Calcutta High Court
Principal Commissioner Of Income ... vs Ram Ratan Modi on 13 April, 2023
ITAT NO. 157 OF 2022
REPORTABLE
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
RESERVED ON: 03.04.2023
DELIVERED ON:13.04.2023
CORAM:
THE HON'BLE MR. ACTING CHIEF JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE HIRANMAY BHATTACHARYYA
ITAT/157/2022
(IA NO: GA/02/2022)
PRINCIPAL COMMISSIONER OF INCOME TAX-2, KOLKATA
VERSUS
RAM RATAN MODI
Appearance:-
Mr. Om Narain Rai, Senior Advocate.
Mr. Amit Sharma, Advocate.
.....For the Appellant.
Mr. J.P. Khaitan, Senior Advocate.
Mr. Asim Chowdhury, Advocate.
Mr. Soham Sen, Advocate.
.....For the Respondent.
Page 1 of 16
ITAT NO. 157 OF 2022
REPORTABLE
JUDGMENT
(Judgment of the Court was delivered by T.S.SIVAGNANAM, ACJ.)
1. This appeal filed by the revenue under Section 260A of the Income Tax
Act, 1961 (the Act) is directed against the order dated 27.08.2021 passed by
the Income Tax Appellate Tribunal "C" Bench, Kolkata (tribunal) in I.T.(SS).A
No. 10/Kol/2002 for the block period 01.04.1986 to 27.08.1996. The
revenue has raised the following substantial questions of law for
consideration:
1) Whether the Hon'ble Tribunal while setting aside the
Second assessment order, was justified in negating
and/or countering the findings of the Second Assessing
Officer with that of the First Assessing Officer.
2) Whether the Hon'ble Tribunal was justified in replacing
the opinion of the second assessing officer regarding
withdrawal of cash from the bank accounts of M/s. Kalo
Engineering Works and M/s. Pragati Engineering
Company with its own opinion without mentioning the
facts leading to such conclusion.
2. We have heard Mr. Om Narain Rai, learned senior standing counsel
assisted by Mr. Amit Sharma, learned standing counsel for the appellants
and Mr. J.P. Khaitan, learned senior advocate assisted by Mr. Asim
Chowdhury and Mr. Soham Sen, learned advocates appearing for the
respondent assessee.
3. The facts which are necessary for considering the substantial questions
of law suggested by the revenue are set out as hereunder:
4. A search was conducted during 1996 on the group of M/s. Shaw
Wallace and Company Limited (Shaw Wallace) and also on the respondent
assessee as well. Pursuant to the search, the original block assessment
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under Section 158BC of the Act was completed on 27.02.1998 making an
addition of Rs. 11.86 crores on protective basis. The addition was made on
the ground that the assessee had withdrawn cash from two bank accounts
of M/s. Pragati Engineering Limited (PEL) and M/s. Kalo Engineering Works
Limited (KEW) and the same was treated as undisclosed income of the
assessee and accordingly, addition was made on protective basis. The
assessee challenged the said assessment order before the tribunal and by
order dated 08.10.1999, the tribunal set aside the block assessment order
and directed the assessing officers to examine the facts of the case once
more after allowing the assessee an opportunity of being heard and also to
take it into consideration further developments in the block assessment, of
Shaw Wallace and thereafter to come up with a fresh assessment order in
the case of the assessee. Pursuant to the order passed by the tribunal,
reassessment was completed and second block assessment order dated
27.03.2002 was passed making substantive addition of Rs. 12.41 crores as
undisclosed income on the ground of credit entries/cheques deposited in
two bank accounts of the PEL and KEW. The assessee assailed the
correctness of the order by filing an appeal before the tribunal contending
that the assessing officer committed an error in making substantive addition
in the reassessment on a new issue which was not subject to the
assessment which was set aside by the tribunal by order dated 08.10.1999
and such new addition in the reassessment is void in law and not
permissible. It was further contended that the assessing officer committed
an error in changing the findings given by his predecessor in the original
block assessment especially in the absence of any fresh material or evidence
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and it is a case of change of opinion. Further the assessing officer committed
