TMI Blog2008 (7) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... gh (HUF). It arises out of the assessment made on it under section 143(3) of the Income-tax Act, 1961, by order dated March 27, 2001. In this assessment order, an addition of Rs. 16,80,475 was made under section 68 of the Act. The amount represented sale proceeds of jewellery which had earlier been disclosed under the Voluntary Disclosure Income Scheme, 1997. The jewellery was shown to have been sold to M/s. Bishan Chand Mukesh Kumar, a firm of jewellers located in Delhi. The Assessing Officer disbelieved the sale and held that the assessee has adopted a device to introduce his own unaccounted income into the regular books. The addition was confirmed by the Commissioner of Income-tax (Appeals) and the assessee has come in further appeal before the Tribunal. The hon'ble President took into account the recommendation of the Amritsar Bench of the Tribunal dated December 18, 2006 and also the fact that the matter was of public importance and by order dated March 8, 2007, referred the aforesaid appeal to a Special Bench consisting of five Members to be heard at Delhi. The following points were also referred to the Special Bench : (a) Whether, the benefit of jewellery disclosed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of sale of jewellery etc. relating to the disclosures made under VDI Scheme, 1997, can be considered to be the income of the assessee from undisclosed sources under any of the provisions of the Income-tax Act, 1961 ? 5. We also observed that it would be open to the parties to argue all aspects of the case, both factual and legal, within the framework of the above question and the grounds of appeal raised by the assessee. We have also explained therein the reason why the question has been reframed. 6. On December 4, 2007, when the appeal was taken up for hearing by the Special Bench Mr. Kapila submitted that the appeals in the case of M/s. Bishan Chand Mukesh Kumar, Delhi, a firm of jewellers, to whom Tejinder Singh (HUF) and several other declarants under the VDIS claimed to have sold jewellery, were pending before the Tribunal and the interests of justice required that they also be heard by the Special Bench to avoid any possibility of contradictory views being taken by the Tribunal. He sought leave to file an appropriate application before the hon'ble President. It was opposed by the assessee but we overruled the objection and permitted Mr.Kapila to move an appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had floated various companies and benami concerns in the name of its employees and family members. He had opened a number of bank accounts in various banks in the names of individuals and other business entities. These individuals were his relatives, family members, friends, employees, etc. and all these accounts were under his control. According to the Assessing Officer, the accounts were used for transferring the amounts from other associated accounts and thereafter the money was withdrawn from these accounts for returning the cash back to the persons who had given bogus accommodation. The bank accounts were also used for depositing the cash received. The cash was later transferred to other accounts and cheques were issued to the beneficiaries from those accounts. The Assessing Officer also stated that the assessee indulged in providing accommodation entries by accepting cheques as well as cash and the cash or the cheques were issued later. Cheques were also issued to the beneficiaries in their accounts as gifts which were supported by gift deeds to add a colour of genuineness. The details of the bank accounts, the names in which they were held, the names of persons who operate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee was in receipt of commission at the rate of 0.50 paise on Rs. 1,32,32,77,001 which represented the amount which came in as cash and clearing deposits (cheques) in the various bank accounts. The commission income thus calculated came to Rs. 66,16,385. From paragraphs 5.1 to 5.7, the Assessing Officer estimated commission income of 0.50 paise on the amount of Rs.57,63,33,291 which came in as clearing deposits in the bank accounts. This amount represents the profit cheques. The commission amount came to Rs. 28,81,666 and the same was treated as undisclosed income of the assessee. Thus, the commission income of Rs. 66,16,385 and Rs. 28,81,666 were assessed as commission of the assessee which he received on activities which were accepted by him as accommodation entries. So far as the activities which were claimed by the assessee to be genuine but was not accepted to be so by the Assessing Officer, he has devoted paragraphs 6.1 to 7.11 of the assessment order and has concluded that the assessee earned undisclosed commission income of Rs. 18,34,542 on the claimed purchases of Rs. 36,69,08,500 by Bemco Jewellers Private Limited from its incorporation till the date of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by the assessee. He gave examples of the entries in the seized material in paragraph 6 of his order. However, he finally concluded that the assessee did receive com mission at the rate of 0.50 paise. (c) That the assessee must have paid commission of 0.15 paise and thus the net commission income amounted to 0.35 paise with regard to the total turnover of Rs. 132.32 crores, which came to Rs. 46,31,425. (d) That as regards the clearing deposits of Rs. 57,63,33,000 representing profit cheques also, the net commission may be estimated at 0.35 paise. This came to Rs. 20,70,167 as against Rs. 28,81,666 estimated by the Assessing Officer. (e) As regards the alleged bogus purchase of jewellery of Rs.36,69,09,500 by Bemco Jewellers Pvt. Ltd., the Commissioner of Income-tax (Appeals) did not accept the assessee's submission that the transactions were genuine. He has discussed the reasons in paragraphs 10-16 of his order. He has upheld the findings of the Assessing Officer and has held that on these transactions also the net commission income may be estimated at 0.35 paise which came to Rs. 12,59,716 as against Rs.16,29,072 estimated by the Assessing Officer at 0.50 paise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived at 0.50 paise. According to the learned special counsel, the assessment order was based on facts and not on surmises. He also submitted that the payment to mediators was not allowable because of the Explanation to section 37(1). In reply, the learned representative for the assessee submitted that the weighted average of the commission received comes to 0.34 paise and after payment of 0.15 paise the net commission income came to only 0.19 paise. To a query, as to how the weighted average was calculated, he answered that it was calculated on the basis of details available at page 389 of the paper book which are reproduced in columnar form in paragraph 4.6 of the assessment order. He also contested the submission of the special counsel that Explanation to section 37(1) was applicable. 16. We have carefully considered the facts and the rival contentions. In our view, the Commissioner of Income-tax (Appeals) was justified in adopting 0.35 paise as the net income by way of commission. From the details available on record, it is seen that the commission varies from 0.10 paise to even Rs. 3. The Commissioner of Income-tax (Appeals) has noted that the assessee himself had stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further that in a block assessment, it was for the Assessing Officer to bring material to show that the assessee earned undisclosed income which has not been done and that in the present case, it was the assessee which wanted the profit cheques and, therefore, it was he who is to pay commission and not to receive the same. It was further contended that at any rate, if the income for the block period is based on estimate on the basis of material seized for part of the period, the expenditure to earn the income shall also be calculated on the same basis. 20. As against this, the special counsel for the Department contended that the Departmental authorities were justified in restricting the expenditure. 21. We have carefully considered the facts and the rival submissions. In paragraphs 5.1 to 5.6 of the assessment order, the Assessing Officer has discussed this issue. An amount of Rs. 57,63,33,291 has come in as clearing deposits in the bank accounts controlled by the assessee. These cheques were received by the assessee from parties who are said to have passed on their profits to him and his concerns in the garb of share profits and bogus purchases. The corresponding amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax (Appeals) has also noted that if the assessee has paid commission at the rate of 0.10 to 0.15 paise per Rs. 100, it stands to reason that he has also received commission. He, therefore, held, consistent with his stand, that the assessee received net commission at 0.35 paise per Rs. 100 and directed the Assessing Officer to add Rs. 20,70,167 as against Rs. 28,81,666 estimated by the Assessing Officer. We do not see any infirmity in the reasoning or logic adopted by the Commissioner of Income-tax (Appeals). 22. Turning to the claim of expenses, we find that at pages 246 onwards of the paper book, the assessee has placed the copies of the cash book written for the period July 7, 2000 to August 1, 2000. From pages 329, the ledger accounts are available starting from April 1, 2000. We find that on some dates, certain expenses which are not normally allowable have been debited. For example, on April 4, 2000 there is a debit of Rs. 20,000 under the head Office expenses air-conditioner . Other examples are Rs. 46,000 debited on April 13, 2000, with similar narration, Rs. 30,000 debited on April 18, 2000 as house expenses, Rs. 2,400 debited as passport expenses on May 4, 2000, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,67,000. It may thus be seen that the explanation of the assessee for the entire cash of Rs. 11,71,900 was that the same belonged to Bemco of which he was a director. The Assessing Officer did not accept the assessee's explanation because, according to him, Bemco did not carry on any genuine business in jewellery. He accordingly added the cash under section 69A. 25. On appeal, the Commissioner of Income-tax (Appeals) held that the availability of cash could not be explained out of the known sources of income of the assessee and was, therefore, rightly added as income. He however observed that the income must have arisen to the assessee from conducting the business of accommodation entries for which additions were already made. The Commissioner of Income-tax (Appeals) thus held that the cash was part of the income which was already assessed by the Assessing Officer. He, therefore, gave the benefit of telescoping, having regard to the fact that there was no evidence on record to show that it was generated from some other source of income. Accordingly, he deleted the same. 26. The assessee has come in appeal to contend that the Commissioner of Income-tax (Appeals) ough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the copies of the Income-tax returns of these two HUFs, he found that there was no investigation into the facts and, therefore, the returns were of no evidentiary value. He held that there was no evidence against the findings of the Assessing Officer. Accordingly, he confirmed the addition. 29. The argument advanced on behalf of the assessee before us was that the assessee was not maintaining any books of account and the deposits were found only in the assessee's bank statement which cannot be considered as the books of account of the assessee and, therefore, section 68 was not applicable. Our attention was drawn to the confirmation letters placed at pages 159 and 160 of the paper book. We are however unable to accept the argument. Though section 68 of the Act may not be strictly applicable since the assessee was not maintaining any books of account and the bank statement cannot be considered as the assessee's books of account, on the basis of the judgment of the Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, it is the onus of the assessee to explain the cash received by him and if there is no explanation or acceptable evidence to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided to the assessee, it will not be possible for him to compute the undisclosed income and file the block return. This is a practical difficulty which has to be taken note of since tax laws, like any other laws, have to be interpreted reasonably and in consonance with justice as held by the Supreme Court in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570. It is not disputed before us that the photocopies of the seized documents were given to the assessee on January 2, 2002, though the search took place on August 3, 2000. The assessee filed the return of income on January 18, 2002. This is within 30 days of being provided with the copies of the seized documents. Accordingly, the levy of interest is not justified. We cancel the same and allow the ground. 33. We now take up ground No. 3 which was the main dispute before us and was argued at great length by both the sides. The ground reads as under : That on the facts and circumstances of the case and the provisions of law, addition of Rs. 12,59,716 as commission income in the hands of the appellant by treating entire purchase of M/s. Bemco Jewellers Pvt. Ltd. as pertaining to accommodation entry business and calculating c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills seized were not in the order in which the vouchers were prepared. The sales bills also have the names of the mediators written on their reverse. Some pages in the sales bill book were left blank. Illustrations of such irregularities have been given in the assessment order. 