Delhi High Court

Real Overseas (P) Ltd. vs Dy. Cit on 29 August, 2003

Equivalent citations: (2004) 91 TTJ Del 185

ORDER

Smt. Diva Singh, J.M.:

This is an appeal filed by the assessed against the order dated 31-8-2001, of Dy. CIT, Circle-15(1), New Delhi, pertaining to block period 1-4-1986 to 19-4-1996, corresponding to assessment years 1986-87 to 1996-97 up to 19-4-1996.

2. Various grounds have been raised by the assessed which read as under

"1.1 The -learned assessing officer acted without jurisdiction and without authority of law in passing the impugned order under section 158BD read with section 158BC of the Income Tax Act, 1961, against the appellant determining its total undisclosed income of the block period at Rs. 47,26,800 without there being any action taken against the appellant under section 132 or 132A.

1.2 There was complete lack of jurisdiction on the part of the learned assessing officer in issuing notice dated 21-8-2000, under section 158BC/BD requiring the appellant to file return for the block period on the facts and circumstances of the case, since no satisfaction, as envisaged by section 158BD, was reached by the assessing officer of Shri Alok Aggarwal searched under section 132, against the appellant as "the other person" referred to in section 158BD.

1.3 That the impugned block assessment was also barred by limitation, as no satisfaction was reached under section 158BD by the assessing officer of Shri Alok Aggarwal, being the person searched under section 132, against the appellant as "the other person" referred to in section 158BD in the course of framing the original block assessment against Shri Alok Aggarwal, or even during the completion of fresh assessment against the said Shri Alok Aggarwal assessment under section 158BC/254 under directions of the Hon'ble Tribunal after setting aside the original block assessment framed against him.

1.4 The impugned order is also vitiated and unsustainable in law, as it was passed in breach of the principles of natural justice and without allowing a prior hearing to the appellant before issuing notice under section 158BC/BD and of explaining its case.

2.1 That without prejudice to the preceding grounds 1. 1 to 1. 4, the learned assessing officer brought to tax the entire paid-up share capital -of the appellant- company as its undisclosed income of the block period, notwithstanding that all such share capital stood disclosed to the department prior to the date of search on 19-4-1996 under section 132 against Shri Alok Aggarwal.

2.2 That the learned assessing officer ignored the material evidence showing the established identity and creditworthiness of the shareholders and acted illegally and improperly in assessing the entire paid-up share,capital of the company as undisclosed income of the appellant in disregard of the ratio of decision of the Apex Court in CIT v. Steller Investments (2001) 155 Taxman 99 (SC) and of Full Bench of Delhi High Court in CIT v. Sophia Finance & Investment Ltd. (1994) 205 ITR 98 (Del) (FB).

3.1 That the order charging of interest under section 158BFA and initiating penalty proceedings under section 158BFA in the impugned order is also challenged as being without jurisdiction and without authority of law.

3.2 That accordingly, the appellant denies its liability to the demand of Rs. 31,19,688 on account of tax and surcharge levied by the above impugned order.

4. the appellant craves leave to add to, alter, very, modify or otherwise amend the grounds of appeal before the appeal is finally disposed of."

3. The relevant facts of the case are that a search and seizure operation under section 132(1) was carried in the official and residential premises of Shri Alok Aggarwal. From the said premises bearing Nos. 245, 234 and 224, Anarkali Bazar, Jhandewalan, New Delhi, incriminating documents pertaining to the present assessed were seized. The assessing officer of Shri Alok Aggarwal completed the assessment under section 158BC in his case. He found that undisclosed income arising out of those incriminating documents related to the assessed. As such, the seized documents/books of accounts were handed over to the assessing officer of M/s Real Overseas (P) Ltd., the assessed here. Accordingly, in this background, the assessment was framed in the hands of the assessed.

4. Notice under section 158BD read with section 158BC was issued to the assessed on 21-8-2000, in response to which, return for the block period 1987-88 to 1996-97 and 1997-98 (part period 1-4-1996 to 19-4-1996) was filed on 24-8-2001, under protest as per the statement of facts placed before us.

5. The assessing officer was of the view that the assessed is engaged in the activities of giving accommodating entries and looking at the documents seized, he was of the view that the shareholders of the assessed- company are Benami and have in fact signed blank receipts, blank sale bills, blank share transfer forms and also confirmatory affidavits which form part of the seized material in Annexs. A-38 and A-97 of Panchnama dated 24-4-1996/25-4-1996. The fact that the blank signed share transfer forms and blank sale bills are kept with the assessed- company according to the assessing officer confirmed the belief that the same were kept so as to have control over the Benami shareholders which would enable the assessed- company to get these shares transferred in its name or in the name of any other person at its will. The confirmatory affidavits filed before the assessing officer were considered to be not sufficient as he was of the view that since the distinctive numbers have not been mentioned as such it showed that the shareholders are not even aware about their shares. The assessing officer was of the view that the availability of these documents with the assessed clearly showed that the allottees were not the real shareholders and in fact merely name lenders and the total control of shares was considered to be in the hands of the company.