a serious error in making the addition by ignoring findings of the assessing
officer in the original assessment with regard to the source of deposit in two
bank accounts were from Shaw Wallace and also erred in ignoring the
findings of the ADIT(Investigation). Further it was contended that the
assessing officer on one side made addition and on the other has rendered
the finding that Shaw Wallace had siphoned off in cash through dubious
methods in league with several persons. This will clearly show that the
money does not belong to the assessee and belongs to Shaw Wallace and
source of deposit in two bank accounts stands well explained. The tribunal
by order dated 31.03.2005 dismissed the appeal. The assessee challenged
the order before this Court in ITA No. 170 of 2005. The said appeal was
disposed of by the judgment dated 11.03.2020 holding that the tribunal in
its order dated 31.03.2005 has not addressed the issues which have been
pointed out by the assessee and they should have been dealt with in
accordance with the earlier order of the tribunal dated 08.10.1999 for such
reasons, the order passed by the tribunal dated 31.03.2005 was set aside
and the tribunal was directed to re-determined the appeal as expeditiously
as possible. Pursuant to which the tribunal took up the matter and by the
impugned order allowed the appeal. Aggrieved by the same, the revenue has
preferred the present appeal.
5. On behalf of the revenue, it is argued that the tribunal failed to
appreciate that the failure of the assessee to explain the purpose, reason
and basis of the withdrawal of Rs. 11.86 crores satisfactory clearly
establishes that it was the assessee's income and the assessee had not
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disclosed the same and was rightly added by the assessing officer; the
tribunal failed to appreciate that the assessee's version that the sale
proceeds of undisclosed shares had been deposited in the two bank
accounts standing in the name of PEL and KEW were not established in as
much as the records reveal that the money in the accounts of the said two
entities had come from the account of N.C Jain and P.L. Mittal which in
turn had gone it to the accounts of the said two persons from Shaw Wallace;
the tribunal failed to consider that the assessee has not been able to prove
that the credits in the two bank accounts of PEL and KEW had come from
Shaw Wallace and its subsidiaries through bank accounts of the two
persons and thus cheques deposited in the two bank accounts of the two
entities aggregating to Rs. 12,41,00,000/-being unexplained deserves to be
treated as undisclosed income of the assessee; the tribunal failed to
appreciate that the observation of the tribunal in the first round of litigation
to the effect that the assessing officer would examine the facts of the case
once more after allowing the assessee an opportunity of being heard and
also to take into consideration the further developments in the block
assessment and thereafter to come up with a fresh assessment order, had
attained finality and in the instant case the assessing officer has indeed
done that which was required of it to be done; the tribunal failed to
appreciate that when by the first order dated 08.10.1999 passed by the
tribunal, direction was given to the assessing officer to make a fresh
assessment by examining the facts of the case once more after taking into
consideration further developments in the block assessment of Shaw
Wallace and to pass a fresh assessment order which tantamount to directing
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the assessing officer to form an opinion without being influenced by the
opinion of the first assessing officer, therefore it could not be held that the
second assessing officer did not enjoy the jurisdiction to make an addition
substantially. It was further submitted that the tribunal was not justified in
deleting the addition made by the second assessing officer without
considering the additional facts brought on record by him; that the tribunal
has not dealt with the issues indicated in the order dated 11.03.2020
passed by this Court in ITA No. 170 of 2005 in the manner they ought to
have been dealt with and therefore the order passed by the tribunal is liable
to be set aside.
