Delhi High Court

Alok Aggarwal vs Joint Cit on 14 February, 2003

Equivalent citations: (2004) 89 TTJ Del 1062

ORDER

Keshaw Prasad, A.M.

This is an appeal directed against the order passed by the Joint Commissioner, Special Range-13, New Delhi, under section 158BC read with section 254 of the Income Tax Act, 1961 (hereinafter referred to as "Act"), for the block period 1-4-1986 to 19-4-1996. The original block assessment in consequence of a search action taken under section 132 of the Act on 19-4-1996, against the appellant at his business and residential premises was passed by the Deputy Commissioner, Special Range-13, New Delhi, under section 158BC at a total undisclosed income of Rs. 25,50,69,506 against nil undisclosed income returned by the appellant under section 158BC. In an appeal filed by the appellant against the original block assessment (ITA No. 124/Del/1997), the "E" Bench set aside the original block assessment order in toto with observations and directions as under :

"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 assessed is made use of, the same is to be confronted to the assessed for rebuttal. In the circumstances, we agree with the assessed's counsel that on the limited ground of non-allowance of the 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 assessed to rebut the evidence as collected and to place any material in support thereof. The learned Authorised Representative gave an assurance that the assessed 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".

2. Keeping in view the directions, the assessing officer proceeded to reframe the fresh block assessment and in the said fresh order which is impugned in this appeal, the assessing officer redetermined the total undisclosed income of the appellant at Rs. 3,23,36,688 consisting of Rs. 2,32,34,870 assessed as undisclosed income of the appellant on protective basis and Rs. 91,01,818 on substantive basis. The appellant has Challenged both the protective and substantive addition by raising the following grounds :

"(1) That the impugned order re determining total undisclosed income of the appellant at Rs. 3,23,36,688 (excepting Rs. 3,25,000 made as discussed in para (21) of the impugned order) consisting of the following additions suffer from legal infirmities, want of authority and jurisdiction, and in proper rejection of relevant evidence and on considerations of irrelevant material.

(a) Rs. 1,29,21,000 as discussed in para (8) of the impugned order on account of value of share certificates of the following three companies (out of total addition made at Rs. 2,84,29,400 in the original block assessment on account of share certificates of total eight companies found during search-Rs. 1,55,08,400 being value of such share certificates of the five companies left out in the impugned assessment) on grounds not valid in law and on improper perception of the nature of the seized material and misappreciation of the facts and evidence produced, on protective basis without any corresponding addition made on substantive basis in the hands of any other entity.

M/s Alankit Imaginations (P) Ltd.

5,00,000

M/s Trousseau Overseas (P) Ltd.

22,06,000

M/s Indradhan Agro Products Ltd.

1,02,15,000

1,29,21,000

(b) Rs. 1,03,13,870 (correct totalling figure being Rs. 1,03,03,870) as discussed in para (12) of the impugned order on account of share capital of the following seven companies (out of total addition of Rs. 5,42,21,070 made in respect of share capital of 23/24 companies in the original block assessment) again on grounds not valid in law, on improper rejection of the explanations and supportive documentary evidence produced by the appellant, again on protective basis without any corresponding addition on substantive basis in the hands of any other entity.

Rs.

M/s A to Z Assignments (P) Ltd..

25,000

M/s Excellent Securities (P) Ltd.

3,86,800

M/s Npar Cans (P) Ltd.

22,64,000

M/s Npar Drugs (P) Ltd.

19,58,070

M/s Real Overseas (P) Ltd.

6,70,000

M/s Vikas Polyester (P) Ltd.

25,00,000

M/s Vishesh Electronics (P) Ltd.

25,00,000

Total

1,03,03,870

That the legality and validity of the impugned additions, as covered by the preceding sub-grounds (a) and (b) of ground No. 1 in respect of the above named companies is assailed as totally unauthorized, having due regard to the reported action taken by revenue against these companies for separate and independent actioil and proceedings under section 158BD.

(c) Rs. 3,95,405 on account of cash deposits in the bank account in the name of the minor son Ankit of the appellant in Benaras State bank Ltd., as per discussion in para (14) of the impugned order, by improper rejection of the documentary evidence produced showing that the said bank account stood disclosed to the department, prior to the date of search.

(d) Rs. 62,53,175, as discussed in paras (16) and (17) of the impugned order, on account of peak credits in bank accounts of the account holders named as per annexure to the impugned order on the basis of their blank signed, cheque books found and seized from the possession of the appellant (total peak credits as per annexure Rs. 74,59,127 - Rs. 12,05,952 on account of peak amounts in the bank accounts of those account holders who personally appeared to depose), by improperly rejecting their written confirmations filed along with their admission of ownership of their bank accounts and proof of identity.

There was no warrant in making the impugned addition on arbitrary rejection of the documentary evidence produced and without procuring the attendance of these account holders for their personal deposition, notwithstanding request of the appellant made of assessing officer for summoning them.

(e) Rs. 9,00,000 as cash advance as per discussion in para (18) of the impugned order, on account of loan transaction entered with and/or through Sh. N.L. Goyal, which is duly confirmed by the said Sh. N.L. Goyal and appropriate additions made in his own block assessment by the same officer.

The impugned addition is also thus not warranted in law and is unauthorised, especially in view that the addition made in the original block assessment on this count was only Rs. 4,00,000.

(f) Rs. 9,26,771, out of total addition of Rs. 20,00,000 made in the original block assessments unexplained investment in the name of children, based on nothings on p. 4 of Annex. A-2 seized diary, as per discussion in para (20) of the impugned order, holding that the investment shown in the name of the minor daughter Akriti of the appellant as unexplained investment, inspite of evidence furnished that such an investment stood already disclosed to the department prior to the date of search.

(g) Rs. 57,102 being the value of jewellery held unexplained in the original block assessment, as per discussion in paras (23) and (24) of the impugned order, by improperly disregarding the affidavit of the appellant filed in support of his explanation that this jewellery belonged to his HUF.

(h) Rs. 1,44,365 being the value of diamond added in the original block assessment, against repeated in the impugned assessment as per discussion in paras (25) and (26) of the impugned order, failing to appreciate the evidence found during search itself that no payment of the purchase price had been paid prior to the date of search.

(i) Rs. 1,00,000 on account of the value of silver bars found and added in the original block assessment, again repeated in the impugned assessment as per discussion in para (27) of the impugned order, failing to appreciate the evidence found during search itself that no payment of the purchase price had been paid prior to the date of search.

(2) That the learned assessing officer further went wrong in law in determining total tax payable by the assessed at Rs. 1,94,02,014 which included tax even in respect of two additions of Rs. 1,29,21,000 and Rs. 1,03,13,870 made on protective basis. Even the legality and enforceability of the balance demand attributable to substantive additions is objected to in view of the challenge to the legality and propriety of the balance additions made on substantive basis, as urged in the preceding paras (a) to (1) of ground No. 1.

(3) Various observations made by the learned assessing officer while making the above additions are either incorrect or are untenable. The assessing officer had either ignored the submissions made and evidence produced or had not given due weight to the same.

(4) The appellant craves leave of this Honble Tribunal to add to, alter, vary, modify or otherwise amend the grounds of appeal before the appeal is finally disposed of."

3. Shri O.P. Sapra, advocate, assisted by Shri J.K. Khanna, advocate and Shri Ashutosh Aggarwal, CA, argued the appeal by placing reliance on the paper book and also other paper compilations besides Synopsis-II (Synopsis-I had been filed during the hearing of the stay petition) copies of which were also given to the learned senior Departmental Representative who also advanced her arguments at great length, against which the learned counsel of the appellant filed written rejoinder.

