TMI Blog1998 (3) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1961,on 29-3-1996 and that the search was finally concluded on 23-5-1996. The assessee has tried to draw our attention to several points with regard to different aspects of the search, to which we shall refer at appropriate places. In the assessment order passed by the Assessing Officer on 30-5-1997, the Assessing Officer states that during the search proceedings it was noticed that the assessee had claimed 100% depreciation on certain assets like Industrial Gas Cylinders, Solar Testing Plant, etc., claimed to have been purchased by the assessee from different parties for a total consideration of 445.30 lakhs. All these assets, were shown by the assessee as having been leased to M/s. Miga Gases (P.) Ltd., and certain other parties, as detailed below: - ----------------------------------------------------------------------- Sl. Name of the Name of Invoice Invoice Nature of No. supplier the Lessee Date Value the Asset ----------------------------------------------------------------------- 1. DDK Industries. Miga Gases (P.) 10-3-1994 4805000 Industrial B'lore Ltd., B'lore Gas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer the reasons for issue of the notice under section 158BC. The Assessing Officer states that thereafter a letter dated 20-8-1996 was issued to the assessee explaining the reasons for issue of the notice under section 158BC. The assessee was also asked to show cause why penalty should be levied on it under section 271(1)(b) of the Income-tax Act, 1961. An examination of this letter of Assessing Officer dated 20-8-1996, however shows that no mention was made in this particular letter about the lease transaction with M/s. Miga Gases or other concerns and that it was simply stated therein in a general manner that the burden of proving to the satisfaction of Assessing Officer that any undisclosed income had already been disclosed in the returns of income filed by the assessee before the commencement of the search, lay with the assessee. It was, however, not at all mentioned as to what exactly constituted undisclosed income of the assessee. 4. In response to the said letter, the assessee filed a letter dated 31-8-1996 submitting that since no valid search and seizure proceeding had been effected in the case of the assessee under section 132, the assessee was not liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was furthermore mentioned that Sri Krishna Mohan, in his statements recorded on oath on various dates had confirmed that neither M/s. DDK Industries/MM Industries had supplied any cylinders shown (as in their invoices issued to the assessee-company) nor M/s. Miga Gases (P.) Ltd., had received any cylinders on account of the aforesaid lease transactions. A reference was also made about some statements of Sri Krishna Mohan about the entire transactions having been nothing but paper transactions entered for the purpose of accommodation and also that the entire money paid by the assessee to M/s. DDK Industries/MM Industries having been remitted back to the assessee-company through M/s. Miga Gases (P.) Ltd., as lease rental advances, after retention of the commission of Sri Krishna Mohan for having accommodated the transactions. It was stated therein that copies of the statements recorded from the above persons would be shown to the assessee at the time of hearing. It is worth mentioning in this connection that no papers containing the aforesaid statements of Sri Krishna Mohan prior to 8-10-1996 were brought on record by the Assessing Officer or relied upon by him in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were still claiming depreciation on such assets in their books. However, a thorough scrutiny of the materials on record shows that no copy of the above statement alleged to have been made by the lessees was supplied to the assessee at any stage. 7. A further letter dated 6-3-1997 with attention to Sri Pradeep Kar, Managing Director was issued to the assessee by the Assessing Officer, proposing the disallowance of claim of depreciation on the bogus transactions, as the assessee-company: (a) had failed to obtain any fresh confirmation letters from the suppliers/lessees; (b) failed to explain/furnish the whereabouts of the suppliers; (c) failed to show the existence of assets, etc. In the said letter again, it was stated by the Assessing Officer that during the investigations conducted by the Deptt., it had been found that both M/s. DDK Industries and M/s. M.M Industries were non-existing and non-operational during the relevant period, i.e., 1992-93 to 1995-96, and also that the concerns/their proprietors/partners were not traceable. It was furthermore mentioned that Sri Krishna Mohan, the Managing Director of M/s. Miga Gases (P.) Ltd., had categorically denied the receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also been annexed by the Assessing Officer to the assessment order as Annexure-1. 8. Along with the issue of the aforesaid letter dated 6-3-1997, the hearing of the case was posted on 14-3-1997 at 11.30 AM. Necessary summons under section 131 and also notice under section 143(2) were issued. On 14-3-1997, the assessee filed a reply letter enclosing the copies of lease agreements, invoices, delivery challans, etc. (which had been filed earlier also), but failed to obtain any fresh confirmation, etc., from the lessees/ suppliers. In the said letter, the assessee also emphasised on the points like that the lease rentals on the lease transactions were being continued to be paid till date thus removing any iota of doubt about the genuineness of the transactions and that the letter of Sri Krishna Mohan could not be relied upon and in any case was not binding on the assessee. The assessee also wanted the Assessing Officer to summon under section 131, a large number of parties like the proprietors of M/s. DDK Industries/MM Industries, Commercial Tax Officers in respect of M/s. Miga Gases, M/s. DDK Industries and M/s. MM Industries, etc., financial institutions certifying genuinenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuineness of the assets stated by the assessee to have been received from M/s. DDK Industries /M/s. MM Industries confirmation letters from such parties would be necessary. The Assessing Officer also stated that summonses to Sri Krishna Mohan and some of the local lessees were being issued by him requiring them to appear before him on 21-3-1997. The Assessing Officer wanted the assessee also to be present on 21-3-1997 in case it wanted to cross-examine such parties. 