6. The learned senior counsel appearing on behalf of the respondent
assessee referred to the certain portion of the assessment order dated
27.02.1998 wherein there is a reference with regard to the findings
pursuant to the investigation done by ADIT (Investigation) wherein it has
been stated that the money coming through N.C. Jain and P.L. Mittal has
come from Shaw Wallace or its subsidiaries and after mentioning the same,
the assessee was asked to substantiate their claim with evidence that the
credit entries in the two bank accounts are sale proceeds of undisclosed
shares as claimed by the assessee in their letters dated 28.12.1996 and
18.02.1998. Further the assessing officer has referred to the contents of the
letter of the assessee dated 28.12.1996 wherein he had stated that the
assessee had invested out of his undisclosed income in the share
applications made in the financial year 1989-1990 and 1990-1991. Further
there is reference to the assessee's statement dated 18.02.1998 stating that
he had retained the amount of Rs. 186 lakhs out of net cash withdrawals of
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Rs. 1180 lakhs and the balance Rs. 1000 lakhs was returned back in cash
to the nominees of Shaw Wallace. Therefore, the facts clearly establishes
that there is no linkage of the assessee's undisclosed income as disclosed in
the block return and the transactions in the bank account of PEL and KEW
and the transactions in these two bank accounts are independent of the
disclosure made by the assessee in the block return. Further it was stated
that as discussed in the block assessment order dated 28.11.1997 in the
case of Shaw Wallace, the two bank accounts having utilized siphoned of
funds by Shaw Wallace in league with the assessee and that Shaw Wallace
has disputed the said findings and has preferred appeal before the tribunal.
With these observations, the assessment in respect of the assessee was
completed on protective basis. Further by referring to the second
assessment order dated 27.03.2002, it is pointed out that setting aside the
block assessment in the case of Shaw Wallace has already been completed
on 30.03.2000 and the findings in the original block assessment in respect
of the said matter remains unaltered and the appeal filed by the Shaw
Wallace against the said order is pending before the tribunal.
7. Now we are required to see as to whether the tribunal was justified in
allowing the appeal filed by the assessee and setting aside the order passed
by the assessing officer dated 27.03.2005 for the block period from
01.04.1986 to 27.08.1996. The learned tribunal has elaborately set out the
facts and we find that there are repetitions at various places and it became a
little difficult for us to cull out the reasons assigned by the tribunal for
allowing the appeal. After hearing the elaborate submissions made by the
learned advocates on either side and on careful consideration of the order
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passed by the tribunal, we are of the view that the learned tribunal was
right in allowing the assessee's appeal. We support such conclusion with the
following reasons:-
8. In the first order of the tribunal dated 18.10.1999, the original block
assessment order was set aside by rendering the following findings:
"3. It has been learnt that the tribunal has set aside the
block assessment order in the case of SWC and has
directed the AO to reassess the same in the light of an
order passed by the Calcutta High Court in the writ
petition filed by SWC in W.P No. 11982/7/1999 relating
to the block assessment and also regular assessments
for the relevant period. Since the assessment in which the
addition of Rs. 1186 lakhs has been made in a
substantive manner itself stands set aside for reframing
purpose, in fitness of things the addition of the amount in
the hands of the present assessee also on a protective
basis should required a fresh examination. We therefore,
set aside the impugned block assessment and direct the
AO to examine the facts of the case once more after
allowing the assessee an opportunity of being heard and
also to take into consideration the further developments
in the block assessment and thereafter to come up with a
fresh assessment order in the case of the assessee"
(emphasis given by us)
9. The reasons for the tribunal to issue the abovementioned direction was
because the assessing officer in the original block assessment made in the
year 1998 has made substantive addition of Rs. 11.86 crores in the hands of
Shaw Wallace and since the case of Shaw Wallace has been remanded back
to the assessing officer for reframing the block assessment and other
assessments, the addition made on the assessee was on protective basis.
