year including undisclosed income Details of total income of the previous year returned/assessed.
Rs.
Rs.
1986-87 24,600 24,600 1987-88 33.620 33.620 1988-89 46,190 46,190 1989-90 33,930 1,20,950 1990-91 42,390 42,390 1991-92 1.10,510 1,88,910 1992-93 74,480 1,30,300 1993-94 99,810 99,810 1994-95 96.600 96,500 1995-96 61,400 61,400 1996-97 1,02,500 1,02,600 The AO however, completed the block assessment by order dt. 13th Dec., 1996, as per details given in the assessment order wherein an addition of Rs. 90,93,600 was made for the period 1st April, 1985, to 13th Dec., 1995, relating to previous year 1995-96/asst. yr. 1996-97. The reasons and basis for this addition as given in paras 4 to 9 of the assessment order are summarised as under :
(i) At the time of search, an agreement dt. 29th April, 1995, between the assessee and Sh. Vijay Sehgal was found from the residence of Shri Yash Pal Mittal whose premises were also searched on 13th Dec., 1995, and who was a witness to the agreement of sale between the assessee and Shri Vijay Sehgal. According to this agreement Sh. Vijay Sehgal agreed to sell 5,052 equity shares of Leader Values Ltd. to Smt. Purnima Beri for a consideration of Rs. 1,01,04,000. In terms of this agreement, the full consideration was to be paid by the assessee to Shri Vijay Sehgal by 31st Dec., 1995. The break-up of 5,052 equity shares was given in the agreement as under :
(a) 1,320 equity shares held by Sh. Vijay Sehgal in his name.
(b) 3,732 equity shares being l/8th of 29,860 equity shares owned by Sh. D.D. Sehgal (Deceased), father of Sh. Vijay Sehgal, in which he claimed to have right of ownership by inheritance.
(ii) Besides the above agreement blank share transfer deeds in respect of equity shares signed by Shri Vijay Sehgal and the witnesses were also found and seized.
(iii) Three receipts signed by Sh. Vijay Sehgal, testifying receipt of sums by his aggregating to Rs. 10,10,400 by cheques being the sale consideration of the shares were also found and seized.
(iv) Besides the above agreement, another agreement dt. 1st May, 1995, between the assessee Smt. Purnima Beri and Shri Vijay Sehgal for sale of his ownership right in the share inherited from his deceased father Sh. D.D. Sehgal for a sum of Rs. 7,46,400 was also found. The agreement stipulated that the consideration of Rs. 7,46,400 has been paid by cheque by Smt. Purnima Beri to Sh. Vijay Sehgal.
4. At the time of search the assessee was confronted with these. She admitted correctness of signatures on both the agreements. But explained that the price of Rs. 1,01,04,000 mentioned in the agreement dt. 29th April, 1995, was to compensate Shri Vijay Sehgal for transferring the. shares to the assessee to enable the Beri Group to have effective control over the affairs of the company M/s Leader Valves Ltd. whereas in the subsequent agreement dt. 1st May, 1995, the price paid was mentioned at Rs. 200 per share as against Rs. 2,000 per share mentioned in the agreement dt. 29th April, 1995, and the price of Rs. 200 per share was approximately the book value of the share against the face value of Rs. 100 per share.
5. The AO has given in para 5 of the assessment order the brief history relating to the company M/s Leader Values Ltd. and its promoters as under :
M/s Leader Engineering Works, prior to its being converted into a private Ltd. Co. M/s Leader Valves Ltd. was a partnership firm in which Shri P.N. Beri, Sh. D.D. Sehgal, Sh. K.K. Sehgal, and Sh. Gambhir were partners. On conversion of the partnership firm M/s Leader Engineering Works into M/s Leader Valves Ltd; the original partners became shareholders of the company. Subsequently disputes had arisen among the promoters/shareholders and the pattern of shareholding was such that no single group held majority shares. After the death of Shri P.N. Beri, his son Sh. J.K. Beri and his wife Smt. Purnima Beri inherited his shares and even after Sh. K.K. Sehgal joined hands with the Beri Group, their combined shareholding was less than 50 per cent. The disputes relating to control and management of Leader Valves were taken to the Company Law Board. New Delhi, and it was under this background that the assessee Smt. Purnima Beri struck deal with Sh. Vijay Sehgal to purchase his entire shareholding, in order to assume effective control and management by increasing the shareholding of Beri Group to over 50 per cent.
6. Agreement dt. 29th April, 1995, stipulated price of share of Leader Valves at Rs. 2,000 per share as against its face value of Rs. 100. This agreement covered 1,320 shares held by Shri Vijay Sehgal and 3,732 shares being 1/8th shares of holding of Sh. D.D. Sehgal (Deceased) which was to be inherited by Sh. Vijay Sehgal under the Hindu Succession Act. The matters relating to inheritance of share is pending adjudication before the Punjab & Haryana High Court. In the agreement dt. 1st May; 1995, the price per share was stated to be Rs. 200 per share. At the time of search, when the statement of both the assessees Smt. Purnima Beri as well as Sh. Vijay Sehgal were recorded, who confirmed that they have entered into agreements in question. Statements of two witnesses were also recorded (Sh. Yash Pal Mittal and Sh. Shital Vij). Both the witnesses testified to the signatures of the parties as well as the contents of the agreements. At the time of search, the witnesses also deposed that in addition to cheque payments of Rs. 10,10,400, a sum of Rs. 42 lacs in cash had been paid by the assessee to Sh. Vijay Sehgal. However, no receipts in proof of the alleged payment of Rs. 42 lacs in cash paid by the assessee to Sh. Vijay Sehgal were found from the residence of Shri Yash Pal Mittal from whose custody the two agreements were found and seized along with the receipts issued by Shri Vijay Sehgal acknowledging receipt of cheque payment. During the course of assessment proceedings, the assessee explained before the AO that the price of Rs. 2,000 per share mentioned in the agreement dt. 29th April, 1995, was a tenatative price while price of Rs. 200 representing the book value of the share was correct price, and the difference in the two values was on account of compensation which was paid by the assessee to Shri/Vijay Sehgal for assuming the effective control by the Beri Group over the affairs of the company M/s Leader Valves (P) Ltd. Both Sh. Vijay Sehgal and Purnima Beri, the assessee agreed that the total sale consideration was Rs. 1.01,04,000 but only an amount of Rs. 10,10,400 was paid and the balance was to be paid at the time of search. The AO also recorded the statement of Sh. Yash Pal Mittal as well as Sh. Shital Vij, during the course of assessment proceedings on 14th Oct., 1996, and they resiled from their earlier statements given at the time of search on 13th Dec., 1995, with regard to the payment by the assessee in cash to Sh. Vijay Sehgal aggregating to Rs. 42 lacs. The AO on the basis of these facts arrived at the following conclusion :
"(i) The Beri Group which is running the company Leader Valves Ltd; desperately needed to raise its shareholding to acquire majority share so as to effectively control the operations of the company. There was always a feeling of bitterness among the shareholders of different groups.
(ii) The genuineness of the agreement entered into by the assessee with Sh. Vijay Sehgal has never been in doubt at any stage. The parties to the agreement as well as the witnesses have testified to the same.
(iii) Payment of consideration to the extent of Rs. 200 per share by means of cheques is admitted by the parties. On the other hand, the transfer deeds relating to both types of share (owned by Vijay Sehgal and those to be inherited by him) have also been handed over to the assessee Smt. Purnima Beri.
(iv) Shri Vijay Sehgal also gave a power of attorney in favour of Smt. Purnima Beri authorising her to take all such action as may be necessary in the performance of transfer of shares.
(v) Now only the point that remains to be examined is whether in the circumstances the assessee could have deferred the payment of balance consideration of Rs. 90,93,600. We have all the reasons to believe that on account of feud among the shareholders, there was total absence of mutual trust. This is also indicated by the fact that the original agreements as also the receipt relating to the cheque payments were deposited with a third person Sh. Yash Pal Mittal. It is also noteworthy that with the delivery of shares, transfer deeds, power of attorney in favour of Purnima Beri and the payment made by cheques already encashed by Sh. Vijay Sehgal, the transactions covered by the agreement were complete. It does not appear probable that in the circumstances noted above Vijay Sehgal would have transferred the shares without securing full payment of consideration. In these circumstances the assessee could not have acquired the shares without making payment of the full consideration that is admitted to be Rs. 1,01,04,000. Incidentally, it is also a part of record that large seizure of cash, FDRs and other investments have been made from Vijay Sehgal which remain unexplained. In order to lend some credibility to her version, the assessee has claimed that some further payment has been made by her after 31st Dec., 1995, in favour of Vijay Sehgal by means of cheques. This has been allegedly done after 31st Dec., 1995, on the basis of mutual understanding. It is also important to note that in his statement recorded at the time of search, the witnesses Shri Yash Pal Mittal gave details of cash payments of Rs. 42 lacs made by the assessee to Sh. Vijay Sehgal between 29th April, 1995, and 12th Dec., 1995. Subsequently he tried to wriggle out of this statement on the plea that it was based on hearsay. It is important to note that the statement was made at the time of search spontaneously and without any pressure or influence. There appears no reason to doubt the credibility of that statement.
After consideration of all the relevant facts the only conclusion we arrive at is that the assessee has made full payment of sale consideration of Rs. 1,01,04,000 for purchase of 5,052 shares belonging to Sh. Vijay Sehgal. The sale consideration comprises payments by cheques amounting to Rs. 10,10,400. The sources thereof stands explained while balance amount of Rs. 90,93,600 has been paid in cash, the sources thereof remains unproved and undisclosed. Therefore, a sum of Rs. 90,93,600 is added as income of the assessee from undisclosed sources."