4. Beginning with their submissions and arguments on the first two grounds (a) and (b), the counsel for the appellant vehemently argued that the scheme of chapter XIV-B under which undisclosed income has to be determined on evidence found as a result of search, no protective assessment is authorized. Thus, the contention advanced by the learned counsel on behalf of the appellant is that the very fact that a protective addition is made is indicative of the fact that the assessing officer himself is in doubt whether the amount of income assessed, is assessable as undisclosed income of the appellant or the said income is assessable as undisclosed income of some other person. It was brought to the notice of Bench by the counsel for the appellant that action under section 158BD had also been initiated against all the companies, namely, M/s. Alankit Imaginations (P) Ltd., M/s. Trousseau Overseas (P) Ltd. and M/s. Indradhan Agro Products Ltd. (covered under ground 1(a) and M/s. A to Z Assignments (P) Ltd., M/s. Excellent Services (P) Ltd., M/s. Npar Cans (P) Ltd. M/s. Npar Drugs (P) Ltd., M/s. Real Overseas (P) Ltd. and M/s. Vikas Polyester (P) Ltd. excepting M/s. Vishesh Electronics (P) Ltd. (covered vide ground No. 1(b)) during the course of fresh block assessment proceedings. The learned counsel for the appellant further submitted that even on merits the protective assessment was not justified in view of the facts as found by the assessing officer himself and the voluminous cogent documentary evidence produced and placed by the appellant before the assessing officer and again placed in the paper book filed before us.

5. As regards addition of Rs. 1,29,21,000 made by the assessing officer on protective basis (as contested vide ground No. 1(a)), the addition is made by the assessing officer on account of share certificates of only three companies out of eight companies whose share certificates were found during search action. In the original block assessment, addition was made in respect of share certificates of all the eight companies, while in the impugned fresh block assessment order under appeal, share certificates of five companies out of the eight companies were accepted and no addition on account of undisclosed investment was made. The reasons for making this protective addition are discussed by the assessing officer in paras (6) and (8) of his order as are reproduced hereunder :

"6. Out of these the directors of following five companies were produced and examined :

(1) M/s Akriti Media (P) Ltd.

(2) M/s Transhead Elec. (P) Ltd.

(3) M/s Rush Chemicals (P) Ltd.

(4) M/s Prathistha Images (P) Ltd.

(5) M/s B.P. Marketing (P) Ltd.

7. Statements were recorded in which they have categorically accepted being the directors of these companies. But in the balance three companies assessed has only furnished the photocopies of the acknowledgement receipts for filing of their returns but failed to produce the directors. Therefore, keeping in view of the judgment in case of CIT v. Sophia Finance & Investment Ltd. (1993) 205 ITR 98 (Del-FB), the identity of the companies is not proved because merely by filing acknowledgement receipts could not identify the company or an individual because identity card can prove the physical identity of a person but for financial identity for income-tax purposes identity includes the identity include The identity of the person, genuineness of transaction and capacity to invest. Merely be saying that an individual or company is an income-tax assessed will not prove the capacity to invest.

8. According to the assessed merely by filing photocopies of acknowledgement slip to prove the identity of the company or an individual. But for income-tax purposes identity means the identity of a persons, genuineness of transaction and capacity to invest, are the three main conditions to prove the identity. Since, the assessed has failed to prove identity of the companies whose directors are not produced inspite of number of opportunities given, therefore, the amount of Rs. 1,29,21,000 (2,84,29,400 -1,55,08,400) is added back in the hands of the assessed on protective basis to protect the interest of revenue."

6. The learned counsel of the appellant vehemently assailed the grounds on which the assessing officer came to this conclusion, leading to the impugned addition. Taking us through the voluminous documentary evidence filed and placed in the paper book before us, the. Learned Authorised Representative of the assessed drew our attention to Synopsis-II and to the following documentary evidence and the submission on facts which had been filed and placed on record before assessing officer (also placed in the paper book paper compilations filed before us) with regard to all the companies, namely:

(a) Copies of annual returns filed with RoC, much before the date of search, as filed before assessing officer in the course of original block assessment proceedings also placed in the paper book filed before the Tribunal in ITA No. 124/SS/D/1997 against original block assessment which paper book again filed before assessing officer in proceedings for reassessment of block assessment showing the share capital paid by various shareholders other than the assessed (now placed at page Nos. 475 to 628 of the paper book) as under :

Name of Company

Page No. of the paper book

Date of filing the annual return with RoC.

(i)

M/s Alankit Imaginations (P) Ltd. 1996-27-05-1997

475-508

1995-13-12-1995

(ii)

M/s Trousseau Overseas (P), Ltd. 1996-06-03-1997

509-536

1995-14-051-1996

(iii)

M/s Indradhan Agro Products Ltd. 1996-02-04-1997

537-628

1995-10-12-1995

(b) Copy of acknowledgement receipts in proof of filing returns except M/s. Indradhan Agro Products Ltd. which is placed now at page No. 629 to 632 (placed at page Nos. 113 to 126 of the paper book) and balance sheets for relevant years of all these companies filed before assessing officer in the course of original block assessment proceedings also placed in the paper book filed before the Tribunal in ITA No. 124(SS)/D/1997 against original block assessment, which paper book again filed before assessing officer in proceedings for reassessment of block assessment, showing the share capital recorded in regular books of the companies and disclosed by them to the Income Tax department before the date of search (*now placed at page Nos. 633 to 707 of the paper book) as under :

Name of the company

Copy of receipts (Ref. Page No.)

Copy of balance sheet (Ref. Page No.)

(i)

M/s Trousseau Overseas (P) Ltd.

113-122

633-646

(ii)

M/s Alankit Imaginations (P) Ltd.

123-126

647-675

(iii)

M/s Indradhan Agro Products Ltd.

629-632

676-707

2. Alok Agarwal, director of M/s. Alankit Imaginations (P) Ltd., was appearing before assessing officer from time to time.

(b) In case of M/s Indradhan Agro Products Ltd., copy of order dated 29-5-1998, for the assessment year 1996-97 under section 143(3) placed at page Nos. 99 to 103 of the paper book showing share capital assessed in the hands of the company.

(c) Statement of Sh. Ashok Kumar Agarwal, the director of M/s Indradhan Agro Products Ltd., recorded by assessing officer placed at page Nos. 104 and 105 who is not questioned by assessing officer on the share capital of the company.

3. Affidavit of Shri Ashutosh Aggarwal, Authorised Representative of the assessed, placed at page Nos. 472 to 474 of the paper, book, showing that despite knowledge about the directors of these companies being available with assessing officer, the assessing officer did not ask the director during his personal appearance anything about the company.

4. By making the assessment as protective, the assessing officer, accepts that the amount added does not represent the undisclosed income of the assessed, as defined in section 158BA of the Income Tax Act.

5. Even otherwise, legally, there cannot be protective addition under Chapter XIV-B, reliance is also placed on Madras 'A' Bench Tribunal order in L. Saraja v. Assistant Commissioner (2001) 71 ITJ (Mad) 158.

6. Further, the share capital subscribed by various shareholders stood duly recorded in the account books of all the above three companies before the date of search and, therefore, the same could not be treated as undisclosed income.

7. Explanation given regarding the share certificates had not been disproved by the assessing officer; kindly see appellant's explanation vide its letter dated 28-3-2001 placed at page Nos. 60 to 70 (relevant page No. 62) which has been ignored by assessing officer.

8. M/s Alok & Co. is a firm of Chartered Accountants with Alok Agarwal as one of the senior partners. The firm has been handling audit, book keeping, maintenance of statutory records, etc., and the professional fee as charged is duly reflected in the account books of this company, as was also explained to assessing officer vide letter dated 27-1-2000, placed at page No. 872.

9. Delhi High Court judgment in case of Sophia Finance & Investment Ltd. had no application to the facts of the case; rather it helps assessed's case. On the other hand, SC judgment in the case of CIT v. Steller Investment Ltd. (2001) 251 ITR 265 (SC) : (2001) 115 Taxman 95 (SC), by which Delhi High Court judgment in CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del) has been approved".