10. In response to the abovementioned letter of the Assessing Officer dated 14-3-1997, the assessee filed another letter dated 15-3-1997 (annexed to the impugned assessment order as Annexure-4). This letter was, however, actually filed in the office of the Assessing Officer on 21-3-1997. In this letter also, the assessee reiterated its earlier stand about genuiness of the lease transactions. It was furthermore stated therein that the assessee was neither the supplier nor the dealer of the equipments leased out and that the essential function of the assessee in the capacity of the lessor of the lease transactions was to purchase the equipments selected by the lessee, from the supplier who had been designated by the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts Ltd. and M/s. Tejus Solar (P.) Ltd. was proposed to be disallowed. So far as M/s. Miga Gases (P.) Ltd., was concerned, the Assessing Officer reiterated his earlier stand about the statements of Sri Krishna Mohan. Regarding M/s. Tejus Solar (P.) Ltd., the Assessing Officer stated that the Managing Director of that concern, viz., Mr. Prasanna Kumar had admitted that the lease transaction of the assessee with that concern was also a paper creation and furthermore that the proprietrix of the supplier concern viz., M/s. Akshay Engineering had also said that they had not supplied any material to the assessee or to M/s. Tejus Solar (P.) Ltd., and that the invoice was a paper accommodation only. A copy of the aforesaid letter of the proprietrix of M/s. Akshay Engg. was only supplied to the assessee. The Assessing Officer stated that with regard to the lease transaction with M/s. Savik Vijai Engg. (P.) Ltd., the efforts to trace the existence and the genuiness of the so-called supplier, viz., Vishaka Electricals (P.) Ltd., had been in vain, indicating the non-genuineness of the transaction. It was furthermore stated that similarly in case of the lease agreement with M/s. Tamil Nad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, please take me to the place of their installation for physical inspection arid arrange for the confirmation from the concerned people on 21-5-1997 between 2 PM to 6 PM." The Assessing Officer thereafter asked the assessee once more to get fresh confirmation letters from the concerned parties like so-called suppliers/ lessees (obtained after 1-10-1996) and also, the ledger accounts extracts of the assessee in their books, to produce the concerned lessees/suppliers on 21 -5-1997 during office hours and to arrange for physical inspection of the assets at the place of installation, if any, on 21-5-1997 between 12 noon to 6 PM. The Assessing Officer added thereafter that for this purpose the case of assessee was being posted for hearing on 21-5-1997 at 10.30 AM and furthermore that in case of failure of the assessee on that date, the case should be treated as being reposted on 26-5-1997 at 10.30 AM as another opportunity. Separate summons to Sri Pradeep Kar, MD of the assessee-company was also enclosed for compliance. 13. On 26-5-1997, the Managing Director and also the representative of the assessee appeared before the Assessing Officer. Although the Assessing Officer states th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso prepared. He, furthermore, discusses that in all such cases, the general characteristics are that the lease period will be approximately for 5-10 years, that the total lease rentals stated to be payable by the lessee over the entire period will be calculated and about 85% of the invoice value in respect of the materials/ equipments will be taken by the lessor as advance deposits which will be non-refundable in nature and required to be adjusted against the future lease rentals as and when they fall due. He discusses that thereafter, the full invoice value is paid by the lessor, i.e., the assessee in the instant case, to the supplier by cheque or DD and 85-90% of the same amount will in turn be transferred to the account of lessee which again ultimately comes back to the lessor, i.e., the assessee by way of lease rental advance. There would be brokers mediating the process. The Assessing Officer goes on discussing further that there would be a tacit understanding amongst all the parties that once the lease is finalised and 85% of the purchase amount is received by the assessee towards advance lease rentals/deposits, there would be no further liability of any kind amongst the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the transactions. Finally, the Assessing Officer comes to the conclusion that the following aspects clearly prove that the so-called lease transactions were not genuine ones. (a) The assessee did not produce fresh confirmation letters or the suppliers/lessees for verification and examination; (b) The assessee had not seen/conducted or dealt with the supplier directly at any point of time and that the assessee simply believed the documents furnished by the lessee; (c) The physical inspection and verification of the lessee's premises where the assets are supposed to have been installed by the Deptt., proved that no such assets ever existed; (d) The lessees clearly admitted that the entire lease transactions were sham and nothing but paper transactions only without the actual involvement of any such assets; (e) The assessee failed to explain the above position and furnish other evidence as required by the Assessing Officer from time to time to prove the genuineness of the lease transactions. 