7. Aggrieved with the order of the AO the assessee has filed this appeal to the Tribunal. It was submitted by Shri N.K. Sud, learned representative of the assessee, that from the facts brought on record during the course of assessment proceedings, the conclusion of the AO that the assessee has made cash payment amounting to Rs. 90,93,600 to Shri Vijay Sehgal between the period 1st April, 1995, to 31st Dec., 1995, which is the date of the search, is not at all justified being based on mere suspicion and conjectures. It was submitted that search and seizure operations were carried on at the premises of the assessee and her husband as well as Shri Vijay Sehgal along with two witnesses on the basis of some complaint/information with the Department that Sh. Vijay Sehgal has sold his entire holding of shares of Leader Valves Ltd. to Beri Group so as to enable them to assume effective control over the management of the company M/s Leader Valves (P) Ltd and unrecorded cash amount over and above the sale price mentioned in the agreement has passed in connection with the transfer of shares. On the basis of this complaint/ information with the Department search and seizure operations were carried out and consequently from the residence of Shri Y.P. Mittal who was a witness to the agreement of sale of shares between the assesses and Shri Vijay Sehgal, the search party found two agreements of sales one dt. 29th April, 1995, and the other dt. 1st April, 1995. It was submitted by Shri NX Sud, learned representative of the assessee, that parties to the agreement, namely, the assessee Smt. Pumima Beri and Sh. Vijay Sehgal, both have admitted to the correctness of the agreement and have given reasons for the difference in the value of one share of Leader Valves (P) Ltd mentioned in the two agreements. It was submitted that the price of Rs. 3,000 in the agreement dt. 24th Sept., 1997, was a tentative price and it included the amount which was agreed to be paid by the assessee to Shri Vijay Sehgal to compensate him for surrendering his ownership of shares so as to enable the Beri group to increase their shareholding to more than 50 per cent and to assume effective control over the affairs of the private limited company M/s Leader Valves. The agreement dt. 1st May, 1995, in fact, represented the price which was to be paid for the transfer of shares including these which are to be inherited by Shri Vijay Sehgal from the estate of his father late Shri D.D. Sehgal (Deceased) under the Hindu Succession Act. It was pleaded that the total consideration of Rs. 1,01,04,000 mentioned in the agreement dt. 24th Sept., 1995, was in respect of the entire shareholding of Shri Vijay Sehgal inclusive of the shares which were to be inherited by Shri Vijay Sehgal from the estate of his father Shri D.D. Sehgal (Deceased). But the question regarding inheritance of those shares was pending adjudication before the Hon'ble Punjab & Haryana High Court at Chandigarh on account of dispute between the legal heirs of Shri D.D. Sehgal (Deceased). It was submitted that under these circumstances, it was difficult to understand as to how the assessee could pay for those shares whose very existence was in doubt at the time of search as the matter with regard to the distribution of the estate of late Shri D.D. Sehgal which included 29,860 equity shares held by Shri D.D. Sehgal (Deceased) was in dispute and was pending adjudication with the Punjab & Haryana High Court at Chandigarh. It was pleaded that the assessee had by the time of search paid only a sum of Rs. 10,10,400 by cheques to Shri Vijay Sehgal for which regular receipts were issued by Shri Vijay Sehgal which were also found at the time of search from the custody of Shri Y.P. Mittal. It was submitted that the only basis of the AO for making this huge addition of Rs. 90,93,600 to the income of the assessee was the statement of Shri Y.P, Mittal recorded by the search party on 13th Dec., 1995. The relevant portion which was relied upon by the AO is as under :
"Full statement is given at p. 24 of the paper book.
Q. During the course of search an agreement to sale dt. 29th April, 1995, between Smt. Purnima Beri and Mr. Vijay Sehgal has been found and seized. This document is related to an agreement for transfer of equity shares at a consideration of one crore one lac and four thousand between the said parties. Since you are standing as a man of trust between the parties, please state how much cash as per your knowledge has been passed till today. Please give details also ?
Ans. Apart from the payments by cheques I have got knowledge about the following cash payments :
1. A sum of seven lacs were passed on the date and execution of the said agreement,
2. Thereafter a sum of Rs. twenty-five lacs in two instalments one instalment of fifteen lacs and other instalment of ten lacs were made. These were instalments with in a gap of 7 to 10 days between those two. As far as I remember, these payments were made in the month of June/July.
3. A payment of Rs. ten lacs has been made between the parties on 12th Dec., 1995, i.e., yesterday.
Therefore, a total of Rs. forty two lacs in cash has been passed till date between the parties to the documents as per my knowledge. This total amount was paid in addition to three cheques of Rs. 1,98,000, Rs. 7,46,400 and Rs. 66.000. It do not have any knowledge about any other cash payment. In my earlier statement I had deposed that on the date we enter of document only five to six lacs were passed, but now I remember that it was Rs. seven lacs as stated above. So far as remaining payments are concerned, I can tell after consulting other witness to the document i.e., Mr. Sheetal Vij.
Now, I have, made a contact with the other witness to the document Mr. Sheetal Vij and the total payment including the payment made by cheques as described above is Rs. sixty lacs as on 13th Dec., 1995."
It was submitted that this part of the statement was subsequently resiled by the witness Shri Yash Pal Mittal before the AO who again recorded his statement on 14th Oct., 1996, along with that of the other witness Shri Sheetal Vij. It was submitted that Shri Yash Pal Mittal and Shri Sheetal Vij are the witnesses of the Revenue and the addition is based on their statements recorded at the time of search which was subsequently resiled by them during the course of assessment proceedings before the AO and they have given a clarification to the AO that the fact of passing of cash amounting to Rs. 42 lacs between the parties mentioned by them at the time of recording their statement on 13th Dec., 1995, was not based on their personal knowledge but was on the basis of hearsay and as such they have no knowledge about the passing of any cash between the parties and they were witness only to the cheque payments aggregating to Rs. 10,10,400 which was paid by the assessee Smt. Purnima Beri to Shri Vijay Sehgal in the form of three cheques valuing Rs. 1,98,000, Rs. 66,000 and Rs. 7,46,000. The receipt in relation to which was also seized by the search party from the residence of Shri Yash Pal Mittal. It was submitted that the assessee Smt. Purnima Beri could not pay the entire sales consideration of Rs. 1,01,04,000 to Shri Vijay Sehgal by 31st Dec., 1995, as stipulated in the agreement dt. 29th April, 1995, which date was extended by mutual consent and subsequently the assessee did make payment of the balance amount of Rs. 90,93,600 by cheques extending over a period of more than a year. In fact the entire payment of Rs. 90,93,600 has been made by Smt. Purnima Beri, the assessee, by cheques to Shri Vijay Sehgal by the end of September, 1997, only, as per details given at pp. 55 to 56 of the paper book. Accordingly, it was submitted that there is no evidence available with the Department to indicate that the assessee has in fact paid any cash amount to Shri Vijay Sehgal during the period 1st April, 1995, to 13th Dec., 1995, and the addition is based on mere suspicion and vague allegation that at the time of search of Sh. Vijay Sehgal, huge unaccounted cash, FDRs. etc. were found from his residence. It was submitted that had to source of cash/FDRs found from the residence of Shri Vijay Sehgal, the money given by the assessee, Shri Vijay Sehgal could very well have explained it to be so and then there would have been no addition on account of undisclosed income in the hands of Shri Vijay Sehgal. It was submitted that in fact Shri Vijay Sehgal as well as Smt. Purnima Beri, the assessee, both have stated that the price of Rs. 1,01,04,000 was the price for the transfer of the shareholding of Shri Vijay Sehgai inclusive of the shares which are to be inherited by Shri Vijay Sehgal and the payment was made by cheque amounting to Rs. 10,10,400 upto the date of search and the balance payment was also made by the assessee to Sh. Vijay Sehgal by cheque, over an extended period upto the end of September, 1997. Under these circumstances, it was submitted by Shri N.K. Sud, learned representative of the assessee, that the AO was not at all justified in making any addition on account of the alleged on-money payment by the assessee to Shri Vijay Sehgal and the addition of Rs. 90,93,600 is required to be deleted.
8. Shri Mohinder Singh, learned Departmental Representative supported the order of the AO and submitted that the statements given by the witnesses S/Sh. Yash Pal Mittal and Sheetal Vij at the time of search dt. 13th Dec., 1996, were spontaneous replies given to the authorised officer who recorded statements and they have stated that on-money ranging from Rs. 42 lacs to 60 lacs passed between the assessee Smt. Purnima Beri and Sh. Vijay Sehgal. It was submitted that these witnesses were won by the assessee subsequently and they have resiled from their original statements given to the authorised officer on 13th Dec., 1995, for the reasons best known to them. It was submitted that recovery of huge amount of cash and FDRs. etc. from the search of Sh. Vijay Sehgal and their family members also leads credence to the theory of Shri Vijay Sehgal having been in receipt of unaccounted cash from Smt. Purnima Beri and that unaccounted cash was paid by the assessee to Shri Vijay Sehgal. It was submitted that the subsequent payments by cheques by the assessee to Sh. Vijay Sehgal were made and might be equivalent cash taken by the assessee from Shri Vijay Sehgal. Shri Mohinder Singh learned Departmental Representative accordingly supported the order of the AO and submitted that the addition of Rs. 90,93,400 was rightly made by the AO and should be confirmed.
9. We have considered the rival submissions and have also gone through the order passed by the AO as well as the paper book running into 56 pages filed by the assessee which contained the statements of Sh. Vijay Sehgal, statement of the assessee Smt. Purnima Beri, statement of witnesses S/Sh. Yash Pal Mittal and Shital Vij, recorded at the time of search on 13th Dec., 1995, as well as the subsequent statements of all these persons recorded by the AO during the course of assessment proceedings. The factual details relating to the dispute have been summarised by us in para 3 above. The only basis for making this addition by the AO is the statement of Shri Yash Pal Mittal recorded by the AO on 13th Dec., 1995, wherein the witnesses alleged that the cash of Rs. 42 lacs was given by the assessee to Shri Vijay Sehgal over and above the price paid by cheques totalling Rs. 10,10,400. Shri Yash Pal Mittal after consulting Sh. Shital Vij (may be on telephone) stated before the AO on 13th Dec., 1995, that the actual cash passed was Rs. 60 lacs. Shri Shital Vij, the other witness also corroborated the statement of Sh. Yash Pal Mittal recorded on 13th Dec., 1995, when his statement was recorded at his business place on 13th Dec., 1995. However, during the course of assessment proceedings when the statement of both these witnesses were recorded by the AO on 14th Oct,, 1996, they have resiled from their statements recorded on 13th Dec., 1995. In fact, in response to a particular question put by the AO they categorically stated that information with regard to the passing of cash by the assessee to Shri Vijay Sehgal was based on hearsay and the cash was not actually paid by the assessee to Shri Vijay Sehgal in their presence. The relevant question and answer from the statement of Shri Yash Pal Mittal recorded by the AO on 14th Oct., 1996, is reproduced as under :
"Q. 1. In your statement recorded on 13th Dec., 1995, you have stated that a sum of Rs. 42 lacs in cash was passed on between the two parties on various dates. After consulting the second witness Shri Vij you stated that a total amount of Rs. 60 lacs including the payments made through cheque was passed on account of these agreements. What you have to say about that ?
Ans. Whatever I have stated in my statement recorded on 13th Dec., 1995, mentioned above was on the basis of hearsay and after consulting the second witness Shri Shital Vij. No cash has been paid in my presence at any point of time. I stand by my statement which I am giving today."
Similarly, in the statement of Shri Shital Vij, recorded by the AO on 14th Oct., 1996, the relevant questions and answers are as under :
"Q. 1. Since you are a witness to both the agreements please state as to how much money has been paid by Mrs. Purnima Beri to Sh. Vijay Sehgal in consideration of the purchase of the above-mentioned shares of Leader Valves Ltd. Jalandhar.
Ans. As far as I know whole of the payment is to be paid through cheque only. As per my knowledge the payment of Rs. 10 lacs has been paid through cheque till 13th Dec., 1995, date of search and certain cheque payments have been made after 13th Dec., 1995, of which 1 am aware of. No cash payment were made in my presence. I have no knowledge about the same. Q. 2. I am showing you your statement recorded on 13th Dec., 1995, wherein you have confirmed the statement of Sh. Yash Paul Mittal dt. 13th Dec., 1995, in which he has stated after consulting you that Mrs. Purnima Beri has paid Rs. 60 lacs till 31st Dec., 1995, which included payments approximately Rs. 10 lacs made through cheque which means the balance was paid in cash. But now you are giving a contradictory statement. What you have to say about that ? Ans. Whatever I had stated on 13th Dec., 1995, to Sh. Yash Pal Mittal was just an hearsay. That was not a fact. No cash payment has been made to Sh. Vijay Sehgal by Mrs. Purnima Beri in my presence and I have no knowledge as to whether any cash transaction has been made between them, I stand by the statement recorded today i.e., 14th Oct., 1996."