7. The learned counsel further argued that when such voluminous documentary evidence stood filed before assessing officer in proof of the identity of all these companies, which evidence the assessing officer did not controvert by bringing any material/evidence on record in rebuttal, the approach of the assessing officer in doubting the identities of these three companies whose directors were not produced by the appellant, as alleged by him in his order, was patently wrong and erroneous. According to the submissions of the counsel of the appellant, the assessing officer misdirected himself in holding that the identity of a company, can be proved only when its director appears and admits that he/she was/is director. The assessing officer, according to the argument of the counsel, failed to appreciate that the proof of the identity of a company does not depend on appearance and admission of a director of a company that he is a director, but being a legal entity, having a separate and independent corporate existence, its identity is proved by the relevant documents. The counsel of the appellant proceeded to vehemently argue that the assessing officer was in palpable error in deriving support from the decision of the Full Bench of the Hon'ble Delhi High Court in, the case of Sophia Finance & Investment Ltd. (supra) to buttress his reasoning that as per this decision, the identity of a shareholder to be proved would include not only his physical identity but also his financial identity, that is to say, by the proof of genuineness of transaction of investment by him in the share capital of the company and his capacity to invest. The learned counsel argued that the assessing officer misread and misconstrued the ratio of this decision, and submitted that what the ratio of this decision lays down is that if the physical identity of the shareholder is proved and the fact that the shareholder made the investment is also proved, no further enquiry would be required to be made to prove the source of funds in the hands of the shareholder. Accordingly, the learned Authorised Representative submitted that when the assessing officer did not controvert the evidence furnished by the appellant before him in proof of the identity of each of these three companies and also furnished such documentary evidence which proved the genuineness of investment made by them, reliance by the assessing officer on the decision of the Hon'ble Delhi High Court in the case of Sophia Finance & Investment (supra) was misplaced, and this decision, in fact, supported the case of the appellant on the facts as proved by the appellant with documentary evidence.

8. The emphasis in the argument of the learned counsel of the appellant was that when the documentary evidence as furnished by the appellant with regard to these, three companies, namely, their respective balance sheets for the various relevant years included in the block period undisputedly proved that the investment made by the various shareholders in the share capital of these companies already stood disclosed to the department prior to the date of search, the assessment out of such disclosed share capital towards undisclosed income was not permissible under Chapter XIV-B. It was argued that no evidence, other than the share certificate(s) in question, was found during search or brought on record by the assessing officer, which showed that the appellant had not made any investment out of his own funds in the share capital of any of these three companies. It was further submitted that the circumstances under which these share certificates were found during search action under section 132 were duly explained by the appellant that as he was a professional having assignment of completing and dispatching share certificates, they were found in the premises of M/s. Alankit Assignments Ltd., of which the appellant was a director also explained to the assessing officer-

9. The learned Authorised Representative also informed the Bench that independent action under section 158BD had been taken by the department against all the above three companies, and in the case of the two companies, namely, M/s. Alankit Imaginations (P) Ltd. and M/s. Indradhan Agro Products Ltd., copies of block assessment orders are placed at page Nos. 21 and 22 and 14 to 20 of the paper compilation filed on 17-7-2002. It was, therefore, submitted that the impugned addition cannot stand and is liable to be deleted.

10. The learned Departmental Representative, in her reply, strongly relied upon the assessing officer's order to support the addition in question. The learned Departmental Representative also sought support from the original block assessment order and the various observations made therein about the alleged conduct of the appellant in relation to these companies to argue that the addition in question was fully justified and in order to support the protective assessment, the learned Departmental Representative placed reliance on the, decision, of Kerala High Court in the case of T.S. Sujatha v. Union of India (1999) 238 ITR 599 (Ker) and argued that as per this decision, protective assessment even under section 158BC of Chapter XIV-B is permissible to protect the interest of revenue. Therefore, she argued that no fault can be found with protective assessment of the share capital of these three companies whose directors failed to appear to confirm the transactions of investment in their respective share capital by the named shareholders as genuine.

11. In rejoinder to the learned Departmental Representative's reply, the learned counsel countered the submissions of the learned Departmental Representative that on the basis of the observation on the Hontle Bench in para (16) of the order in ITA No. 124(SS)/D/1997, it was clear that the learned Departmental Representative wrongly inferred that the appellant had taken upon himself to produce the various parties in the course of fresh assessment proceedings to be taken up pursuant to the order of the Hon'ble Tribunal setting aside the original block assessment in toto. It was, therefore, argued by the learned counsel of' the appellant that the addition made in the fresh block assessment order was not legally justified as protective addition, only because the directors of these companies were not produced by the a8sessee when the assessed had already requested the assessing officer in the course of original block assessment proceedings as well as also requested again in the fresh block assessment proceedings to, summon the directors of the companies vide copy of letter as placed at page Nos. 78 to 85, specific page No. 81 of the paper book. Countering the stand of the learned Departmental Representative who sought support on the observations of the assessing officer in the original block assessment order passed in the case of the appellant, which had been set aside by the 'E' Bench of the Tribunal in ITA No. 124(SS)/D/1997, the learned counsel vehemently argued that no reliance can be placed on any part of the original block assessment order which had been set aside in toto to justify any fresh addition by taking support there from as per the principles of law laid down and approved in CIT v. K. Keshwa Reddier (1989) 178 ITR 457, 460-61 (Ker) in which it was held as under the effect of reopening the assessment is to vacate or set aside the initial order of assessment and substitute in its place the order made in reassessment proceedings. The initial order of assessment cannot survive in any manner and to any extent. The result of reopening the assessment is that a fresh order of assessment should be made."

12. The focus of the learned counsel's submission, therefore, was that it was impermissible and incompetent on the part of the learned Departmental Representative to take any support from the original block assessment order at this stage when the appeal is being heard, as the original block assessment order after it was set aside has become non-existent and non est, for any purpose whatsoever, much less for the purpose of taking any support to justify an addition made in the present order under appeal now.

13. It was next submitted by the learned counsel that even on merits, various observations made by the assessing officer in original block assessment order as relied upon by the learned Departmental Representative were factually wrong inasmuch as the assessing officer had not conclusively proved those observationg made and the adverse inference drawn, otherwise the Tribunal would not have set aside the order. In fact, the assessing officer who has passed the impugned block assessment order has also not relied upon any of the observations made by the assessing officer in the original block assessment order. He has made the addition merely on the ground that the appellant had not produced the directors. Rather, the assessing officer accepted the fact that the appellant had filed the documentary evidence to prove their identities because all the three companies were being assessed to tax and each one of them had duly disclosed the share capital in their account books before the date of search.

14. Countering the argument of the learned Departmental Representative on the validity of the protective assessment supported by her on the ratio of the decision of the Kerala High Court, the learned counsel argued that facts in the case of T.S. Sujatha (supra) were not applicable to the facts of the case of the appellant because the judgment was delivered on a writ petition filed by the wife of the husband-assessed searched when the bank account in the name of the wife was found. When the husband failed to explain the source of deposits in the said bank account of wife, these deposits were added in the hands of the husband under section 158BC. When the husband disputed the addition in an appeal filed by him, the department also issued notice to the wife under section 158BD to assess the same amount of her bank account in her hands also, previously assessed as undisclosed income of the husband. The challenge to the issuance of the notice issued to wife under section 158BD in the writ filed by the wife was turned down by the Kerala High Court. Thus, the learned counsel emphasized that the facts in that case were different and distinguishable, because that was not the case where only protective addition had been made against the person searched before issuance of notice under section 158BD against another person. According to the learned counsel, the decision of the Madras Bench of Tribunal in (2001) 71 TTJ (Mad) 158 (supra) is directly in favor of the appellant because the Tribunal had specifically held that no protective assessment can be made under Chapter XIV-B.

15. In the next ground No. 1(b) another similar addition of Rs. 1,03,03,870 on protective basis out of share capital of the following seven companies as undisclosed income of the appellant has been challenged :

Rs.

M/s A to Z Assignments (P) Ltd.

25,000

M/s Excellent Securities (P) Ltd.

3,86,800

M/s Npar Cans (P) Ltd.

22,64,000

M/s Npar Drugs (P) Ltd.

19,58,070

M/s Real Overseas (P) Ltd.

6,70,000

M/s Vikas Polyester (P) Ltd.

25,00,000

M/s Vishesh Electronics (P) Ltd.