16. Thereafter the Assessing Officer has tried to analyse each of the lease transactions claimed to have been entered into by the assessee with different parties. Firstly, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the total lease rentals to be received as per the lease agreements over the entire lease period of eight years was around 120% of the invoice value, the difference between this amount and the advance lease rental (around 85% of the invoice value) was shown by the assessee as discounting charges, i.e., future lease rentals received in advance at the discounted price and debited also as such. According to the Assessing Officer, the claim of discounting charges of Rs. 130,13,301 in respect of lease rentals from M/s. Miga Gases Pvt. Ltd., was being disallowed and the amount being brought to tax as undisclosed income for the block period under consideration. The Assessing Officer discusses thereafter that the assessee had shown Rs. 41.23 lacs as lease rental receipts as on 31-3-1996 in its books (for which again no details were furnished) and had offered for taxation the same amount in its regular returns filed. However, the Assessing Officer goes on discussing further that as seen from the lease agreements, the total lease rental deposits and finance charges due and accounted as on 29-3-1996 were only Rs. 23,99,493 and not Rs. 41.23 lacs. Hence, the Assessing Officer restricted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also added back the discounting charges stated to be debited to the P L a/c. The discounting charges, in this case also, have been described by the Assessing Officer to constitute difference between the total lease rentals receivable by the assessee at 120% of the invoice value of the equipments and the lease rental advance constituting 85% of the said invoice value. The amount of discounting charges has been calculated by the Assessing Officer to be at Rs. 12,03,400. The Assessing Officer however gave credit in respect of an amount of Rs. 6.58 lacs stated to have already been shown as lease rental receipts and offered for taxation by the assessee as on 31-3-1996. In this process, the total amount of Rs. 35,39,725 was added back as undisclosed income of the assessee for assessment year 1995-96. 18. The Assessing Officer thereafter discusses the details of lease transaction of the assessee with M/s. Savik Vijai Engg. Pvt. Ltd. He states that the modus operandi in his case was also the same as in the case of M/s. Miga Gases Pvt. Ltd. The Assessing Officer however does not refer to any admission made by the lessee in this case. On the other hand, he relies on the failure on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of natural justice; (c) That the appellant arranged for physical inspection of the leased assets on 26-5-1997 and the Assessing Officer failed to proceed to inspect the leased assets; (d) That the Commissioner did not afford an opportunity to appellant for being heard." It is submitted by the Departmental counsel that as per Rule 10 of the Income-tax (Appellate Tribunal) Rules, 1963, the assessee has to furnish an affidavit in support of such facts and since the assessee has not furnished any such affidavit, the appeal filed by the assessee deserves to be rejected in limine. Dr. Krishna has also verbally contended before us that in absence of any affidavit from the side of the assessee in support of the allegations as mentioned above, the appeal should be dismissed by the Tribunal. Rule 10 of the Income-tax (Appellate Tribunal) Rules, 1963 reads as below: "Filing of Affidavits - Where a fact which cannot be borne out by, or is contrary to, the record is alleged, it shall be stated clearly and concisely and supported by a duly sworn affidavit." In support of his contention that in absence of such an affidavit, the appeal itself is liable to be dismissed in limine. Dr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same footing and the importance and also the degree of requirement of compliance of different rules should be judged in accordance with the importance and gravity of the rules concerned. Rule 9 is a basic rule prescribing which papers are required to accompany the memorandum of appeal. This particular requirement of Rule 9 goes into the root of the appeal. The Tribunal may, therefore, reject the appeal in limine unless the requirements of Rule 9 are strictly fulfilled. On the other hand, Rule 10 is a rule relating to evidentiary value of certain assertion of fact made by the appellant. That is why Rule 10 prescribes that a fact which is not borne out and is also contrary to the record, must be supported by an affidavit. If the appellant fails to furnish the required affidavit, the assertion of fact on that particular issue, will naturally have to be ignored by the Tribunal in deciding the relevant issue. Only if the assertion of facts goes at the very root of the appeal, the question of dismissing the appeal in limine, may arise. In the instant case, if we examine the four different points as enumerated by Dr. Krishna in his instant application, we find that all the issues are hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng before us has shown it to us that in all the correspondences, notice issued asking for the return and also in the assessment order, the Assessing Officer has all along considered the assessments as having been done under section 158BC and that nowhere any mention of the provisions of section 158BC relating to an assessment under Chapter XIV-B arising out of search in the case of another assessee has been mentioned. Sri Pradeep strongly contends that the search warrant was not in the name of the assessee viz. M/s. Microland Ltd. He has also shown that the panchanama issued by the Deptt., on different occasions were all in the name of Sri Pradeep Kar, CMD, M/s. Microland Ltd., although the place to be searched was mentioned as M/s. Microland Ltd. In the lists/inventory of account books, etc., found/seized also, the name of the person is found to be shown as Sri Pradeep Kar, CMD, M/s. Microland Ltd. On an examination of the relevant papers (copies of the panchanamas, etc.), we find the contention of the assessee to be correct. Therefore we wanted Dr. Krishna, the Departmental counsel, to produce before us the relevant search warrant. After initial hesitations, Dr. Krishna produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch in the case of Mr. Pradeep Kar alone or even in the case of the assessee, i.e., Microland Ltd. We therefore verbally directed Dr. Krishna to produce all the papers connected with the search including the reasons recorded before authorising the search and also the appraisal report prepared by the Departmental officers consequent on the search. The departmental representatives including Dr. Krishna, however, did not produce any papers in that regard including the reasons recorded for authorising the search on the ground of privilege and also