6. The assessing officer required the assessed to file proper confirmations from the shareholders. Since they were not filed nor were they produced for verification, he was of the view that the genuineness of the shareholders is not proved. In the said circumstances, an addition of Rs. 47,26,800 was made in the following manner:

"The assessed- company has shown to have raised the following funds from the shareholders (investment in shares and application money) during : '

Rs.

Financial year 1992-93 relevant to assessment year 1993-94

5,00,000

Financial year 1993-94 relevant to assessment year 1994-95

2,500

Financial year 1994-95 relevant to assessment year 1995-96

17,66,800

Financial year 1995-96 relevant to assessment year 1996-97

24,35,000

47,26,800"

7. A perusal of the assessment order bears out that the assessed vide its letter dated 28-8-2001, objected to the block assessment under section 158BC/BD stating that all such transactions stood already disclosed to the department. As such, the addition in block assessment is not called for. The said contention was dismissed by the assessing officer.

8. The assessed also filed another letter dated 29-8-2001, before the assessing officer stating that a writ petition had been filed before the High Court of Delhi wherein the Hon'ble High Court has directed that the objection of the assessed should be considered before framing assessment. The assessing officer considered the objections of the assessed wherein it challenged that no satisfaction by the assessing officer within the meaning of section 158BD had been recorded to allege that the undisclosed income is assessable in the hands of the petitioner, i.e., the assessed on the basis of material gathered during search was also considered by the assessing officer and held to be untenable. He was of the view that the plain reading of section 158BD says that where the assessing officer in the case of assessed searched under section 132(1) is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made under section 132, then the books of accounts and other documents or assets seized from the person searched shall be handed over to the assessing officer having jurisdiction over such other person and that assessing officer (having jurisdiction over such other person) shall proceed against such other person and the provision of block assessment shall apply accordingly. He was of the view that in case the assessing officer of the person searched, i.e., Shri Alok Aggarwal, had handed over the seized documents/books of accounts pertaining to M/s Real Overseas (P) Ltd. i.e., the assessed to him accordingly, assessment in the case of M/s Real Overseas "(P) Ltd. under section 158BC/158BD was being made. The objection of the assessing officer under section 143(2) notice dated 16-8-2001, was also considered and dismissed since the same was given to the assessed before finalisation of the assessment proceedings. As such, the addition of Rs. 47,26,800 was made. Aggrieved by this, the assessed is in appeal before us.

9. Various submissions were made by the learned authorised representative contending that the impugned order is without jurisdiction and, in fact, the action of the assessing officer is beyond limitation since no satisfaction as envisaged by section 158BD has been recorded by the assessing officer of Shri Alok Aggarwal within the time prescribed under the chapter. The learned Departmental Representative was afforded an opportunity to verify from the records and state whether any satisfaction in terms of section 158BD has been recorded. The learned Departmental Representative on the next date of hearing stated that it is the fresh assessments against Shri Alok Aggarwal under section 158BC/254 pursuant to the directions of the Tribunal that the assessing officer of Shri Alok Aggarwal recorded his satisfaction and forwarded the seized material to the assessing officer of the present assessed. Mr. Sapra pressing his grounds 1. 1 to 1.4 brought to the notice of the Bench that on merits, the said issue is fully covered in favor of the assessed by order dated 21-7-2003, in the case of Makhni & Tyagi (P) Ltd. in IT(SS)A No. 204/Del/2002, for the block assessment period 1-4-1986 to 19-4-1996.