From the above, it is clear that the basis' of addition made by the AO were the statements of witnesses recorded by the authorised officer which were subsequently resiled by both the witnesses before the AO. In fact, the AO himself has not completely relied on the statement of the witnesses S/Sh. Yash Pal Mittal and Shital Vij because they have referred to the cash component of payment to be Rs. 42 lacs or Rs. 60 lacs-Rs. 10 lacs. The AO has made addition of Rs. 90,93,600 which is much more than the cash which according to the witnesses in their statements recorded on 13th Dec., 1995, passed by the assessee to Sh. Vijay Sehgal. It is also undisputed that the assessee Smt. Purnima Beri, has subsequent to the date of search paid the entire balance amount of Rs. 90,93,600 by cheques on different dates upto 30th Sept., 1997, as per details given in pp. 55-56 of the paper book which will normally rule out the theory of having any cash passed on by the assessee to Shri Vijay Sehgal prior to the date of search. In this view of the matter, we are of the opinion that the addition made by the AO is not based on any evidence available on record but is merely based on suspicion that the subsequent payment by cheque made by the assessee to Sh. Vijay Sehgal was simply to cover up the earlier transaction made in cash. On the other hand, there is documentary evidence to the effect that the entire sales consideration of Rs. 1,01,04,000 on account of sale of 5,052 shares of Leader Valves Ltd. by the assessee to Shri Vijay Sehgal was made by cheque as per agreement dt. 29th April, 1995, although the payment was not made by the stipulated date 30th Dec. 1995, which was mutually extended to September, 1997, and the details of such payments have been furnished by the assessee before us in the form of cheques issued by the assessee from his saving fund account at pp. 55-56 of the paper book. Thus, keeping in view the totality of the facts and circumstances of the case, we are of the opinion that the addition of Rs. 90,93,600 made by the AO is not justified and is directed to be deleted.
10. In the result the appeal of the party is allowed.
Phool Singh, J.M. 27th Nov., 1997
11. I have the privilege to go through the order prepared by my learned brother Shri R.K. Bali, AM, and discussed the matter with him but even after that I am not in a position to agree with the findings recorded by the learned brother. Accordingly, I proceed to pass the following order.
12. Before taking up the arguments of respective parties, a brief of the facts involved in the case though the same have been narrated by learned brother in detail. Initially, it was Leader Engg. Works, a partnership firm in existence located at Jalandhar in which S/Sh. P.N. Beri, D.D. Sehgal, K.K. Sehgal and Gambir were partners. It was shown to be a successful venture. Later on, it was converted into a limited company in the name of "Leader Valves Ltd." The original partners became shareholders of the company. However, some years back certain disputes had arisen among the shareholders. The pattern of shareholding was such that no single group held majority shares. After the death of Shri P.N, Beri, his son Shri J.K. Beri and his wife Smt. Purnima Beri inherited his shares. Shri K.K. Sehgal joined hands with this Beri Group but still their combined shareholding was less than 50 per cent. The dispute relating to the control and management was taken to the Company Law Board, New Delhi. When these legal disputes were going on, Smt. Purnima Beri reportedly had a deal with Shri Vijay Sehgal 3/0 Shri D.D. Sehgal for purchase of his entire shareholdings so that she may be in effective control and management by increasing her shareholdings to over 50 per cent. It has also come on record that Smt Purnima Beri and Shri Vijay Sehgal entered into an agreement on 29th April, 1995, by which Shri Vijay Sehgal, who was exclusive owner of 1,320 equity shares of M/s Leader Valves Ltd. and having inherited 3,732 equity shares i.e., 1/8th of 29,860 equity shares belonging to his father agreed to transfer these 5,052 equity shares to Smt. Purnima Beri for Rs. 1,01,04,000 and rate of per share came to Rs. 2.000. Just after two days of this agreement, these two parties entered into another agreement dt. 1st May, 1995, and this was in respect of transfer of 3,732 shares of M/s Leader Valves Ltd. out of 29,860 equity shares belonging to his father for consideration of Rs. 7,46,460 and this time rate of each share was Rs. 200. It is also on record that Shri Vijay Sehgal executed blank share transfer deed in respect of equity shares in favour of Smt. Purnima Beri. It is also on record that Rs. 10,10,400 were paid by Smt. Purnima Beri through three different cheques of Rs. 1.98 lacs, Rs. 0.66 lacs and Rs. 7,46,400 by end of November, 1985, which was the actual value of 5,052 equity shares @ Rs. 200 per share. However, a search and seizure operation took place at the residence and business premises of Smt, Purnima Beri and Shri Vijay Sehgal as well as at the residence of Shri Yash Paul Mittal and Shri Shital Vij, two witnesses who have signed the agreements dt. 29th April, 1995 and 1st May, 1995. At the time of search, these two agreements were recovered from the possession of Shri Yash Paul Mittal witness of these two agreements and during his statement he deposed that Rs. 6-7 lacs was paid in cash on the date of execution of agreement dt. 29th April, 1995, and in all Rs. 42 lacs in cash was paid by Smt. Purnima Beri to Shri Vijay Sehgal in three instalments and even gave out the dates of each payment. He further confirmed from Shri Shittal Vij, another witness and stated that in all Rs. 60 lacs were passed including amount paid through cheques from Smt Purnima Beri to Shri Vijay Sehgal. This statement was corroborated by Shri Shital Vij, another witness of the agreement deeds. In the preliminary statement recorded at the time of survey on 13th Dec., 1995, Smt. Purnima Beri admitted her signature on agreement dt. 29th April, 1995, but stated that the same was signed by her in office in routine manner along with other documents and did not confirm the statement given by Shri Yash Paul Mittal to whom she admitted to have met 2-3 times in her life. She could not give out anything about the payment made in respect of those agreement deeds or about the person who actually paid that amount. However, during the assessment proceedings, story took different turn as Shri Yash Paul Mittal resiled from his earlier stand during the statement recorded by the Assessing Officer (hereinafter referred as the AO) and mentioned that whatever he stated was hearsay and he had no personal knowledge about any payment made by Smt. Purnima Beri to Shri Vijay Sehgal. Shri Shital Vij also denied his personal knowledge and stated that his corroboration of the statement of Shri Yash Paul Mittal was based on hearsay. Still, Smt. Purnima Beri also took different stand as she admitted signing of both the agreements and further accepted the fact that amount of Rs. 1,01,04,000 was to be paid by her upto 30th Dec., 1995, to Shri Vijay Sehgal on the basis of agreement dt. 29th April, 1995, and that date stood extended by mutual understanding. These are the bare facts and the AO reiving upon the earlier statement of Shri Yash Paul Mittal, witness of the agreement, dt. 29th April, 1995, treating it as spontaneous and straightforward version of the fact concluded that a sum of Rs. 60 lacs passed from Smt. Purnirna Beri to Shri Vijay Sehgal out of which Rs. 10,10,400 were paid through cheques and rest in cash. To arrive at this, the AO has noted the facts and circumstances which substantiate this conclusion and the first one was that Beri Group, which was running the company M/s Leader Valves Ltd. was desperately in need to raise its shareholdings so that it may be in actual control and management of this company. The genuineness of the agreement dt. 29th April, 1995, is not in dispute as Smt. Purnima Beri, who earlier had not given importance to that agreement, agreed that amount shown in that agreement was agreed to be paid to Shri Vijay Sehgal. Further, he noted that Shri Vijay Sehgal executed a power of attorney in favour of Smt. Purnima Beri in respect of the shares authorising her to take all actions for transfer of shares. The other circumstance which was made basis for conclusion by the AO was that Shri Vijay Sehgal will not be signing the power of attorney or other blank share transfer deeds in favour of the assessee unless received the amount involved. The other important fact noted by the AO was that during search of cash FDRs and other investments were detected which remained unexplained and all these cumulative facts go to show the amount as mentioned in the agreement deed stood paid before the date of search from Smt. Purnima Beri to Shri Vijay Sehgal and the AO after giving credit of Rs. 10,10,400 the amount paid through cheques made addition of Rs. 90,93,600 in the total income of the assessee for the asst. yr. 3996-97 while completing the assessment for the block period from the asst. yrs. 1986-87 to 1996-97. It is this addition, which has been challenged by the assessee through this appeal.
13. The learned counsel for the assessee, Shri NX Sud, has assailed the addition on so many grounds and those submissions have been given out by my learned brother in para 7 of his order. According to the learned counsel the addition of Rs. 90,93,600 is not justified and is based on mere suspicion and conjectures. It was contended further that both the parties viz., Smt. Purnima Beri and Shri Vijay Sehgal admitted to the correctness of the agreements and have given reasons for the difference in value of one share in Leader Valves Ltd. in both two agreements. According to him, the price of Rs. 2,000 in the agreement dt. 24th Sept., 1997, was tentative price, which includes the amount being paid by the assessee to Shri Vijay Sehgal to compensate him for surrendering his ownership of shares. The other agreement dt. 1st May, 1995, representing the price, which was to be paid for the transfer of shares of Shri Vijay Sehgal including those inherited by said Shri Vijay Sehgal from the estate of his father Shri D.D. Sehgal (Deceased). It was further contended that an amount of Rs. 10,10,400 alone was paid at the time of search and that too through cheques by Smt. Purnima Beri to Shri Vijay Sehgal for which Shri Vijay Sehgal issued receipts. Everything apart from the above facts was against truth. First of all, he took the statement of Shri Yash Paul Mittal and recorded at the time of search in which he stated about the transfer of Rs. 60 lacs to Shri Vijay Sehgal by Smt. Purnima Beri but pointed out that in the statement recorded at the time of assessment, he resiled from his earlier statement. The learned counsel pointed out that earlier statement was recorded at the back of the assessee and cannot be used against her as she was not confronted with that statement. Further, the statement recorded during the assessment proceedings was the one recorded in the presence of the assessee and should be given weight. The other plea of the learned counsel was that in case the statement of Shri Yash Paul Mittal recorded at the time of search is believed then why Shri Vijay Sehgal has not issued the receipts in regard to the amount received in cash from Smt. Purnima Beri as he has issued receipts of Rs. 10,10,400 received through cheques. That fact speaks volume in favour of the version of the assessee that she would have not paid the amount in cash without obtaining the receipts from Shri Vijay Sehgal when everything was coming in black and white.
14. The learned counsel, Shri N.K. Sud, further submitted that Smt. Purnima Beri as well as Shri Vijay Sehgal denied about the transfer of any amount except the amount paid through cheques and that fact gets support from the statement of Shri Yash Paul Mittal as well as Shri Shital Vij recorded at the time of assessment proceedings. The AO wrongly placed reliance on the cash, FDRs and evidence of other investments made by Shri Vijay Sehgal recovered at the time of search. According to him, Shri Vijay Sehgal has given the explanation about the cash found at the time of search as well as about the amount invested by him in FDRs and other property and that fact was not going to indicate that amount of cash or investment made by Shri Vijay Sehgal were the amounts received by him from Smt. Purnima Beri. On the basis of above contention, the learned counsel submitted that no justification for addition.