divulgence of secret matter of the Department. We are unable to accept the departmental contention in this regard. In this connection, we would like to rely on a judgment of the Allahabad High Court in the case of Union of India v. Sheo Shanker Sitaram [1974] 95 ITR 523 as pointed out by the learned counsel for the assessee. It was held by the High Court in that case that the claim of privilege by Department in the matter of production of assessment records containing the correspondences between the ITO and his higher official under section 124 of the Evidence Act on the ground of official secrecy is not tenable. A reference may also be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gues that a company does not have any direct method of operation and that it is to be operated through its employees and authorised persons only. He referred to the provisions of section 282(2)(b) of the Income-tax Act, 1961 in accordance with which a notice in the case of a company may be served on the principal officer thereof. As regards the question of disclosure of information to the assessee at the stage of conducting the search is concerned, Dr. Krishna has tried to rely on the discussions made by the Karnataka High Court in the case of Southern Herbals Ltd. at page 62 of the reported judgment to the effect that disclosure of the materials or the information to the persons against whom action under section 132(1a) is taken is not mandatory, because the very disclosure would affect or hamper the investigations. In this connection, Sri Pradeep appearing on behalf of the assessee-company, has brought our notice to the further discussions made by the Karnataka High Court in that very case at page 63 of the reported judgment, as below: - "The stage for disclosure of the materials is reached only when the Revenue resolves to proceed to make an appropriate order imposing tax li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... papers and documents used by it like panchanamas, etc. Ultimately therefore, we feel that as there was no valid search in the case of the assessee, the assessment made under section 158BC is invalid and void in law. There is again no indication anywhere that the assessment has been made under section 158BD. 23. The assessee also challenges the validity of the impugned order by arguing that when the order was passed, it was already barred by limitation. In order to appreciate the significance of the arguments of the assessee in this regard, it would first of all be necessary to trace the sequence of the search proceedings and also the connected activities. The panchanama executed by the departmental authorities on 29-3-1996 (the first date of search) clearly shows that the search was commenced at 10.20 PM and was closed temporarily at 11 PM on the same date. A bunch of loose sheets (9 in No.) was seized on this date. A prohibitory order under section 132(3) was issued on that day directing restraint on removable of books of account, documents kept in the wooden almirah of the purchase Department of M/s. Microland at the third floor of M/s. Microland House, Koramangala, Bangalor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search operation is being temporarily closed only. In such a case, it would be perfectly valid on the part of the departmental authorities to resume the search proceedings on a subsequent day from the point where they had been left on the last day and to continue on in this manner. Although fresh panchanamas are required to be executed on each day of search operation (that has actually been done in this particular case), however, no fresh warrant of search would be necessary for the subsequent days. This point has been discussed by us in detail and the legal position in this regard stands explained in our earlier order in the case of Poornima Finance Corpn. H.V. Srinivas dated 5-8-1997 in IT(SS) Appeal No. 87 (Bang.) of 1997. In this particular case, the search operations were resumed on 30-3-1996 at 5 PM and were again temporarily concluded at 7 PM on that day. A fresh panchanama was executed in the name of Sri Pradeep Kar and one bunch of loose sheets with written pages from 1 to 21 was seized on this particular day. In the inventory of the seized materials, the name of M/s. Microland was shown on this day, whereas in similar paper prepared by the departmental authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section." In the background of such provisions of statute, we may now proceed to examine the ratios of various judgments as cited by Sri Pradeep as below: - (i) In the case of K. Choyi, ITO v. Syed Abdulla Bafakki Thangal [1973] 91 ITR 144 (Ker.) at pages 155 159 The Kerala High Court held that the power conferred under subsection (3) of section 132 can be exercised only when there is a practical difficulty experienced in the seizure of documents, etc., which have been found as the result of the search conducted by the authorised officer of the building or place where the documents, etc., were lying. This particular judgment of the Kerala High Court was affirmed by the Supreme Court, however, on a different ground reported at 123 ITR 435. (ii) The Madras High Court held in the case of I. Devarajan v. Tamil Nadu Farmers Service Co-operative Federation [1981] 131 ITR 506 as below: - "In the case of seized assets, there is a specific provision made for seeing that the assets are not retained beyond the period of 90 days after seizure. However, in case of sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1989] 176 ITR 261/42 Taxman 83 that no order under section 132(3) can be passed when the authorised officer is in doubt whether the asset is disclosed or not. On the other hand, the learned DR has strongly contended that the issues of prohibitory orders under section 132(3) were perfectly valid in this case in as much as the circumstances prevailing at such points of time did not exactly justify the completion of seizures of the documents on those dates. He has relied on a judgment of the Madras High Court in the case of Punamchand R. Shah v. ITO [1975] 101 ITR 373 in support of his proposition that whether a situation is practicable or not is left to the discretion of the authorised officer. On a study of this particular judgment, however, we are not able to find that the proposition as put forward by the learned DR is supported by this particular judgment. On the other hand there is just an obiter at the reported page 382 of the said judgment, as below: - "As it (the question of completion of seizure) is largely a matter of intention and as the intention in this case is clear that the authorised officer did not want to seize the goods on 23rd June, 1971, there is no questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent assessee is concerned. Hence, passing an assessment order on 30-5-1997 in the case of the present assessee on the basis of a search concluded in its case on 29-3-1996 has got to be considered to be affected by the provisions of limitation of time. In other words, the assessment has got to be considered as time-barred and in that way also invalid. 