25,00,000

Total

1,03,03,870

The assessing officer has discussed the reasons and grounds in support of this protective addition in paras to (12) of the impugned order which read as under

"9. Addition of Rs. 5,42,21,070 as bogus share holdings

The books of accounts of the 23 companies were seized during the course of search operation. During the course of original assessment, the assessed was confronted to explain why these books of accounts were available in his premises or in the premises held by him and why not the capital raised in the accounts of these companies may not be held as his investment from undisclosed sources in the name of shareholders of these companies.

10. In the original assessment the assessed has replied that the assessed being a chartered accountant and engaged in the profession of audit of company matters was required to keep complete statuary records of his clients for compliance of various provisions of Companies Act, 1956. It is in this connection that the books of these companies referred to above were found from the assessed's premises. The assessed has not made any investment in the shares of these companies. A perusal of paper seized during the course of search would show that the documents found were in the process of completion. During the course of assessment proceedings, the assessed was allowed fresh opportunities to produce the directors of the company but he could produce only the directors of M/s. Akriti Media (P) Ltd. M/s. Transhead Electronics (P) Ltd., M/s. B.P. Marketing (P) Ltd., M/s. Rush Chemical (P) Ltd. and M/s. Pratishtha Images (P) Ltd. For the remaining he has only filed the acknowledgement receipts of filing the returns of income in various wards/circles.

11. Vide this office letter No. 512, dated 16-3-2001, a specific opportunity was given to the assessed to produce the directors of following 8 companies :

Name of the company

Amt. of share capital Rs.

M/s A to Z Assignment (P) Ltd.

25,000

M/s B.P. Marketing (P) Ltd.

11,20,500

M/s Excellent Security (P) Ltd.

3,86,800

M/s Npar Cans (P) Ltd.

22,64,000

M/s Npar Drugs (P) Ltd.

19,58,070

M/s Real Overseas (P) Ltd.

25,00,000

M/s Vikas Polyester (P) Ltd.

25,00,000

M/s Vishesh Electronics (P) Ltd.

25,00,000

1,14,34,370

12. A verification was made from the department, whereas it is found that in some cases only one return has been filed and in some cases return of income has only been filed on 19-3-2001. Out of the above companies, the director of B.P. Marketing (P) Ltd., Sh. Ashok Aggarwal, was produced and examined. Therefore, the identity of balance 7 companies is doubtful and the share capital of these companies as stated above to the tune of Rs. 1,03,13,870 is added back as undisclosed income of the assessed on protective basis."

16. Reiterating the similar submissions and arguments, the learned counsel of the appellant contended that there could be no valid assessment of any amount of share capital of any of these seven, companies on protective basis, since, protective assessment was impermissible and incompetent under Chapter XIV-B. Further, on merits, it was argued that on the basis of voluminous material and relevant documentary evidence having been filed before assessing officer in proof of the identities of all these companies, and also the fact that share capital stood recorded and disclosed in their respective account books before the date of search no addition out of the share capital of any of these companies was also warranted. Our attention was drawn to the bulk of documentary evidence filed along with submissions on facts before assessing officer and placed in the paper book filed before us, as mentioned in Synopsis-II, namely :

"1. (a) Statement of facts page Nos. 20-34 relevant page being 26.

(b) Appellant's letter dated 22-3-2001, page Nos. 78 to 85 (relevant page No. 81)

2(a) Copes of acknowledgement receipts in proof of filing returns of income by these five companies for various assessment years falling within the block period filed before assessing officer (placed at page Nos. 127 to 192 of the paper book) as under:

Name of the company

Page No. of the paper book

(i)

M/s A to Z Assignements (P) Ltd.

127-138

(ii)

M/s Excellent Security Services (P) Ltd.

139-158

(iii)

M/s Real Overseas (P) Ltd.

159-181

(iv)

M/s Npar Cans (P) Ltd.

182-187

(v)

M/s Npar Drugs (P) Ltd.

188-192

(b) Copies of balance sheets of these companies filed along with returns for various years, as aforesaid, as filed before assessing officer also in the course of original block assessment proceedings-again placed in the paper book filed before the Tribunal in ITA No. 124(SS)/D/1997 against the original block assessment, which paper book filed before assessing officer passing the impugned order under appeal (now placed at page Nos. 708-860 of the paper book) showing the fact that the share capital raised stood disclosed in their regular books and disclosed by filing balance sheets along with return before the date of search hence outside the purview of Chapter XVI-B as under :

Name of the Company

Page No. of the paper book

(i)

M/s A to Z Assignements (P) Ltd.

708-727

(ii)

M/s Excellent Security Services (P) Ltd.

728-775

(iii)

M/s Npar Cans (P) Ltd.

776-805

(iv)

M/s Npar Drugs (P) Ltd.

806-828

(v)

M/s Real Overseas (P) Ltd.

829-860

3(a) Alok Agarwal and Ashutosh Agarwal directors of M/s. A to Z Assignments (P) Ltd., were appearing before assessing officer time to time. No statement recorded by assessing officer even after having knowledge of their directorship in the company.

(b) Shri R.P. Agarwal, director of M/s. Excellent Security Services (P) Ltd., appeared before assessing officer on 12-3-2001. No question asked about the company (reference page No. 106, i.e., ordersheet entries of M/s. Alankit Assignments Ltd. paper book). Copy of statement applied for vide letter dated 6-9-2001 (placed at page No. 470), but not yet supplied by assessing officer.

(c) Shri Pankaj Agarwal, director of M/s. Real Overseas (P) Ltd., produced before assessing officer on 15-3-2001. No question asked about the company. Copy of statement placed at page Nos. 109-112. -

(d) Mukesh Gupta, director of M/s. Npar Drugs (P) Ltd. and M/s. Npar Cans (P) Ltd., appeared before assessing officer on 7-2-2000 (p. 468). No question asked about these companies (reference page Nos. 106 to 108) for his written reply to questionnaire).

4. Copies of the report of Income Tax Inspector, Shri Kishan Lal, deputed for verification of these companies and who submitted his report (certified copy of which applied for vide letter dated 6-9-2001 (placed at page No. 470), but not yet supplied by assessing officer) which confirms the existence of the companies on income-tax rolls.

5. Affidavit under rule 10 of the ITAT Rules of Shri Ashutosh Agarwal, Authorised Representative of the appellant, placed at page Nos. 472 to 474 of the paper book. (relevant p. 473, para 2(b)).

6. By making the assessment as protective, the learned assessing officer accepts that the amount added does not represent the undisclosed income of the assessed, as defined in section 158A of the Income Tax Act.

7. Even otherwise, legally, there cannot be protective addition under Chapter XIV-B.

8. Further, the share capital subscribed by various shareholders stood duly recorded in the account books of all the above seven companies before the date of search and, therefore, the same could not be treated as undisclosed income."

17. On the other hand, stand of the learned Departmental Representative even in respect of this protective addition was, by and large, the same as in respect of the preceding addition contested vide ground No. 1(a). The learned Departmental Representative relying upon and taking support from the original block assessment order and various observations made therein, contended that all these seven companies were related to the appellant. The validity of the addition made on protective basis was sought to be similarly supported on the decision of the Kerala High Court in the case of T.S. Sujatha (supra). The focus of the learned Departmental Representative was that the directors of these companies were close relatives of the appellant who was exercising control over them and the funds invested in the share capital of these companies flowed from the appellant and came back to the appellant through the various bank accounts in the name of various persons under his control. This was the position as per observations made in the original block assessment. The learned departmental Representative strongly relied upon the assessing officer's order and on the fact that the directors of these seven companies were not produced and hence the identities of these seven companies remained doubtful and, therefore, the addition was fully justified. She also relied on Bharti (P) Ltd. v. CIT (1978) 111 ITR 951 (Cal), Shanker Ind. v. CIT (1978) 114 ITR 689 (Cal), Nanak Chandra Lakshman Dass v. CIT (1983) 140 ITR 151 (All) and CIT v. Korlay Trading Co. (1998) 232 ITR 820 (Cal) for the proposition that mere filing of confirmatory letters did not discharge the onus that lay on the assessed and there was no material on record to establish the identity of the creditors and also on CIT v. K.T.M.S. Mahamood (1997) 228 ITR 113 (Mad) for the principle that under section 110 of the Evidence Act, the person who is found to be in possession of anything has to show that he is not the owner. She also further relied on CIT v. Sofia Finance Ltd. (Full Bench of Delhi High Court) (supra).