The tribunal took note of the fact that this court had set aside the block
assessment/regular assessment in the case of Shaw Wallace and directed
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fresh assessment to be made. Therefore, the tribunal thought fit to set aside
the assessment made on the assessee and remand back the matter to the
assessing officer for fresh assessment with a direction to take into
consideration further developments in the block assessment of Shaw
Wallace. Thus, the substantive addition of Rs. 11.86 crores made on Shaw
Wallace had already been set aside and the assessing officer while
reassessing the case of the respondent assessee has to look for further
developments in the reassessment of Shaw Wallace and then has to consider
while making fresh assessment on the assessee. Thus, the tribunal rightly
posed a question to itself that it is required to examine whether there was
any further developments in the case of Shaw Wallace and noted that this
question has been answered by the second assessment order passed in the
year 2002 wherein it has been observed that the set aside block assessment
in the case of Shaw Wallace has already been completed on 30.03.2000 and
findings in the original block assessment in respect of the above matter
remains unaltered meaning thereby no addition or deduction/deletion has
been made in the addition made in the hands of Shaw Wallace and the
original assessment order in the case of Shaw Wallace has been followed
and reiterated in the second block assessment order dated 30.03.2000.
Thus, it became clear that no addition has been made by the assessing
officer in the reassessment of the block period in the case of Shaw Wallace.
Therefore, the tribunal noted that this fact has to be considered by the
assessing officer as per the direction issued by the tribunal and thereafter to
come up with a fresh assessment order in the case of the respondent
assessee. The second assessing officer had admitted that there is no
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alteration in the hands of the Shaw Wallace meaning thereby that there is
no addition or deduction and therefore the tribunal, in our view rightly came
to the conclusion that when there was no change in the reassessment order
in the case of Shaw Wallace taking note of the direction issued by the
tribunal in the order passed in the year 1999, the assessing officer in the
second reassessment proceedings could not have disturbed the findings
rendered in the original block assessment order passed in the year 1998 in
the assessee's case as it would tantamount to second assessing officer
reviewing his own order which power is not vested with him. At this stage,
the tribunal rightly took note of the observation passed by this court in ITA
No. 170 of 2005 dated 11.03.2020 which is to the following effect:
The Court: By an order of the tribunal dated 8th October,
1999, the appeal of the assessee was partly allowed by setting
aside the impugned block assessment directing the assessing
officer to examine the facts of the case once more after hearing the
assessee, taking into account "further developments in the block
assessment" and made a fresh assessment order.
Rs. 11.86 lakhs were added to the account to the assessee
on a "protective basis". This protective addition was made in
connection with a block assessment order made in the case of
Shaw Wallace and Co. Ltd. (SWC) where these additions were
made in a "substantive manner". According to the tribunal, since
this substantive addition had been set aside and remanded, the
case of the assessee required a re-look.
The remand was thus very limited.
10. From the above judgment and order, it is clear that the remand was
for a very limited purpose and therefore, the second assessing officer in the
reassessment proceedings could not have altered the protective assessment
made to the tune of Rs. 11.86 crores on the respondent assessee as there is
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no change or development in the findings recorded in the second block
assessment order of Shaw Wallace. Therefore, the tribunal was right in
holding that the second reassessment order was vitiated as it exceeded the
specific direction given by the tribunal. We find that the following finding on
facts rendered by the tribunal was fully justified:
Firstly, this finding is contrary to the AO's original
assessment order because in the first round, the protective
assessment was made in the hands of the assessee
because substantive assessment was made in the hands of
M/s. SWC and, secondly, the Tribunal in its First Order of
1999 (dated 08.10.1999) has categorically made a finding
of fact in its own words "It has been learnt that the Tribunal
has set aside the block assessment order in the case of
SWC and has directed the AO to reassess the same in the
light of an order passed by the Calcutta High Court in the
writ petition filed by SWC in WP No. 11982/7/1999 relating
to the block assessment and also regular assessments for
the relevant period. Since the assessment in which the
addition of Rs. 11.86 lakhs has been made in a substantive
manner itself stands set aside for re-framing purpose, in
fitness of things the addition of the amount in the hands of
the present assessee also on protective basis should require
a fresh examination. We therefore, set aside the impugned
block assessment and direct the AO to examine the facts of
the case once fore after allowing the assessee an
opportunity of being heard, and also to take into
consideration the further developments in the block
assessment and thereafter to come up with a fresh
assessment order in the case of the assessee". This finding
of fact as found by the First Tribunal order of 1999 that
substantive assessment of Rs. 11.86 cr has been made in
the hands of M/s. SWC and protective assessment of it is
made in the hand of assessee has not been challenged by
the Revenue/AO before the Hon'ble High Court or any
application/Miscellaneous application was filed by the
Revenue/AO before this Tribunal to rectify if any mistake of
fact/law existed, so it becomes final. Thirdly, even the
second AO on one hand says that in the set aside
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proceeding of M/s. SWC reassessment was framed without
any alteration. So the question is that if there was no
substantive assessment/addition of Rs. 11.86 crores in the
hands of M/s. SWC in the second block assessment of M/s.