24. The assessee has also taken up another rather curious point against the validity of the assessment. It has been contended that since the assessee-company was incorporated only in the year 1989, there would not be ten clear previous years in the case of the assessee, so as to form a valid "block-year" relevant for completing a search and seizure assessment under Chapter XIV-B of the Income-tax Act, 1961. It is thus argued by the learned counsel for the assessee that the formation of the block year itself being invalid, the assessment order based on such block year is also liable to be quashed as invalid. In this connection, we would like to refer to the definition of "block-period" as provided in section 158B, as below: - " 158B. In this Chapter unless the context otherwise requires,- (a) "block period" means the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as can be found out in the case of the assessee but not exceeding ten assessment years should be taken into consideration. It is a cardinal principle of law that while interpreting the provisions of a particular word of statute, a sensible meaning is required to be given to the same so as to make it effective. This principle is contained in the legal maxim. UT RES MAGIS VALEAT QUAM PERFAT The Supreme Court has also acknowledged this particular principle in its judgment in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13. The Supreme Court held in that case as below: "A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational construction." In this particular case, there cannot be any doubt about the fact that the intention of the Legislature was to define block-period as a period which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principles of natural justice and hence the impugned assessment is liable to be quashed. It has beau argued that the power of the CIT, while according statutory approval to an assessee, is an amalgam of the appellate power under section 251 and the revisionary power under section 264. It is thus contended that although the statute does not specifically provide for allowing a chance of hearing at the stage of according approval, such provisions must be considered to be read in the relevant section. In this connection, reliance is placed firstly by the learned counsel for the assessee on a judgment of the Supreme Court in the case of Mahadayal Premchandra v. CTO AIR 1958 SC 667. In this particular case relating to sales tax, the appellant was taxed by the assessing authority on instructions from superior authorities. The Supreme Court held that when the Assistant Commissioner being the higher authority, had already delegated the work of assessment to the lower authority, i.e., commercial tax officer, then it was the duty of the latter to make the assessment order giving his own reasons for doing so. However, the superior authority had directed the lower authority to make the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Chartered Accountants of India v. L.K. Ratna [1987] 164 ITR 1/28 Taxman 654 at page 11, also, the Supreme Court held that the principles of natural justice must be read into the unoccupied interstices of the statute unless there is clear mandate to the contrary. Sri Venkatesan has also relied on another judgment of the Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. v. Union of India [1969] 51 Comp. Cas. 210. In that particular case, the Supreme Court made a detailed discussion about the rules of natural justice and the requirements of following such rules in judicial matters. The Supreme Court discussed that rules of natural justice are not embodied rules and that they are means to an end and not an end in themselves and hence it is not possible to make an exhaustive catalogue of such rules. The Supreme Court however made a special mention about two fundamental maxims of natural justice which are required to be followed in all judicial proceedings. These two maxims in latin tags are the twin principles of AUDI ALTERAM PARTEM and NEMO JUDEX IN RE SUA. The Supreme Court further emphasised that AUDI ALTERAM PARTEM is a highly effective rule devised by the courts to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the provision of granting statutory approval to the search assessment by the CIT was meant simply to enable the CIT to monitor the search and seizure assessment proceedings. It is more for the benefit of the departmental authorities to see that all the materials discovered or detected during the search are properly taken care of in finalising the assessment, than to allow the assessee a chance of giving a sort of appellate or revisionary proceeding against the proposed assessment, before the CIT. Dr. Krishna has argued in this connection that every Assessing Officer is required to act independently in discharging his duties as an Assessing Officer. He cannot normally be guided or instructed even by his superior authorities in the matter of framing an assessment. In support of this proposition, Dr. Krishna has relied on a host of decision as detailed below: (i) Dinshaw Darabshaw Shroff v. CIT [1943] 11 ITR 172 (Bom.) at page 176. (ii) Raja V.V.V., R.K. Yachendra Kumar Rajah of Venkatagiri v. ITO [1968] 70 ITR 772 (AP). It was held in this particular case that assessment proceedings are quasi-judicial in nature and while making assessments, the ITO is solely to be guid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to a show-cause notice or to an opportunity of being heard before the Commissioner makes such an order. The statute has clearly provided for an opportunity