18. In the rejoinder, the learned counsel for the appellant reiterated the same argument on the validity of the protective assessment, contending that protective assessment was not permitted and authorized under Chapter XIV-B, and reliance by her on the decision of the Kerala High Court in the case of T.S. Sulatha (supra) was misplaced and the decision of the Tribunal in (2001) 71 TTJ (Mad) 158 (supra) directly covers the issue in favor of the assessed.

19. It was further contended that the learned Departmental Representative was factually incorrect in her submission that all the seven companies were related to the appellant and directors of these companies were close relatives of the appellant. It was submitted that except in the case of the company A to Z Assignments (P) Ltd., in which the appellant was one of the directors and Excellent Securities (P) Ltd. in which father-in-law of the appellant, namely, Sh. R.P. Agarwal was a director in his own independent right who was also a separate existing assessed, in none of the other five companies out of these seven companies, the appellant or any of his relations was a director. Moreover, all the above seven companies had already been in existence and assessed to tax independefitly in their own rights, and in the absence of any basis supported by documentary evidence, they could not be alleged to belong to the appellant as submitted by the learned Departmental Representative. Reiterating their similar argument as advance in respect of the ground No. 1(a), the learned counsel of the appellant strongly contended that no support is permissible to be drawn by the revenue from the original block assessment order after it became non est upon having been set aside in toto. Moreover, the assessing officer passing the impugned assessment order had also not mentioned anywhere the submissions raised by the learned Departmental Representative as regards non production of the directors of these 7 companies. The learned counsel made reference to and dew our attention to Synopsis-II to emphasise that the directors of the company, M/s A to Z Assignments Ltd., Shri Alok Agarwal, the appellant and Shri Ashutosh Aggarwal, his Authorised Representative were appearing before assessing officer who never questioned them on the affairs of this company, despite his knowledge that they were the directors. Likewise, Sh. R.P. Aggarwal, director in M/s. Excellent Securities Services (P) Ltd. appeared before assessing officer but was not questioned by assessing officer. Directors of the other companies also appeared before assessing officer as per submissions in Synopsis-II, but were not questioned by assessing officer.

20. It was next submitted by the learned counsel of the appellant that independent action against all these seven companies had also been taken under section 158BD and copies of orders passed in the case of these companies under section 158BC/BD were also furnished as placed at pp. 23 to 44 of the paper compilation filed on 17-7-2002.

21. The learned counsel for the appellant relied upon the following case law in support :

(a) Addl. CIT v. Thahrayamal Balchand (1980) 124 ITR 111 (Raj)

(b) CIT v. SMS Investment Corporation (P) Ltd. (1994) 207 ITR 364-367 (Raj)

For the proposition that the evidence that can displace legal presumption under section 132(4A), may be direct or circumstantial or both, and a mere statement of assessed may be enough in some cases.

(d) CIT v. Smt P.K. Noorjahan (1980) 123 ITR 3 (Ker) as affirmed by Supreme Court in CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC) (on the ingredients of section 69's applicability)

(e) Nathu Ram Premchand v. CIT (1963) 49 ITR 561 (All) (for the proposition that no adverse inference can be drawn against the assessed where he requests the assessing officer to issue summons under section 131, but the assessing officer either fails to do so, or having issued the summons, the witness does not turn up.)

(f) CIT v. Orissa Corporation Ltd. (1986) 159 ITR 78 (SC)

(g) CIT v. Stellar Investment Ltd. (supra)

(h) Full Bench decision of Delhi High Court in CIT v. Sophia Finance Ltd. (supra) for the proposition that no addition is to be made out of share capital of the company under section 68.

(i) L.R. Gupta v. Union of India (1992) 194 ITR 32 (Del)

(j) Sunder Agencies v. Deputy CIT (1997) 63 ITD 245 (Mumbai)

(k) Parakh Foods Ltd. v. Deputy CIT (1998) 64 ITD 396 (Pune)

(1) Essem Intra-Port Services (P) Ltd. v. Assistant CIT (2000) 72 ITD 228 (Hyd).

For the proposition as to "what is the undisclosed income which can be taxed under Chapter XIV-B."

(m) L. Saroja v. Assistant Commissioner (supra) (For the proposition that "In the scheme of Chapter XIV-B, there is no scope for protective assessment as between the person (with respect to whom search was conducted under section 132) and the person sought to be covered by the provisions of section 158BD).

(n) CIT v. Ravi Kant Jain (2001) 250 ITR 141 (Del) jurisdictional High Court (For the proposition that assessment of undisclosed income has to be based on evidence found as a result of search)

(o) Sheo Narain Duli Chand v. CIT (1969) 72 ITR 766 (All) (For the proposition that there is no presumption that witnesses appearing for an assessed come forward to give false-evidence to oblige the assessed.)

(p) Daulat Ram Raivat Mal v. CIT (1973) 87 ITR 349 (SC) (For the proposition that in the context of Benami property or beneficial ownership, the onus to prove that the apparent was not real was on the party who claimed it to be so).

22. The learned counsel distinguished the case law relied upon by the learned Departmental Representative vide Annexure-II to the written rejoinder dated 17-10-2002, as under :

The following case law are relied upon by the learned Departmental Representative had no application to the facts of 'A' case.

(a) Bharti (P) Ltd. v. CIT (supra)

Held : Mere filing of confirmatory letters did not discharge the onus that lay on the assessed and there was no material on record to establish the identity of the creditors.

(b) Shanker Ind. v. CIT (supra)

where the 'A' establishes the identity of the creditor and nothing more, cash credits can be treated as the income of the 'A' from undisclosed sources.

In the present case not only written confirmations have been filed, but other documentary evidence showing the identity and genuineness of transactions was also filed besides personal attendance in most of the cases. Hence, the above case law was not applicable to the facts of the case of the appellant. Further, the present proceedings relate to proceedings under Chapter XIV-B, where burden of proof that the assessed is liable to be assessed in respect of his undisclosed income as a result of evidence found in search lies on the revenue, Such evidence should be direct and conclusive and not merely raising suspicion.

(c) Nanak Chandra Lakshman Dass v. CIT (supra). It was held by Allahabad High Court, that mere confirmation letter from the alleged creditor was not sufficient to prove the genuineness of the loan but at the same time it also held as under at p. 152 :

Irrespective of the fact that a credit entry is in the name of a third party, the burden lies upon the assessed to explain the credit entry. In certain circumstances the onus might shift to the Income Tax Officer. For instance, if the assessed succeeds in showing that entries regarding cash credits in a third party's account are genuine and the sums were in fact received from the third party as loans or deposits, he has discharged the onus and in such a case it will be for the third party to explain the source of the moneys and that cannot be charged as the assessed's income in the absence of any material to indicate that they belong to the assessed.

(d) CIT v. Sofia Finance Ltd. (supra) Delhi High Court Full Bench. This has been discussed above by us at pp. 4 to 6 of the case law and also in our Synopsis-2. It has been misread by the revenue because on the facts of our case it helps the assessed. In view of the following part of this judgment :

If the shareholders are identified and it is established that they have invested money in the purchase of shares, then the amount received by the company would be regarded as a capital receipt and to that extent the observations in CIT v. Stellar Investment Ltd. (supra), are correct; but the observations in that case to the effect that even if the subscribers to the capital were not genuine .. under no circumstance could the amount of share capital be regarded as undisclosed income of the (company)", are not (see pp. 105E, F) (1997) 228 ITR 113 (Mad) (supra).

In this case, the principle laid down is that under section 110 of the Evidence Act, the person who is found to be in possession of any thing has to show that he is not the owner of it.

In this case, there is enough material/evidence brought on record showing that the assessed has discharged his onus of showing that he is not the owner of the bank accounts or the share capital of various companies, added in his hands.

(e) CIT v. Korlay Trading Co. (supra). Two following questions had been posed before the High Court vide p. 822. Question No. 1 had been answered in favor of the 'A' by relying on Supreme Court judgment in CIT v. Orisa Corpn. (P) Ltd. (supra) and, therefore, this Calcutta High Court judgment applies with all force to the facts of our case. Rather, the facts in 'A's case are on much stronger footing keeping in view the documentary evidence produced before the assessing officer with regard to all the issues which are neither been controversed nor disputed.