37. In order to test and probe the claim that Bemco was really and genuinely engaged in the business of purchase and sales of jewellery, gold, silver and diamond ornaments, the Assessing Officer launched into a detailed enquiry. The enquiry was made under certain broad heads which are as follows : (a) Whether there existed a show-room of Bemco at 1182, Kucha Mahajani, Chandni Chowk, Delhi ? (b) Whether there existed a branch office of Bemco at B-108, Jai Sidhi Apartments, Ahmedabad ? (c) Whether any business was conducted from the aforesaid address in Ahmedabad ? (d) Whether the books of account maintained and produced by Bemco were genuine or bogus ? (e) Was any evidence found in the seized material showing that Bemco gave only accommodation entries ? (f) Enquiries conducted at Amritsarwhat do they show ? (g) What is the relevance of the confession of Girish Mittal, resident of 388, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t undisclosed commission income was worked out at Rs. 16,29,072 and the same was added on protective basis. The position ultimately is that whereas a sum of Rs. 16,29,072 was added as net commission income on protective basis in the assessment of Bemco, a sum of Rs. 18,10,079 was added in the assessment of Manoj Aggarwal on substantive basis. However, but for this small variation in the amount of the net commission income, the substance of the assessment is the same in both the cases. We have, therefore, not considered it necessary to deal with the appeal of Bemco in IT(SS)A. No. 452/Delhi/2003 separately. Our reasons and decision in the case of Manoj Aggarwal will decide the fate of the appeal of Bemco also. Existence of show-room at 1182, Kucha Mahajani, Chandni Chowk, Delhi : 40. The Assessing Officer has dealt with this in paragraph 7.1 of his order. He has held that there was no sales office or showroom of Bemco at the above address and the reasons given by him are as follows : (a) In the sales tax record, as per the report of the sales tax inspector dated February 15, 1999, the only premises mentioned is 7/22, Ansari Road, Daryaganj, Delhi. There is no mention of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 7.2 of the assessment order. In the course of the assessment proceedings the assessee furnished details showing substantial sales from the branch office at the aforesaid address. Out of the total sales of Rs. 26,07,63,735, during the financial year 1999-2000, sales from Ahmedabad amounted to Rs.24,07,30,000 as per the details furnished. The Assessing Officer issued commissions under section 131(d) to the DDIT, Ahmedabad to conduct an enquiry and find out whether Bemco had a branch at Ahmedabad at the aforesaid address as claimed and also to verify the veracity of the sales claimed to have been effected from the said address. The DDIT, Ahmedabad found that the premises at Jai Sidhi Apartment were tenanted to one Vijay Aggarwal who was not traceable and that the flat was locked. He also reported that the flat is of just 70 sq.yds. of area and belongs to the low income group. According to him, no business was ever conducted from the address. The DDIT recorded a statement on August 19, 2002 of one Manoj Sudhir Bhai Shah, who was the builder/developer of the property. The gist of the statement is that Manoj Sudhir Bhai Shah had constructed Jai Sidhi Apartment which consisted o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Manoj Aggarwal. He has referred to the statement of Bishan Chand Aggarwal recorded on August 16, 2002. In response to the queries of the Assessing Officer, Bishan Chand Aggarwal stated that the goods were being carried between Ahmedabad and Delhi by Manoj Aggarwal, that they were being carried personally by him, that he always travelled by train since the travel was always at short notice, that he used unreserved accommodation and that the used tickets were not in the possession of Bemco because they have to be surrendered to the railway authorities, that the sales were always in cash and the cash was also brought from Ahmedabad to Delhi for being deposited in the bank and that such deposits were made within a week after the return from Ahmedabad. It was observed by the Assessing Officer that during the financial year 1999-2000, Bemco had shown 73 visits to Ahmedabad and back by Manoj Aggarwal and the travelling expenses amounting to Rs. 3,74,440. The travelling allowance bills which were in Form TR-25, which is normally used by Government servants, were impounded by the Assessing Officer under section 131(d). Bemco had also claimed that there were two sales-cum-field boys w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were in serial order and included the bills, which have already been seized. The Assessing Officer noted that the books of account had not been found during the search in the premises of Bemco. When this was put to Bishan Chand Aggarwal he stated that the Delhi books were kept in the showroom at Kucha Mahajani and the Ahmedabad books were kept in the Ahmedabad branch. When the Assessing Officer asked how the books of account could be computerized when the assessee did not have a computer, it was explained that personal computers at the residence of the directors and their office at 7/22, Ansari Road, Daryaganj were used. When Bishan Chand Aggarwal was asked why the books of account were not found in Ansari Road during the search, where they normally should be, because the computers were at this address, Bishan Chand Aggarwal replied that one computer was temporarily shifted to the shop (presumably the reference is to the shop at Kucha Mahajani) and the accounts were written there. He also stated that one Ramesh Chand, who was also the computer operator of Bemco was visiting the shop for writing the books of account. The Assessing Officer did not accept the explanation of Bishan C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return for the assessment year 2000-01 which mentioned that inventory records were not produced before the auditors for their verification. The auditors have further pointed out that most of the purchases could not be verified and that there was no documentary evidence made available to them to show the transfer of goods from Delhi to Ahmedabad and for remittance of the cash from Ahmedabad to Delhi. When the audit report was put to Bishan Chand Aggarwal, he stated on August 19, 2002, that stock records were available with Bemco and were ready, but due to shortage of time the auditors may not have checked them and the figures may not have been made available to them in the format in which they wanted. The Assessing Officer also pointed out that auditors had also expressed their inability to confirm the genuineness of the purchase transactions of Bemco. Bishan Chand Aggarwal replied that since Bemco was purchasing old jewellery from different parties who were not having any printed sales book, Bemco was forced to issue its own purchase book. Bemco also thought it unnecessary to get the sellers' signature in the purchase bill. As regards the non-furnishing of documentary evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount No. 1106 with Vijaya Bank, Vigyan Vihar, New Delhi from various accounts of Manoj Aggarwal, which, according to the Assessing Officer, were used for giving accommodation entries. These transfers, according to the Assessing Officer, showed that There is a cross nexus between the accounts of M/s. Bemco Jewellers (P.) Limited and the other accounts used by Sh. Manoj Aggarwal for accommodation entries . In the light of these facts, the Assessing Officer held that Bemco was used for providing accommodation entries for earning commission income. Enquiries conducted at Amritsar : 51. This is discussed by the Assessing Officer in paragraph 7.6 of the block assessment order. He noticed that there were several parties who had sold jewellery to Bemco and they belonged to Amritsar. The ledger account of Sunil Kapoor seized during the search had mentioned the names of some of these persons. The DDIT, Amritsar had recorded statements from Sunil Kapoor on December 3, 2001 and July 23, 2002. According to the Assessing Officer, in this statement Sunil Kapoor had accepted that these persons had shown bogus sales of jewellery to Bemco. The relevant part of the statement is extracted at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, therefore, held that all the transactions of Bemco were bogus accommodation entries. In the order of the Commissioner of Income-tax (Appeals), there is a passing reference to the statement of Mittal in paragraph 15 (page 12) but there is no specific finding. 53. In the block assessment order passed in the case of Manoj Aggarwal, after discussing the aforesaid aspects of the case, the Assessing Officer in paragraphs 7.9 and 7.10 has summarized his findings and the objections of Bemco/Manoj Aggarwal. Finally, in paragraph 7.11 of the order, he has concluded as under : 7.11 As has been discussed at length in the foreging parts of this order, it is conclusively proved that the company M/s Bemco Jewellers P. Ltd. was not doing any real business of sale or purchase of jewellery. The bank accounts of this concern was used by Sh. Manoj Aggarwal for providing bogus accommodation entries of sale and purchase of jewellery to various persons. The nature of activities of this concern are in no way different from the other entities which have been used by the assessee for providing accommodation entries. The commission income arising from such bogus accommodation entrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to pages 191 to 196 of the paper book, which is a copy of the show-cause notice dated August 20, 2002 issued by the Assessing Officer to Manoj Aggarwal. Particular attention was drawn to the query raised in paragraph 4 of the notice in which the Assessing Officer had concluded that Bemco had only done accommodation business for commission and since this business was totally controlled by Manoj Aggarwal he was asked to show-cause why commission income cannot be assessed in his hands as undisclosed income. It was submitted that there was absolutely no material unearthed during the search to show that Bemco was indulging in accommodation entry business or that such business was fully controlled by Manoj Aggarwal. The submission was that in a block assessment under section 158BC of the Act, it is not open to the Assessing Officer to indulge in surmises and that the undisclosed income has to be computed only on the basis of the evidence found during the search. It was submitted that no information had come into the possession of the Assessing Officer in the course of the block assessment proceedings and relatable to the evidence found during the search to show that the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said paper book. It is pointed out that in the balance-sheet, closing stock has been shown at Rs. 1,98,38,161. As regards the existence of the branch office at Ahmedabad, Mr. Ved Jain submitted that records showing the existence of the same were seized during the search and this has been acknowledged even by the Assessing Officer in page 26 of the block assessment order in the case of Manoj Aggarwal where the Assessing Officer has referred to annexure A-7 seized from 5A/ 12, Ansari Road and has mentioned that it is a letterhead of M/s. Bemco dated April 4, 1999, in which the branch transfer address of Ahmedabad is shown as the residence of Vijay Aggarwal. It was contended by Mr. Jain that when the seized records themselves show the existence of branch office of Bemco at Ahmedabad, it can never be doubted. Reliance was also placed on the letter written by the Assessing Officer to Manoj Aggarwal on May 3, 2002 (pages 78 to 100 of the assessee's paper book) and in particular our attention was drawn to pages 91 and 92 where the Assessing Officer has himself made reference to annexure A-7 showing sale of diamonds from Ahmedabad branch for Rs. 1,92,10,224 on November 13, 1999, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book), he has stated that all other accounts except Bemco and Bishan Chand Mukesh Kumar are accommodation entries, but he has not specifically excluded the payments to melters (of gold) from the accommodation entries/accounts which shows that even the payments to melters were only on account of accommodation. (Q. No. 3 and answer to the same). (d) In the statement given by Manoj Agarwal on January 8, 2001/January 9, 2001 (page 61 of the paper book), the name of Sunil Kapoor is mentioned in the list of mediators. (e) In the statement given by him on April 20, 2001 (pages 64-70 of the paper book), in answer to question No. 37, he has stated that the share transactions are mere accommodation entries and there is no reason why the jewellery transactions cannot also be treated the same way. (f) In the show-cause notice issued by the Assessing Officer on May 3, 2002 (pages 78-87 of the paper book) there is reference to cash memos issued by Bemco on March 31, 1999, in favour of Kishan Lal Murari Aggarwal and Sons which were seized during the search which were considered to be bogus by the Assessing Officer. The explanation given by the assessee (page 106 of the paper book) is eva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see were aware of Bemco's showroom in Kucha Mahajani, were the witnesses of the assessee and it was his duty to produce them ; on the contrary, when they stated before the Assessing Officer that they were not aware of the showroom, the assessee asked for cross-examination which is contrary to all settled principles. All this pointed out to the existence of mere paper transactions even in respect of the jewellery just as in the case of the shares, according to Mr. Kapila. As regards the existence of a branch of Bemco in Ahmedabad in Jai Sidhi Apartments, Mr. Kapila drew our attention to the statement (Question Nos. 4-7 at page 177 of the paper book) in which Manoj Agarwal has stated that the branch functioned from Vijay Agarwal's premises and no rent was paid because Vijay Agarwal was a personal friend of Manoj Agarwal. Mr. Kapila contended that this was highly improbable. Further, in the second statement of Bishan Chand Agarwal given on August 19, 2002 (page 183 of the report) he gave very evasive and totally shocking replies vis-a-vis the auditors' report that they were not given the inventory and were unable to comment on the method of valuation of the stock. With r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been paid was very low at 0.01 per cent. of the purchases. With such low job charges, it was not possible to buy and sell jewellery. The balance-sheet did not show any fixed asset, not even furniture or a safe to keep the jewellery. The closing stock was shown at Rs.1.98 crores and it was not proved where the same was being kept. There are no establishment expenses, no insurance cover. More significantly, the auditors had expressed serious reservations in their report and they have stated that no inventory was made available to them and they were therefore unable to comment on the valuation of the stock. Thus, says Mr. Kapila, the very existence of stock of jewellery worth Rs. 1.98 crores is under serious question. Commenting on the return for the assessment year 2000-01, Mr. Kapila contended that there was no explanation as to where the stock worth Rs. 4.97 crores was kept and the profit and loss account did not even show excise licence fee. The tax audit report also expressed grave reservations/qualifications about the accounts of Bemco. The auditors were not provided crucial details and therefore they have thrown up their hands and were unable to comment on the genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manoj Aggarwal on August 3, 2000, the date of search, he has stated his background. A typed copy of the statement has been provided to us. Manoj Aggarwal has passed class 9 from Mathura High School, Kachi Sadak, Mathura, his father Bishan Chand Aggarwal was running a commission business in silver at Mathura. They were staying at Chowk Bazar, Mathura. About 5 to 6 years before the date of search, they shifted to Delhi and Bishan Chand Aggarwal started doing commission agency business as well as business in silver at Kucha Mahajani in Delhi. Around two years before the date of search, Bishan Chand Aggarwal started two companies, namely, Bemco Jewellers Private Limited and Friends Portfolio Private Limited. The precise answer of Manoj Aggarwal to question No. 10 in this statement is as under : Since two years he started these companies, namely, Bemco Jewellers and Friends Portfolio. In Bemco Jewellers we are doing trad ing in gold and silver and in Friends Portfolio we are doing share business as Friends Portfolio is member in Delhi Stock Exchange. As directors of these companies, I do not have any specific work. I enjoy life and whatever papers and cheques my father asks me to si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that no real transactions took place and all entries shown by him are the entries of only accommodation in nature passed by him in lieu of cash and commission on such transactions which ranged from 20 to 10 paise against Rs. 100. 