15. As against it, the learned Departmental Representative has placed reliance on the order of the AO.
16. Before entering into the arguments of the learned counsel, it is to be kept in mind that there was inter se rivalry going on in between the assessee and other shareholders to take over the effective control and management and for that the assessee was also making sincere efforts to enhance the shareholdings to more than 50 per cent. In this context, the assessee entered into the agreement to purchase 1,320 equity shares held by Shri Vijay Sehgal in his own name and 3,732 equity shares inherited by Shri Vijay Sehgal being 1/8th of 29,860 equity shares owned by his father, Shri D.D. Sehgal. It is also undisputed fact that there were two agreements recovered from the house of one Shri Yash Paul Mittal out of which the first agreement dt. 29th April, 1995, reveals that Shri Vijay Sehgal agreed to sell the above referred to equity shares to assessee @2,000 per share and the consideration of Rs. 1,01.04,000 was to be paid by 30th Dec., 1995. The other agreement dt. 1st May, 1995, is in respect of transfer of 3,732 shares allegedly inherited by Shri Vijay Sehgal from his father in which value of all shares is Rs. 7,46,400 meaning thereby @ Rs. 200 per equity share. Now the case of the Revenue is that rest of the amount of value of equity shares i.e., Rs. 1,01,04,000 was transferred by Smt. Purnima Beri to Shri Vijay Sehgal before the date of search out of which Rs. 10,10,000 was paid through cheques and rest in cash while the assessee denied payment of any amount except paid through cheques.
17. It will be in the fitness of things to consider the facts and the circumstances as well as conduct of the assessee and other concerned persons to arrive at the correct conclusion and in this context, we have to refer the preliminary statement of Smt. Pumima Beri recorded at the time of search. When questioned about the execution of agreement, this lady in her first statement recorded on 13th Dec., 1995, evaded answers about the payment of consideration money of the equity shares or mode thereof, as she stated that her husband alone knew about this. She further stated that she was not aware as to whether all the amounts had been paid or there was still any outstanding amount. However, she admitted that an agreement was signed by her and Shri Vijay Sehgal but by that time the Department was not able to lay its hands on the agreements which were later on recovered from the house of Shri Yash Paul Mittal. After that Smt. Purnima Beri was confronted by the Department on 14th Dec., 1995, about two agreements which were recovered from the house of Shri Yash Paul Mittal and about passing of Rs. 60 lacs to Shri Vijay Sehgal from her side. This lady did not deny the fact specifically but again evaded questions by saying that she did not know as to what payment has been made and who had made that payment. She further evaded the other question by denying having any knowledge_ about the transaction relating to the purchase of shares. However, she was further interrogated during assessment proceedings and then only she admitted the execution of both the agreements dt. 29th April, 1995, and 1st May, 1995, and gave out the facts as to how two agreements were executed by saying that the first agreement dt. 29th April, 1995, was containing a tentative value of each share and further explained that Shri Vijay Sehgal was being compensated by huge price @ Rs. 2,000 per share because he was helping her to take effective control over the management. This conduct of the assessee goes to prove that her intention was not bona fide from the very beginning as she had not given specific answers to the questions put up by the raiding party at the time of search and even evaded questions relating to the payment of the price of equity shares to Shri Vijay Sehgal and it was only during the assessment proceedings that she came to admit that price of equity shares, as mentioned in agreement dt. 29th April, 1995, was the agreed one and she was supposed to pay Rs. 1,01 crores to Shri Vijay Sehgal by the end of 1995. Not coming with clear and specific reply in the very beginning till the assessment proceedings goes to show that the conduct of Smt. Purnima Beri was not above board.
18. There is another peculiar feature of the transaction that there were two agreements executed in between the transferor and transferee and the first was executed on 29th April, 1995, and second after the two days. The price of equity share to be paid by Smt. Purnima Beri was Rs. 2,000 per share in agreement dt. 29th April, 1995, but this price was reduced to Rs. 200 per share in the second agreement dt. 1st May, 1995. The explanation of the assessee that value of Rs. 2,000 per share given in the first agreement was mentioned as tentative price is not believable nor it was fact that Shri Vijay Sehgal was being compensated but the only inference out of execution of two agreements in that in case transaction was over, the agreement dt. 1st May, 1995, alone would have seen the light of the day and both the parties would have destroyed the very existence of earlier agreement otherwise what was the necessity for the parties to execute the second agreement in a period of 2 days and reducing the price of share from Rs. 2,000 to Rs. 200. Initially, as stated above, the case of the assessee was that the price of each share was Rs. 200 but it is during assessment proceedings that Smt. Purnima Beri admitted the genuineness of the earlier agreement dt. 29th April, 1995, and theory of assesses that this agreement was containing tentative price of equity share also goes away by this very fact. This circumstance of executing two agreement deeds goes against the assessee,
19. The other relevant part of this case is the statement of Shri Yash Paul Mittal as well as Shri Shital Vij who are admittedly the witnesses in both the agreement deed. At the very outset, it is relevant to mention that both the agreements were recovered by the Department from the possession of Shri Yash Paul Mittal during the raid conducted at his house on 13th Dec., 1995, itself. Shri Yash Paul Mittal must be the man of confidence of both the parties that is why these valuable documents were given to him by both the parties and further he must be taken as a privy to the transaction and developments thereafter. Shri Yash Paul Mittal gave statement at the time of search and his statement is very much relevant, which reads as under :
"Q. During the course of search an agreement to sale dt. 29th April, 1995, between Mrs. Purnima Beri and Mr. Vijay Sehgal has been found and seized. This document is related to an agreement for transfer of equity shares at a consideration of one crore one lac and four thousand between the said parties. Since you are standing as a man of truth between the parties, please state how much cash as per your knowledge has been passed till today. Please give details also ?
Ans. Apart from the payments by cheques I have got knowledge about the following cash payments :
1. A sum of seven lacs were passed on the date and execution of the said agreement.
2. Thereafter a sum of Rs. twenty-five lacs in two instalments, one instalment of fifteen lacs and other instalment of ten lacs were made. These were instalments were in a gap of 7 to 10 days between these two. As far as I remember, these payments were made in the month of June/July.
3. A payment of Rs. ten lacs has been made between the parties on 12th Dec., 1995, i.e., yesterday.
Therefore a total of Rs. forty-two lacs in cash has been passed till date between the parties to the documents as per my knowledge. This total amount was paid in addition to three cheques of Rs. 1,98,000, Rs. 7,46,400 and Rs. 66,000. I do not have any knowledge about any other cash payment. In my earlier statement I had deposed that on the date we enter of document only five to six lacs were passed, but now I remember that it was Rs. seven lacs as stated above. So far as remaining payments are concerned, I can tell after consulting other witness to the document i.e., Mr. Shital Vij.
Now, I have made a contact with the other witness to the document Mr. Sheetal Vij and the total payment including the payment made by cheques as described above is Rs. sixty lacs as on 13th Dec., 1995."
Statement of Shri Shital Vij, another witness of these two agreement deeds, were also recorded on that very day and he gave the following answers to the questions regarding execution of agreement deeds and about passing of the amount as told by Shri Yash Paul Mittal :
"Ans. I admit the contents of the statement regarding agreement between Shri Vijay Sehgal and Purnima Beri and also admit his statement on the issue of payment made by Smt. Purnima Beri to Sh. Vijay Sehgal"
From the above admission of alleged independent witnesses of agreement deeds the passing of Rs. 60 lacs including the amount paid by cheques out of the transactions of transfer of shares is very much evident. The contention of the learned counsel that these statements were recorded at the back of the assessee and were not given any opportunity to cross-examine is without any force in view of the fact that during the assessment proceedings these two witnesses were examined by the AO in the presence of assessee, who were given opportunity to cross-examine. Both of these witnesses tried to resile from the earlier statements and relevant questions and answers of Shri Yash Paul Mittal in respect of earlier statements are as under :
"Q. In your statement recorded on 13th Dec., 1995, you have stated that a sum of Rs. forty two lacs in cash was passed on between the two parties on various dates. After consulting the second witness Sh. Vij you stated that a total amount of Rs. sixty lakhs including the payments made through cheques were passed on account of those agreements. What you have to say about that ?
And. Whatever I have stated in my statement recorded on 13th Dec., 1995, mentioned above was on the basis of hearsay and after consulting the second witness Sh. Vij. No cash has been paid in my presence at any point of time. I stand by my statement which I am giving today.
Cross-examination by Mrs, Purnima Beri..... Nil."
Similar statement was given by Shri Shital Vij. The only question arises as to what is the value of statements of Shri Yash Paul Mittal and Shri Shital Vij in view of the fact that they tried to resile from their earlier statements recorded at the time of search. In this connection, I may mention that statements of Shri Yash Paul Mittal and Shri Shital Vij recorded at the time of search were spontaneous and should be treated as truthful version of the transaction. This inference is based on the fact that this witness did not say that his statement was recorded under coercion or under threats, etc. by the Department. Not only this during the statement itself this witness contacted Shri Shital Vij another witness on telephone to enquire the exact amount which changed hands on account of this transaction as he initially stated that transfer of Rs. 42 lacs apart from the payment through cheques but later on, he stated this figure to Rs. 60 lacs including the payment through cheques after getting further information from Sh. Shital Vij. This fact alone goes to prove that both these witnesses were fully alive about the transaction going on between the parties as they were said to be the man of confidence and even documents were with them. The parties must be apprising about each and every fact to both of them and whatever version given by Shri Yash Paul Mittal and corroborated by Shri Shital Vij at the time of search should be taken as true. Not only this, Shri Yash Paul Mittal in his statement reproduced above have given out the details how the payments have been made and even specifically dates and months of payment of cash made by Smt. Purnima Beri to Shri Vijay Sehgal were mentioned. Unless and until these witnesses were not knowing full facts question of giving minute details about the payments were not expected from him.
20. Further, another aspect of the matter is that during the assessment proceedings when the statement of Shri Yash Paul Mittal was recorded, he has not denied the earlier version about the payment of Rs. 60 lacs including the payment through cheques but he simply added that his statement recorded on 13th Dec., 1995, was hearsay and stated further that no cash had been paid in his presence at any point of time. This is not to be treated that witness resiled from the earlier statement nor his statement is hearsay. The fact apparent from this is that whenever any payment was made by parties, these witnesses were apprised and on that basis he stated that it was hearsay. However, the fact remains that he still did not deny that amount of cash as stated by him did not exchange hands. The same thing is in respect of Shri Shital Vij who also stated that no cash payment was made in his presence. Apart from them, the AO rightly treated this changed version of witnesses as result of manipulation because both of them can easily be won over by the concerned party. So the AO was justified in placing reliance on the statements of these two witnesses recorded at the time of search and treating the changed version as result of manoeuvre on the part of the assesse and Shri Vijay Sehgal.