As regard question No. 2 it was decided against the 'A' because only a confirmation with regard to cash credit of Rs. 21,800 in the name of Kaushlya Devi Gupta had been filed and that too before Commissioner (Appeals) for the first time but no reference had been made either by Commissioner or by Tribunal in their respective orders and on these facts the High Court held that the cash credit had not been proved. The decision on question No. 2 is inapplicable, because over and above written confirmation filed, the assessed also filed other relevant documentary evidence showing the identity of the parties and genuineness of transactions, and in many cases, personal attendance was also procured before assessing officer for the personal deposition."

23. We have given our careful consideration to the submissions made on both the sides. We have also gone through the relevant documents placed on record and the relevant orders. In our considered opinion, both the additions of Rs. 1,29,21,000 and Rs. 1,03,03,870 as made by the assessing officer on protective basis have to be deleted on merits of the case. The documentary evidence furnished by the appellant before the assessing officer and also placed before us in the form of paper book and various compilations clearly prove that share capital as mentioned in the share certificates of 3 companies aggregating at Rs. 1,29,21,000 stood duly recorded in their regular account books before the date of search. These are being assessed to tax separately as per the documentary evidence placed on record. Their confirmatory letters had been duly filed before the assessing officer, copies of which are also placed in the paper book. Similarly, the share capital of 7 companies aggregating at Rs. 1,03,03,870 also stood recorded in their respective account books before the date of search. They too are already existing assesseds. Their confirmatory letters had also been filed before the assessing officer, copies of which have been placed on record. In other words, with regard to the above amounts, nothing was hidden from the Income Tax department when the search took place on 19-4-1996. Neither the assessing officer nor the learned Departmental Representative could rebut the above facts and documentary evidence. Therefore, provisions of Chapter XIV-B could not be made applicable. As regards, objection of the assessing officer that identity of the aforesaid 3 and 8 companies had not been established also cannot be sustained for the simple reason that they were corporate entities and admittedly existing separate assesseds and were also filing their annual returns with the Registrar of Companies as per the evidence placed on record.

24. So far as non-production of the directors of such companies are concerned, no adverse inference could be drawn against the appellant firstly, because the appellant did make request before the assessing officer to summon them and further we also find that some of the directors had also actually appeared before the assessing officer-a fact ignored by him. Above all, the assessing officer having made both the additions on protective basis it cannot be held that the amounts represented undisclosed income of the appellant conclusively. The fact that assessments have already been completed under section 158BD of the Income Tax Act in the above cases, also lends support to the case of the appellant that the additions as made by the assessing officer could not represent appellant's undisclosed income. Both the additions are, therefore, deleted on the facts of the case as discussed above.

25. The next ground No. 1(c) objects to addition of Rs. 3,95,405 on account of cash deposits in the bank account of minor son Ankit with Benaras State bank Ltd. The reasons for making this addition as undisclosed income of the appellant as per assessing officer appear in para (14) on pp. 6-7 of the block assessment order under appeal. From the perusal of these reasons it is clear that the assessing officer held that the cash deposits to the tune of Rs. 3,95,405 have been made for the block period as they had not been examined during regular assessment proceedings and Ankit Agarwal, being minor son of the appellant, had no known source of income.

26. The learned counsel drew our attention to the factual situation submitted vide Synopsis-2. It was submitted that regular returns of income of the appellant's minor son were being filed independently up to assessment year 1992-93, (vide acknowledgement receipts-copies placed at page Nos. 204-223 of the paper book) duly accompanied with the balance sheets of each year of the minor prepared from the minor's separate books of accounts, kept and maintained in the regular course. In these balance sheet (copies placed at page Nos. 224-234 of the paper book), the said bank account of the minor stood disclosed in each year. From assessment year 1993-94, since there was an amendment of law providing for clubbing of income of minors with parents, the income of the minor was clubbed with the income of the appellant as father of the minor, but a separate balance sheet of the minor was continued to be filed disclosing the bank account of the minor in the Benaras State bank Ltd. Thus, the learned counsel of the appellant submitted that this bank account stood disclosed to the department prior to the date of search. Further, all the transactions made in and through this bank account were duly recorded in the books of the minor kept and maintained for each year in the regular and normal course. It was, therefore, strongly contended that this bank account and transactions made therein having been recorded in regular books of the minor and disclosed to the department before the date of search, no addition out of the disclosed bank account could be made under section 158BC, because it is only the income which is kept hidden and undisclosed from the department that can be the subject-matter of addition as undisclosed income ufider Chapter XIV-B. The learned counsel took us through all the documentary evidence filed before assessing officer and also referred to in Synopsis-2 to bring home the point that this bank account of the minor was already disclosed to the department prior to the date of search.

27. The learned Departmental Representative placed reliance on the assessing officer's order.

28. We have considered the rival submissions and documents on record. We find that the evidence referred to by the learned Authorised Representatives of the appellant showing that this bank account in the name of the minor son, Ankit, stood already disclosed to the department is not controverter by the assessing officer and/or the learned Departmental Representative during the hearing. The only ground that is considered by the assessing officer in this regard is that there is no known source of income of the minor which we find is incorrect in view of the facts that are submitted by the learned Authorised Representatives which go uncontroverter by the revenue. We are of the view that the provisions of Chapter XIV-B cannot be applied to bring to tax income out of disclosed bank account. If the assessing officer feels that there was no proper sources of funds deposited in cash in this bank account of the minor, though the same were through regular account book, the remedy to bring such unexplained deposits to tax cannot be found under Chapter XIV-B, the provisions of which authorize taxation of undisclosed income out of undisclosed transactions of investment.

29. Hence, we hold that the impugned addition of Rs. 3,95,405 made by assessing officer was without justification on the facts and in the circumstances of the case, the same is deleted.

30. The next ground of appeal No. 1(d) is against the addition of Rs. 65,53,175 being the peak credits in various bank account holders made by the assessing officer on the basis of their blank signed cheque books found and seized during the course of search and seizure operation under section 132(1). The assessing officer considered the issue by making following observations

"15. Addition of Rs. 2,25,31,868 on account of blank signed cheque books.

During the course of search 52 blank cheque books signed were found and seized. The cheque books seized were verified and found that these were blank but fully signed by every account holder. The assessed was asked to explain why there were found from his possession.

16. The assessed in his reply stated that these belong to his clients who gave him for finalizing their Income Tax returns. On 28-3-2001, the assessed has filed a letter in which he has stated that this addition in not justified in his hands but if any addition is to be made it ought to be confined to peak of credits of these accounts. During the original assessment proceedings assessed could not produce these persons for examining; even presently he could produce following account holders :

Name of the account holders

Peak amount Rs.

Tania Singh (Rajbir Singh)

50,972

Harinder Kaur (Rajbir Singh)

66,302

Pankaj Agarwal

56,106

Manoj Agarwal

1,02,123

Manoj & Sons

2,84,254

Ashok Agarwal

2,90,000

Ashok & Sons

3,56,195

12,05,952

31. For the others he has filed only confirmations which are not conclusive evidence to prove the identity, genuineness and capacity of the account holders in spite of number of opportunities given to him, Total peak credit has been worked out at Rs. 74,59,127 as per annexure attached to this order. The assessed had produced the above said 7 persons who were examined and total peak credit in their accounts is computed at Rs. 12,05,952. The credit of this amount is given to the assessed and the balance amount of Rs. 62,53,175 Rs. 74,59,127 - Rs. 12,05,952) is treated as undisclosed income of the assessed.

31. Before us, the learned counsel clarified that the appellant is a partner in the firm known as M/s Alok & Co., practicing as chartered accountants having 40 per cent shares. During the search, 52 signed cheques were found and seized by the Income Tax department. Before the assessing officer, the appellant explained that all such bank account holders whose cheque books were found were clients of the firm M/s Alok & Co. CA who had left their cheque books with the appellant for payment of their taxes, etc., and for preparation of returns. In the course of hearing of appeal, the learned counsel for the appellant took us through various documentary evidence as filed before the assessing officer as per details given in the Synopsis-2 as reproduced below :

"2. Appellant's letter dated 22-3-2001 (placed at page Nos. 86 to 91) and letter dated 23-3-2001, filed before assessing officer (placed at page Nos. 75-77).

