Delhi High Court

Ravi Prakash Agarwal (Huf) vs Assistant Commissioner Of Income ... on 1 March, 2000

Equivalent citations: (2000) 67 TTJ Del 234

ORDER

Ravinder Singh, AM

This is an appeal by the assessee against the block assessment order for the block period of previous years 1985-86 to 11-8-1995 passed under section 158BC(c) read with section 158BD of the Income Tax Act, 1961,

2. The facts in brief are that the storage and seizure operations were conducted on 11-8-1995, in the business premises of M/s Raghunandan Prasad Saral, Sarala Bazaar, Meerut, and in the residential premises of the partners of the firm. Shri Ravi Prakash Agarwal was the partner in M/s. Raghunandan Prasad Saraf in his individual capacity. During the search and seizure operations in the business premises of Shri Ravi Prakash Agarwal, certain incriminating documents relating to M/s. Multi-Max Engineering Works of which Shri Ravi Prakash Agarwal (HUF) was the proprietor, were found and seized. Thereafter, account books including cash book, ledger and stock register were also impounded. A notice under section 158BD was issued and served upon the assessee on 14-12-1996. In response to that, the assessee furnished return in Form No. 2-B declaring Nil as the undisclosed income. The assessing officer passed the block assessment order on 26-12-1997. Shri O.P. Sapra, the learned counsel for the assessee, at the outset, contended that the assessment order made on 26-12-1997 was barred by the limitation. In support of his contention, he contended that the search was conducted on 11-8-1995 at the residential premises of Shri Ravi Prakash Agarwal living at 1127, P.L. Sharma Road, Meerut and the office of M/s Multi-Max Engineering Works was situated at 1127/A. P.L. Sharma Road, Meerut. He contended that the books of accounts were seized from the premises of assessee and, therefore, the date of search in the case of assessee should be considered as 11-8-1995 and the assessing officer was not justified in making assessment under section 158BC read with sub-section 158BD. He submitted that the case of assessee fell strictly within s 158BC and, therefore, the time-limit available for completion of block assessment should be considered as provided under section 158BE(1). Keeping into consideration, the date of search as 11-8-1995, it was contended by the learned counsel that the block assessment should have been completed on of before 30-8-1996, whereas it was actually completed on 26-12-1997 and, therefore, it deserved to be annulled. On the other hand, the learned departmental Representative stated that the case of assessee was squarely covered under section 158BD and for that purpose, time-limit for completion of block assessment under section 158BE(2) is one year from the end of month in which the notice was served on the assessee. It was thus contended by the learned departmental Representative that since the notice was served upon the assessee on 14-12-1996, the order passed by the assessing officer on 26-12-1997 was very much within the limitation period.

2.1. We have heard the rival submissions on this issue. It is obvious from the records that the search was conducted on Shri R. P. Agarwal, individual, and the block assessment order was passed under section 158BC on 29-11-1996 Since the assessee has accepted the assessment in his individual capacity under section 158BC, now there is no warrant for demanding the block assessment in the case of appellant also under section 158BC. The reason for it is that the search was conducted at one place, where from incriminating documents pertaining to two assessees, one being the individual and the other HUF, were found and seized. Out of two assessees, one is to be considered under section 158BC and the other under section 158BD. Keeping into consideration the factum of acceptance of block assessment in the case of Shri R.R. Agarwal (individual) under section 158BC, we are of the opinion that the appellant in question could be covered only under section 158BD. Once the case of assessee is covered in latter section, the provisions for time-limit for completion of block assessment would apply as are contained in section 158BE(2). Taking into view the prescription of section 158BE(2) vis-a-vis section 158BD, it is obvious that the block assessment framed by assessing officer was not barred by limitation.

3. The next ground relates to the additions made by the assessing officer on account of cash credit and squared up accounts. Briefly stated the facts on this ground are that the assessing officer observed that the assessee had shown cash credits in its accounts books during different years contained in block period, which were either squared up at the end of respective financial year or during the year of credit itself. The assessing officer doubted the genuineness of these creditors and asked the assessee to produce 18 depositors. All the 18 depositors were produced by the assessee and were examined by the assessing officer. The assessing officer was not satisfied with the explanation furnished by these depositors and accordingly added the following amounts to the undisclosed income of the assessee:

Sl. No.

Asst. yr.

Amount of cash credit Rs.