65. It may be seen from the aforesaid statement that therein the assessee has narrated the modus operandi involved in giving accommodation entries in respect of only share transactions and there is no mention about any accommodation entries regarding jewellery. Though the names of several mediators and companies, which were involved in the modus operandi, have been mentioned in the statement, the name of Bemco Jewellers Pvt. Limited was not one of them. The statement was thus limited only to the share transactions and in describing how the assessee was involved therein as the giver of accommodation entries. 66. We now turn to the assessee's statement given on December 14, 2000, before the Assessing Officer under section 131 of the Income-tax Act under oath. The assessee was shown copies of the bank account and statements along with account opening forms and specimen signature forms of 55 entities and he was asked what he had to state in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to explain the chain of people who were instrumental in arranging the transaction. A detailed reply was given by Manoj Aggarwal. It will be recalled that Manoj Aggarwal had stated earlier that Friends Portfolio Private Limited was a company belonging to him and his father through which share transactions were to be put through. In this statement dated January 8, 2001, there was no question put to Manoj Aggarwal regarding the nature of the jewellery business or about Bemco. All the questions were related to the share business conducted through Friends Portfolio and Manoj Aggarwal had no hesitation in again admitting that the share transactions were not genuine and they were mere accommodation entries given for commission. 69. In the same statement dated January 8, 2001, which continued on January 9, 2001 (pages 61 to 63) of the paper book, Manoj Aggarwal was asked to explain the addresses of certain names which appeared in the seized record as mediators. The name of Sunil Kapoor is one of them. Manoj Aggarwal answered that these names were of the persons who used to come to him for procuring accommodation book entries on behalf of other main mediators from time to time and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to the share transactions only. His admission that he never carried out any genuine transactions was confined to the share transactions. He had also admitted that there was no physical delivery of the shares. He had also stated in this statement that Sunil Kapoor was a sub-mediator attached to the main mediator R. S. Bansal and in the context of the statement and the questions put to him it would appear that Sunil Kapoor acted as a sub-mediator for the accommodation entry business in connection with the share transactions carried out by Manoj Aggarwal. 72. Another statement was recorded from Manoj Aggarwal on April 20, 2001. About 52 questions were put to him. Most of the questions relate to the share transactions. There is hardly any significant question put to him which related to the jewellery business which Bemco was carrying on. There is only a reference in the assessee's answer to question No. 18 to the effect that the books of account of Bemco were already seized during the search operation and again in answer to question No. 50, which refers to annexure A-18 seized during the search, that the same has already been explained in the statement given on September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions are genuine. The share transactions aggregating to Rs. 132.32 crores have been admitted to be only accommodation entries. There is no such admission in the case of the jewellery transactions of Bemco. The figure of Rs. 100 crores is not an accurate figure of the share transactions and Manoj Aggarwal has advisedly stated it to be an approximate figure only. The reason is not far to seek. It must be remembered that the letter was being written within three weeks of the date of search. Manoj Aggarwal did not have the copies of the seized documents with him at that time. He could therefore only venture an approximate figure of the share transactions which, according to him, were mere accommodation transactions. It was only after the seized material was examined and sorted out that it transpired that the aggregate of the share transactions came to Rs. 1,32,32,77,001. The fact however remains that at the earliest opportunity Manoj Aggarwal had admitted that the share transactions were only accommodation transactions. He has made no such admission in respect of the jewellery transaction. We have already referred to this aspect while dealing with the statement of Manoj Agga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a much higher value were admitted by him as accommodation transactions. It is further relevant to note from his statement given on the day of search (August 3, 2000) that Manoj Aggarwal had no experience in carrying on any business, whether it be shares or jewellery. His father Bishan Chand Aggarwal was carrying on commission business in silver at Mathura which he continued after he came to Delhi, at Kucha Mahajani. Two years prior to the search, he started Bemco and Friends Portfolio. Manoj Aggarwal had also stated that he used to sign the papers and cheques given by his father without question. From the statements given by him before the income-tax authorities, it is however seen that so far as the share transactions are concerned, which were carried out through Friends Portfolio he was very much aware of the modus operandi relating to the accommodation entries and had elaborately described with facts and figures the various steps involved. Though he had no background in share business he seems to have acquired knowledge about the intricacies of the same and had acquired sufficient mastery over the transactions to indulge in giving accommodation entries. So far as the jewellery b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned the names of Ram Pehalwan and Omi Mama who were running dalali business in the same building. He however made it clear that he was not aware in what name they were conducting their business and further that he did not know their residential address and hence it was not possible for him to ensure their presence for personal deposition. The Assessing Officer issued summons to these persons who gave statements denying any sales office of Bemco ever existed in the premises. This denial statement was brought to the notice of Bishan Chand Aggarwal on August 19, 2002. He stated that since Bemco was closed for the last two years these persons may not be knowing Bemco's name but may be knowing him personally. He also expressed his inability to produce them before the Assessing Officer. 76. On the basis of the above, the Assessing Officer issued a show-cause notice on August 20, 2002, in which these points were put to Bemco for rebuttal. A similar show-cause notice was also issued to Manoj Aggarwal. Bemco replied by letter dated August 26, 2002, stating that the Kucha Mahajani office was opened in April 2000 and purchases of Rs. 46.40 lakhs were made from Chandni Chowk out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the rent receipt, no objection certificate and the resolution of Bemco were given by Bishan Chand Aggarwal and they were enclosed to the report of the sales tax inspector. The inspector's report further states that Bishan Chand Aggarwal sent his younger son Deepak Aggarwal along with the inspector to show the sales office at Kucha Mahajani and he found that Manoj Aggarwal (the other director of Bemco) was functioning there. The sales tax inspector accordingly confirmed the additional place of business and recommended that the application of Bemco for amendment of the registration certificate may be considered accordingly. Attached to the sales tax inspector's report are the statement of Bemco confirming the taking up of the sales office, authorisation given to Bishan Chand Aggarwal to make the amendment application to the Sales Tax Department, copy of the application for amendment dated August 22, 2000, and a copy of the letter dated August 17, 2000 confirming that a sales office had been taken at 1182, Kucha Mahajani from April 1, 2000. These are all placed at pages 72 to 79 of the paper book containing 133 pages. 78. From the above facts, it appears to us that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of these persons. The Assessing Officer issued a show-cause notice the very next day, i.e., August 20, 2002, and the assessee did not lose time in asking for the cross-examination in its letter dated August 26, 2002. Within three days the Assessing Officer completed the assessment, knowing fully well that Bishan Chand Aggarwal had not only asked for cross-examination but had also stated on August 19, 2002, that he cannot produce these two persons as his witness. It cannot therefore be stated that the Department has conclusively established that Bemco did not have a sales office at 1182, Kucha Mahajani. On the other hand, the preponderance of the evidence points towards the strong possibility of existence of the sales office as claimed. 79. The next important point made was that Bemco's claim that it had a branch office at B-108, Jai Sidhi Apartments, Ahmedabad was not true and that no such office ever existed. It may be recalled that Bemco had claimed that during the financial year 1999-2000 it had made sales of gold bars from Ahmedabad to the tune of Rs. 24,07,30,000 out of the total sales of Rs.26,07,63,735. In order to verify the same, the DDIT, Ahmedabad was asked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /12, Ansari Road, Daryaganj which is a letterhead of Bemco dated April 4, 1999, where the branch address of Ahmedabad is shown as the residence of Vijay Aggarwal. Thus, the seized material itself contains evidence to show that Bemco had a branch at Ahmedabad in the residence of Vijay Aggarwal. When the seized material itself contains such evidence, it is difficult to brush aside the same and prefer to be guided by the statement of the administrator of the apartment complex who is not expected to know each and every detail about the activities carried on by a resident from his flat. 80. The income-tax authorities have also relied on the statement of Arvind Kumar Thakar, sales tax consultant at Ahmedabad. It is their case that Thakar had not seen the books of account. We have gone through his statement, a copy of which is at pages 96 to 98 of the paper book containing 133 pages. He confirmed that Bemco was his client for sales tax purposes in Ahmedabad and that they were trading in all kinds of jewellery. He confirmed his familiarity and interactions with Bishan Chand Aggarwal and Manoj Aggarwal. He stated that Bemco had filed sales tax returns for the financial years 1999-2000 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken at short notice and therefore, Manoj Aggarwal travelled by unreserved class. When asked to produce the tickets, he has stated that they were collected by the railway authorities while exiting the railway station and, therefore, could not be produced. This practice which is prevalent in the railway station is well-known and cannot be contradicted. So far as the journeys are concerned it does appear somewhat unusual that gold bars of such high value were carried in person by Manoj Aggarwal from Delhi to Ahmedabad and the cash was also brought by him by train from Ahmedabad to Delhi but in the absence of any strong evidence in the possession of the Department to contradict the claim, it is difficult to reject it merely because it appears somewhat unusual. The Assessing Officer has himself noted that Bemco has shown travelling expenses of Rs. 3,74,440 during the financial year 1999-2000 which includes expenses of 73 visits to Ahmedabad and back by Manoj Aggarwal. The only vouchers available for the expenses were the travelling allowance bills which are in form TR-25 which is normally used by Government servants to submit their claims for travelling allowance. No tickets were produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d had effected huge sales of Rs. 27.93 lakhs during one financial year, which was quite unusual. Having a bank account in Ahmedabad would have been certainly prudent and would have obviated the need to carry the cash from Ahmedabad to Delhi, which was a risky affair, and it does appear to us unusual that there was no bank account in Ahmedabad but for that reason alone the other evidence on record cannot be ignored. There is evidence to show that the assessee effected sales in Ahmedabad as is clear from the sales tax assessment order passed under the Gujarat Sales tax Act, the seized letterhead of Bemco which showed Jai Sidhi apartments as the branch office of Bemco in Ahmedabad and the statement of Arvind Thakar, the sales tax consultant. In the light of these evidences, we are inclined to accept Bemco's claim that the sales claimed to have been made from Ahmedabad branch office were real and not bogus. 