21. The other important fact, which goes against the assessee is that in simultaneous raid conducted by the Department at the house of Shri Vijay Sehgal, the following cash and investments in valuables were detected :
Rs.
(1) Cash found in the course of search 10,26.700 (2) FDRs in the names of Smt. Swarn Sehgal, Sh. Ajay Sehgal and Sh, Sanjay Sehgal, who were wife and sons of Sh. Vijay Sehgal 10.60,000 (3) FDRs noticed in the post-search investigation 10,79,000 (4) Investment in the purchase of property from S. Bhupinder Singh 10,76,000 (5) Investment in the purchase of Cielo Car 6,50,000 These amounts come to approximately more than 50 lacs. We have the copy of assessment order in the case of Shri Vijay Sehgal on record and most of these amounts were treated as unexplained amounts of investment made by Shri Vijay Sehgal during the period after the date of agreement and before search. The AO rightly observed that there is nexus in between the payment of Rs. 50 lacs approximately by Smt. Purnima Beri in cash to Shri Vijay Sehgal and recovery of cash as well as unexplained investment by Shri Vijay Sehgal as noted above. We confirm that finding of AO, which is apparent on record. Apparently it is clear that whatever amount was received by Shri Vijay Sehgal was invested in FDRs and other transactions noted above and some of the cash was found but fact remains that it is in consonance with the theory of Revenue that the amount more than 50 lacs was paid by Smt. Purnima Beri to Shri Vijay Sehgal on the basis of agreement dt. 29th April, 1995.
22. The other relevant point is that in view of the rivalry going on in between different group of shareholders and competition to take over the effective control and management of the company, none, of the shareholders must be having confidence on the other group. In the case in hand, Shri Vijay Sehgal has executed power of attorney and further signed a blank share transfer deeds which were recovered at the time of search. If no payment other than payment through cheques were made, then Shri Vijay Sehgal would not be so novice in this field that he may sign the above referred to papers without getting the amount as per agreement dt. 29th April, 1995. It is another circumstance going against the assessee and forcing me to conclude that statement given by Shri Yash Paul Mittal and Shri Shital Vij about the transfer of cash was believable one.
23. As per agreement dt. 29th April, 1995, the amount of Rs. 1,01,04,000 was to be paid before 30th Dec., 1995, and the date of search is 13th Dec., 1995, and if theory of assessee is examined, the amount of Rs. 10,10,000 alone was paid through cheques then what was forcing Shri Vijay Sehgal in not agitating to recover the amount of Rs. 90 lacs approximately, has not come on record. Hence, silence on the part of Shri Vijay Sehgal is indicator of the fact that he must have received handsome amount apart from the payments through cheques that is why he signed all the documents in favour of the assessee. The theory of assessee and Shri Vijay Sehgal that both by mutual understanding extended the date of full and final payment of Rs. 1 crore from 30th Dec., 1995, to September, 1997, and assessee made payments of Rs. 90 lacs approximately after the date of search through payments, does not fit in the above circumstances of the case. Further, why parties did not go for written deed for extending the date of payments when there was written agreements for payment of money. So I don't attach importance to the fact that assessee made payment of Rs. 90 lacs through cheques after search as it is again a hush up tactics adopted by parties to give colour to their theory.
24. The contention of the assessee's counsel that what prevented Shri Vijay Sehgal to treat the amount of cash recovered from his house and about the unexplained investment detected at the time of raid to show as the amount of sale of shares if he actually received the amount as in that case Shri Vijay Sehgal would have paid lesser amount of taxes on account of capital gain only. It will be looked into when case of Shri Vijay Sehgal will come for hearing and further in such clandestine transactions both the parties, want to keep the secret just to their chest for the reasons best known to them and the Revenue is not expected to unfold the mystries. This ground will not help the assessee.
25. On the basis of the aforesaid discussion and if summarised, then the factum of execution of two agreements, conduct of Smt. Purnima Beri at the time of search evading the questions relating to the transactions and later on admitting that Rs. 2.000 were fixed as the price of each equity share and statements of Shri Yash Paul Mittal as well as Shri Vijay Sehgal at the time of search coupled with the recovery of approximately Rs. 50 lacs cash and unexplained investments in search on 13th Dec., 1995, itself from Shri Vijay Sehgal who allegedly received the cash and other circumstances, conclusion is that Rs. 60 lacs including amount of payment made through cheques were actually transferred from Smt. Purnima Beri to Shri Vijay Sehgal based on agreement dt. 29th April, 1995, and addition is to be made to the extent of Rs. 60 lacs-Rs. 10,10,000 = Rs: 49,90,000 in the hands of Smt. Purnima Beri and not Rs.
90,93,600 made by the AO and the AO is directed accordingly.
26. The appeal of the assesses is partly allowed as addition will be Rs.
49,90,000 instead of Rs. 90,93,600.
REFERENCE UNDER SECTION 255(4) OF THE IT ACT, 1961 16th Dec., 1997 The Members of the Tribunal, who heard this appeal, having differed in their opinion on the question of additions as income from undisclosed sources are referring the following point of difference in the form of a question for reference to the President, Tribunal, Mumbai, under Section 255(4) for the opinion of the Third Member :
"Whether in view of the facts and circumstances of the case, the view of the AM that addition of Rs. 90,93,600 towards the alleged payment of cost of 5,052 shares of M/s Leader Valves Ltd. by the assessee to Shri Vijay Sehgal cannot be sustained is correct or the view of the JM that addition to the extent of Rs. 49,90,000 out of the addition of Rs. 90,93,600 made by the AO is justified ?"
R.M. Mehta, Vice President (As A Third Member) 28th May. 2002
1. The following point of difference has been referred to me under Section 255(4) of the IT Act, 1961 :
"Whether in view of the facts and circumstances of the case, the view of the AM that addition of Rs. 90,93,600 towards the alleged payment of cost of 5,052 shares of M/s Leader Valves Ltd. by the assessee to Shri Vijay Sehgal cannot be sustained is correct or the view of the JM that addition to the extent of Rs. 49,90,000 out of the addition of Rs. 90,93,600 made by the AO is justified?"
2. The facts have been amply and appropriately set out by the learned Members of the Division Bench in their separate orders but to recapitulate, there was a search on 13th Dec., 1995, at the residence of the assessee and her husband Shri J.K. Beri and in the block assessment completed by means of an order dt, 13th Dec., 1996, an addition of Rs. 90,93,600 was made for asst. yr. 1996-97 falling within the block period on the basis of the following facts and reasons :
(i) An agreement dt. 29th April, 1995, between the assessee and one Shri Vijay Sehgal for the sale of 5,052 equity shares of Leader Valves Ltd. was found from the residence of one Shri Yash Pal Mittal whose premises were also searched on 13th Dec., 1995, and who was a witness to the agreement;
(ii) According to the said agreement Shri Vijay Sehgal agreed to sell the shares in question to the assessee for a consideration of Rs. 1,01,04,000 and full consideration was to be paid by 31st Dec., 1995;
(iii) Blank shares transfer deeds signed by Shri Vijay Sehgal and witnesses were also found and seized;
(iv) Three receipts signed by Shri Vijay Sehgal testifying to the receipt of sums aggregating Rs. 10,10,400 by cheques being the sale consideration of shares were also found and seized; and
(v) Another agreement dt. 1st May, 1995, between the assessee and Shri Vijay Sehgal for sale of the ownership rights of shares inherited by the latter from his deceased father Shri D.D. Sehgal for a sum of Rs. 7,46,400 was also found and this stated that the consideration of the said amount i.e., Rs. 7,46,400 had been paid by cheque by the assessee to Shri Vijay Sehgal.
3. On being confronted with the aforesaid documents during the course of search, the assessee admitted the signatures on both the documents but explained that the sum of Rs. 1,01,04,000 mentioned in the agreement dt. 29th April, 1995, took into account the compensation to, Shri Vijay Sehgal for transferring the shares to the assessee to enable the "Beri Group" to have effective control over the affairs of the company M/s Leader Valves Ltd. whereas in the subsequent agreement dt. 1st May, 1995, the price was mentioned at Rs. 200 per share as against Rs. 2,000 per share mentioned in the agreement dt. 29th April, 1995. The submission was that the price of Rs. 200 per share was the book value of the shares as against a face value of Rs. 100 per share.
4. Giving at this stage a little background pertaining to the aforesaid transaction, M/s Leader Engineering Works was a firm consisting of Shri P.N. Beri, Shri D.D. Sehgal, Shri K.K. Sehgal and Shri Gambhir and on conversion these partners became shareholders in the company. Subsequently, disputes arose amongst the partners and none of them had a majority stake in the shares.
5. After the death of Shri P.N. Beri, his son Shri J.K. Beri and his wife i.e., the present assessee inherited his shares but even after Shri K.K. Sehgal joined hands with the "Beri Group" their combined holding was less than 50 per cent. The disputes between the various groups reached the Company Law Board and in this entire background, the asessee and Shri Vijay Sehgal entered into an agreement to purchase the shares, which would give the "Beri Group" a stake of 50 per cent in the company and, therefore, effective control and management.
6. Coming back to the two agreements, the one dt. 29th April, 1995, stipulated the price of a share of the company at Rs. 2,000 as against a face value of Rs. 100 and the total shares were 1,320 held by Shri Vijay Sehgal and 3.732 shares being 1/8th of the shareholding of Shri D.D. Sehgal (Deceased), which were to be inherited under the Hindu Succession Act, the question of inheritance admittedly was pending adjudication in the Punjab & Haryana High Court.
7. In the second agreement dt. 1st May, 1995, the price per share was mentioned at Rs. 200 and both the assessee and Shri Vijay Sehgal in the statements recorded at the time of search confirmed entering into an agreement. The two witnesses who had testified to the signatures of the parties as also to the contents of the agreement i.e., Shri Yash Pal Mittal and Shri Shital Vij deposed at the time of search that in addition to the cheque payment of Rs. 10,10,400, a sum of Rs. 42 lakhs had been paid in cash to Shri Vijay Sehgal but it is a matter of record that no receipts in proof of the alleged payment of Rs. 42 lakhs were found from Shri Yash Pal Mittal from whose custody the two agreements were found and seized.
8. At the assessment stage, the assessee explained that the price of Rs. 2,000 per share was a tentative one while the price of Rs. 200 was the correct price and the difference between the two represented the compensation which was to be paid by the assessee to Shri Vijay Sehgal for assuming effective control by the "Beri Group" over the company M/s Leader Valves Ltd. Both the assessee and Shri Vijay Sehgal agreed and stated that the total sale consideration was Rs. 1,01,04.000 but only a sum of Rs. 10,10,400 was paid and the balance was still to be paid.
9. At the assessment stage, the statements of Shri Yash Pal Mittal and Shri Shital Vij were once again recorded on 14th Oct., 1996, and they resiled from their earlier statements given at the time of search with regard to the payment of a sum of Rs. 42 lakhs in cash to Shri Vijay Sehgal.