1987-88

1,13,000

1989-90

8,000

1990-91

1,65,000

3.1. The learned counsel for the assessee contended that all these deposits were included in the books of accounts of the assessee for the relevant assessment years. It was contended that the assessee maintained regular books of accounts and got them audited year after year. It was further submitted that the assessee had regularly submitted its returns of income starting from assessment year 1986-87 to assessment year 1995-96 and all these returns were accepted by the department and no addition was made on this count in any of the said assessment orders. It was further pointed out that in respect of assessment year 1990-91, the case of the assessee was scrutinised under section 143(3) and the return of income was accepted as such. It was thus the submission of learned counsel that after having accepted the genuineness of the credits during the course of assessment proceedings in the relevant assessment years the assessing officer was precluded from making addition on this count while framing block assessment order. It was contended by him that within the ambit of Chapter XIV-B only those income could be considered as undisclosed income which came out as a result of search and the assessing officer was not justified in reviewing the already completed assessment in the absence of any direct evidence coming to the knowledge of the department, as a result of search, establishing the factum of undisclosed income. For this proposition, he placed reliance on the order of Tribunal in the case of Sunder Agencies v. Dy. CIT (1997) 59 M (Mumbai) 610 . (1997) 63 ITD 245 (Mumbai). On the other hand, the learned departmental Representative supported the order passed by the assessing officer and contended that the assessing officer had made thorough investigation in this regard establishing all the entries as fictitious.

3.2. Having heard the rival submissions on this issue in the light of material placed before us and precedent relied upon, we are of the opinion that the assessing officer stepped out of his jurisdiction in doubting the genuineness of the cash credits, recorded in the books of accounts of the assessee, while framing block assessment. Since the department has already accepted the returns of income and made assessment in respect of those years, there is no warrant for making roving enquiries in respect of the items forming part of those returns, in the absence of any material found during search establishing the existence of undisclosed income. No such material having been found in the course of search and seizure operations, there is no point in sustaining this addition. In the result, these amounts are excluded from the undisclosed income computed by the assessing officer.

4. The next ground relates to addition made by the assessing officer on account of sarson business for the assessment year 1992-93. The facts relating to this addition are that during the examination of cash book and ledger for the said assessment year, the assessing officer found that purchases and sales of sarson were not recorded in the ledger. Only the entries were made in the cash book. On being enquired about it, the assessee furnished copy of its account from the books of M/s Bateria Brothers, Hisar. For further verification, an Income-tax Inspector was sent to Hisar who found that M/s Bateria Brothers was not in existence at that time. He conducted local enquiries and came to know of the fact that Shri Bharat Kumar Garg was the proprietor of the said concern. The Income-tax Inspector contacted Shri Ram Kumar Garg, father of Shri Bharat Kumar Garg, who informed him that the said concern was in existence for two to three years only and was closed 4/5 years back due to heavy losses. The Inspector also contacted the assessing officer Ward-3, Hisar having jurisdiction upon the said concern and it came out that the said Shri Bharat Kumar Garg, was not assessed to tax. In the background of this information, the assessing officer came to the conclusion that the source of investment of Rs. 4,65,244 in the purchase of sarson prior to first sale was unexplained and hence treated the same income as undisclosed income of the assessee.

4.1. Before us, the learned counsel for the assessee submitted that the assessee had not purchased/sold any goods from/to the said concern. It was further contended that the said concern made purchases and sales on behalf of the assessee and the assessee only earned commission income thereon. It was further the case of the assessee that since no payments were made or received from the said party, there was no question of recording the same in assessee's ledger. It was submitted by the learned counsel that the assessing officer had made the said addition without confronting the assessee with the report of the Inspector submitted to the assessing officer on the basis of which addition was made by the assessing officer. On the other hand, the learned departmental Representative supported the order passed by the assessing officer.

Having heard both the sides on this issue and perusing the relevant record, we find that the principles of natural justice had not been followed by the assessing officer before making addition. In Cf Mcleod & Co. Ltd. v. State of Orissa (1971) Tax LR 1656 it was held that it was obligatory upon the assessing officer to confront the assessee with the report of Inspector. As the said report was not confronted to the assessee, it would be in the interest of justice of this issue is set aside to the file of assessing officer for deciding it afresh after giving necessary opportunity to the assessee of being heard in the light of precedent cited above.