83. We may now turn to the question whether there is material to hold that the books of account produced by Bemco before the Assessing Officer were bogus or were reliable. The Assessing Officer has placed reliance on (i) the fact that they were not found during the search ; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on August 19, 2002, that they were ready but due to shortage of time the auditors may not have checked them. This is not acceptable. If they were ready, there was no reason why the auditors would not have checked them. Further, at least before the Assessing Officer the same could have been produced. The same position holds good in the case of inventory records also. As regards the other objection against the purchase invoices, Bishan Chand Agarwal has explained that since Bemco was purchasing old jewellery from different parties who were not having any printed sale bills, it was forced to issue its own purchase invoice and that the signatures of the sellers were not insisted upon. He has also stated that the sellers did not sign the invoices because of the goodwill enjoyed by Bemco. Though we are unable to appreciate this part of the explanation and what the reputation and goodwill of Bemco have to do with the signatures of the sellers, it appears to us that the substance of the explanation is that since those who sell old jewellery are mostly householders and individuals and ladies who are not in the business of selling such jewellery they did not have any printed sale bills and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and records were maintained by Bemco both in Delhi and in Ahmedabad. However, a balance-sheet and profit and loss account were prepared by Bemco and they were also filed along with the returns of income. They were also audited by the statutory auditors who have confirmed that in their opinion, proper books of account as required by law have been kept by the company so far as it appears from their examination of the books and that the profit and loss account and the balance-sheet are in agreement with the books of account. Having regard to the audit report, it seems to us that Bemco did maintain books of account at Delhi and Ahmedabad. However, as per the audit report, no basis was given for the stock valuation and the inventory records were not made available to the auditors with the result that they were unable to express any opinion on the correctness of the stock valuation which was certified by the management. Maintenance of books of account is one thing and the reliability of those books for purposes of income-tax assessment is another. The auditor's certificate does not say that the books of account are bogus or have been falsified. It only says that the stock va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer were bogus. The auditor's report for the year ended March 31, 1999 is dated January 29, 2000. Their report for the year ended March 31, 2000 is dated July 24, 2000. In these reports, as already noted, they have opined that proper books of account as required by law have been kept so far as it appears from an examination of such books and that the profit and loss account and the balance-sheet are in agreement with the books of account. Nor can it be held that Bemco never maintained any books of account and that they were prepared subsequently for the purpose of assessment proceedings as has been held by the Assessing Officer. 86. We now take up the question whether any evidence was found in the seized material showing that Bemco gave only accommodation entries and that there were no genuine purchases and sales. The Assessing Officer has referred to annexure A-18 seized from 5A/12, Ansari Road, Daryaganj, New Delhi and has observed that Manoj Aggarwal has admitted that all the entries in the annexure related to the business of providing accommodation entries. This appears to be contrary to the statement given by Manoj Aggarwal on December 14, 2000 to whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has referred to six items of the seized material which, according to the Assessing Officer, shows that Bemco was carrying on only accommodation business and that this fact has also been accepted by Manoj Aggarwal to be so. A perusal of the letter dated May 3, 2002, issued by the Assessing Officer to Manoj Aggarwal shows that annexure A-1, pages 1 to 224 of the seized material, were the copies of the accounts' statements of various parties in the books of Manoj Aggarwal and group cases. Manoj Aggarwal replied that these are statements of various mediators kept for the purpose of reconciliation. Annexure A-2, page 29, was the statement of account of Sunil Kapoor which was also accepted by Manoj Aggarwal as a statement of account of various mediators. No doubt this statement included Sunil Kapoor but the entire annexure A-2 which consists of a bunch of 128 loose papers relates to the share business as can be seen from the letter of the Assessing Officer (at pages 89 and 90 of the assessee's paper book). It may be noted that Sunil Kapoor was a mediator for the share transactions which were admittedly only accommodation transactions. All the six items mentioned at page 33 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000, where he has stated that the entries in the bank account of Bemco do not represent accommodation entries but are genuine transactions. The commission payment of Rs. 78,013 to Sunil Kapoor stated to be mentioned in page 29 of annexure A-7 seized from 5A/ 12, Ansari Road, Daryaganj, appears to represent commission payment in respect of the share transactions which were admittedly accommodation transactions as Sunil Kapoor has been stated by Manoj Aggarwal to be a sub-mediator attached to R.S. Bansal, one of the main mediators in respect of the share transactions and this has been clearly stated by Manoj Aggarwal on January 9, 2001, before the Assessing Officer. We have referred to this statement also in the earlier part of the order. In fact, we have also opined that the context and tenor of the statement given on January 8, 2001/January 9, 2001 shows that what was being enquired into was the role of Manoj Aggarwal in respect of only the share transactions and there was no mention in this statement of any jewellery transactions or the transactions of Bemco. It was because of this aspect of the matter that Mr. Ved Jain, the learned representative for the assessee, at some point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, there is no scope for relying on evidence that has not been unearthed during the search nor can the Assessing Officer rely on information collected by him in the course of the assessment proceedings unless such information is relatable to the evidence gathered during the search. His objection was that it was not open to the learned special counsel for the Department to add to or keep improving the block assessment order by referring to material which has not been unearthed during the search or to information which has no link with the material collected during the search. The reference to the melters, according to Mr. Ved Jain, during the arguments was therefore impermissible. We see force in the submission. Apart from the three reasons which we have given above which make it difficult for us to draw the inference that the jewellery business was not genuine or real because the assessee did not specifically exclude the melters from the admission, we have also to uphold Mr. Jain's objection, having regard to the language of section 158BB(1), as amended retrospectively from July 1, 1995 by the Finance (No. 2) Act, 1998. 90. We may now turn to the enquiries conducted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer thereto, he stated that the transactions pertaining to Friends Portfolio (P.) Ltd. may be pertaining to accommodation entries . Later in the statement, he admitted that his staff may be having correspondence with Sunil Kapoor and may have posted some letters to him. To a specific question whether he paid any commission to Sunil Kapoor, Manoj Aggarwal replied in the negative but added that commission was paid to R.S. Bansal only with regard to Friends Portfolio transactions. Thereafter, the Assessing Officer asked him how is it that he is denying payment of commission to Sunil Kapoor when the seized material shows commission payment of Rs.78,013 to him in annexure-14 page 35. Manoj Aggarwal replied that the accounts were opened in the name of sub-mediators (Sunil Kapoor was one of them) to facilitate cash transactions and as far as annexure 14 page 35 is concerned, these details were of purchases of Bemco and that no commission has been paid on the same. The Assessing Officer persisted that the aforementioned annexure clearly mentioned commission of Rs.78,013 and asked Manoj Aggarwal to explain the same. He replied stating This statement is not from my books hence I cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sunil Kapoor and denied having done any transaction through him. A specific request was made for cross-examining Sunil Kapoor if his statement was used against Bemco. No cross-examination was however allowed though Sunil Kapoor's statement was relied upon by the Assessing Officer in the block assessment order. 92. After considering the facts noted above, we get the impression that Manoj Aggarwal actually knew Sunil Kapoor and had in fact carried out several transactions through him for which commission was also paid, but these transactions were share transactions and were not transactions in jewellery. We have earlier made reference to the statement of Manoj Aggarwal dated January 8, 2001/January 9, 2001 in which he clarified that Sunil Kapoor was a sub-mediator attached to the main mediator R. S. Bansal. R. S. Bansal was one of the mediators for Manoj Aggarwal's share accommodation entry business. He seems to have had nothing to do with the jewellery business at all. We have also referred to the statement of Manoj Aggarwal made on July 25, 2002, where he has admitted that the account of Sunil Kapoor was opened in his books at the behest of R. S. Bansal and that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veral private welfare and marriage trusts to Bemco. In his statement on oath before the DDIT on August 28, 2000, he stated that the sale was bogus and that they were only accommodation entries without any real transactions having taken place. A copy of his statement was given to Bemco and when Bemco asked for cross-examination of Mittal, the same could not be complied with because Mittal was not present on the appointed date. The Assessing Officer had stated in page 36 of the assessment order that the company failed to avail of this opportunity but at the time of hearing the learned representative for the assessee, Mr. Ved Jain made a statement that since Mittal was absent on the appointed date the cross-examination could not take place. The statement of Girish Mittal is, therefore, untested testimony and, therefore, not safe to be relied upon. There is no other evidence corroborating his statement. His statement cannot, therefore, add anything to the evidentiary value. In fact, not much of arguments were addressed on the statement of Girish Mittal on behalf of the Department except pointing out that the opportunity to cross-examine was not availed of by Bemco. 94. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had a branch office at Ahmedabad where the gold bars were sold was right, as also the sales tax assessment order under the Gujarat Sales tax Act where the assessee declared Rs. 24,07,30,000 as total sales and exempted sales. There was no evidence of any consequence which was unearthed during the search to directly show that Bemco was carrying on only accommodation entry business for jewellery. Sunil Kapoor who was projected as one of the witnesses of the Department to support their stand that Bemco's jewellery business was bogus, has been found by us to have acted as sub-mediator in the share accommodation entry business carried on by Manoj Aggarwal through Friends Portfolio and he has also been paid commission in that business. Bemco has been found to have had a shop or showroom in 1182, Kucha Mahajani and this has been confirmed by the report of the sales tax inspector as also by the rental receipt starting from January 1998. Thus, the surrounding circumstances, apart from the direct evidence in the case, do not contain anything which belies the claim of Manoj Aggarwal that though his share transaction business was only an accommodation entry business for commission, the jew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me cannot be construed as valid satisfaction. (vi) That the Commissioner of Income-tax (Appeals)-II has failed to appreciate the scope of the provision of Chapter XIV-B and has erred in sustaining the addition made in the block assessment and also failed to appreciate that all the transactions were already entered in the regular books of account and the returns were filed prior to search and the same cannot be treated as undisclosed income. (vii) That the learned Commissioner of Income-tax (Appeals)-II has failed to appreciate that the assessment framed under section 158BD read with section 158BC of the Act, without granting the assessee a fair, proper and reasonable opportunity, was in violation of the principles of natural justice and therefore a nullity. (viii) No material has been confronted to the appellant, in spite of specific request, on the basis of which it could be alleged that there was any undisclosed income belonging to the appellant. (ix) That the Commissioner of Income-tax (Appeals) has erred on facts and in law in upholding the finding that the appellant is engaged in giving bogus accommodation book entries and sustaining the addition of Rs. 56,95,6660 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises of S/Shri Bishan Chand Aggarwal and Manoj Aggarwal and their various associate concerns including M/s. Bemco Jewellers Pvt. Ltd. Block assessment of Shri Manoj Aggarwal, Shri Bishan Chand Aggarwal as well as M/s. Bemco Jewellers Pvt. Ltd. were completed under section 158BC on August 29, 2002. In such assessments, the Assessing Officer inferred that the main source of income of Shri Manoj Aggarwal was from providing accommodation book entries of various kinds through various entities floated by him and commission thereof. Shri Bishan Chand Aggarwal and Shri Manoj Aggarwal were directors in M/s. Bemco Jewellers Pvt. Ltd., in which case also the Assessing Officer inferred that all the transactions undertaken were bogus accommodation entries transactions following the reasoning in the case of Shri Manoj Aggarwal. At this stage, we are not touching upon such reasons in detail since the same have been discussed in detail while dealing with the appeals in the case Shri Manoj Aggarwal. The assessee is a partnership firm with Shri Bishen Chand Aggarwal and Shri Mukesh Aggarwal as partners and was claimed to be operating from 1166/202, Kucha Mahajani, Chandni Chowk, Delhi-6. It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shri Bishan Chand Aggarwal stated that this office was being managed by one Shri Sunil Kumar, a relative of his in rented premises. The Assessing Officer made enquiries at Jaipur and statement of Smt. Lad Kanwar, w/o Shri Ramesh Singh, the owner of the premises was recorded by the ADIT (Inv-II), Jaipur on December 21, 2004. Smt. Lad Kanwar reported that though Shri Sunil Kumar had taken on rent one room in her premises for 5-6 months in 1998, he was not doing any business of jewellery. Smt. Lad Kanwar, it is observed by the Assessing Officer, also stated that she had never rented any premises to the assessee-firm. The Assessing Officer inferred from the statement of Smt. Lad Kanwar that no business of jewellery was ever conducted at the stated premises in Jaipur. The assessee was also asked to produce Shri Sunil Kumar. The Assessing Officer observe that the assessee never produced Shri Sunil Kumar nor gave his address. He, therefore, inferred that there was no evidence that Shri Sunil Kumar was doing any business on behalf of the assessee-firm at Jaipur. Even otherwise, the Assessing Officer noticed that the claim of the assessee of having sold jewellery in excess of Rs. 100 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the purchase executives used to bring the jewellery from the sellers in Amritsar to Delhi where it was valued and then its price was determined and accordingly the cheques were issued to the sellers of the jewellery. The Assessing Officer has noticed that enquiries were conducted by the DDIT, Amritsar and it was found that the four persons were local agents of the assessee-firm and they were engaged by the assessee-firm for providing accommodation entries of purchase of jewellery to various beneficiaries. The Assessing Officer has narrated the modus operandi whereby it is stated that blank cheques of the assessee's bank account were kept by these four agents. The cash belonging to the beneficiaries was deposited in the bank accounts of the firm by either the beneficiaries or by said agents and subsequently the cheques were issued against these cash receipts. The Assessing Officer has referred to the statement of four persons recorded by the DDIT, Amritsar on January 29, 2003, January 30, 2003 and January 31, 2003 in this regard. The Assessing Officer has further noticed that the said agents were also operational in relation to the affairs of M/s. Bemco Jewellers Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The Assessing Officer made local enquiries. On the basis of the enquiries the Assessing Officer observed that all the concerns mentioned by the assessee for having carried out the melting work were bogus entities and nonexistent. 