Delhi High Court

Alok Agarwal vs Deputy Commissioner Of Income Tax on 8 October, 1998

Equivalent citations: (2000) 67 TTJ Del 109

ORDER

Miss Moksh Mahajan, A.M.

The assessee filed an appeal against the order passed under section 158BC/143(3) of the Income Tax Act. The grounds of appeal as raised originally were revised subsequently which read as under :

"(1) That, on the facts and in the circumstances of the case, the Deputy Commissioner was not correct in law in determining a total aggregate income of Rs. 25,50,69,506 as undisclosed income of the appellant for the block period as against nil income returned as undisclosed income, as summarised below:

Head wise Addition

Aggregate amount of un dislcosed income

Assessment years

Reference in assessing officers order

Rs.

(i) Other valuable assets (shares)

2,84,29,400

80-90 & 92-93 to 96-97

Para (D) on p.9 to 1st para on p. 11 read with Annexure A

(ii) Bogus share holdings

5,42,21,070

91-92 to 96-97

Last para on p. 22 to lst para on p. 30 read with Annexure D.

(iii) Loans advanced by various Companies/firms

1,40,71,250

92-93 to 94-95 & 95-96

Paras 14 & 16 on pp. 38 and 39

(iv) Consolidated undisclosed income of various companies

8,91,86,382

89-90 to 96-97

Pages Nos. 30 to 43 read with Annexure E.

(v) Sales made by B.P. Marketing Ltd.

86,90,314

93-94 & 94-95

Para 9 on page 34 and subsequent Paras on p. 35

(vi) Aggregate of Bank deposits/credits in bank accounts of the members of appellant and others in Benaras State Bank Ltd.

1,39,16,170

87-88 to 96-97

Running 1st para on p. 21 read with Annexure B-2

(vii) Aggregate of deposit in respective bank accounts of unaccounted a/c holders, being clients of the appellant.

2,25,31,068

91-92 to 96-97

Para (G) on pp. 19, 20 and 21 read with Annexure (B-3) and (B-4)

(viii) Aggregate of deposits/credits in bank account of one Sh. Mukesh Gupta.

80,75,145

94-95 & 95-96

Last para on page 20 and subsequent paras on p. 21

(ix) Loan advanced by B.P. Marketing (P.) Ltd.

15,00,000

94-95

On p. 34

(x) Undisclosed investment in various immovable properties not owned by the appellant.

85,29,890

89-90, 94-95 to 96-97

Para (F) on page No. 11 to para (G) on p. 19

(xi) Cash advanced

4,00,000

92-93 & 93-94

Page No. 21 para (H)

(xii) Commissioner of Lahar Chemical

9,75,000

95-96

Page 36 para (12)

(xiii) Unexplained investment in the name of children

20,00,000

96-97

Page 6 para C(ii)

(xiv) Undisclosed children savings

20,00,000

97-98

Page 8 para C(iii)

(xv) "VB" treating balances in Vijay Bank

2,00,000

97-98

Page 6 para C(i)

(xvi) Unexplained cash

42,350

97-98

Page 3 para (A)

(xvii) Unexplained investment in diamond

1,44,365

97-98

Page 5 para (d) of para (B)

(xviii) Unexplained investment in jewellery

57,102

97-98

Page 5 para (c) of para (B)

(xix) Unexplained investment in silver

1,00,000

97-98

Page 5 para (e) of para (B)

Total

25,50,69,506

(2) That without prejudice to the generality of the aforesaid grounds, all and every addition made in the impugned assessment as undisclosed income of the appellant is vitiated in law on, inter alia, one or more of such grounds, as lack of jurisdiction, want of authority of law, lack of evidence, lack of proper opportunity to the appellant to adduce evidence to prove his case and failure on the part of the assessing officer to discharge his burden of proof.

(3) That consequently, the total demand of tax of Rs. 15,30,41,703 determined by the impugned block assessment against the appellant is bad, illegal, untenable and at any rate, without prejudice, very excessive.

Various observations made by the learned assessing officer in the impugned assessment order are either incorrect or untenable.

Statement of Facts are attached as Annexure "A".

(4) That without prejudice to the above grounds, various additions as made by the learned assessing officer overlap each other, also amounting to double assessment not permissible under the law, principles of telescoping ought not to have been ignored.