of being heard to be given to a party in some of the other sub-sections of section 132 but no such provision has been made in sub-section (8)." This particular decision of the Division Bench of Calcutta High Court was impliedly affirmed by the Supreme Court, not however on this particular issue, in the case of CIT v. Oriental Rubber Works [1984] 145 ITR 477/15 Taxman 51. Dr. Krishna also brought our notice to several judgments of the Supreme Court in the matters of allied laws where it has been held that granting administrative approval for certain purposes, does not require to allow an opportunity of being heard to the person concerned. A gist of such judgments are being given below: - (i) SP (CBI) v. Deepak Chowdhary [1995] 6 SC 225. The matter related to granting of sanction for prosecution under the Prevention of Corruption Act, 1947. The Supreme Court held that the grant of sanction is an administrative function and that what is required is that the investigating officer should place all the necessary mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal feels that the Commissioner should have allowed opportunity of being heard to the assessee before according approval to the assessment order, it would not be proper for the Tribunal to quash the entire assessment order on that ground. On the other hand, in such a case, the Tribunal should send the matter back to the lower authorities for complying with the principles of natural justice, i.e., Tribunal should restore the matter to the stage of according approval by the Commissioner with a direction to him to allow opportunity of being heard to the assessee. In support of this particular proposition, reliance has been placed on a number of decisions as listed below: - (i) CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC) at page 449. (ii) Mishri Lal Gordhan Lal v. CIT [1995] 80 Taxman 249 (Raj.). The issue involved was procedural irregularity in an order required to be passed under section 144B of the Income-tax Act read with section 144A. It was held by the High Court that the Tribunal was right in restoring the matter back to the IAC to proceed afresh. (iii) G.R. Steel Alloys (P.) Ltd. v. CIT [1985] 152 ITR 220/17 Taxman 29 (Kar.) In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth of the two grounds as mentioned above. It is not a fact that simply because of the Commission failing to allow an opportunity of being heard to the assessee, the assessment was held to be illegal and void. In any case, for the grounds to be discussed by us below, we respectfully differ from this particular judgment of the Madras Bench of ITAT, if it be considered to be an authority on the question of quashing a search and seizure assessment simply on the ground of Commissioner failing to afford chance of hearing before according approval to the assessment order. The different judgments as discussed by us above clearly show that even the Supreme Court has held in a number of cases even in recent past that administrative actions on the part of the administrative authorities do not warrant compliance with the principles of natural justice of the nature of AUDI ALTERAM PARTEM. We are inclined to agree with the arguments of Dr. Krishna that the provisions for according approval to assessment orders to be passed in case of search and seizure assessments, were introduced mostly for the purpose of allowing the Commissioners to monitor the search and seizure cases in a legal manner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. The assessee had already enough chances before the Assessing Officer himself and all further appellate avenues remained open to the assessee even after the act of according approval by the Commissioner to the proposed assessment order. The approval accorded by the Commissioner itself therefore did not create any civil liability of grave consequences against the assessee and hence the discussions of the Supreme Court about pre-decisional or post-decisional opportunities of hearing in the case of Swadeshi Cotton Mills Co. Ltd. would not seem to apply to the present case. Taking into consideration all these aspects, we are of the opinion that since according of approval in this particular case was merely administrative in nature and no effective harm was caused to the assessee on account of such approval, not granting an opportunity of being heard to the assessee at the stage of according the approval, did not constitute denial of the principles of natural justice. Hence, we reject this particular ground taken by the assessee. 26. The last preliminary objection of the assessee against the validity of the impugned assessment order impinges on the consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, buillion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act." The learned counsel for the assessee has brought our notice to a judgment of the ITAT, 'Mumbai Bench 'B' in the case of Sunder Agencies v. Dy. CIT [1997] 63 ITR 245. In that particular case, it has been held that although the definition of "undisclosed income" as given in section 158B(6) is stated to be merely inclusive, actually however it has got to be construed to be the exclusive definition of undisclosed income for the purpose of Chapter XIV-B. Detailed discussions have been made in the said judgment on this particular issue. In addition to the same, it has also been held therein that within the pale of Chapter XIV-B, assessment can be made only in respect of the undisclosed income and such undisclosed income must come as a result of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich alone or even in conjunction with certain other materials, the Assessing Officer was in a position to come to the conclusion that the claims of the assessee towards depreciation, etc., were fictitious and disallowable. Hence, we are of the opinion that strictly going by the definition of "undisclosed income" as finding place in Chapter XIV-B, it is neither possible to say that what has been added back in the impugned assessment represents the undisclosed income of the assessee nor even can the same be considered to be connected with the search seizure proceedings. On both these counts therefore, the departmental effort to treat the disallowance of depreciation, etc., not only as undisclosed income but that too in a search and seizure