106. The Assessing Officer noticed further abnormalities in the business of purchase/sale of jewellery claimed by the assessee-firm. The assessee had shown purchase of jewellery from sellers from far flung places like Gujarat, Madhya Pradesh, Assam, West Bengal, Uttaranchal and also small towns like Rudrapur etc. The Assessing Officer found it unlikely that the sellers at so far away places would come to sell the jewellery to the assessee-firm at Delhi. That there was substantial time difference of months between the alleged purchase of jewellery and the payment made with respect to said purchases. That the purchase bills indicated that the purchases were invariably in lakhs of rupees and the sellers were having first time transactions with the assessee-firm. That even then, the sellers agreed to accept payments months after the assessee-firm made the purchases. That there was a sudden rise in the turnover of the assessee-firm which itself shows the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross commission income was computed at Rs.98,44,998. The Assessing Officer allowed a deduction at the rate of 10 per cent. on account of the likely expenses to have been incurred for earning this commission income. Hence, the net commission income of the assessee was worked out to Rs. 88,60,498 and after reducing therefrom the income disclosed by the assessee-firm of Rs. 5,06,687 during the various years of the block period, the total net undisclosed income of the assessee for the block period was computed at Rs. 83,53,811. 109. The assessee had carried this addition in appeal before the Commissioner of Income-tax (Appeals). The order of assessment was assailed by the assessee both on legal as well as factual grounds. The Commissioner of Income-tax (Appeals) has upheld action of the Assessing Officer in principle. However, while estimating the commission income, the Commissioner of Income-tax (Appeals) has found it expedient to adopt 35 paise per hundred rupees as appropriate. He has, accordingly directed the Assessing Officer to charge commission income at the rate of 35 paise per hundred rupees on the turnover of Rs. 1,96,89,99,669 as computed by the Assessing Officer. 110 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of the said section 158BC proceedings. This could be discerned from the fact that the appellant requested for a copy of the recording of satisfaction leading to the issue of the impugned notice under section 158BD which was not initially provided but was later on provided on the direction of the hon'ble High Court at New Delhi pursuant to a writ petition filed by the appellant. As the said note of satisfaction dated December 19, 2002, is also under challenge it is essential to reproduce the same verbatim which is as under : M/s. Bishan Chand Mukesh Kumar 1166/202, Kucha Mahajani, Chandni Chowk, Delhi. Search and seizure operations were conducted on August 3, 2000 at various residential and office premises of Sh. Manoj Aggarwal and his associate concerns. The block assessments of this group have been completed on August 29, 2002. The assessment order of Sh. Manoj Aggarwal, conclusively establishes the fact that he was involved in providing bogus accommodation book entries to various persons on commission basis. The modus operandi adopted by him have been elaborated in para 1.5 of the assessment order of Sh. Manoj Aggarwal. For the purpose of providing such bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration the findings on merit are also challenged in great detail and paper books have been filed to substantiate the points agitated upon with cases cited to back up the stand of the appellant. 116. The learned special counsel for the Revenue not only defended the orders of the authorities below but has also objected to the learned Commissioner of Income-tax (Appeals) in restricting the estimate of income to 0.35 per cent. as against 0.50 per cent. estimated by the Assessing Officer as commission earned by the assessee-firm by invoking section 145 and rejecting the book results. The contentions raised on these issues on both sides shall be adverted to at appropriate places as and when these contentions are taken up for consideration. As we have the benefit of a large number of decisions on the subject from various courts and some of them have been referred to by the contesting parties and as we find that most of the legal issues are almost settled we shall refer to only those decisions that are material to the issues on hand. 117. In order to appreciate the various issues thrown up in this appeal, it is necessary and appropriate to refer to the scheme and the purport behind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined . . . 118. Section 158BC lays down the procedure for making a block assessment in a search case as under : Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then, (a) The Assessing Officer shall (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June 1995, but before the 1st day of January 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days ; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or any assets are requisitioned after the 30th day of June, 1995, but before the 1st January, 1997 ; (b) within two years from the end of the month in which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after 1st January, 1997. (2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be (a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th June, 1995, but before the 1st January, 1997 ; and (b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st January, 1997. 121. Needless to state, Chapter XIV-B is a complete code by itself providing for the mode and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer having jurisdiction over such other person ; that only upon the happening of the aforesaid that the said Assessing Officer of such other person shall be vest with jurisdiction under section 158BC read with section 158BD. In simple language, it may be stated that if any material is unearthed as a result of search either under section 132 or requisition under section 132A, an assessment has to be made on the person searched on the basis of the material unearthed and available and the accent of section 158BB is on evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence and for this purpose a notice is required to be issued under section 158BC of the Act to the person searched and such assessment is termed as a block assessment to be made within a specified time limit as provided in section 158BE. The assessment to be made shall relate to the undisclosed income uncovered as a result of search and shall be on the basis of evidence found as a result of search. The settled position is therefore that the Assessing Officer havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties. Suffice it to say, recording of satisfaction is mandatory as held by the apex court. This view has been emphasized in Amity Hotels P. Ltd. [2005] 272 ITR 75 by the hon'ble Delhi High Court also. 123. It is clear from the above that the provisions of section 158BD are thus inextricably interlinked and intertwined with section 158BC and they are like Siamese twins. In the circumstance, it is not possible to view section 158BD in isolation and de hors section 158BC as that would militate against the intention behind the enactment of Chapter XIV-B to provide for a complete code for assessment of undisclosed income as different from the assessment of normal income in regular assessment. The concept of undisclosed income as different from what we may call as normal or regular income is at the very core of this chapter. 124. It is in this context that we have to view the provisions of section 158BD of the Act. It is not as if the said provision can be invoked at the whims of the Assessing Officer. On the other hand, the section has certain built-in requirements which have to be scrupulously followed as held in the case of Manish Maheshwari [2007] 289 ITR 341 (SC) if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to whom search was made and thus it is clear that the satisfaction of the Assessing Officer assessing the person searched is the first and foremost requirement. The Assessing Officer can arrive at this satisfaction only after ascertaining whether there is any undisclosed income at all and this finding can be arrived at by him only in the course of the section 158BC assessment proceeding. Thereafter, he has to arrive at a finding as to the person to whom such income belongs. This finding also can be arrived at only in the course of the section 158BC proceeding in the case of the person searched. He may find that part of the said undisclosed income belongs to the person searched and the rest belongs to other person or persons. At this stage, he has to give a finding in this behalf as to which of the undisclosed income belongs to the person searched and the other person to whom the rest of the income belongs. This finding too has to be arrived at in the course of the section 158BC proceeding. After arriving at this finding, he makes an assessment of the undisclosed income relating to the person searched in his hands and hands over the material relating to the undisclosed income be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the person to whom the undisclosed income belongs which under no circumstance can be beyond the time-limit set in section 158BE. If there is no such finding given in the order under section 158BC, the provisions of section 158BD stand ousted at the expiry of the said time limit for the reason that such a finding is the very basis for invoking section 158BD. 128. Section 158BD as said earlier begins with the expression where the Assessing Officer is satisfied and so the very section implies a recording of satisfaction. The satisfaction contemplated is a judicious satisfaction and not a subjective satisfaction and unless the same is recorded it is not possible for any person to discern whether the satisfaction meets the requirements of law at all. The satisfaction can be found in the order passed under section 158BC and if no such order is passed then it will have to be found in the note handing over the material seized to the Assessing Officer assessing the other person. In any event, it has to be in writing and in view of section 158BE, the said recording has to be made before the time set in section 158BE expires. After the said date, it is not possible to invoke section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er making the block assessment had in law assumed jurisdiction over the appellant-firm as the jurisdiction vested in the Assessing Officer Ward 10(2), New Delhi. In view of the fact that no opportunity was granted to the appellant before the transfer of the case was effected from one Assessing Officer to the other, the order transferring the said case from the Assessing Officer having original jurisdiction to the Assessing Officer passing the block assessment order is vitiated. It is also the stand of the appellant that since the satisfaction had not been recorded within time the proceedings are barred by limitation. It is the submission of the appellant that although no specific limitation has been provided in the statute, it cannot be construed that unlimited period can be assumed as available with the Department for initiating proceedings under section 158BD. It is pointed out that the satisfaction has been recorded on December 19, 2002 and the block assessment under section 158BC of the Act in the case of Mr. Manoj Aggarwal has been framed on August 31, 2002, the satisfaction having been recorded beyond the date of the order under section 158BC, the proceedings are beyond time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her integral nor relevant in the assessment of the raided person especially when section 158BD does not contain the expression in the course of any proceedings as can be seen in section 271(1)(c) ; that satisfaction may be recorded at any time within a reasonable period from the date of completion of assessment under section 158BC of the searched person ; that if there is no inordinate delay it cannot be challenged ; that the practical problems in the way have to be appreciated ; that the satisfaction note need not necessarily contain any finding of undisclosed income and that it is enough if the note shows a prima facie case of existence of undisclosed income ; that there is no limitation for commencement of proceedings under the Act excepting in the provision to section 143(2), that even in respect of section 158BC there is limitation provided for conclusion of block assessment but not for commencement and hence the question of limitation does not apply. In respect of the material defects in the notice pointed out by the learned representative for the appellant, it is submitted that the whole matter is procedural in nature ; that section 292BB recently inserted by the Finance A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g less than 30 days for filing the return of income in contravention of the specific provision for giving not less than 30 days time to file the return was valid in law and the hon'ble High Court answered the question in favour of the assessee holding that such a notice was invalid in law in its judgment dated February 15, 1993, in W. P. No. 33832 of 1992 and this decision is referred to by the Bangalore Bench of the Tribunal in the cases of Prabhat Saw Mills and Timber Merchants v. ITO [1994] 51 ITD 548 and H. G. Narayan v. Deputy CIT [1994] 50 ITD 456 and it has been held in these cases that the proceedings pursuant to the issue of such a notice are invalid in law and so the reassessment was void ab initio and without jurisdiction. The hon'ble High Court repelled the contention of the Revenue that the defect, if any, was procedural in nature and so curable by holding that the said defect is incurable. It was held that such defect goes to the root of jurisdiction and so the notice giving a time of less than 30 days for filing the return of income under section 148 was invalid in law. In view of the fact that section 158BC(a)(i) is in pari materia insofar as the words used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Smt. Krishna Verma [2007] 292 ITR (AT) 88 (Delhi), the notice under section 158BC was issued in case of a person in whose case a search under section 132 had been conducted. It was, thus, held that such a notice was a procedural notice issued after acquisition of jurisdiction, which in such cases vests with the Assessing Officer in terms of section 158BA of the Act. The case on hand is on a different footing as the impugned assessment is in the case of a person other than a person who is subjected to search and the proceedings are initiated under section 158BD of the Act and hence, the issue of notice under section 158BC of the Act on the assessee-firm is a jurisdictional notice. Therefore, the controversy covered by us with regard to section 158BC(a)(i) in the present case is factually different than that before the Special Bench of the Income-tax Appellate Tribunal in the case of Smt. Krishna Verma [2007] 292 ITR (AT) 88 (Delhi). 