10. On the aforesaid facts, the AO arrived at the following conclusions :
(i) The "Beri Group" desperately needed to raise its shareholding to acquire majority stake in the company;
(ii) The genuineness of the agreement entered into between the parties had never been in doubt as the parties as also the witnesses had testified to the same;
(iii) Payment of consideration to the extent of Rs. 200 per share by means of cheque had been admitted by the parties and the transfer deeds relating to the total shares i.e., 5,052 had been handed over to the assessee;
(iv) A power of attorney had been given by Shri Vijay Sehgal to the assessee authorizing her to take necessary action for the transfer of the shares;
(v) That there appeared to the feud and a feeling of mistrust amongst the shareholders of the company and this was indicated by the deposit of the agreements and receipts relating to the cheque payments with a third person i.e., Shri Yash Pal Mittal;
(vi) That with the delivery of shares, transfer deeds. POA, etc. in favour of the assessee and the payments through cheque already encashed by Shri Vijay Sehgal the transaction was complete and it did not appear probable that Shri Vijay Sehgal would have transferred the shares without obtaining payment of the full consideration i.e., Rs. 1,01,04,000;
(vii) That large seizures of cash, FDRs, etc. had been made from Shri Vijay Sehgal, which remained unexplained;
(viii) In order to lend credibility to her version, the assessee had claimed that some further payment had been made after 31st Dec., 1995, to Shri Vijay Sehgal by means of cheques; and
(ix) In the statement recorded at the time of search, the witness Shri Yash Paul Mittal had given details of the cash payments of Rs. 42 lakhs made by the assessee to Shri Vijay Sehgal between 29th April, 1995, and 12th Dec., 1995, and subsequently the witness tried to the wriggle out of the statement on the plea that it was based on hearsay.
11. In the final analysis, the AO held that the assessee had made full payment of the sale consideration of Rs. 1,01,04,000 for the purchase of 5,052 shares belonging to Shri Vijay Sehgal and out of this, a sum of Rs. 10,10,400 paid by cheque stood explained and the balance amount i.e., Rs. 90,93,600 having been paid in cash and which stood unproved and undisclosed was to be added.
12. On appeal before the Division Bench, the learned counsel for the assessee advanced detailed arguments with reference to the facts on record, the main being as follows :
(i) The conclusion of the AO that the assessee had made cash payments amounting to Rs. 90,93,600 to Shri Vijay Sehgal between the period 1st April, 1995, to 31st Dec., 1995, the latter being the date of search was not justified being based on mere suspicion and conjectures.
(ii) That search and seizure operations were carried out at the premises of the assessee and her husband as also Shri Vijay Sehgal along with two witnesses on the basis of a complaint/information with the Department that Shri Vijay Sehgal had sold his entire holding of shares of M/s Leader Valves Ltd. to the "Beri Group" so as to enable them to assume effective control over the management of the company and that unrecorded cash amount over and above the sale price mentioned in the agreement had changed hands. (iii) The search party no doubt found two agreements of sale on dt. 29th April, 1995, and the other dt, 1st May, 1995, but parties to the agreement that is the assessee and Shri Vijay Sehgal both had admitted to the correctness of the agreements and had given reasons for the difference in the value of one share of the company mentioned in the agreement.
(iv) That the price of Rs. 2,000 per share in the agreement dt. 29th April, 1995, was tentative price and it included the amount which was agreed to be paid by the assessee to Shri Vijay Sehgal to compensate him for surrendering his ownership of shares so as to enable the "Beri Group" to increase their shareholding to more than 50 per cent assuming in the process effective control over the affairs of the company.
(v) That agreement dt. 1st May, 1995, represented the price which was to be paid for the transfer of shares including those shares, which were to be inherited by Shri Vijay Sehgal from the estate of his late father. That the consideration of Rs. 1,01,04,000 mentioned in the agreement dt. 29th April, 1995 was in respect of the entire shareholding of Shri Vijay Sehgal inclusive of the shares which were to be inherited by him but question regarding inheritance of those shares was pending adjudication before the Hon'ble Punjab & Haryana High Court at Chandigarh.
(vi) Under the aforesaid circumstances, it was difficult to understand as to how the assessee could pay for those shares whose very existence was in doubt at the time of search.
(vii) That upto the date of search, the assessee had paid only a sum Rs. 10,10,400 by cheques to Shri Vijay Sehgal for which regular receipts had been issued by him and which were found at the time of search from the custody of Shri Y.P. Mittal.
(viii) That the only basis for the AO to make the addition was the statement of Shri Y.P. Mittal recorded by the search party on 13th Dec., 1995, and which was subsequently resiled by the said person before the AO who once again recorded his statement on 14th Oct., 1998, along with that the other witness Shri Shital Vij.
(ix) That both the aforesaid persons were the witnesses of the Revenue and the addition was based on their statements recorded at the time of search and which were subsequently resiled by them during the course of assessment proceedings.
(x) That both the said persons had given a clarification to the AO that the fact of passing of cash amounting of Rs. 42 lakhs between the parties mentioned by them at the time of recording their statement on 13th Dec., 1995, was not based on their personal knowledge but on hearsay and as such they had no knowledge about the passing of any cash between the parties.
(xi) That they were witnesses only to the cheque payments aggregating Rs. 10,10,400 which were made by the assessee to Shri Vijay Sehgal in the form of three cheques.
(xii) That the assessee could not pay the entire sale consideration of Rs. 1,01,04,000 to Shri Vijay Sehgal by 31st Dec., 1995, as stipulated in the agreement dt. 29th April, 1995, which date was extended by mutual consent and subsequently the assessee did make payment of the balance amount of Rs. 90,93,600 by cheques extending over a period of more than a year.
(xiii) That the entire payment of Rs. 90,93,800 had been made by the assessee by cheques to Shri Vijay Sehgal by the end of September, 1997, only.
(xiv) There was no evidence available with the Department to indicate, that the assessee had in fact paid cash to Shri Vijay Sehgal during the period 1st April, 1995, to 13th Dec., 1995, and the addition was based on mere suspicion and vague allegations that at the time of search at the residence of Shri Vijay Sehgal huge unaccounted cash, FDRs etc. were found.
(xv) In case the source of cash and FDRs from the residence of Shri Vijay Sehgal was the money given by the assessee then Shri Vijay Sehgal could have explained it to be so and under these circumstances there could have been no addition on account of undisclosed income in the hands of Shri Vijay Sehgal.
(xvi) That both the assessee and Shri Vijay Sehgal had stated that the price of Rs. 1,01,04,000 represented the price for the transfer of the share holding of Shri Vijay Sehgal inclusive of the shares, which were to be inherited and for which the payment by cheque amounting to Rs. 10,10,400 was made upto the date of search and the balance payment was also made by the assessee to Shri Vijay Sehgal by cheques over an extended period upto the end of September, 1997.
13. On the basis of aforesaid submissions, the learned counsel for the assessee contended that there was no justification on the part of the AO to make an addition of Rs. 90,93,600 alleged to be the payment in cash made by the assessee to Shri Vijay Sehgal.
14. As against the aforesaid, the learned Departmental Representative supported the order of the AO and his main arguments were as under :
(i) That the statements given by the two witnesses i.e., Shri Y.P. Mittal and Shri Shital Vij at the time of search were spontaneous and they categorically stated that money ranging from Rs. 42 lakhs to Rs. 60 lakhs passed between the assessee and Shri Vijay Sehgal.
(ii) That subsequently these witnesses were won over by the assessee and they therefore resiled from their original statements given to the authorised officer for the reason best known to them.
(iii) Recovery of huge amount of cash and FDRs from the search of Shri Vijay Sehgal and other family members led credence to the theory of Shri Vijay Sehgal having been in receipt of unaccounted cash from the assessee. (iv) Subsequent payments by cheques to Shri Vijay Sehgal by the assessee no doubt were made but it might be that equivalent cash was taken back by the assessee from Shri Vijay Sehgal.
15. On the basis of the aforesaid, the learned Departmental Representative urged that the addition of Rs. 90,93,600 made by the AO be confirmed.
16. The learned AM who wrote the initial order, at the outset observed after going through the facts of the case that the only basis for making the addition by the AO was the statement of Shri Y.P. Mittal recorded on 13th Dec., 1995, wherein it was alleged that cash to the tune of Rs. 42 lakhs was given by the assessee to Shri Vijay Sehgal over and above the price paid by cheques totalling Rs. 10,10,400. It was in fact noted by the learned AM that Shri Y.P. Mittal after consulting the other witness i.e., Shri Shital Vij probably on telephone stated before the AO on 13th Dec., 1995, that actual cash which had changed hands was Rs. 60 lakhs and the other witness Shri Shital Vij corroborated the statement of Shri Yashpal Mittal when his own statement was recorded at his business premises on 13th Dec., 1995.
17. The learned AM then noticed the statements of both the aforesaid witnesses, which were recorded by the AO during the course of assessment proceedings on 14th Oct., 1996, when they resiled from their statements recorded on 13th Dec., 1995. It was highlighted by the learned AM, that in response to a particular question put by the AO, these witnesses categorically stated that the information with regard to the passing of cash by the assessee to Shri Vijay Sehgal was based on hearsay and that cash was not paid in their presence. The relevant question and answer from the statement of Shri Y.P. Mittal recorded by the AO on 14th Oct., 1996, was thereafter reproduced in the order of the learned AM. The learned AM also proceeded to reproduce relevant extracts from the statement of Shri Shital Vij recorded by the AO on 14th Oct., 1996, vis-a-vis the retraction from the earlier statement and also confirming that no cash had been paid to Shri Vijay Sehgal by the assessee in his presence.
18. On the basis of aforesaid, the learned AM observed that addition was made entirely on the statements of witnesses which were subsequently resiled and further, the AO himself had not completely relied on the statements of witnesses because they had referred to the cash component of payment to be Rs. 42 lakhs for Rs. 60 lakhs-Rs. 10 lakhs. It was noted by the learned AM that the AO had made an addition of Rs. 90,93,600, which was much more than the cash which according to the witnesses in their statements recorded on 13th Dec., 1995, passed between the assessee and Shri Vijay Sehgal.
19. The learned AM thereafter noticed as an undisputed fact that the assessee subsequent to the date of search, paid the entire balance amount of Rs. 90,93,600 by cheques on different dates upto 30th Sept., 1997, which would subsequently rule out the theory of any cash having passed between the assessee and Shri Vijay Sehgal prior to the date of search. The conclusion thereafter was that the addition made by the AO was not based on any evidence but entirely on suspicion that subsequent payments by cheques to Shri Vijay Sehgal were simply to cover up the earlier transaction effected in cash. It was also noted as a fact by the learned AM that details of the entire payment of Rs. 90,93,600 had been placed on record and it was in the form of cheques issued by the assessee from her S.B. a/c.
20. Considering the aforesaid facts and circumstances, the learned AM took the view that the addition of Rs. 90,93,600 made by the AO was not justified and he, therefore, directed the same to be deleted.