assessment made under section 158BC, must be considered to be without any basis. Ultimately therefore, we agree with the contention of the assessee that the addition not actually representing undisclosed income of the assessee discovered as a result of the search, the assessment made under Chapter XIV-B containing such addition must be considered to be illegal, invalid and unwarranted. On this count also, we strike down the impugned assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the facts of the case, which have also been discussed by us above, it would be evident to everybody that the Assessing Officer took enough pains to put forward his points to the assessee from time to time. There were successive correspondences between the two sides. The departmental representative has also pointed that summonses issued to the Managing Director of the assessee on successive occasions were not complied with. Hence, on the basis of all these facts, it will not be possible for us to come to a conclusion that principles of natural justice were violated in a very gross manner. So far as however, the question as to whether any particular conclusion was arrived at by the Assessing Officer without bringing in proper evidences at the back of the assessee is concerned, we feel that such questions are required to be examined in the matter of appreciation of the issues in particular. The general contention of the assessee that on account of denial of natural justice, the assessment is liable to be quashed as a whole, seems to be just the opposite of the contention raised by Dr. Krishna that on account of violation of Rule 10 of the Income-tax (Appellate Tribunal) Rules, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it would be only erroneous to compare the powers of the AAC with the powers possessed by a court of appeal, under the code of civil procedure. The AAC is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and in view of the peculiar position, the statute has conferred very wide powers upon the AAC once an appeal is preferred to him by the assessee." In opposition to this contention of Dr. Krishna, the learned counsel on behalf of the assessee has strongly contended that although Income-tax Appellate Tribunal may be the first appellate authority in respect of search and seizure assessments completed under Chapter XIV-B of the Income-tax Act, yet, its powers are limited only to what have been provided to it under section 254(1) of the Act. We agree with such contention. In the case of Rai Bahadur Hardutroi Motilal Chamaria, the Supreme Court was discussing the rationale behind the power of enhancement specifically conferred upon the first appellate authority like the AAC by the statute. In fact, the power of enhancement has specifically been given to an AAC or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all kinds of equipments, plant machinery, vehicles, goods and other assets and to carry on the business of general finance, investment and other financial service and treating operations of all kinds." In view of the above amendment in the object-clause of the assessee, the assessee must be considered to have entered the business of leasing and hire purchase operations from the end of December 1993 onward. Sri Venkatesan has brought to our notice a judgment of Delhi High Court in the case of CIT v. National Air Products Ltd. [1980] 126 ITR 196/4 Taxman 309 in which case it has been held that a cylinder for storing gas is a "plant". Dr. Krishna has also admitted during the course of arguments before us that the cylinders and other equipments may be considered as "plants" in the hands of the actual users thereof i.e., the lessees. He however argues that since the assessee itself did not use the same in its business, they cannot be treated as plants in the hands of the assessee. Sri Venkatesan has in this connection relied on a judgment of the Karnataka High Court in the case of CIT v. Shaan Finance (P.) Ltd. [1993] 199 ITR 409, in which it has been held that the machinery o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssees were also provided to the Assessing Officer and the copies of the same have been furnished to us for our examination. Dr. Krishna has strongly contended in this connection that when an assessee claims some particular expenses, liability or deduction, the onus lies strongly on it to evidence the same with the help of proper materials. In this connection, he has placed reliance on the following judgments. (i) CIT v. Best Co. (P.) Ltd. [1966] 60 ITR 11 (SC) at page 18 This judgment discusses about shifting of onus or burden of proof between the Department and the assessee depending on the circumstances of the case. (ii) CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC) It was held in this case that the burden of proving the necessary facts for claim of exemption under section 13(2)(xv) of the Income-tax Act, 1922 was on the assessee. (iii) Lakshmiratan Cotton Mills Co. Ltd. [1969] 73 ITR 634 (SC) at page 649 (iv) Nund Samount Co. (P.) Ltd. v. CIT [1970] 78 ITR 268 (SC) at page 272. It was held in the said case that in an inquiry under section 10(4A) of the Income-tax Act, 1922, into the excessiveness or unreasonableness of an allowance resulting in the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was not possible for the representative of the assessee who presented himself before the Assessing Officer to carry on the cross-examination proceeding in absence of both Sri Krishna Mohan and Sri Prasanna Kumar. We are unable to hold a proper view on this assertion of fact by the learned counsel for the assessee. However the examination of records clearly shows that on 21-3-1997, no proceeding took place at the end of the Assessing Officer. 