Delhi High Court

The Commissioner Of Income Tax vs Smt. Bela Jain on 30 September, 2010

Author: A.K.Sikri

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

                        ITA No. 986 OF 2005
                                 &
                        ITA NO. 989 OF 2005

%                             Date of Decision: September 30, 2010.

    (1)    ITA No. 986 OF 2005

The Commissioner of Income Tax                     . . . Appellant

                       Through :        Ms.  Prem      Lata    Bansal,
                                        Advocate
                              VERSUS
Smt. Bela Jain                                     . . .Respondent

                       Through:         Mr. Ajay Vohra with Ms.
                                        Kavita Jha, Ms. Akanksha
                                        Aggarwal and Mr. Somnath
                                        Shukla, Advocates.
    (2)    ITA NO. 989 OF 2005

The Commissioner of Income Tax                   . . . Appellant
                  Through :             Ms.  Prem     Lata   Bansal,
                                        Advocate

                              VERSUS
Smt. Bela Jain                                     . . .Respondent

                       Through:         Mr. Ajay Vohra with Ms.
                                        Kavita Jha, Ms. Akanksha
                                        Aggarwal and Mr. Somnath
                                        Shukla, Advocates.
CORAM:-

      HON'BLE MR. JUSTICE A.K. SIKRI
      HON'BLE MS. JUSTICE REVA KHETRAPAL

1. Whether Reporters of Local newspapers may be allowed to see the Judgment?

2. To be referred to the Reporter or not?

3. Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J.(Oral)

By this common order, we propose to decide these appeals.

Keeping in view the commonality of the question, the parties and the

impugned order of the Tribunal, instead of referring the facts of each

case, our purpose would be served by taking note of the facts from

ITA 986/2005.

1. On 1st February, 1995 the residential premises of the assessee

and other premises of the Bigjos Group with which the assessee is

connected, were searched. During the search, statement of the

assessee was recorded under Section 132 (4) of the Income-Tax Act.

This statement reads as under:-

"Q.I am explaining to you the provisions of Explanation 5 to Section 271 (1) (c) read with section 132 (4) of the I.T. Act. Do you want to avail this opportunity?

A. I have understood the provisions. I want to avail this opportunity and declare income as under:-

(a) There are total deposits of ` 92,65,700/- in different companies towards share capital under different names as under:-

         Name    of       the   Financial      Years
         company
           A
           l
           l                                                            94-95
                                   91-92       92-93      93-94
           t
         Beejay Traders                                                860,000
            h
         Bigi Jos Overseas                                             45,000
            s
         Big Jos Stores
                                              900,000
           i
         Double
           n     Marketing
                                 14,15,700    7,20,000
           v
         Bigjos Estates                                               4,25,000
           e                                             1,55,0000
           s
         Bigjos Securities                                            8,50,000
           t                                             8,00,000
           m
         Total                                                        33,20,000
           e                     14,15,700   16,20,000   29,10,000
           n                                 TOTAL
           t                                             92,65,700
                                             :RS

All this investment of ` 92,65,700/- has been actually earned by me in the current period

because the actual payment for the acquisition of all the shares invariably have been made in the current year 1994-95; though on paper part of the shares might have been acquired in the earlier years. The investment for acquisition was from income from other sources. This disclosure has been made voluntarily and is over and above the normal business income. Necessary taxes will be paid as per law."

2. On the basis of this statement, notice under Section 148 was

issued to the assessee. It was on the premise that the assessee had

filed the Income-Tax Return only till the assessment year 1993-94

and thereafter, she had not filed the return. The Assessing Officer, in

these circumstances, wanted to investigate the matter. As is clear

from the aforesaid statement, the assessee had stated that shares

were purchased by certain persons in respect of the companies

mentioned in the tabulated charge extracted in this statement during

the financial years 1991-92, 1992-93,1993-94 and 1994-95. Different

amount was spent by those persons (whose particulars are not

available on record) in these years. However, as per the statement,

these persons were paid the entire amount of ` 92,65,700/- „in the

current period‟ i.e. in the financial year 1994-95 (corresponding to

assessment year 1995-96). The notice under Section 148 was issued

in respect of the assessment year 1994-95 (corresponding to

financial year 1993-94). The „Reasons to Believe‟ which form the

basis for issuance of that notice read as under:-

"During the course of search Smt. Bela Jain in her statement u/s. 132(4) of the I.T. Act admitted to have paid out unaccounted cash of ` 92,65,700/- to certain people in exchange for cheques received

from them towards contribution to the share capital of various companies floated by Big Jo‟s group. Subsequently Smt. Bela Jain retracted her statement claiming it to have been made under coercion and threat. During her statement she had specifically mentioned that she had paid money during financial year 1994-95 in cash in lieu of cheques received during the financial year 1993- 94 for the following companies:-

1.Double Marketing Royalty ` 5,60,000/-

2.Big Jo‟s Estates ltd. ` 5,50,000/-

3.Big Jo‟s Securities & Credits Pvt. Ltd. ` 8,00,000/-

TOTAL ` 29,10,000/-

Smt. Bela Jain had filed her return of income only upto asstt. Year 1993-94. She has shown income from property, shares from registered firm as well as profit from Haryali Nursery in her personal return, apart from income from other sources such as dividend, etc. During the search some stock discrepancies in respect of Haryali Nursery was also detected. In order to assess the receipt of share capital into the group companies of Big Jos group during the financial year 1993-94 vis-à-vis the admission of Smt. Bela Jain of having made cash payments against cheques receipts, it is necessary to bring on record her return of income for the asstt. Year 1994-95, which has not yet been filed, as per this office record.