21. The learned JM, however, did not agree with the views expressed by the learned AM and proceeded to write a separate order. It must be mentioned at the outset that insofar as the facts are concerned as also the arguments of the parties before the Tribunal, both the learned Members are one with each other. It is only in conclusion that the difference has cropped up and I would, therefore, straightaway proceed to the operative portion of the order of the learned JM, which begins at para 16 on p. 24. It was at the outset noticed that there was Inter se rivalry going on between the assessee and other shareholders of the company to take over effective control and management and for which the assessee was, making sincere efforts to enhance her shareholding to more than 50 per cent. A reference was made to the two agreements recovered from the house of Shri Y.P. Mittal out of which the first agreement dt. 29th April, 1995, mentioned the sale consideration at Rs. 2,000 per equity share i.e., Rs. 1,01,04,000, which was to be paid by 30th Dec., 1995, and the second agreement dt. 1st May, 1995, which mentioned a figure of Rs. 200 per equity share. As noted in the order of the learned AM, the learned JM also took note of the Revenue's stand that the difference between the two figures was paid in cash by the assessee to Shri Vijay Sehgal before the date of search and there being no dispute between the parties about the payment of Rs. 10,10,400 by means of cheques prior to the date of search.
22. The learned JM referred to the conduct of the assessee vis-a-vis the preliminary statement recorded at the time of search i.e., on 13th Dec., 1995, when she has purported to have evaded answers about the payment of consideration money of the equity shares and stated that her husband alone knew about this. She further denied knowledge about the extent of payment having been made whether in full or still outstanding but she categorically admitted that an agreement was signed between her and Shri Vijay Sehgal but these agreements were not found at her premises but the Department was able to lay its hands on such agreements when they searched the house of Shri Y.P. Mittal. According to the learned JM, the assessee when she was confronted by the Department on 14th Dec., 1995, with the two agreements as also about the payment of Rs. 60 lakhs to Shri Vijay Sehgal did not deny the fact that specifically but again evaded giving answers.
23. It was further observed by the learned JM that it was only on interrogation during the assessment proceedings that the assessee admitted the execution of the two agreements and gave out relevant facts as to how these were executed by saying that the first agreement dt, 29th April, 1995, contained the tentative value of each share and further explaining that Shri Vijay Sehgal was being compensated by a huge price of Rs. 2,000 per share because he was helping her to take effective control over the management. The learned JM in fact noted that the intention of the assessee was not bona fide from the very beginning as specific answers to the questions put by the raiding party at the time of search had not been given and there was also an attempt to evade questions relating to the payment of the price of equity shares to Shri Vijay Sehgal.
24. The learned JM also referred to "another peculiar feature of the transaction" vis-a-vis the two agreements, the first executed on 29th April, 1995, when the price per equity shares was mentioned as Rs. 2,000 and the second agreement after two days i.e., on 1st May, 1995, when the price mentioned was Rs. 200 per share. According to the learned JM the explanation given by the assessee about the figure of Rs, 2,000 per share being a tentative one was not believable. According to him, in case the transaction was concluded and finalized then the agreement dt. 1st May, 1995. alone would have seen the light of day and the parties would have destroyed the earlier agreement. The conclusion, in other words, was that the fact of executing two agreements went against the assessee.
25. The learned JM further referred to the statements of the two witnesses viz., Shri Y.P. Mittal and Shri Shital Vij recorded during the search operations as also the recovery by the Department of both the agreements from the possession of Shri Y.P. Mittal. The learned JM noted that Shri Y.P. Mittal must be a man of confidence of both the parties and that was why the valuable documents were given to him by the parties and he must, therefore, be taken as a party to the transaction and developments thereafter. The learned JM at p. 26 of the order reproduced the relevant extracts of the statements of Shri Y.P. Mittal and Shri Shital Vij to conclude that passing of Rs. 60 lakhs including the amount paid by cheques between the parties was very much evident. He rejected the contention of the assessee's counsel about the recording of the statements behind the back of the assessee observing that even during the assessment proceedings these two witnesses were examined by the AO in the presence of the assessee, who was thereafter given an opportunity to cross-examine them.
26. The learned JM thereafter came to the subsequent statements recorded whereby the witnesses resiled from the earlier statement and relevant extracts from the statement of Shri Y.P. Mittal are reproduced at pp. 29 and 30 of the order of the learned JM.
27. At p. 30 of his order, the learned JM discussed at some length the effect of the initial statement recorded at the time of search and the subsequent retraction. According to the learned JM, the statements recorded at the time of search were spontaneous and, therefore, be treated these as a truthful version of the transaction, since none of the witnesses had indicated that their statement were recorded under coercion or under threat by the Department. It was indicated as a fact by the learned JM that one of the witnesses viz., Shri Y.P. Mittal in the course of recording of his statement happened to contact the second witness viz., Shri Shital Vij to enquire about the exact amount which changed hands on account of the transaction since initially figure stated was Rs. 42 lakhs apart from the payment made by cheques but later on the figure given was Rs. 60 lakhs including the payment through cheques after getting further information from Shri Shital Vij.
28. From the aforesaid, the learned JM came to the conclusion that both the witnesses were fully aware about the transactions going on between the parties as they were stated to be persons of confidence and even relevant documents were lying with them. According to the learned JM, "the parties must be apprising about each and every fact to both of them" and, therefore, whatever version was given by Shri Y.P. Mittal and corroborated by Shri Shital Vij at the time of search should be taken as true. A reference was made by the learned JM to the details about the payments made in cash which included specific dates and months of payment.
29. The learned JM emphasized in his order that when the statement of Shri Y.P. Mittal was recorded during the assessment proceedings, he had not denied the earlier version about the payment of Rs. 60 lakhs including the payment through cheques but he simply added that his statement recorded on 13th Dec., 1995, was on hearsay and stated that no cash was paid in his presence at any point of time. The learned JM, however, did not treat the second statement as a retraction from the earlier statement nor as hearsay as according to him it was apparent that whatever amount changed hands between the parties, the two witnesses were apprised. The learned JM also confirmed the view of the AO when he treated the "changed version" of both the witnesses as a result of manipulation because both of them could be won over by the concerned party. The view, in other words, was that the AO was justified in placing reliance on the statements of the two witnesses recorded at the time of search and treating the changed version as a result of manoeuvring on the part of the assessee and Shri Vijay Sehgal.
30. It was also noted that the learned JM during the simultaneous raid conducted at the house of Shri Vijay Sehgal that substantial cash and investments were found and these approximately exceeded Rs. 50 lakhs. According to him, the assessment order of Shri Vijay Sehgal showed that most of these were treated as unexplained investments made by Shri Vijay Sehgal during the period beginning with the date of agreement and ending with the search. The view of the learned JM was that the AO had rightly observed that there was a nexus between the payment of the substantial amount by the assessee in cash to Shri Vijay Sehgal and the recovery of more or less the same amount in the form of cash and unexplained investments from Shri Vijay Sehgal.
31. The learned JM further observed that Shri Vijay Sehgal had executed power of attorney and also signed blank share transfer deeds, which were recovered at the time of search and he could not be such a novice that without recovering the entire payment he would sign the aforesaid papers. This according to him was a circumstance going against the assessee and forcing a conclusion that statements given by Shri Y.P. Mittal and Shri Shital Vij about the transfer of cash were believable ones.
32. The learned JM further observed with reference to agreement dt. 29th April, 1995, that the amount of Rs. 1,01,04,000 was to be paid before the 30th Dec., 1995, and the date of search was 13th Dec., 1995, and if the assessee's explanation was considered that only a sum of Rs. 10,10,400 had been paid through cheques then what was the reason for Shri Vijay Sehgal in not agitating the recovery of a sum of Rs. 90 lakhs and odd and this relevant fact had not come on record. According to the learned JM the silence on the part of Shri Vijay Sehgal was an indicator of the fact that he must have received a "handsome amount" apart from the payments through cheques and which led him to sign the various documents in favour of the assessee. The further observation of the learned JM was that the theory of extending the date for final payment by mutual understanding to September, 1997, did not fit into the aforesaid circumstances of the case. The learned JM, therefore, declined to attach much importance to the payments actually made through cheques after the search and upto September, 1997, aggregating Rs. 90 lakhs and odd.
33. The learned JM also rejected the contention of the assessee's counsel to the effect that nothing prevented Shri Vijay Sehgal to link the cash and other investments found during the course of search to the cash alleged to have been received from the assessee, if so received, by observing that this could be looked into when the case of Shri Vijay Sehgal came up for hearing. According to him in such clandestine transactions parties keep the secrets close to their chest for the reasons best known to them and the Revenue was not expected to unfold the mystery.
34. On the basis of various facts, which have been set out in the preceding paras, the learned JM ultimately took the view that there was passing of cash over and above the cheque payments between the assessee and Shri Vijay Sehgal and he determined a total payment of Rs. 60 lakhs and reducing therefrom the payment in cheque, he sustained the addition of Rs. 49,90,000.
35. Before me, the learned counsel for the assessee at the outset supported the order of the learned AM and subsequent arguments advanced by him were a reiteration of those tendered before the Division Bench. The following were highlighted :
(1) Out of the total number of shares i.e., 5,032, 1,800 shares which belonged to Shri Vijay Sehgal had been transferred to the assessee prior to the date of raid whereas the remaining 3,232 shares, which were the subject-matter of succession proceedings before the Hon'ble High Court came to be transferred only in 1998.
(2) The price of each equity shares if worked out on the basis of the balance sheet of the company was Rs. 200 and this was not in dispute between the parties.
(3) Simultaneous raids had taken place at eight locations and vis-a-vis the assessee, no incriminating documents were found and nor was the seizure of any asset made.
(4) All documents which were the subject-matter of the addition were found at the residence of Shri Y.P. Mittal.
(5) No receipts/documents were found at any place, which would show that anything over and above Rs. 200 per share had been paid.
(6) There was cogent evidence on record to show that payment at the rate of Rs. 2,000 had been made after the date of raid.
(7) Vis-a-vis the transfer deeds found during the course of raid, it was pointed out that these bore the date of stamping as 21st April, 1995, and vis-a-vis the relevant provisions of the Companies Act, these were valid only for one year.
(8) In respect of the shares, which were to come to Shri Vijay Sehgal as a result of succession proceedings, this was "future property" and it could not be sold and only an agreement for sale could be entered into.
(9) The assessee was not expected to make the entire payment at Rs. 2,000 per share unless and until the shares were transferred in her name.
(10) Shri Y.P. Mittal or for that matter the other witness i.e., Shri Shital Vij were not eye-witnesses to any alleged money changing hands between the assessee and Shri Vijay Sehgal.
(11) The aforesaid witnesses had given a statement entirely on memory and further their statements were recorded behind the back of the assessee.
(12) The statements of the two witnesses were not covered under Section 158BD and could not be categorised as documents or material found during the course of search and further the presumption under Section 132(4A) was not available to the Department for the papers found in the premises of a third party.
(13) Statements recorded behind the back of the assessee had no evidentiary value and these necessarily had to be discarded. Further, there was a request to the AO to allow an opportunity to cross-examine but it was ignored.
(14) Additions could not be based on hearsay and rumours and it was quite clear in the present case that both Shri Y.P. Mittal and Shri Shital Vij had not seen with their own eyes the money being passed between the assessee and Shri Vijay Sehgal.