135. We now turn to the next issue agitated upon vehemently on the question as to whether it is imperative to record satisfaction before commencement of the proceedings under section 158BD as contended by the learned representative for the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not think so. It has to be noted that the proceedings under section 158BC are against the person searched and if in the course of such proceeding the Assessing Officer assessing the person searched comes across material indicating the presence of undisclosed income in the hands of the person not searched, there has to be a provision for making a similar assessment in the case of the other person. As section 158BC relates to a person searched, there has to be different provision for making a similar assessment in the case of the other person and hence section 158BD has been enacted. So, the said section states that if the Assessing Officer is satisfied that the undisclosed income belongs to the other person, then he shall hand over the seized material so as to enable the second Assessing Officer to make a block assessment in a similar manner and that is not possible if the satisfaction is not recorded. And this can be recorded only and only in the course of the section 158BC proceedings and nowhere else. It is the Assessing Officer assessing the person searched who goes through the seized material and comes to a decision as to whether there is any undisclosed income unearthed as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to the issue in the context of the said section itself and so the case law referred to by the learned Departmental representative in this behalf is not considered as relevant to the issue in the view we have herein taken. 137. Having held that recording of satisfaction is imperative before assumption of jurisdiction under section 158BD, we may now turn to examine the meaning of the expression where the Assessing Officer is satisfied appearing at the beginning of section 158BD for the meaning so ascertained gives us a clue as to the nature of the note of satisfaction that is envisaged in the said section. It is the submission of the learned representative for the appellant that such satisfaction must clearly show detection of undisclosed income on examination of the seized material as belonging to the person not searched and that it cannot be based on assumptions and surmises or guesswork. The learned Departmental representative argued that the term satisfaction appears in various parts of the Act itself and that even in section 147/148 dealing with cases of reassessment for assessing income which had escaped assessment, the only requirement is that the Assessing Officer mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me belongs to any person other than the person with respect to whom search was made . . . . It is significant that the term satisfied is not used in a vacuum but along with the words that any undisclosed income belongs to . . . other than the person with respect to whom search was made. . . and the words in the context are undisclosed income and belongs to which clearly indicate that at that point of time when satisfaction is recorded by the Assessing Officer the undisclosed income is to be identified. Further, the said expression does not stop there. It further uses the expression belongs to any person, other than the person with respect to whom search was made which indicates that the undisclosed income identified by the Assessing Officer is found to be belonging to the other person. It would thus mean that at the stage of recording, the Assessing Officer has reached a finding that undisclosed income has been detected as a result of search and also further that such income belongs to the person not searched. All these constitute findings and not a mere belief held by the Assessing Officer on the examination of the seized material and hence the satisfaction contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation book entries and hence, undisclosed income has arisen in the hands of this concern which has been found during the course of search and seizure operations in the case of Shri Manoj Aggarwal and his associate concerns ; thus, proceedings under section 158BD are applicable in this case. Admittedly, this note is after the date of block assessment in the case of Manoj Kumar Aggarwal which was finalized on August 29, 2002. Further, the note of satisfaction is not recorded by the Deputy Commissioner of Income-tax, Central Circle-3, New Delhi acting as the Assessing Officer making the assessment under section 158BC of Manoj Kumar Aggarwal since the said assessment has been finalized earlier. Clearly the note of satisfaction dated December 19, 2002 is beyond the date of block assessment in the section 158BC proceedings dated August 29, 2002, in the case of Shri Manoj Aggarwal. Therefore, the satisfaction recorded is belated. 140. Further, the said note of satisfaction speaks of Manoj Kumar Aggarwal doing accommodation business through various benami concerns and in the names of various persons and earning commission through such accommodation and that one such concern used by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erits of the addition made is purely academic. Elaborate arguments have been advanced by the learned representative for the appellant assailing the addition and the same have also been countered by the learned Departmental representative in detail. We have not adverted to them for we refrain from rendering our decision on merits of the addition in view of our decision to hold the block assessment order dated December 31, 2004 as invalid in law in the preceding paragraphs. 143. We however may adjudicate upon one more legal issue raised by the assessee in its appeal in the form of additional ground which reads as under : No notice under section 143(2) has been served on the appellant within 12 months from the end of the month in which the block return has been filed as such the addition made are illegal and bad in law and the block assessment order is also illegal and without jurisdiction. 144. In support of the plea for admission of the aforesaid additional ground, it is submitted on behalf of the assessee that the issue raised is purely legal in nature and all the relevant facts are on record, that no new facts are to be investigated and further that the additional groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be seen that the notice under section 143(2) was issued on November 8, 2004, and served on the assessee on November 18, 2004. According to the assessee, since the block return was filed on June 16, 2003, the last date for service of the notice was 12 months from the end of the month in which the return was furnished as per the proviso to section 143(2)(ii), which means that no notice could be issued after June 30, 2004. The contention is that since the notice was served on November 18, 2004, it is beyond the period of limitation and hence the block assessment order is invalid. 146. The learned special counsel for the Department objected to the admission of the additional ground. On merits, he contended that even prior to the assessee's letter dated November 29, 2004, several hearings had taken place before the Assessing Officer in which the assessee had participated. He further pointed out that the assessee's letter dated November 29, 2004 is not categorical on the point whether any notice under section 143(2) was issued and served on the assessee before November 18, 2004. He further contended that under orders of the hon'ble Delhi High Court, a copy of which is at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ram Mohan Singh, Deputy Commissioner of Income-tax that the reasons recorded for issuing notice under section 158BD of the Income-tax Act, 1961, shall be supplied to the petitioner. In view of the statement, we dispose of the writ petition with a direction that on the petitioner's filing objections within two weeks of the supply on the reasons, the Assessing Officer shall dispose of the same before proceeding further in the matter of assessment for the block period in question. It will be open to the petitioner to raise all the objections with regard to the jurisdiction of the Assessing Officer in taking recourse to the proceedings in question. The writ petition stands disposed of in the above terms. [as reported in Bishan Chand Mukesh Kumar v. Union of India [2004] 190 (Delhi) CTR 258 ] 149. Pursuant to the orders of the hon'ble High Court, the Assessing Officer supplied the reasons for the issue of notice under section 158BD to the assessee on December 3, 2003. The assessee filed its objections to the same on December 17, 2003. These objections were disposed of by the Assessing Officer on November 8, 2004. On the very same day, he issued the notice under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2007] 289 ITR 28 and Circular No. 549, dated October 31, 1989, issued by the Central Board of Direct Taxes when the proviso to section 143(2) prescribing the timelimit of 12 months for service of the notice was added in 1990 (reported in [1990] 182 ITR (St.) 1, 24). 152. Mr. Kapila, the learned special counsel for the Income-tax Department, on the merits of the additional ground submitted that having regard to the direction of the hon'ble High Court that the Assessing Officer shall dispose of the same before proceeding further in the matter of assessment . . . , the Assessing Officer could not have issued the notice under section 143(2) before disposing of the objections. He contended that all actions of the Assessing Officer are subject to the orders of the hon'ble High Court and if necessary the provisions of the Act have to be so read as not to come in conflict with the orders and directions of the hon'ble High Court. He drew our attention to section 158BC(b) which says that section 143(2) shall, so far as may be, apply to a block assessment and contended that the quoted words indicate that the procedural provisions such as issue or service of notice are alw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 158BD, though filed on December 17, 2003, could be disposed of only on November 8, 2004. 154. In reply, learned counsel for the assessee contended that section 292BB was prospective and was applicable only from the assessment year 2008-09. He further contended that the explanation given by the Assessing Officer in the letter dated April 10, 2008, is not supported by the relevant facts and the dates and even the order sheet entries are not made available to verify whether what is stated in the letter is borne out or not. It was submitted that in any case, the entire enquiry itself is illegal since it has been made pursuant to an invalid notice and, therefore, the assessment order itself is invalid. 155. On a careful consideration of the rival contentions, we are of the view that the notice cannot be said to be served after the period of limitation. As rightly pointed out by Mr. Kapila, the learned special counsel for the Department, the Assessing Officer could not have issued the notice under section 143(2) before disposing of the objections of the assessee to the notice under section 158BD. The clear and unambiguous direction of the hon'ble High Court is that the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suing the notice during the pendency of the assessee's objections. To hold that even in these circumstances the notice issued on November 8, 2004, was invalid would be unjust and unfair to the Assessing Officer and also to the Income-tax Department. Learned counsel for the assessee was not justified in saying that the Assessing Officer tried to take advantage of his own wrong, for he did not commit any wrong in the first place in being obedient to the directions of the hon'ble High Court ; in fact he was acting fully in accordance with law in doing so. The argument of Mr. Kapila based on the presence of the words so far as may be in section 158BC(b) appears to us to cover such cases, and give enough elbow room for the Department where the proceedings relating to the issue of notices etc. before completion of the assessment are made subject to the directions of the hon'ble High Court. 156. We may also in this connection refer to section 15(1) of the Limitation Act, 1963 which is reproduced below : 15. Exclusion of time in certain other cases. (1) In computing the period of limitation for any suit or application for the execution of a decree, the institution or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the solitary issue raised therein relates to the addition of Rs. 16,80,475 made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) under section 68 on account of sale proceeds of jewellery declared under the VDIS treating the same as bogus. 