2. The assessee has also sought permission to raise additional grounds of appeal vide letter dt 23-7-1998. These grounds read as under:

"That the impugned block assessment order dt. 30-5-1997 as passed by the learned Deputy Commissioner Special Range 13, New Delhi is arbitrary, illegal and void inter alia because:

(a) The learned Commissioner X Delhi had given his approval mechanically and without applying his mind independently,

(b) The learned Commissioner X Delhi had not afforded an opportunity of being heard to the appellant before giving his approval.

3. The assessee also filed application under rule 29 of the Income Tax Appellate Rules for admission of additional evidence which reads as under:

"Most respectfully submitted that the following fresh evidence is being filed in the paper book :

Sr. No.

Nature of documents

Page Nos. of paper book

Affidavits from the directors/promoters

(a) Shri Shanti Kr. Agarwal, Garg Polymers (P) Ltd

289-292

(b) Sh. Ashok Kumar Aggarwal, G.P.K. Marketing

293-295

296-301

(d) Sh Adesh Goel, Prathistha Images (P) Ltd.

302-304

(e) Sh. Manoj Tayal, B.P. Marketing Ltd.

305-309

(f) Sh. Shyam Sunder Garg, Leher Chemicals (P) Ltd.

310-312

(g) Sh. Praveen Chandra, Sital Developers

313-314

(h) Sh. Vijay Singh, Indradhan Agro Products Ltd.

315-319

(i) Sh. Umesh Kumar Shukla, Real Overseas (P) Ltd.

320-322

(j) Sh. Tarun Kumar Sahai, Trousseau Overseas (P) Ltd.

323-324

(k) Sh. Pradeep Aggarwal, Parul Poly Products (P) Ltd.

325-326

(l) Sh. Mukesh Gupta, Nagpal Cans (P) Ltd.

327-329

(m) Sh. Mukesh Gupta, Nagpal Drugs (P) Ltd.

330-332

(n) Sh. Rajbir Singh Makhni, Rush Chemicals (P) Ltd.

333-335

(o) Sh. R.P. Aggarwal, Excellent Securities (P) Ltd.

336-338

(p) Sh. Pankaj Agarwal, Akriti Media (P) Ltd.

339-343

Statement showing the transactions of sales and purchases of B.P. Marketing Ltd. result in profit and not in loss as assumed by the learned assessing officer.

22.

(To be filed in the supplementary paper book) Affidavits from common representatives of group of account-holders whose blank cheque books/bank pass books were found as named below.

(a) Sh. Manoj Aggarwal

1662-1663

(b) Sh. Rajbir Singh Makhani

1664-1665

1666-1667

(d) Sh. Krishan Kumar

1668-1669

23.

Affidavit from promotorer/director Sh. Manoj Tayal of M/s B.P. Marketing Ltd.

305-309

31.

Affidavit of Sh. Alok Aggarwal on behalf of his HUF

1801-1802

2. The above evidence deserves to be entertained, inter alia, because:

(i) This is the first appeal before the Honble Tribunal against block assessment order.

(ii) The assessee was prevented by sufficient cause from filing the above evidence before the learned assessing officer because either he failed to summon various persons even though the assessee had specifically requested him to do so, or he had recorded some statements behind the back of the assessee without giving him opportunity of cross-examination.

(iii) The above evidence goes to the root of the matter."

4. Since the additional grounds as well the additional evidence to be admitted are intimately connected with the specific grounds taken in respect of the lack of proper opportunity allowed to the assessee, we would first advert to the aforesaid issue before coming to the admission of the additional ground and the additional evidence. Shri O.P. Sapra who appeared on behalf of the assessee., submitted that the assessee is a qualified chartered accountant. The firm was constituted under the name and style of Alok & Co. wherein he was one of the partners. The other partners were stated to be qualified chartered accountants. Along with the aforesaid work the assessee also executed various professional assignments for corporate and non-corporate clients. This included various companies as also the concerns promoted by the relatives and the friends. Since a few concerns were managed by the persons who were inexperienced the assessee rendered assistance relating to the management and the carrying on of his business affairs. In 1991 the family concern was formed known as M/S Alankit Assignments (P) Ltd. This was promoted by the relatives and friends of the assessee. He became director of the aforesaid company. The company raised share capital from the year 1991 to 1996 and in the financial year 1995-96, the scope of the activities was enlarged. Searches were conducted on the business premises of the assessee at 234, Cycle Market, Jhandewalan Extension and 205, 206, 204, 245 & 1003, Anarkali Market, Jhandewalan Extension, New Delhi. The residential premises of the assessee were also searched and certain documents and the account books as well the records of other companies were seized. From the date of search i.e., 19-4-1996, till 12-6-1996 the learned ADI recorded the statement of Shri Alok Agarwal and the records were with the Intelligence Wing of the department. Notice under section 158BC requiring the assessee to file the return for the block period from 1-4-1986, to 19-4-1996, was issued on 9-10-1996, in compliance to which the return for the block period was filed on 5-12-1996 declaring undisclosed income as Nil. Apart from the fact that the assessee had been requesting for supply of the photocopies of seized material from time to time, it had filed replies to all the questionnaires issued on the basis of material available with the assessee. A request was also made to issue notices under section 131 of the Act to the companies or shareholders which were to be examined in the context of income belonging to them or to the assessee. This was the main controversy which related to the addition made in various assessment years amounting to Rs. 19,45,98,302. The addition was made under the following heads:

Head wise addition

Aggregate amount of undisclosed income

Rs.

Assessment years

(1) Other valuable assets (shares)

2,84,29,400

89-90 & 92-93 to 96-97

(2) Bogus shareholdings

5,42,21,000

91-92 to 96-97

(3) Loans advanced by various companies/firms

1,40,71,206

92-93 to 94-95 & 95-96

(4) Consolidated undisclosed income of various companies

8,91,86,382

89-90 to 96-97

(5) Sales made by B.P. Marketing Ltd.

86,90314

93-94 & 94-95

Total

19,45,98,302

From the fact that the assessee was in possession of the account books/complete vouchers/statutory records of the companies for the current year as well as the earlier years, the conclusion was drawn that the income earned by these companies belonged to the assessee. The explanation that the companies had their separate registered offices and were independent entities in respect of which the assessments have been framed for the earlier assessment years was not accepted. The reasons given for bringing to tax the income of these companies in the hands of the assessee were that many of these companies had given the address of their registered office or premises as that of the assessee. Secondly the companies were controlled and managed by the promoters who were either dummy directors or the assessee himself, his wife or close relatives. The assessee failed to produce shareholders in these companies and no one was there at the addresses given in the share application forms and as per the statements recorded under section 131 of the Act. As per the inspector's report, the shareholders were not men of means. The fact that the share certificates of various companies were found at the premises of the assessee and the share as well the blank documents bearing signatures of the shareholders showing a receipt of shares clearly showed that these were benamidars of the assessee. The assessee refuted all the allegations as levelled against it. It was explained that the assessee rendered managerial assistance to these companies because they require it for which the fees were charged. Since they were in constant need of advice, for the purpose of convenience the registered office was given as that of the assessee's office. There was sufficient documentary evidence available other than the seized material and as brought to the notice of the assessing officer that the assessee was acting in his professional capacity for these companies. It is in this context that the affidavits of the promoters now placed are for admission under rule 29 of the Income Tax Rules. The companies were income-tax assessees and were on regular rolls of the department since their inception. These were independent corporate bodies which could be verified from the records of the department. The assessee was the auditor of the companies and was drawing remuneration from them. Audited balance sheet of all the 24 companies placed on record would show that the funds flowed from them and there was no evidence to show that usufruct was enjoyed by the assessee. As to the requirement of producing shareholders/directors the assessee brought to the notice of the assessing officer that it was not possible for him to comply with the request and as such notice under section 131 be issued to them. Copies of the statements of the directors/shareholders of various companies as recorded by the authorities were supplied to the assessee as late as on 20-5-1997. Asking for assessee's comments by 25-5-1997. The assessee made a request that he be allowed to cross-examine these witnesses whose statements were recorded at his back. Not only the same was not allowed perhaps for lack of time because the assessment was finalised on 30th May, 1997, the assessee could not effectively refute the allegations for want of time. The statements recorded at the back of the assessee could not be made use of as held by their Lordships in the case of Kishanchand Chellaram v. Commissioner (1980) 125 ITR 713 (SC). Furthermore as held by their Lordships of Allahabad High Court in the case of Nathu Ram Prem Chand v., Commissioner (1963) 49 ITR 561 (All) and in the case of EMC (Works) (P) Ltd. v. ITO (1963) 49 ITR 650 (All). The request made by the assessee for issue of summons, under section 131 has to be acceded to by the assessing officer. These statements could not be used against the assessee till he was allowed the opportunity to cross-examine them which otherwise would have also been allowed in order to meet the principles of natural justice. For this fact alone the assessment needs to be set aside. This is more so in case the statements of various parties as recorded are examined. The perusal of these statements would show that while few parties owned up the investment made out of their own sources which is the case of Narender Kumar Rajgaria, Smt. Sushila Saxena, Dinesh Narain, Manoj Aggarwal etc., Ms. Fariya Rizvi was a minor when an investment was made and as such it was her father Shri H.H.S. Rizvi who should have been examined instead of the assessee. From the statement of Shri Surender Garg it is clear that nowhere he mentioned that the money for purchase of shares came from the assessee. Shri Vinay Gupta on the other hand is an advocate and has funds to invest the money. The statements of other parties reflect similar position. As to the placement of share certificates in the premises of the assessee, the same were maintained in his professional capacity and as such no adverse inference could be drawn. The assessing officer brought no material on record to show that the usufruct of these companies was enjoyed by the assessee. In any case the question whether the income of these companies which are held to be benamidars of the assessee could be brought to tax in the hands of the assessee, has since been decided by the Tribunal in the case of Parakh Foods Ltd. v. Deputy Commissioner (1998) 64 ITD 397 (Pune-Trib). Apart from this while making the addition of Rs. 19 crores and odd, the assessing officer has not only made an addition on account of share capital money but also the investment made out of the same. In a process double addition has been made which needs to be examined.