Issue notice u/s 148 accordingly"

3. The Assessing Officer thereafter proceeded with the

assessment and passed assessment orders on 31st March, 1998. In

respect of this assessment year, he added an income of ` 23,50,000/-

giving following basis:-

"As discussed in the separate assessment orders of the Big Jo‟s group of companies, the share capital introduced by those group of companies are primarily repaid in cash by the directors of the companies. The total capital paid by the directors are Rs 23,50,000/- for the simple reason that she is the director who had repurchased the share capitals from the bogus shareholders. The addition made on this ground is worked out to Rs. 23,50,000/-".

As noted above in the statement, the assessee had mentioned

in her statement that in respect of assessment year 1994-95, shares

of ` 29,10,000/- were purchased for which cash was paid in the

assessment year 1995-96. However, the Assessing Officer made an

addition of ` 23,50,000/- but did not provide any reason for doing so.

4. The assessee preferred appeal thereagainst before the CIT

(Appeal) and raised following submissions.

In the first instance, she challenged the validity of proceedings

initiated under Section 147 of the Act itself. Her submission was that

there was no basis for issuing such notice, inasmuch as; (a) the

notice was issued on wrong premise that the assessee had not filed

return for the assessment year which was in fact filed; (b) there was

no nexus with the issuance of notice in respect of assessment year in

question when the statement was recorded.

The addition was challenged on merits as well. The CIT (Appeal)

repelled the challenge to the validity of the proceedings under

Section 147 of the Act. According to him, even if the assessee had

filed the return for the assessment year in question, the fact

remained that she had not declared any income on account of cash

paid to the subscribers of capital in the said return. Therefore, even

after the assessee rectified the mistake by bringing the correct facts

in the notice of the Assessing Officer, the reasons for the belief of

escapement of income, represented by the unaccounted cash paid to

the subscribers of capital, remained intact and unaffected.

5. In so far as second plea on the basis of which initiation of these

proceedings were challenged, the CIT (Appeal) was of the view that

though in the statement the assessee had stated that she had paid

the entire cash in the financial year 1994-95, that could not be

believed. According to him, the Assessing Officer was right in his

belief that a dummy subscriber would not subscribe without receiving

the cash first. Therefore, even if the assessee had stated that entire

cash for all these four years was paid only in the last year i.e.

financial year 1994-95, the Assessing Officer could have assessed

that cash must have been paid before subscribing the share capital

by the dummy subscribers. Thus, according to the CIT (Appeal),

issuance of notice for the assessment year 1994-95 in respect of

shares subscriber relating to that year was valid. On merits,

however, the CIT (Appeal) denounced the approach of the Assessing

Officer on the ground that the discussion incorporated in the order

while making assessment of the group companies could not form the

basis of addition. Moreover, addition of ` 23,50,000/- was made for

which no basis or justification was given by the Assessing Officer.

There was no discussion either as to why the addition to the extent of

aforesaid amount was made when the shares were purportedly

subscribed to the tune of ` 29.10 lacs. According to him an

examination of the assessment record of the assessee was necessary

and no material pertaining to this issue was confronted to the

assessee at any stage. He accordingly remitted the case back to the

Assessing Officer on this issue.

6. Both the assessee as well as the revenue has filed an appeal

against the aforesaid order of the CIT (Appeal). The Tribunal first

took up the issue regarding initiation of the proceedings under

section 147 of the Act and agreed with the assessee‟s submission. It

has held that the very notice issued under Section 148 of the Act was

illegal and thus quashed the assessment on this ground. For this

reason, ITAT has not touched the merits of the case.

7. In the opinion of the Tribunal, there was no material before the

Assessing Officer, apart from the solitary statement of the assessee

recorded under Section 132 (4) of the Act at the time of search.

However, the Assessing Officer had not acted on the basis of the said

statement. The facts disclosed above would show that the statement

was accepted only to the extent that cash was paid. At the same

time the part of the statement that this entire cash was paid in the

financial year 1994-95 was not accepted. That could not be the basis

of the issuing the notice under Section 148 of the Act. If the

statement was to be accepted on its face value, then according to

that statement entire cash was paid in the financial year 1994-95

and, therefore, addition, if any, could have been made only in the

assessment year 1995-96 and there was no reason for re-opining the

assessment in respect of assessment year 1994-95.

8. After hearing the counsel for the parties, we are of the opinion

that the approach of the Tribunal is without blemish. Section 132 (4)

of the Act reads as under:-

"The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922) or under this Act"

9. It is an admitted case that during the search no books of

accounts or documents or money or bullion or jewellery or any other

valuable articles or things were found. As pointed above, it is the

solitary statement of the assessee, which too was retracted

immediately thereafter. Furthermore, apart from this statement there

was no particulars coming forward namely who are the dummy

subscribers, whether shares from the so called dummy subscribers

were transferred in the name of the assessee or assessee remains

the benami owners thereof and is in the control and possession of

those shares etc. No such questions were even put by the Assessing

Officer to the assessee after recording the statement. Thus the only

material for issuance of the notice under Section 148 was this