162. The assessee in the present case is an HUF which is engaged in the business of manufacturing and sale of knitted fabrics under the name and style of his proprietary concern M/s. Raunaq Industries. A return of income for the year under consideration was filed by it on October 31, 1998, showing the total income of Rs. 2,44,687. In the said return, long-term capital loss of Rs. 1,82,891 claimed to be arising from the sale of jewellery was shown by the assessee. It was claimed that the said jewellery was declared under the VDI Scheme at its cost of acquisition adopted on April 1, 1987 at Rs.7,88,131 and after reducing the said cost of acquisition as indexed at Rs.18,63,365 from the sale proceeds of Rs. 16,80,475, the long-term capital loss was arrived at Rs. 1,82,891. During the course of assessment proceedings, it was noticed by the Assessing Officer that the said jewellery was shown to be sold by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of VDIS certificate from the office of worthy Commissioner of Income-tax, Amritsar. (b) The assessee submits that M/s. Bishan Chand Mukesh Kumar jeweller was introduced to him through his relatives at Delhi. How ever he was unable to identify the relatives. (c) The assessee has further submitted that the representative of the jeweller came to Amritsar to take delivery of the jewellery from Delhi and he handed over the jewellery worth approx. Rs. 14 lakhs without any receipt or without receiving the payment for the same is also not believable. (d) Confirmation has been received by this office while the party is not traceable at the address as given by the assessee. It is then strange as to why the letters sent by this office were not received back. In case they were duly received and replied, then why were they not trace able on enquiry of Inspector of the DDI office. Also, non-co-operation of the jeweller with the office to whom commission was issued by this office also gives credence to the conclusion being drawn by this office. (e) The jewellery sold, inter alia, includes diamond jewellery sold worth Rs. 3,67,868 whose value as on April 1, 1987, had been shown at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has again confirmed the same in compliance with the letter issued under section 133(6) by the Assessing Officer, wherein he has also supplied xerox copies of the bills as called for by the Assessing Officer. The buyer has again confirmed the transactions in submitting to your appellant certified copies of his income-tax and sales tax assessment order and copy of account of your assessee appearing in his books of account, all which clearly established sale transactions which has been doubted on mere conjectures and surmises by the Assessing Officer. 165. Relying on the aforesaid submissions, it was thus contended on behalf of the assessee before the learned Commissioner of Income-tax (Appeals) that the Assessing Officer was not justified in rejecting the explanation of the assessee about the sale of jewellery and in treating the proceeds of the said sale as unexplained cash credits by invoking the provisions of section 68. 166. The aforesaid submissions made on behalf of the assessee before him during the course of the appellate proceedings were forwarded by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer and a remand report was sought by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged sale and purchase of jewellery. Keeping in view the above facts as reported by the Assessing Officer, Delhi, in his report, the transactions of this concern also appears to be bogus. As such, the appeal deserves to be dismissed and appeal may kindly be decided in favour of the Department. 167. A copy of the report dated November 27, 2002, received by the Assessing Officer from the Deputy Commissioner of Income-tax, Central Circle-3, New Delhi as referred to in the remand report was also forwarded by the Assessing Officer to the learned Commissioner of Income-tax (Appeals) along with his remand report. The contents of the said report were as under : Per report of the Deputy Commissioner of Income-tax, Cen. Cir-3, New Delhi vide letter dated November 27, 2002, to the Assessing Officer The case of M/s. Bishan Chand Mukesh Kumar to whom the jewellery has allegedly been sold by your assessee, Sh. Tejinder Singh, HUF in the financial year 1997-98 has been centralized in this circle in September 2001, on the basis of certain seized material found in the case of search and seizure operation carried out in the case of Sh. Manoj Aggarwal, Sh. Bishan Chand Aggarwal and M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isited the above mentioned premises on July 25, 2002. This building is a commercial complex consisting of small shops. Each floor has about 6 to 7 shops, measuring approximately 8' 10' sq.ft. Shop No. is given according to floor, i.e., 1st floor starts with 100 likewise. On the 2nd floor shop No. 202 is presently occupied by M/s. Agrawal Brothers. I met Sh. Chuni and Mahesh, both are employees of M/s. Agrawal Brothers. According to them, Agrawal Brothers is operating for the last 5 years. This is a rented shop. According to Sh. Chuni, there has never been any business establishment in 1166/202, by the name of Sh. Bishan Chand Mukesh Kumar Saraf. Local inquiry also revealed the same. 169. The remand report submitted by the Assessing Officer as above was made available by the learned Commissioner of Income-tax (Appeals) to the assessee for his comments and in his reply filed in writing, the following submissions were made by the assessee : (1) The remand report as forwarded by the Assessing Officer go to reveal that the firm M/s. Bishan Chand Mukesh Kumar, to whom your appellant has sold the jewellery, has been centralized in the Central Circle-III, New Delhi in Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummons dated 7-3-2001. There was no sign board of this shop which is on the 2nd floor. I met one person by the name of Mukesh Kumar, but he denied that M/s. Bishan Chand Mukesh Kumar existed at this premises. He intimated that the firm had been dissolved and the firm M/s. Aggarwal Bros. was functioning from this premises. However, he told a person by the name of Umesh to receive the summons. When I visited the above premises again on 19-3-01, I met one person by the name of Rakesh Kumar. He stated that he was working for M/s. Aggarwal Bros. and this firm has been functioning in this premises for the last six months. I served all the summons and show-cause notice dated 19-3-01 on this person. However, the market inquiry reveals that the firm M/s. Bishan Chand Mukesh Kumar is still functioning from this premises. Submitted for your kind perusal quot; As directed, I visited the above mentioned premises on 25-7-2002. This building is a commercial complex, consisting of small shops. Each floor has about 6 to 7 shops msg. approx. 8' X 10' sq.ft. Shop No. is given according to floor i.e. 1st fl. start with 100 likewise. On the 2nd fl. Shop No. 202 is presently occup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not automatically lead to the conclusion that sales made by the assessee-appellant to the firm, are also bogus. It may not be out of place to mention that we have along with our paper book submitted various documents in the nature of confirmations, income-tax and sales tax assessment orders etc. of the party. And have also obtained the original signed documents in the nature of copy of account, income-tax and sales tax orders etc. of the partner of the firm. No addition can be made on the basis of presumptions as has been made by the Assessing Officer and the additions, therefore, needs to be deleted and may kindly be deleted. 170. The submissions made on behalf of the assessee, the remand report submitted by the Assessing Officer and the counter comments made by the assessee in the written reply were examined by the learned Commissioner of Income-tax (Appeals) in the light of material available on record and on such examination, he recorded the following findings/observations : (i) Though the appellant claimed jewellery to be very old and having sentimental value, the appellant had promptly sold this very jewellery immediately after the date of receipt of the VDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeds of the said sale amounting to Rs. 16,80,475 to the total income of the assessee as unexplained cash credit under section 68. 172. Learned counsel for the assessee, at the outset, objected to the addition made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) under section 68 in the present case treating the sale of jewellery shown by the assessee as bogus relying on the Voluntary Disclosure of Income Scheme, 1997. He submitted that the said jewellery sold by the assessee was declared by it in the declaration filed under the VDIS and the declaration so filed was also accepted by the Department. In this regard, he invited our attention to the copy of certificate issued by the concerned Commissioner accepting the declaration filed by the assessee under the VDIS placed at page No. 13 of his paper book. He contended that the purpose of the VDIS as explained in [1997] 224 ITR (St.) 140 paragraph 92 was to harness the black money for productive purpose and special treatment in this regard was given to the jewellery by allowing the declarants to adopt the valuation as on April 1, 1987, in respect of jewellery purchased prior to that date. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Radio Instruments Associates P. Ltd. v. CIT [1987] 166 ITR 718 submitting that the scope and ambit of the VDIS has been explained therein. 174. We have considered the rival submissions and also perused the relevant material on record. It is observed that a similar plea seeking to claim the immunity in respect of sale of jewellery declared under VDIS was raised even on behalf of the interveners and the same has not been found to be acceptable by us for the reasons given by us hereinafter. As held by us in this regard, the immunity given by section 68 of the Finance Act, 1997 incorporating VDIS is limited to the extent that the existence of jewellery stands accepted and the amount credited in the books of the declarant to the extent of value of the jewellery so declared cannot be assessed as income of the declarant for any assessment year under any provision of the Income-tax Act including the provisions of section 68. This immunity, however, stops there and there is no provision in the scheme to extend the same further, either expressly or even by implication, to cover the sale of jewellery declared under VDIS also. We have also explained with hypothetical example as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Investigation Wing, Amritsar were not correct and were recorded under threat and undue pressure. 2. Letter of Sh. Sudhir Kapoor dated February 26, 2003, filed before the Income-tax Department stating that the statements recorded by the DDI-Investigation Wing, Amritsar were not correct and were recorded under threat and undue pressure. 3. Letter of M/s. Bishan Chand Mukesh Kumar dated February 17, 2005, along with affidavit confirming the purchases of jewellery filed before the Commissioner of Income-tax-I, Amritsar. 4. Letter of M/s. Bishan Chand Mukesh Kumar dated February 17, 2005, along with affidavit confirming the purchases of jewellery filed before the Commissioner of Income-tax-II, Amritsar. 176. During the course of hearing, the submissions made by the learned representatives of both the sides on the aforesaid applications were heard by us and after taking the same into consideration as well as all the facts of the case, the additional evidence filed by the Revenue as well as the assessee under the said applications has been admitted by us as per the order sheet entry dated March 17, 2008, and the decision to that effect was also pronounced in the open court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the purchase and sale of jewellery is involved. As regards the reliance of the Revenue on the statements of the concerned persons recorded subsequently filed as additional evidence before the Tribunal, he submitted that no opportunity was given to the assessee to cross-examine the said deponents. He submitted that the said parties have subsequently retracted their statements and their letters/affidavits to this effect have been filed by the assessee as additional evidence before the Tribunal. He contended that if at all the said statements filed by the Revenue as additional evidence are to be taken into account for deciding the issue involved in the assessee's appeal, the fact that no opportunity was given to the assessee to cross-examine the said deponents as well as their retractions in the form of affidavits also need to be taken into consideration to evaluate the evidentiary value of the documents filed by the Revenue as additional evidence. 179. The learned special counsel for the Revenue Shri S. D. Kapila, at the outset, invited our attention to a copy of valuation report placed at page No. 15 of the assessee's paper book and pointed out the description and val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritsar or Delhi. He contended that the said bills were bearing the signature of Bishan Chand Aggarwal as well as the assessee and if the same were prepared at Amritsar, how Bishan Chand Aggarwal could sign the same especially when he was not present personally while collecting the jewellery. He contended that similarly if the bills are claimed to be prepared at Delhi, how Tejinder Singh, the assessee in the present case, could have signed the said bills especially when he admitted of having not visited the shop of M/s. Bishan Chand Mukesh Kumar at Delhi. Referring to a copy of the statement of Shri Bishan Chand Aggarwal placed at page No. 37 of the paper book, he submitted that it was explained by Shri Bishan Chand Aggarwal in his statement that valuation of jewellery was done on estimated basis at Amritsar while taking the jewellery. In this regard, his contention was that what could at the most be possible while taking the jewellery at Amritsar was to weigh the same. It was, however, not possible to ascertain the purity of the jewellery so as to make any estimate of the value of jewellery in order to make the payment. He contended that M/s. Bishan Chand Mukesh Kumar thus had clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of evidence filed by the assessee in the form of sales tax assessment order or sales tax payment challan is required to be seen in the totality of the facts of the case and surrounding circumstances. 