SWC then the same amount would have been reduced to
that extent, from the second/block reassessment order of
30.03.2000 in the case of M/s. SWC which is not the case
of the Second AO and so the finding of AO is per se
contradictory and in this context the Ld. A.R. explained that
in the case of M/s. SWC in the first round the AO noted that
M/s. SWC has deposited Rs. 89.2 crores to take over six (6)
Gauhati companies and had deposited money in the
accounts of Shri N.C. Jain and Shri P.K. Mittal and
intermediers: meaning thereby that money transferred by
M/s. SWC to Shri N.C. Jain and Shri P.K. Mittal and then
transferred to M/s. Kalo and M/s. Pragati which were
benamidars,/entities have been taxed substantively in the
hands of M/s. SWC and according to him this fact is evident
from a perusl of the impugned order at page 11/77 of the
paper book the second AO has noted that "Besides in the
case of SWCL............In that case on the basis of
investigations it was revealed that the fund of SWCL to the
tune of Rs. 89.02 crores out of ICDSs of Rs. 219.77 crores
utilized for acquisition of six Gauhati based companies was
held to be for non-business purpose as the money was
siphoned off in cash through dubious methods in league
with several persons including the assessee and
accordingly interest on ICDs totaling Rs. 67.65 crores was
disallowed." From the aforesaid finding of second SO, we
note that while he perused the block assessment order of
M/s. SWC he found that Rs. 89.02 crores was given by it
(M/s. SWC) to acquire six (6) Gauhati companies which was
from ICDS of Rs. 219.77 crores and since the money (Rs.
89.02 crores) was utilized for non-business purpose, the AO
disallowed interest expenditures to the tune of Rs. 67.65
crores in the case of M/s. SWC. From this discussion we
note that in the block assessment order of M/s SWC it was
found that M/s. SWC had transferred through several
persons/entities including the assessee Rs. 89.02 crores for
acquiring six (6) Gauhati based companies and this amount
(Rs. 89.02 crores) was from ICDS of Rs. 219.77 crores and
therefore the AO in the case of M/s. SWC disallowed the
interest expenditure to the tune of Rs. 67.65 crores on the
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reason that amount of Rs. 89.02 crores was utilized for non-
business purpose and we note that for these precise
reasons that no substantial addition was made in the
hands of the assessee because the entire money which has
come to the kitty of assessee either as credit entry or
withdrawal are from/for M/s. SWC. For this reason only the
First AO made addition on the assessee only on protective
basis.