(15) under Section 68 of the Evidence Act, Shri Y.P. Mittal was a witness to the written document/agreement only and he could not be treated as a witness to the money changing hands. Further, the role of Shri Y.P. Mittal was not legally sound and his credibility was not known. In other words, Shri Y.P. Mittal was neither an agent nor an arbitrator or a guarantor.
(16) The difference between Rs. 200 per share and Rs. 2,000 per share represented the compensation to Shri Vijay Sehgal and it was a matter of record that subsequently shares of the company changed hands at Rs. 700 and Rs. 800 per share to other shareholders.
(17) No evidence had been unearthed or brought on record by the Department, which would show that huge payments of the magnitude alleged had been made by the assessee to Shri Vijay Sehgal. This was also not possible because the assessee considering her past assessments showing nominal income could not be expected to be in possession of funds to the tune of Rs. 90 lakhs and odd.
(18) When it was the case of the Department itself that there was no trust between any of the parties to the transaction, then how could it be said or held, with certainty that assessee would make payment of Rs. 90 lakhs and odd without any receipt or without the transfer to her name of 3,732 shares, which were the subject-matter of succession proceedings.
(19) The action of the AO in making the huge addition was entirely on probability, surmises, conjectures and suspicion when there was clear evidence available on record.
(20) The Department had not brought anything on record which would show that the sum of Rs. 90 lakhs and odd paid to Shri Vijay Sehgal after the raid and that also by cheque had come back to the assessee by any manner or mode. (21) That suspicion however strong could not replace evidence and in proceedings under Section 158BD, there could be no presumption since such assessments had to be based on material/evidence found during the course of search.
36. Coming at this stage to the order of the learned JM, the learned counsel pointed out the following :
(i) The payment of Rs. 90 lakhs and odd made after the date of the search to Shri Vijay Sehgal had not been taken into account while sustaining the addition to the tune of Rs. 49 lakhs and odd.
(ii) In a preliminary statement, an assessee was not expected to disclose or state anything accurately and in case the answers were not accurate or to the point, then it could not be considered as evading the questions,
(iii) It had been clearly overlooked that on the day of the search itself, the assessee had categorically denied making any payment in cash,
(iv) There was no legal basis for observing that the first agreement would have been destroyed by the patties since this was not even the allegation or the view expressed by the AO.
(v) The finding that the two witnesses knew about the cash payments was without any basis.
(vi) The search on Shri Vijay Bengal's premises and the assets, etc. found could only be treated as circumstantial evidence and there was no nexus between the purported payments and the assets found. The observations of the learned JM in respect of such a nexus were, therefore, not in order.
(vii) Shri Vijay Sehgal has nowhere stated that any payment over and above the sum of Rs. 10 lakhs and odd by cheque has been received from the assessee for the shares in question.
(viii) The assessment order of Shri Vijay Sehgal could not be relied upon for drawing adverse inference against the assessee without confronting the same to her.
(ix) The two witnesses Shri Y.P. Mittal and Shri Shital Vij have not resiled from their earlier statements but merely elucidated and amplified the same.
(x) Disbelieving a witness without there being any evidence or material on record to discredit him cannot be done by the judicial authority and if it is so done, then it can only be in the realm of doubt and suspicion.
(xi) That the High Court order in the succession proceedings was dt. 2nd Feb., 1998, and the subsequent payments by cheque to complete the figure of Rs. 2,000 per share commenced on 24th Feb., 1995, vis-a-vis pp. 55 and 56 of the paper book.
37. In concluding the learned counsel urged that the order passed by the learned AM be approved.
38. The learned Departmental Representative on behalf of the Department vehemently supported the order passed by the learned JM and subsequent arguments advanced by him were a reiteration of the reasons recorded by the learned JM in confirming the addition to the tune of Rs. 49,90,000. The following were highlighted :
(a) The conduct of the assessee was not bona fide since she did not give direct reply to any of the questions asked at the time of search.
(b) There were two agreements one mentioning a figure of Rs. 200 per share and the other mentioning a figure of Rs. 2,000 per share and these agreements were signed by the two witnesses, who were the close confidents of the assessee.
(c) The two witnesses in having their statements recorded mentioned specific dates and amounts in respect of the money paid in cash by the assessee to Shri Vijay Sehgal and subsequent statements resiling from the said stand were not valid in the eyes of law.
(d) The two witnesses were responsible persons and it had to be seen in this respect as to why they should make initial statements about a particular state of affairs and which were subsequently resiled. The resiling was done under the influence of the assessee.
(e) Shri Vijay Sehgal did not have any substantial income in the past assessment years and it was only in asst. yr. 1995-96 that it reached Rs. 50 lakhs and odd and there were huge investments.
(f) The payment of the balance amount after the date of search was neither here nor there and this was shown only with a view to overcome the adverse view, which the Department had taken/would take.
39. In conclusion, it was urged that the view expressed by the learned JM be approved.
40. In reply, the learned counsel for the assessee laid stress on the following ;
(1) In her preliminary statement, the assessee was not asked about the amounts paid.
(2) Although there were two agreements found during the course of search, it was only the agreement, which was acted upon by the parties that was to be treated as effective.
(3) No receipts were found during the course of search and which would have been available in case the cash had actually changed hands between the assessee and Shri Vijay Sehgal prior to the date of search.
(4) In case Shri Vijay Sehgal had shown less income in earlier years, then the assessee could not be faulted with and a third person's assessment could not prejudice that of the assessee.
(5) That even a newspaper report could not be treated as evidence since it was hearsay and evidence of any type had to be supported by documentary evidence, (6) Shri Y.P. Mittal and Shri Shital Vij were the two witnesses of the Department whom the assessee had not cross-examined and they were witnesses only to the document and not to the passing of money.
41. In support of the various arguments advanced, the assessee's counsel relied on the following judgments :
(i) Rishab Kumar Jain v. Asstt. CIT (1999) 63 TTJ (Del) 236:
(ii) John Tinson & Co. (P) Ltd. and Ors. v. Mrs. Surjeet Malhan and Anr. AIR 1997 SC 1411;
(iii) State of West Bengal and Ors. v. Md. Khalil (2000) 4 SCO 584;
(iv) Laliteshwar Prasad v. Bateshwar Prasad AIR 1956 SC 580;
(v) R.K. Syal v. Asstt. CIT (2000) 66 TTJ (Chd) 658;
(vi) Smt Neena Syal v. Asstt. CIT (2000) 69 TTJ (Chd) 516 : (1999) 70 ITD 82 (Chd);
(vii) Udeyraja Goliya (HUF) v. Asstt. CIT (1998) 64 ITD 21 (Bom)(TM);
(viii) CIT v. Smt P.K. Noorjahan (1989) 237 ITR 570 (SC);
(ix) Satpal Pandit & Co. v. Asstt. CIT (1998) 61 TTJ (Asr) (TM) 602 : (2000) 244 ITR 160 (AT);
(x) Sheo Narain Duli Chand v. CIT (1969) 72 ITR 786 (All);
(xi) Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC); and
(xii) Umacharan Shaw & Bros. v. CIT (1959) 37 ITR 271 (SC).
42. I have considered the rival submissions and also perused the separate orders passed by the learned Members constituting the Division Bench. The decisions cited at the Bar have also been considered.
43. As rightly observed by the learned AM, the main basis for the addition on the part of the AO were the statements of Shri Y.P. Mittal and Shri Shital Vij recorded on 13th Dec., 1995, i.e., the date of search. Subsequently, however, they were resiled from at the assessment stage. The position of law is absolutely clear on the resiling by a witness from an earlier statement i.e., it has to be for goods reason. In the second statement, both the witnesses categorically stated that they were not witness to any money being paid in cash over and above the cheque payment aggregating Rs. 10 lakhs and odd. Both of them accepted that what they had stated at the time of search was based on hearsay. There is also the mention of consultations between the two witnesses on 13th Dec., 1995, probably on phone before making a statement before the AO.
44. On the aforesaid facts, it clearly emerges that Shri Y.P. Mittal and Shri Shital Vij were only witnesses to the two agreements which in fact were found from the premises of Shri Y.P. Mittal and not the assessee and neither of them saw with their own eyes the alleged payment of substantial cash by the assessee to Shri Vijay Sehgal.
45. Another undisputed fact is that subsequent to the date of search, the entire balance amount of Rs. 90,93,600 was paid by the assessee to Shri Vijay Sehgal by cheques beginning 24th Feb., 1996, and ending 30th Sept., 1997, and other than mere suspicion there is no evidence with the Department to show/prove that this amount came back to the assessee either in cash or by another mode.
46. It must be appreciated that out of the total shares, which were the subject-matter of the agreement, 1,320 were held by Shri Vijay Sehgal and 3,732 shares were to be inherited by him subject to the disposal of the matter before the Hon'ble Punjab & Haryana High Court. It is a valid argument on the part of the assessee that the entire sale consideration of Rs. 1,01,04,000 could not have been parted with prior to the date of search and without Shri Vijay Sehgal becoming the owner of 3,732 shares. It has been noted by me that the Hon'ble High Court delivered its judgment on 2nd Feb., 1996, and the payment by cheques to Shri Vijay Sehgal by the assessee commenced soon thereafter i.e., on 24th Feb., 1996.
47. Much has been made by the Revenue of the tax assessment of Shri Vijay Sehgal at a huge amount and substantial investments/assets found during the search. No nexus has been established between any alleged outgoing from the assessee and such assets and observations by the tax authorities are clearly in the realm of suspicion.
48. It is also an accepted fact that no incriminating material or undisclosed assets were found from the premises of the assessee during the search.
49. The AO speaks of "total absence of mutual trust" between the various groups of shareholders and one really wonders whether a conclusion can then be drawn that the total amount of Rs. 1 crore was paid even prior to the date of the total 5,052 shares being transmitted to the assessee.
50. Another important fact which requires to be highlighted is that in case a huge amount of cash had changed hands between the assessee and Shri Vijay Sehgal prior to the search then at least some evidence in the form of receipts or notings would have emerged during the search at one or the other of the premises searched including those of the witnesses or even Shri Vijay Sehgal but nothing was found.
51. Another valid agreement raised before me and which is a plausible one, is that in case the assets found during the search at Vijay Sehgal's premises were related to the alleged cash payment made for the shares then this should have been categorically stated so by Shri Vijay Sehgal and he should have sought to assail the proposed addition in his hands on this ground itself.
52. It must be emphasised that in a case of the present type a single fact by itself or some of them may raise a doubt and a possible inference against an assessee but then it is necessary to consider/examine all the facts together and then reach a conclusion. Unless there is a cogent evidence with the Department and this is a search case to which Chapter XIV-B applies, no addition can be made on surmises, conjectures and suspicion ignoring in the process the evidence on record in favour of the assessee or the lack of evidence to support the Revenue's case. The Department lays much stress on the two agreements and the statements of the two witnesses but the important aspect is that no receipts showing any cash payments and that also of a huge amount were found at the time of search when even receipts showing cheque payments of Rs. 10 lakhs and odd were found.
53. In the final analysis, I opine that considering the totality of the facts and circumstances of the case, no addition whatsoever was called for and the decision of the learned AM to delete the same was in order. The matter may be listed before the Division Bench for passing an order in accordance with the majority opinion.