182. As regards the statements of Bishan Chand Aggarwal and other concerned persons recorded subsequently from time to time, Shri S. D. Kapila submitted that the said statements are full of contradictions and anomalies especially when they are seen in the light of subsequent retractions. He made an attempt to point out such contradictions and anomalies in the said statements and also pointed out the replies given by Shri Bishan Chand Aggarwal to certain specific questions which, according to Shri Kapila, were quite evasive. He contended that this evidence thus needs to be reconsidered and reappreciated for deciding the issue involved in the assessee's case about the genuineness of the sale of jewellery and for doing this entire exercise, the matter needs to go back to the Assessing Officer. He submitted that this will also facilitate in giving an opportunity to the assessee to cross-examine the deponents so that a proper conclusion can be reached. In support of this content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amritsar as clearly stated by the assessee in his statement. He contended that the case of the assessee about the genuineness of sale of jewellery thus is based on cogent evidence and the test of human probability cannot be applied to draw an adverse inference against the assessee as sought by the learned Departmental representative. He also explained the manner in which the sale of jewellery was effected by the assessee to M/s. Bishan Chand Mukesh Kumar by pointing out the sequence of events involved in the transaction. In this regard, he submitted that the purchase executive of M/s. Bishan Chand Mukesh Kumar had visited Amritsar and inspected jewellery and the same was handed over by the assessee to the said executive after obtaining kachi receipt from him. He submitted that the said jewellery was finally inspected and evaluated at Delhi by M/s. Bishan Chand Mukesh Kumar and the final bill/ voucher was issued by the said concern which was signed by the assessee on the receipt of the same at his end. As regards the objection of Shri Kapila about the substantial payment of Rs. 39.23 lakhs on account of sales tax by M/s. Bishan Chand Mukesh Kumar from the profit of Rs. 40 lakhs, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment was getting barred by limitation which he finally completed vide an order dated March 27, 2001. Taking note of this vital aspect of the matter and keeping in view the submissions made on behalf of the assessee before him, the learned Commissioner of Income-tax (Appeals) sought a remand report from the Assessing Officer. While seeking the said report, he directed the Assessing Officer to make all the necessary enquiries in the matter and also to confront the assessee with all the material collected by him. Accordingly, enquiries were made by the Assessing Officer with the Assessing Officer of M/s. Bishan Chand Mukesh Kumar, i.e., the Deputy Commissioner of Income-tax, Central Circle-3, New Delhi who informed in his report that in pursuance of a search operation conducted, inter alia, in the case of Shri Bishan Chand Aggarwal, partner of M/s. Bishan Chand Mukesh Kumar, the case of M/s. Bishan Chand Mukesh Kumar has been recommended for initiating proceedings under section 158BD. He also informed in his report that in-depth and detailed investigation was required to be done in order to verify the genuineness of purchase and sale of jewellery claimed to have been made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equest on behalf of the Revenue for clubbing the appeals filed in the case of M/s. Bishan Chand Mukesh Kumar and Shri Manoj Aggarwal/Bemco with the appeal of the assessee for the consideration of this Special Bench which has been acceded to keeping in view that an indepth and detailed investigation has been done in the said cases to ascertain the genuineness of the transactions of purchase and sale of jewellery and the final outcome of the said cases will be relevant to decide the issue involved in the appeal of the assessee. 187. After hearing the arguments of the learned representatives of all the sides in these cases, we felt that it would be appropriate to consider and decide the appeals filed in the case of M/s. Bishan Chand Mukesh Kumar and Shri Manoj Aggarwal/Bemco Jewellers first as the issue relating to genuineness of the transactions of purchase and sale of jewellery in the said cases have been investigated in detail and the decision thereon will have a direct bearing on the ultimate fate of the case of the assessee, i.e., Tejinder Singh, HUF. Accordingly, the appeals filed in the case of M/s. Bishan Chand Mukesh Kumar have already been disposed of by us in the foregoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal has been considered and decided by us on merits. In the said cases, the facts involved were almost similar to the facts involved in the case of M/s. Bishan Chand Mukesh Kumar inasmuch as the transactions relating to purchase and sale of jewellery were held to be bogus by the Department alleging that such transactions were entered into in order to give accommodation entries on commission basis. This allegation was based on the similar type and nature of evidence collected by the Department and the modus operandi allegedly followed by Bemco/ Manoj Aggarwal was the same as alleged to be followed by M/s. Bishan Chand Mukesh Kumar while giving accommodation entries in the form of bogus sales entries of jewellery. The case sought to be made out by the Department about the alleged bogus purchase and sale of jewellery transactions on the basis of similar nature of evidence has been examined by us in detail and on such examination, we have held that the evidence collected by the Revenue authorities was not sufficient to establish their stand that the jewellery transactions carried on by Bemco Jewellers Pvt. Ltd. were only paper transactions or bogus and the same were put through by ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer and confirmed by the Commissioner of Income-tax (Appeals) under section 68 and allow this appeal of the assessee. Cases of interveners : Divya Kapoor : 188. Mr. Sudarshan Kapoor, learned counsel for the intervener Divya Kapoor, addressed legal arguments. According to him, section 68 of the Income-tax Act is a deeming provision and is not applicable where the gold or jewellery is part of the assets of the assessee for which an entry has been made in the books of account in accordance with the VDIS. He contended that when the entry is made in the books of account after the declaration under the VDIS, it is at that time section 68, if at all, can be invoked and once that stage is crossed and the section has worked itself out, it cannot again be invoked when the gold or jewellery declared under the VDIS is sold and the sale proceeds are credited in the books of account. His further argument was that the entry itself is proof of sale of the gold or jewellery already declared under the VDIS since it is already part of the balance-sheet of the assessee-declarant and no further proof of sale can be insisted upon. Suraksha and Sunil Chawla : 189. Mr. Baljit Singh, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys and they moved from the assessee and were brought in as sale proceeds of jewellery. It is only where section 68 applies that the burden is on the assessee to prove the nature and source of the credit. The distinction between the two has to be appreciated and given effect to. 192. Mr. Vohra submitted that the judgment of the Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 is not applicable to the present dispute for the reason that in the cited case, the transactions were not of income nature. That was a case of cash credit simpliciter where it is not for the Department to point out the source from which the assessee might have received the moneys and it was for the assessee to show the nature and source of the credit. Mr. Vohra was at pains to explain that in the present case, the cash received by the assessee represented income in the sense that they gave rise to capital gains and to such a situation, the cited judgment does not apply. In support of these submissions, he relied on the following : (i) CIT v. Pancham Dass Jain [2006] 205 CTR (All) 444; (ii) Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Raj) ; and (iii) Smt. R. Imbava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has also filed the compilation of the case law. 196. Mr. Kapila, the learned special counsel for the Income-tax Department put forth the following contentions : (a) The decisions rendered under other Acts cannot automatically be applied to the Income-tax Act irrespective of the nature and language of the provisions. (b) The case of the Department rested squarely on section 68 of the Income-tax Act. If the sale of the jewellery is not proved, the result would be that there would be no capital gains under section 45. Nevertheless, the sale proceeds shown in the books of the assessee will have to be dealt with under section 68 only. (c) It is for the assessee to prove the genuineness of the sale and the nature and source of the receipt. The assessee cannot escape liability by merely saying that this is not a case of cash credit simpliciter to be dealt with under section 68, but was a case where the sale proceeds are shown as income by way of capital gains. One has to look at the substance of the transaction and not merely the form it takes. (d) Section 68 does not require the Assessing Officer to prove that the money emanated from the assessee. The very fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee cannot be treated at par with cash credits, an argument which was also addressed by Mr. Vohra, learned counsel for the intervener, Mrs. Suman Mehra. His further arguments were as follows : He contended that it is not a case of loan or gift where the onus is more heavy on the assessee, but it is a transaction of sale where the assets which is individually owned by the assessee and income arising out of the said sale transaction declared by the assessee in its regular returns is sold and sale realization is credited in the books of account. In respect of such transaction of sale, the onus has been duly discharged by the assessee by proving the following : (a) Jewellery was in existence which is sold by the assessee and he is the owner of the same prior to its sale. (b) Sale of jewellery is by account-payee cheques and the money has come to the account of the assessee from the account of the purchaser. (c) Purchase bills of jewellery are produced and the said sale trans action is confirmed by the purchaser. (d) The purchaser is an existing person who is registered with sales tax authority and has filed its sales tax and income-tax returns. (e) The partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof, or his explanation, in the opinion of the Assessing Officer, is not satisfactory, then, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. As the heading of section 68 viz. Cash credits , itself suggests that it is applicable with reference to the cash credits brought in by the assessee by making entry in the books of account. However, in the transaction of sale of such declared jewellery, the amount so credited in the books of account at the time of sale is partly attributable to the cost of assets and partly attributable to profit on sale. The cost part of such assets have already suffered tax at the rate of 30 per cent. at the time of declaration thereof under VDIS, and the profit part is being liable to tax at the time of sale of such assets, as per the provisions of capital gains tax contained under Part E of Chapter IV of the Income-tax Act. Thus, the amount so credited as capital receipt is liable to tax as capital gains cannot be strictly put at par with cash credits under section 68 of the Act, according to learned counsel. 203. We have carefully considered the arguments of both the sides. We are unable to subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income. He is required to credit his books of account with Rs. 5 lakhs as required by section 68 of the Finance Act, 1997, in addition to paying the tax thereon at concessional rates under the VDIS. Once the amount is credited the same cannot be taxed again for any assessment year under the provisions of the Income-tax Act, 1961. Supposing, the assessee in the example credits the books of account with the amount of Rs. 5 lakhs as on December 31, 1997, the Assessing Officer making his assessment for the assessment year 1998-99 cannot invoke section 68 of the Income-tax Act to assess the amount again. However, when the gold bars are sold by the assessee at any time later, say for Rs. 8 lakhs, and the amount of Rs. 8 lakhs is received by the assessee and credited by him in his books of account, there seems to be no bar on the Assessing Officer from examining the question whether there was real and actual sale of the gold bars which fetched Rs. 8 lakhs to the assessee. Such a power has not been either expressly or by implication taken away from the Assessing Officer. Such a power may be exercised by the Assessing Officer to ensure that the provisions of the VDIS, 1997 have not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to adduce evidence to show that the monies have emanated from the assessee. He contends that the apparent should be taken as the real state of affairs and if the Department questions the same it is for them to prove that the apparent is not the real. Though prima facie the argument seems to be attractive, we are afraid that it cannot bear closer scrutiny. Section 68 of the Income-tax Act only gives statutory recognition to the well-settled position that any monies found credited in the accounts of the assessee have to be proved by the assessee in relation to their nature and source. It does not enact any new principle. Even long prior to the introduction of the section, courts had held that any amounts found credited in the books of the assessee and the assessee offered no explanation about the nature and source thereof or the explanation offered was not satisfactory, the amounts so credited could be charged to income-tax as income of the assessee. Reference in this connection may be made to three judgments of the Supreme Court : (1) A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, (2) Lakhmichand Baijnath v. CIT [1959] 35 ITR 416 and (3) CIT v. Devi Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction therefor has been allowed. In all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies. What happens in a case of sale of jewellery, as in the cases of the declarants before us, is that the assessee says that the credit represents receipt of sale proceeds. The Department, however, disputes this and merely calls upon the assessee to prove the nature and source of the monies, invoking section 68. At that stage, it is not the case of the Department that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation that she acquired the land out of the monies left to her by her mother's first husband was rightly accepted by the Tribunal. Section 68 also uses the word may and not shall and belongs to a group of similar sections providing for deemed income. These guidelines laid down in the decided cases have no doubt to be kept in mind while applying section 68, but the applicability of the section cannot be ruled out and the burden be thrown on the Department even in the first instance. The principle that the apparent shall be accepted to be the real until some evidence showing otherwise is unearthed is a rule of evidence applicable while appreciating a state of affairs or an explanation put forth by parties or while appreciating a set of circumstances or facts brought before the court. The principle will no doubt apply while evaluating the evidence adduced under section 68, but it cannot rule out the applicability of the section. That principle is of universal application, not only under the Income-tax Act, but also under all enactments under which the court is required to evaluate the evidence or judge a set of facts or circumstances or explanation put forth by the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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