3. Written confirmations from the account holders along with their complete address (who did not appear in person), owned up their respective bank accounts by sending in their written confirmations along with supportive documentary evidence regarding their identity and assessment particulars, as filed before assessing officer and placed at page Nos. 244 to 437 of the paper book. Relevant page number each person-wise is annexed herewith as Annex-1.

4. Copy of letter dated 17-8-1999, filed before assessing officer in the course of original assessment proceedings explaining circumstances under which 52 signed cheque books were found, placed at page Nos. 39 to 56 (relevant page Nos. 51 and 52) of the paper book).

5. Copies of affidavits filed by common representatives of the group of these account holders which had been filed before the Tribunal and also placed again before assessing officer now placed at page Nos. 861 to 868 of the paper book.

6. In the course of proceedings, the assessing officer, required the appellant orally to produce some of the account holders who were produced. The appellant voluntarily made a prayer vide its letter dated 22-3-2001, placed at page Nos. 86 to 91 to summon the account holders, even though confirmations supported by documentary evidence had been filed. Kindly see p. 90 of the paper book. Therefore, no adverse inference could be drawn against the appellant in view of Allahabad High Court judgment in Nathu Ram Premchand v. CIT (1963) 49 ITR 560 (All) & E.M.C. (Works) (P) Ltd. v. ITO (1963) 49 ITR 650 (All).

7. The presumption under section 132(4A) being made against appellant because of the blank signed cheque books having been found. This is a rebuttable presumption as held in various case law given below. The appellant by placing on record had discharged his onus in rebutting the presumption by filing documentary evidence, not disproved by assessing officer.

(i) Pushkar Narayan v. CIT (1990) 183 ITR 388 at 392 (All)

(ii) CIT v. S.M.S. Investment Corpn. (P) Ltd. (1994) 207 ITR 364 at 367 (Raj)

(iii) CIT v. S.M.S. Investment Corpn. (1988) 173 ITR 393 (Raj)

(iv) Addl. CIT v. Thahrayamal Balchand (1980) 124 ITR 111 (Raj)

8. Assessing officer had not brought any evidence on record to prove his presumption that the bank accounts of such persons actually belong to the appellant or the amount deposited therein belong to the appellant.

9. The ground of making addition was that the peak credit in the bank accounts of these account holders who did not appear in person was picked up for making the inpugned addition. Even on such basis, the addition was improper, as the assessing officer added peak credits from the bank account of some of the account holders who appeared through their representatives, was also made, as averred by the Authorised Representative in his affidavit placed at page Nos. 472, to 474 of the paper book.

33. The learned counsel further submitted that no adverse inference could be drawn against the appellant if the assessing officer had not acceded to the request of the appellant to summon such account holders in whose accounts that deposits were made. It was emphatically argued by the learned counsel that no evidence whatsoever has been brought on record by the assessing officer either to show that their bank accounts had been opened by the appellant or that any of such amounts deposited in their bank account had been given by the appellant or any withdrawal made from such bank accounts had come to the appellant. Moreover, all such account holders were also being assessed to tax in their own rights before the date of search and they had duly disclosed such bank account in their account books, and also before the Income Tax department before the date of search as stood proved from the relevant evidence of their being assessed to tax, and their balance sheet, etc. placed at pp. 244 to 437 of the paper book and compilation filed with appellant's letter dated 13-9-2002, in the course of hearing of appeal. The mere fact that some of the bank account holders could not be produced though their confirmatory letters Along with supporting documentary evidence have been duly filed could not be made the basis for making the impugned addition as undisclosed income of the appellant. It was further clarified that some of the account holders had also appeared before the assessing officer in the course of impugned assessment proceedings and yet addition was made in such cases also.

34. The learned Departmental Representative relied on the observations made in the original block assessment order and also the impugned block assessment order, and emphasized that non-production of some of the bank account holders before the assessing officer by the appellant did entitle the assessing officer to make the impugned addition.

35. In written rejoinder, the appellant's counsel while reiterating all their pleas, submissions and contentions further submitted as under :

"(1) That such cheque books having been found from the premises M/s Alok & Company, 234, DDA Office Complex, Jhandwalan Extn., New Delhi, a partnership firm of chartered accountants in which the appellant was a partner having 40 per cent share (such premises were on rent with Alok & Company, even presumption under section 132(4A) against the appellant was not available to the, revenue. At any rate such presumption even if held to be against the assessed had been discharged by filing assessed's explanation which stood proved from the statements of the account holders as recorded and/or from the documentary evidence filed by the appellant as mentioned in Synopsis-2.

(2) That no cognizanse should be taken of the original block assessment order or allegations made therein by the learned Bench.

(3) That even if the allegations made in the original block assessment order are permissible to be considered in these appellate proceedings by the Hon'ble Bench as urged by the learned Departmental Representative, these, as they are, vague and unproved, ought not to be held as conclusively proving the appellant as the owner of the bank accounts of such account holders.

(4) That since addition in the case of the remaining account holders is made by assessing officer only on the ground that they were not produced for personal deposition, while their written confirmations owning up their bank accounts were filed and which are not controverter by the assessing officer or by the learned Departmental Representative, the learned assessing officer failed in his duty to summon them as was requested by the appellant vide his letter dated 22-3-2001, placed at page Nos. 86 to 91.

It is most humbly urged that the appellant discharged initial onus resting upon him to displace and rebut the presumption arising out of these seized material, and it was for the learned assessing officer to prove by conclusive legal evidence that the appellant was the legal as well as the beneficial owner of these bank accounts, and the funds were provided by him. The material which is referred to by the learned Departmental Representative as mentioned in the original block assessment order may be sufficient to raise suspicion, may be strong suspicion, but the same does not and cannot amount to proof required for justifying and sustaining impugned addition.

The appellant places reliance on the various case law being submitted-along with this rejoinder vide separate Annexure-II."

36. We have given our thoughtful consideration to the facts as stated and the submissions made by both the sides. We have also perused various documentary evidence placed on record. We find that the addition of Rs. 2,24,31,868 with reference to the bank accounts for which the signed blank cheque books as found had been made by the assessing officer but in the impugned fresh assessment order, he has made an addition of Rs. 62,53,175 only on peak basis on the only ground that some of the bank account-holders had not been produced though he concedes that for such accounts also confirmations had been duly filed. We find that along with the confirmations, the appellant had also filed various evidences to prove the identity of such bank account-holders in the form of ration card/identity cad, PAN cards/driving licenses, besides acknowledgement receipts for filing of Income Tax returns by them, balance sheet and other particulars filed with returns and their assessment orders, etc. Neither the assessing officer nor the learned senior Departmental Representative could rebut such documentary evidence before us. Therefore, on the facts, we hold that the assessing officer is wrong in holding that the appellant had not proved the genuineness and capacity of the account-holders before him. Further, we also find that the some of the account-holders in whose accounts the impugned addition has been made had also appeared before the assessing officer but this fact has been ignored by him. Presumption as available under section 132(4A) is also available to the appellant that such bank accounts belong to the persons in whose names they stood, particularly when neither any other seized paper nor any evidence had been brought to our notice to show that such bank accounts actually belong to the appellant. Not even a single transaction vis-a-vis such bank accounts had been shown to us for linking the appellant with such bank accounts as an owner. The assessing officer himself has accepted many of such bank accounts as not belonging to the appellant where such bank account-holders had appeared before him. In other words, the assessing officer himself has accepted the explanation of the appellant that blank signed cheque books had been left by them for preparing their returns because they also contained the counterfoils for the issued cheques which were necessary for preparation of their balance sheet and income-tax returns, etc. On mere suspicion, the assessing officer was not justified in holding that the peak of such bank accounts represented undisclosed income of the appellant. In fact, such accounts having already been disclosed to the Income Tax department by each one of them before the date of search did not entitle the assessing officer to invoke provisions of Chapter XIV-B. Undoubtedly, the onus to prove conclusively that such bank accounts belonged to the appellant lay on the revenue which had not at all been discharged. On the facts of the case and the material brought on record, we have, therefore, no hesitation in deleting the addition made by assessing officer.