10. Inviting attention to the said order, it was contended on behalf of the assessed that the present appeal filed by the assessed is fully covered by the said order of the Tribunal in its favor. It was pointed out that the addition in the case of Makhni & Tyagi (P) Ltd. (supra) had been based on the same search which took place on Shri Alok Aggarwal, the CA of the assessed. Referring to the said order, it was contended that even there, the entire share capital worth Rs. 30 lakhs odd has been treated as 'income from undisclosed sources' of the assessed. Special attention was invited to para 2.1 of the same so as to point out that there was a search on the business and residential premises of Shri Alok Aggarwal, practicing CA on 19-4-1996, during which certain documents/incomplete statutory records of various companies including the assessed- company were seized from his custody. The said paragraph was pointed out so as to contend that the issue in the present appeal is fully covered by the said order. Referring to the same, it was submitted that the block assessment order in the case of the chartered accountant Shri Alok) Aggarwal was set aside by the Tribunal. As a result of it additions on identical lines were made in the case of Makhni & Tyagi (P) Ltd. (supra). It was further argued that the income added in the block assessment already stands disclosed in the regular assessments of the assessed. Inviting attention to p. 123, it was stated that the assessed has been filing its return from 1989-90 which was filed on 29-12-1989, i.e., much before the date of the search which was conducted on the official and residential premises of Shri Alok Aggarwal only on 19-4-1996. Paper book p. 120 was also referred to in support of the contention that the return for 1990-91 was filed on 31-12-1990. Similarly, it was submitted that the returns for 1992-93, 1994-95, 1995-96 and 1996-97 have been filed by the assessed. In support of the above claim, our attention was invited to p. 101 which is the intimation under section 143(1)(a) in the case of the assessed for 1994-95 which was issued on 28-2-1995, i.e., much before the date of the search on Mr. Alok Aggarwal, the CA of the assessed. Page 102 was referred to in support of the said claim so as to highlight that for 1994-95 assessment year, the assessed had filed its return on 18-11-1994, as per the signature appearing on the acknowledgement which was received on 30-11-1994, as per the stamp on the said acknowledgement. Attention was invited to p. 110 which is the section 143(3) assessment in the case of the assessed for 1992-93 assessment year which was completed on 28-10-1993, again before the date of the search. Page 111 is the section 143(1)(a) intimation for the same assessment year bearing dated 26-2-1993. Page 120 is the acknowledgement for the return filed for the assessment year 1990-91.

11. The order of the Tribunal in the case of Makhni & Tyagi (P) Ltd. (supra) was heavily relied upon and based on the above facts, attention was again invited to P. 4 of the said order so as to contend that therein the Tribunal has considered various decisions, namely, L.R. Gupta & Ors. v. Union of India & Ors. (1992) 194 ITR 32 (Del), CIT v. Ravi Kant Jain (2001) 250 ITR 141 (Del), N.R. Paper & Board Ltd. & Ors. v. Dy. CIT (1998) 234 ITR 733 (Guj), Meda Ramaiah Setty v. CIT (1967) 63 ITR 245 (Mys), Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune) and (2000) 242 ITR 42 (Mad) (sic). Relying upon the said order, it was further contended that in case the assessing officer had any suspicion or doubt about the genuineness of the share capital, he could have issued notice under section 147/148 of the Act but, there is no reason or basis for him to proceed in making the addition made in the block assessment in the manner made. Referring to the synopsis filed at p. 127, it was contended that the assessed-company was incorporated on 2-5-1988, and has been maintaining its account books in the normal course of its business of financing- and dealing in shares. It was argued that the position of the filing of the returns from the assessment years 1989-90 till 1996-97 had already been referred to. Thus, it was contended that once the entire share capital has been disclosed to the department by the assessed in its recorded books of accounts maintained by the assessed prior to the date of search on 19-4-1996, under section 132 against Shri Alok Aggarwal, the provisions of Chapter XIV-B could not be invoked against the assessed since the fact is not in dispute that the share capital was recorded in the account books maintained by the assessed on the basis of which it stood assessed in regular assessment proceedings year after year right up to 1996-97 assessment year.

12. It was further contended by way of synopsis at p. 128 that even in the course of the block assessment proceedings, the assessed vide its letter dated 29-8-2001, had filed before the assessing officer list of shareholders with complete addresses and also photocopies of the confirmations. It was stated that, in fact, the confirmation forms are part of the seized materials also and xerox copies thereafter were again filed. It was further contended that almost all shareholders had subscribed towards share capital which stood credited in the bank dccount of the assessed.

13. It was also pointed out that, in fact, vide letter dated 29-8-2001, it was submitted that if the presence of any shareholder was required, he should be summoned under section 131 of the Income Tax Act.

14. The contention was also raised that the assessing officer has, in fact, ignored enquiries made through his own Inspector. Our attention was invited to p. 56 of the paper book which is internal p. 2 of letter dated 29-8-2001, addressed to the Deputy Commissioner by the assessed to show that when the assessed was confronted by the Inspector's report, the assessed with respect to Surinder Garg/Seema Gupta/Suresh Chand/Ram Niwas : Address 508/36, Onkar Nagar, Trinagar, Delhi, gave the following reply:

"As per report of the Inspector who visited the above address for verification of the above named four shareholders, a lady who was found at the above address confirmed that the above named persons resided at that place, but have now shifted to some other place. She provided telephone number for making contacts with them (Phone No. 5434654). The lady confirmed to the Inspector that Shri Surinder Garg is her brother-in-law (elder brother of her husband) and other members are also in relations, like her sister-in-law, father-in-law and brother-in-law (husband of Seema Gupta)."