31. We find that for disallowing the claim of depreciation of assessee, the learned Assessing Officer has mostly proceeded on a general presumption about fictitious nature of leasing transactions being carried on all over the country at the relevant time simply for the purpose of claiming 100% depreciation on certain equipments. Whatever might have been the general atmosphere and the practice resorted to by different parties on this particular matter, for the purpose of disallowing the claim of depreciation to the assessee in this particular case, it was necessary on the part of the Assessing Officer to clearly disprove the said claim by adducing proper evidences to show that both the purchasers as well as the leasing transactions were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the assessee. As has been discussed above, the assessee discharged its primary onus for claiming depreciation on the cylinders by producing a number of documents like copies of invoices, delivery challans, lease deeds, inspection reports of various agencies along with the proof regarding the payments having been made through Account Payee Cheques. At this stage, the onus shifted on to the Deptt. to prove with stronger evidences that these papers were all bogus and did not reflect the correct factual position. Without discharging such onus, the Department cannot ask the assessee to produce any further evidence in support of its claim towards depreciation. As stated by us earlier, so far as the case of M/s. Miga Gases is concerned, the only two evidences on which the Assessing Officer has finally relied in support of his claim about the bogus nature of the transactions are Sri Krishna Mohan's letter dated 14-2-1997 to the Assessing Officer and also his sworn statement before the Assessing Officer on 26-2-1997. So far as the last named evidence is concerned, the Assessing Officer did not supply a copy of the same to the assessee at any stage. Hence, it is not possible for the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding i.e., on 21-3-1997. That however does not reduce the evidentiary value of the affidavits. The Assessing Officer got more than two months' time after receiving such affidavits. He did not utilise this time to get clear-cut retraction or withdrawal of such affidavits through further affidavits filed by Sri Krishna Mohan before proper authorities. The other contention on behalf of the assessee that in this mercy petition filed by Sri Krishna Mohan, he would like to tilt all the facts in favour of himself and against other parties including the assessee, also seems to have sufficient force. In Assessing Officer's letter dated 8-10-1996 addressed to the assessee he informed the assessee about Krishna Mohan's statement recorded on oath about the non-genuineness of the transactions. The copies of such so-called statements before October 1996, of Sri Krishna Mohan were never furnished to the assessee, nor they have been utilised in any way in making the impugned assessment. Such statements, if any at all, do not form a part of the records before us. It is indeed intriguing to note that while since October 1996, the Assessing Officer had been shouting about non-genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceeding i.e., on 26-3-1997, the representative of the assessee and also the Assessing Officer confronted each other on the issue of inspection of the cylinders. The order-sheet entry shows that the assessee did not avail itself of the opportunity to carry on the inspection on that date. A letter filed by the assessee on the same date, shows that the assessee proposed to start the inspection on although in a limited manner. In any case, it is difficult for us to agree with the contentions of either party. It appears that the assessee was not in proper mood to take the Assessing Officer for inspection on that date. At the same time again, it also appears that the Assessing Officer also perhaps was not very much willing to carry out a very laborious and time-consuming inspection process of the cylinders towards the fag end of the assessment proceedings, which even according to the Deptt. was going to get time barred within a few days. 33. It may be true that the departmental authorities were able to detect a number of cases of bogus leasing operations in equipments entitled to 100% depreciation. The Assessing Officer has made detailed discussions in his chapter relating to "m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer however, without taking recourse to such proper procedure, merely remained content to rely on unsatisfactory evidences like the letter of Sri Krishna Mohan addressed to him, that too without affording the assessee proper opportunity to examine such evidences. The assessee has relied on two judgments in this connection. In the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775, the Supreme Court held that the ITO is not entitled to make a pure guess and make an assessment without reference to any evidences or any material at all. The Supreme Court furthermore held that there must be something more that bare suspicion to support the assessment. In another case of Kalra Glue Factory v. Sales Tax Tribunal [1987] 167 ITR 498 (SC) also, the Supreme Court found out that in arriving at the conclusion that the transaction entered into by the appellant-firm was in the course of inter-state trade, the Sales Tax Tribunal had relied, inter alia, on the statement of a partner of another firm which had not been tested by cross-examination. The Supreme Court, therefore set aside the order of the Tribunal. In the instant case, the claim towards depreciation as put forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee either on a general supposition or on very scanty evidences as discussed above. 36. Apart from the claim of depreciation, the Assessing Officer has also disallowed interest payments on the lease rental advances/deposits. We have already discussed above that there are not sufficient evidences with the Assessing Officer to show that the lease agreements were not genuine. There is also no evidence to impinge the genuineness of the lease rental advances received by the assessee from the lessees. Hence, the question of disallowance of interest on such advances does not arise. 37. So far as the question of addition of discounting charges is concerned, we fully agree with the contention of the assessee that such so-called discounting charges were neither debited to accounts nor even claimed by the assessee in its assessments. The concept of claim of discounting charges is just a figment of imagination on the part of the Assessing Officer. If at all there be discounting charges, such charges represent expenses in the case of the assessee and they should be deducted instead of being added back. Dr. Krishna also, did not put forward any argument on this issue. The learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