5. The next issue relates to the addition based on the Neelgagan Pad found and seized during search and seizure operation. A pad containing 34 (1 to 34) stippled papers and 12 written pages was found. It further contained one more stippled page No. 46 and one more written page No. 47. This pad was marked as Annexure A-31. During the course of block assessment proceedings, the assessee was caned upon to explain the contents of this pad. The assessee explained some of the entries from that pad. The assessing officer noted that some of the amounts were not recorded in the regular books of accounts and hence the sum of Rs. 5,03,927 based on page No. 1 of Annexure A-21 and a sum of Rs, 4,12,199 based on page No. 46 of the same annexure pertaining to assessment year 1993-94 were treated as undisclosed income of the block period. Similarly, an addition of Rs. 5,164 for assessment year 1996-97 (up to 11-8-1995) on account of expenditure for diesel and postage was made by the assessing officer while framing the block assessment.

5.1. Before us, the learned counsel for the assessee contended that the assessee during the course of block assessment proceedings had specifically made denial about these loose papers as belonging to it or its business. It was further contended that these papers were not in the handwriting of either the or any of its employees. It was stated by the learned counsel that during the course of proceedings before the assessing officer the assessee requested for supply of photocopies of these documents. But these were supplied just two weeks prior to the completion of assessment. It was thus contended by the learned counsel that the assessee was not afforded adequate opportunity to explain these papers. It was also the case of the assessee that the assessing officer had made the addition on account of these papers without indicating in the body of the order any basis for arriving at the figure treated by him as undisclosed income of the assessee. It was thus contended by the learned counsel for the assessee that since the assessee had denied these loose papers belonged to it, the onus shifted on the assessing officer to prove beyond the shadow of doubt that these papers pertained to the assessee, if he was to make any addition on this count. On the other hand, the learned departmental Representative supported the order passed by the assessing officer-

5.2. We have considered the rival submissions and perused the relevant record. It is manifest that the assessing officer has not mentioned the base for treating the said amounts as undisclosed income of the assessee. If any income is proposed to be treated as undisclosed income, it is obligatory upon the assessing officer to confront the assessee with the proposed addition and seek its comments thereon. AS it has riot been done in the instant case, it would be in the interest of justice if this issue is also set aside to the file of assessing officer with a direction to decide the matter afresh in accordance with law, after providing opportunity to the assessee of being heard.

6. The next addition relates to investment in the construction of building at Prathapur. The facts relevant to this ground are that the assessee constructed the building during the financial years relevant to assessment years 1993-94 and 199495 and disclosed investments in its books of accounts. The assessing officer felt that the investment was not fully disclosed by the assessee in its books of accounts. He was of the opinion that on the basis of net maintainable rent, the value of the property should be Rs. 25,70,400. Not satisfied with the value reflected by the assessee, he referred the matter to the Valuation Officer (V0) who worked out the investment in property at Rs. 22,23,877. The assessing officer, confronted the assessee with the valuation report furnished by the departmental Valuer to the assessee and after receiving the comments of assessee made addition in the two assessment years under section 69B.

6.1. Before us, the learned counsel for the assessee contended that the assessee had reflected the cost of construction in its books of accounts which was accepted by the department. It was not the case of the Revenue, the learned counsel contended that same material was found in the course of search which could justify the matter of reference to the assessing officer. The learned counsel concluded his submissions by stating that under these circumstances no addition could be made on this count. For this proposition, he placed reliance on the decision of the Tribunal in Esscon Intra-Port Services (P) Ltd. v. Asstt. = (22000) 72 ITD 228 (Hyd). On the other hand, the, learned departmental Representative drew our attention to the provisions of section 158BB(2) wherein it is stated that the provisions of section 69B would apply in the case of block assessment also. The look us through the provisions of section 69B and contended that if the assessee had not fully disclosed the investments in its books of accounts, the assessing officer was not barred from referring the matter to the VO.

7. We have considered the rival submissions in the light of material placed before us and precedent relied upon. It is obvious that the assessee had shown investments in its books of accounts and accordingly the returns of income were filed after duly getting its accounts audited. The value as reflected by the assessee in its balance sheets was accepted by the Revenue. No question was raised at the time of making the assessments relevant to those assessment years. Since nothing was found during the course of the search which would indicate that the assessee has not reflected the full amount of investment in its books of accounts and no finding was recorded that the books are defective, we are of the opinion that the assessing officer was not justified in referring the matter to the DVO and including the difference as the undisclosed income. Further it is relevant to see the definition of 'undisclosed income' as contained in section 158BU which refers to money, bullion, jewellery or any income based on an entry which is not undisclosed or would not have been disclosed. Unless some material is found, which is not recorded in books, no addition can be made, simply on the basis of DVO report. Respectfully following the precedent cited by the learned counsel, we are of the view that the addition for Rs. 9,17,509 made by the assessing officer on this count is not warranted.

8. In the result, the appeal is partly allowed.