11. The learned tribunal not stopping with the above conclusion
examined the merits of the addition to the tune of Rs. 12.41 crores on the
ground that the credit to the bank account of N.C. Jain and P.L. Mittal has
not been proved by the assessee. Though the assessing officer noted that the
assessee has filed bank statement, chart, statement recorded under Section
131 of the Act, evidencing transfer of money from Shaw Wallace its
subsidiaries to the bank accounts of N.C. Jain and P.L. Mittal, held that the
documents produced by the assessee does not show whether the money
came from Shaw Wallace and its subsidiaries and the same was given to two
concerns namely PEL and KEC. The tribunal after considering the facts as
well as the documents which was part of the assessment records held that
the assessing officer failed to consider the matter on merits more
importantly the bank statement, charts and the statement recorded by the
investigation team immediately after search under Section 131 of the Act in
the year 1998 to make the addition of Rs. 12.41 crores. The tribunal noted
that pursuant to the show cause notice issued by the assessing officer the
assessee submitted a further chart to show that money came to the bank
accounts of PEL and KEW from Shaw Wallace through bank accounts of
N.C. Jain and P.L. Mittal. The tribunal also noted that the assessing officer
has not pointed out any infirmity in the flow chart and the statement of the
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assessee which was recorded by the investigating wing under Section 131 of
the Act as early as on 18.02.1998, and faulted the assessing officer for
having outrightly rejected on spacious plea. The tribunal also faulted second
assessing officer in not cross verifying the claim that the bank statement
from the Syndicate Bank obtaining from those bank accounts which could
have been easily be done. Furthermore the tribunal noted that the
documents produced by the assessee clearly show that the money came to
the account of PEL and KEW from Shaw Wallace through bank account of
N.C. Jain and P.L. Mittal through cheques. After rejecting the findings of the
second assessing officer to be spacious plea, the tribunal took upon itself an
exercise of examining as to the correctness of the claim made by the
assessee to prove the source of money coming from Shaw Wallace. It was
held by the tribunal that in the original block assessment order of 1998, the
assessing officer after noting that in the bank account of PEL and KEW as
money deposited are from Shaw Wallace through P.L. Mittal and N.C. Jain
and P.L. Mittal subsidiary of Shaw Wallace and the first assessing officer
had noted the following facts:-
1) M/s. Pragati Engineering Company
N.C. Jain (A/c No. 4882 Syndicate Rs. 345 lakhs
Bank Brabourne Rd.,
Branch, Calcutta)
P.L. Mittal (A/c No. 4915 Syndicate Rs. 235 lakhs
Bank Brabourne Rd.,
Branch, Calcutta
M/s. Dunlop India Rs. 200 lakhs
Limited
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M/s. Kalo Engineering Works
N.C. Jain (A/c No. 4882 Syndicate Rs. 230 lakhs
Bank Brabourne Rd.,
Branch, Calcutta)
P.L. Mittal (A/c No. 4915 Syndicate Rs. 422 lakhs
Bank Brabourne Rd.,
Branch, Calcutta
M/s. Dunlop India Rs. 275 lakhs
Limited
12. After taking note of these facts, the tribunal held that this being the
reason that in the first assessment order, the assessment in the case of the
respondent assessee was on protective basis. In paragraph 21 of the order
passed by the tribunal elaborate exercise has been done by the tribunal to
examine the details produced by the assessee to return a finding of fact that
the money has been transferred to the two entities are from the bank
accounts of the two said persons. Thus, the tribunal rightly concluded that
the protective assessment was not warranted in the hands of the assessee
because the assessee has been able to discharge the onus for showing the
nature and source of credit entries in the bank account of KEW, PEL as well
as, in the bank accounts of N.C. Jain and P.L. Mittal which in turn are
sourced from Shaw Wallace and its subsidiaries and it is evident that the
source of money for Shaw Wallace and subsidiaries was in turn from ICDS
which promoted the assessing officer to disallow in the hands of Shaw
Wallace interest expenditure to the tune of Rs. 67.65 crores and therefore
the addition to the tune of Rs. 12.41 crores made in respect of credit entities
in the bank accounts of the two entries are unjustified and rightly directed
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the same to be deleted. Thus, we find that the tribunal after verifying and
examining the factual position has granted relief to the assessee and the
revenue has failed to make out a case to set aside the order passed by the
tribunal.
13. For all the above reason, the appeal filed by the revenue is dismissed
and the substantial questions of law are answered against the revenue.
(T.S. SIVAGNANAM)
ACTING CHIEF JUSTICE
I Agree.
(HIRANMAY BHATTACHARYYA, J.)
(P.A- SACHIN)