5. Coming to the second addition while a sum of Rs. 78,95,380 has been added on account of bank accounts of the assessee's wife, his son and the HUF, the addition of Rs. 60,20,790 has been included in respect of credits/deposits of third parties not being related to the assessee. These are Ms. Fariya Rizvi, Ms. Iram Rizvi, Mariyam Rizvi, Rakesh Sareen & Sons, Neeru Sareen, etc. These bank accounts were produced at the back of the assessee and opportunity was not allowed to meet way of the queries by way any material or evidence in rebuttal. Furthermore the particulars in regard to the bank account were not even supplied to the assessee before passing the block assessment order. The assessee had no knowledge about the accounts maintained in the names of the third parties. To quote a few Shri O.P. Sapra drew our attention to certain facts as listed in the application which showed that in making the addition gross violation of principles of natural justice occurred. Similar lapse occurred while bringing to tax an amount of Rs. 2,25,31,068 on account of unconnected accounts of holders being clients of the assessee. The addition was made on the strength of 52 blank cheque books found in the premises of the assessee. These belong to the assessee's clients and came to his possession for the purpose of finalisation of their annual accounts and preparation of their income-tax returns. Despite written requests made to summon these account holders, this was not done.

6. As regards addition made at Rs. 80,75,145 on account of deposits/credits in bank account of Shri Mukesh Gupta, it was submitted that the assessing officer had no evidence whatsoever as a results of search for which the addition on this account was made.

Since the aforesaid amount could not be covered under the head 'undisclosed income' as defined in section 158B of the Act, the same was not justified. To the same effect was the addition made at Rs. 15 lakhs on account of loan advanced by M/s B.P. Marketing (P) Ltd. This was done since the payment was made out of the funds available with the assessee. The same could not be added to the income of the assessee.

7. The assessing officer also made additions on account of undisclosed investment in various immovable properties which were not owned by the assessee. The addition made was at Rs. 85,29,890. Relying on the details given on pp. 41 to 45 it was submitted that the additions were based on entries found noted in the seized diary of the assessee. The fact that the assessee noted the market value of certain properties could not show that the same belonged to the assessee. His explanation on this account should have been accepted or subjected to further probe. Since there was no conclusive evidence brought on record, the addition could not be sustained. The additions made at Rs. 4 lakhs on account of advances through Shri N.N. Goyal, Rs. 9,75,000 on account of commission of M/s Leher Chemicals (P) Ltd. Rs. 20 lakhs on account of unexplained investment in the names of children, Rs. 20 lakhs on account of undisclosed children's savings, Rs. 2 lakhs on account of VB treating it as balance with Vijaya Bank, Rs. 42,350 on account of unexplained cash, Rs. 1,44,365 on account of unexplained investment in diamonds, Rs. 57,102 on account of unexplained investment in jewellery, Rs. 1 lakh on account of unexplained investment in silver, etc. were all made on the material for which the assessee was not allowed the rebuttal in the sense that proper opportunity was not allowed to meet the allegations. Summing up the arguments it was stated that since the assessee was denied proper opportunity to meet the allegations made against him, the assessment needs to be set aside.