37. Next ground of appeal No. 1(e) is directed against addition of Rs. 9 lacs made on account of seized material as per discussion of assessing officer appearing on p. 8 vide paras (18) and (19) of the impugned order. The assessing officer referred to the seized material (copies placed at pages Nos. 438 to 442 of the paper book) which relate to cash receipt signed by the appellant in acknowledgement of loans received by the appellant through Shri N.L. Goyal. The assessing officer held that no explanation was filed by the assessed to justify the cash payment returned back to the creditor. In absence of any evidence and explanation, an addition of Rs. 9 lacs is made as income from undisclosed sources.

38. The learned counsel for the appellant contended that in the original block assessment order, only Rs. 4 lacs were added on the basis of the above seized material, which is enhanced now by Rs. 5 lacs to Rs. 9 lacs in the impugned fresh assessment order. The learned counsel argued that the seized material only constituted evidence of loan received by the appellant and loan cannot represent income. Thus, the addition of the amount of loan as representing undisclosed income of the appellant was patently wrong. The reason given by the assessing officer that the assessed failed to furnish any evidence or explanation to justify cash payment returned back to the creditor is not sound and legal. The assessing officer failed to refer to any evidence found during the search or otherwise brought on record that there was cash payment by the appellant out of his unaccounted cash to the creditors as assumed by him. The conclusion of the assessing officer was not supported by any evidence and the addition was based on mere suspicion, conjectures and surmises. It was further contended that N.L. Goyal was assessed by the same assessing officer. It was, therefore, urged by the learned counsel that from whatever angle the matter is viewed, the nature of the seized material could not lead to assessment of loans as undisclosed income of the appellant and the onus that lay on the assessing officer to prove that the amount that is assessed as undisclosed income of the appellant on the basis of this seized material, remained miserably undischarged.

39. The learned Departmental Representative relied upon the order of assessing officer.

40. We have carefully considered the rival submissions and have perused the seized material which only indicate that the appellant had taken loans in cash from various parties through Sh. N.L. Goyal and there cannot be any legal basis to treat these cash loans as income of the appellant and that too, undisclosed income, without further evidence and material showing that these loans involved the unaccounted money of the appellant in any manner. As no further evidence was found/collected by assessing officer, the assessing officer only justified the impugned addition on surmises and conjectures and not on any positive evidence. The addition of undisclosed income under Chapter XIV-B can be validly made on cogent and positive evidence and not on surmises or suspicion. From copy of assessment order of Sh. N.L. Goyal placed on record, we find that he had been assessed to tax by the same assessing officer on substantial income. Presumption under section 132(4A) that the appellant had received the amount as loan was also in appellant's favor. This addition is admittedly not founded on any, cogent evidence and accordingly we delete the same.

41. Vide ground No. 1(f), addition of Rs. 9,26,771 out of children savings made is contested. The assessing officer has dealt with this issue in para (20) of his order on p. 8. The assessing officer states in his order that the assessed has given the details of Rs. 20. 10 lacs as the savings of his children at p. 4 of Annexure A-2 diary found and seized from residence. Out of total amount of Rs. 21.10 lacs, the investment in the hands of Akriti, minor daughter of the assessed, is not explained as she has no source of income being minor. It is further stated by the assessing officer in his order that : "Although the assessed has taken the plea that investment has been declared in the regular returns of the assessed, but the source of investment in the hands of Akriti, minor daughter, has never been examined in regular returns for the block period as these were accepted under section 143(1)(a). Therefore, the investment of Rs. 9,26,771 is treated as undisclosed income of the assessed."

42. It was submitted by the learned counsel of the appellant that like Ankit, the minor son of the appellant, regular returns of income of the minor daughter, Akriti of the appellant, were also being filed independently upon assessment year 1992-93, (vice acknowledgement receipts-copies placed at page Nos. 443 to 448 of the paper book) duly accompanied with the balance sheets of each year of the minor prepared from the minor's separate books of accounts, kept and maintained in the regular course. In the balance sheet (copies placed at page Nos. 449 to 454 of the paper book) all the investments made out of funds of the minor had been disclosed year after year. From assessment year 1993-94, since there was an amendment of law providing for clubbing of income of minor with parents, the return of income of the minor was clubbed with the income of the appellant as father of the minor, but a separate balance sheet of the minor was continued to be filed disclosing the bank account of the minor in the Benaras State bank Ltd. Thus, the learned counsel of the appellant submitted that all the details and particulars of the investment of the minor stood disclosed to the department prior to the date of search. The source of all such investment was also declared/entered in the regular books of account of the minor on the basis of which computation of return of income and the balance sheets of the minor were prepared and filed before search. Thus, all the investments with the source thereof already stood recorded in the regular books of the minor prior to the date of search and their particulars likewise stood disclosed vide the minor's balance sheets filed for years, prior to the date of the search. It was, therefore contended that no addition was called for out of such disclosed investment of the minor as undisclosed income of the appellant under Chapter XIV-B.

43. The learned Departmental Representative relied upon the order of assessing officer.

44. We are inclined to agree with the learned counsel of the appellant that the evidence filed by the appellant regarding the investments having already been disclosed in the balance sheets of the minor filed along with her independent returns up to assessment year 1992-93 and thereafter along with the returns of the appellant in whose hands income of the minor was to be clubbed is not rebutted by the assessing officer or by the learned Departmental Representative. We are of the view that the provisions of Chapter XIV-B cannot be applied to bring to tax income out of disclosed investment of the minor. If the assessing officer feels that there was no proper source of investments of the minor, the remedy to bring to such unexplained amount if any of the minor to tax cannot be assessed under Chapter XIV-B, the provisions of which authorize taxation of undisclosed income out of undisclosed transactions of investment. We, therefore, have no hesitation in deleting the said addition.

45. The last three additions under contest are vide ground 1(g) Rs. 57,102 is on account of unexplained jewellery, vide ground No. 1(h) Rs. 1,44,365 being the value of unexplained investment in diamond and vide ground No. 1(i) in the sum of Rs. 1,00,000 on account of unexplained investment in silver. As regards the unexplained jewellery of Rs. 57,102, the only evidence filed by the appellant is his own affidavit (copy placed at page Nos. 455 and 456 of the paper book) that this jewellery belonged to his HUF. The HUF of the appellant was an existing assessed, while there was no disclosure made to the department about the said jewellery. Hence, the assessing officer was justified in making the addition of Rs. 57,102 and we also do not have any hesitation in confirming this addition.

46. As regards the silver and diamond, it is brought to our notice by the appellant that these valuables were found and seized from the bank lockers along with their purchase bills and that no evidence had been found by the search term that the appellant had made payments of the cost of the same from his unaccounted funds. The additions were made only on the ground that the payments were made after search and no evidence about non-payment before the date of search having been given, their values represented the undisclosed income of the appellant.

47. The appellant's counsel referred to the documentary evidence placed on record as per Synopsis-2, which included the Panchnama vide which the bills of purchase of diamond and silver was found and seized at page Nos. 457 to 460 of the paper book. Copies of bills of purchase seized along with diamond and silver, placed at page Nos. 461 to 463, copy of bank statements showing payments made through the regular bank account of the appellant after the date of search-placed at p. 461 of the paper book and copy of confirmations and receipts from the parties selling these goods in evidence of the fact that they received payment after the date of search as placed at pp. 870-871 of the paper book.

48. The learned Departmental Representative only relied upon the order of assessing officer.

49. On careful consideration of the facts as stated above supported by the documentary evidence we have no hesitation in deleting the additions of Rs. 1,44,365 and Rs. lakh because no seized papers were found during search to show that the appellant had actually made the payments before the date of search. The appellant has proved the payment as made after the date of search through appellants bank account. Hence, both the additions are, therefore, deleted.

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