15. Thus, it was contended that even if the said persons had shifted from the addresses as per the seized material but telephone numbers and addresses of people were provided by persons found at those addresses and the assessing officer could not doubt the existence of the persons concerned as telephone numbers, etc. were provided for contacting the persons. Similarly, with respect to Poonam Garg/Subhash Chand, the address given as per the seized documents was E-170, Ashok Vihar, Delhi. As per the report of the Inspector, it was contended that these persons were reported to be the owners of the flat and reported to have shifted to USA. It was stated that how could the said fact give rise to inference against the assessed.

16. Similarly, it was stated that the Dy. CIT was apprised that Saraswati Devi/Vidya Agarwal/Durgawati/Virender Kumar, address : 106, SBI Colony, GT Karnal Road, Delhi, had been stated to have shifted from the said address about 5-6 years ago and she had stayed there as a tenant. This fact was confirmed by the owner of the flat Mr. O.P. Gupta when the Inspector went there. Same was the case of Santosh Maheswari, address : 5C/38, New Rohtak Road, who had shifted to East Delhi whose phone number had been given to the Inspector. Thus, it was contended that the assessed had given the explanation of each and every person whom the Inspector had tried to contact. Accordingly, no adverse inference against the assessed could be drawn.

17. In the ultimate analysis, reliance was placed upon the order of the Tribunal wherein addition in identical manner with respect to the same search on Shri Alok Aggarwal had been made wherein the Tribunal considering identical facts and circumstances had thought it fit to delete the addition.

18. Learned Departmental Representative, in reply, with respect to the jurisdiction, placed reliance on the documents placed before the Bench and the observation in the assessment order so as to contend that the jurisdiction of the assessing officer was neither barred by limitation nor otherwise.

19. With respect to the additions made, reliance was placed upon the block assessment order though nothing was stated to controvert the submission of the assessed that the issue is fully covered vide order dated 21-7-2003, in IT(SS)A No. 204/Del/2002 in the case of Makhni & Tyagi (P) Ltd. (supra). It was specifically put to him that whether he would like to point out any distinguishing fact or circumstance. Learned Departmental Representative did not point out any distinguishing fact or circumstance and, in fact, conceded that the facts more or less are -identical. As such, the issue is covered by the said order. It was fairly conceded that the additions in identical circumstances have been made (sic-deleted) in the case of Makhni & Tyagi (P) Ltd. (supra) but for the record, reliance was placed upon the impugned order.

20. Having heard the rival submissions and perused the material placed on our files, we are of the view that in the peculiar facts and circumstances, the identical issue has been considered by the Tribunal in the case of Makhni & Tyagi (P) Ltd. wherein relying upon the jurisdictional decision of the ig ourt in the case of CIT v. Ravi Kant Jain (supra) and Gujarat High Court in the case of N.R. Paper v. CIT (supra) amongst others has deleted the additions. The Tribunal has also considered the decision of the Delhi High Court in the case of CIT v. Steller Investment (supra) and of Supreme Court in the case of CIT v. Sophia Finance Ltd. (supra).

21. We have even taken ourselves through various pages of the paper book and observed that the assessed has regularly been filing its returns. The replies of the assessed before the assessing officer in the block assessment proceedings and the submissions with regard to Inspector's report and past assessments of the assessed have also been taken into consideration. After duly considering the entire plethora of arguments and evidence, we are of the view that in the facts of the case, the assessing officer could not have made additions in block assessment and in case he was of the view that the documents accompanying the returns of the assessed have not been considered in the regular assessments, then he could have reopened the same in section 147/148 proceedings. It may be pertinent to reproduce the view taken by the jurisdictional High Court on the scope of the assessments made under Chapter XIV-B. Their Lordships have held that the block assessment under Chapter XIV-B is not intended to be a substitute for regular assessment. Accordingly, in the face of the evidence relied upon by the assessed and the case law considered by the Tribunal and taking note of the fact that no distinguishing fact, circumstance or contrary view was brought to our notice, we are of the view that the grounds challenging the addition on merit deserve to be allowed.

22. Ground Nos. 3.1 and 3.2 as such become academic in nature in view of the fact that we have deleted the addition made and as such require no adjudication. Ground No. 4 being general in nature also requires no adjudication.

23. In the result, the appeal filed by the assessed is partly allowed.