8. Shri M.K. Mishra, the learned Departmental Representative supported the order of the assessing officer. Attention was drawn to two items of diaries to show that the assessee did not cooperate fully with the assessing officer at the time of framing the assessment. The assessee being a chartered accountant should be in a better position to represent its case and since it was not done the assessing officer had no alternative but to draw addversed inferences. He however admitted that the assessee was not allowed to cross-examine as requested by him. He also fairly admitted that in the assessment as framed double additions have occurred as pointed out by the assessee in the written submissions.

9. We have carefully considered the rival submissions. As pointed out earlier ground No. 2 of revised grounds of appeal reads as under :

"(2) That without prejudice to the generality of the aforesaid grounds, all and every addition made in the impugned assessment as undisclosed income of the appellant is vitiated in law on, inter alia, one or more of such grounds, as lack of jurisdiction, want of authority of law, lack of evidence, lack of proper opportunity to the appellant to adduce evidence to prove his case and failure on the part of the assessing officer to discharge his burden of proof."

The hearing was confined to the aforesaid ground without going into the merits of the case. As mentioned in the elaborate submissions made before us we find that though the statements of shareholders/directors/persons were recorded by the assessing officer.

These were at the back of the assessee. In view of the decision of the Hon'ble Supreme Court in the case of Kishinchand Chellaram v. Commissioner (supra), the aforesaid statements could not be made use of while drawing the adverse inference against the assessee. In this context, we find that the assessee made the request for cross-examination of the witnesses. This was not allowed perhaps the time available at the disposal of the assessing officer was very short. However, the statements of third parties before they could be relied upon have to be confronted to the assessee and it is his right to cross-examine them if he so wants. This would be in the fitness of the principles of natural justice. Similar was the case in respect of the addition made on account of deposits/credits in the bank accounts. Not only the deposit in the names of relatives who had been assessed to tax were assessed in the hands of the assessee, deposits of third parties who were stated to be unconnected with the assessee were added in his income on the basis of the information collected at the back of the assessee and without confronting him the same. The information so collected had to be confronted to the assessee and opportunity be allowed to rebut the same. The assessment framed under the present section has to be in respect of income which is undisclosed. The expression has been defined in section 158BA and has to be construed as such. The assessing officer is not permitted to go beyond the material discovered as a result of search and to make roving enquiries in order to rope in certain income which apparently belongs to somebody else. This apart, we find that the additions as made tantamounts to double addition inasmuch as that not only the amount reflected as share capital has been brought to tax even the investment made out of the same has also been added. No attempt has been made to link two in case the addition was called for on account of share capital income which is the starting point of the contribution of amounts. Further the assessee's statement that even the income which has been recorded in the regular books of accounts, has also been brought to tax, needs to be verified. To similar effect is the additions made on various accounts as referred to above. Specific reference is made to the bank account of Shri Mukesh Gupta which is stated to be not connected with the search proceedings. As per the statement of the assessee that there was no evidence coming to the possession of the department which called for the enquiry in the case of bank account of Shri Mukesh Gupta who was in no manner connected with the assessee. While Shri Mukesh Gupta was never examined the statement of Shri Surender Garg, his elder brother was recorded at the back of the assessee and the cross-examination of the party was not allowed. The linkage between the additions made on various accounts with the ones made on account of share capital funds for which separate additions were made was also not established. The additions made have to be as per the procedure laid down under sections 28 to 43C of the Act. It has also to be shown that certain additions are called for under section 68, 69, 69A or 69C of the Act, to which reference has to be made. On the reasons stated above briefly, it is clear that the assessment framed was in violation of the principles of natural justice Before any adverse material collected at the back of the assessee is made use of, the same is to be confronted to the assessee for rebuttal. In the circumstances, we agree with the assessee's counsel that on the limited ground of non-allowance of proper opportunity the matter needs to be restored back to the file of the assessing officer. The assessing officer is to allow proper opportunity to the assessee to rebut the evidence as collected and to place any material in support thereof. The learned authorised representative gave an assurance that the assessee would fully co-operate with the department in furnishing any information called for by the assessing officer. In the circumstances we have not gone into the merits of the case and the assessment as framed is set aside in toto to be reframed again.

10. In the result, the appeal is allowed for statistical purposes.