TMI Blog2003 (8) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... searches conducted by the Department lead to seizure of documents/books of account as well as certain Hundis, which depicted the extension of cash loans by Shri Rati Ram Gotewala in the market. As the search led to the seizure of various documents which, according to the Revenue depicted the surfacing of undisclosed income, the Assessing Officer called upon the said Shri Rati Ram Gotewala to file its return of income. Notice under section 158BC was served. Notice under section 158BC covered the block period commencing from1st April, 1987to24th September, 1997and was served on the assessee and his group companies on17th July, 1998calling for the filing of the return for the block period. The said return pursuant to the notice was filed on19th April, 1999disclosing an income of Rs. 1,27,17,493. For the relevant assessment years covering the block period, the assessee in its regular returns had disclosed Rs. 7,70,142 as its income. After adjusting the income already disclosed in the income declared pursuant to notice under section 158BC, the assessee declared an income of Rs. 1,19,47,351. 3. The Assessing Officer pursuant to the return filed proceeded to frame assessment. Various qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diary unless it is corroborated by other material. According to the assessee each and every nook and corner of the business and residential premises ofDelhiandCalcuttahave been searched and apart from this diary and the Hundis pertaining to the cash loans there is nothing found. The case of the assessee was that if there is no corroborative material which could establish that this sum of Rs. 1,90,97,390 is the unaccounted income of the assessee, merely on the basis of an entry in the diary the additions cannot be made. The record also transpires that the assessee took an objection that a sum of Rs. 1,15,49,000 which had surfaced during the search in the form of cash Hundi have been surrendered and after giving an adjustment of this amount there is no material on the record which substantiates the balance amount of Rs. 75,48,389 as the undisclosed income. The other objection of the assessee was that if the assessee has gained in Hundi loans he has lost no hundi loans, the assessee contended that if the addition is to be made to the income of the assessee on account of cash Hundi loans then he has to be given an adjustment of the losses suffered on account of bad debts in the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o refused to divulge or admit that the figures recorded in the diary which do not find a place in the regular books of account are unaccounted income. 4. The Assessing Officer after examining the reply came to the conclusion that the diary reflects the true state of affairs. He had some reasons for this. One reason was that this diary contains the true state of affairs of the concerns with which Shri Rati Ram Gotewala is associated with. By true state of affairs he meant that one part of the diary which contained financial results of various firms with which assessee was associated with tallied with the books of account maintained by the firm. The second was all these figures are in the personal handwriting of Shri Rati Ram Gotewala. Thirdly the diary contained vital information such as birthday of relations, date of court hearings and important telephone numbers connected with the personal life of the assessee, which too was in the personal handwriting of the appellant. He, therefore, believed that the amount which did not find place in the books of account, but finds a place in the diary under the symbol 'Om' reflects his unaccounted income. He, therefore, held that the figures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed income determined by the Assessing Officer at Rs. 2,08,14,824 he made certain deletions and made certain modifications. The CIT(A) agreed with the contention of the assessee that the assessee had given out of the undisclosed income a sum of Rs. 30 lakhs to his children who have invested the said amount in the family house at Pitampura and has disclosed the same in their return. According to CIT(A), once the children have disclosed the said amount of Rs. 30 lakhs in their respective returns, the said amount of Rs. 30 lakhs cannot be taxed twice. He, therefore, out of Rs. 75 lakhs and odd left after the adjustment of cash Hundi loans Rs. 1,15,47,351 gave a benefit of Rs. 30 lakhs claimed to have been spent by the family in the family house, to the appellant. 9. While the proceedings were pending before the CIT(A) he found that during the year 1992-93 which was the first year of unaccounted business, there were unaccounted sales to the tune of Rs. 202 lakhs. He felt that this cannot be achieved without unaccounted investment. Another area which came to the notice of the CIT(A) during the appellate proceedings was that on31st March, 1995there was an undisclosed closing stock of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing actions of the CIT(A) are arbitrary, erroneous and illegal and must be quashed: 1. In upholding the legality and validity of the search and the consequential assessment and the computation of block income as made by the Assessing Officer at Rs. 2,08,14,824 which is misconceived and erroneous and contrary to the provisions of section 132 r.w. section 150BB and section 158BC{b) of the Income-tax Act, 1961 and in derogation of the cited Tribunal and High Court decisions. 2. In the CIT(A) confirming the action of the Assessing Officer who had passed precipitous and fallacious order without giving reasonable adequate and proper opportunity for hearing which lapse the CIT(A) could not himself have rectified as per law and had no legal option other than remanding the matter back to the Assessing Officer. 3. In the CIT(A) confirming the inclusion of the sum of Rs. 1,04,45,000 and Rs. 11,04,000 for assessment which sums were conditional offers despite the conditions accompanying the offer not having been accepted or acted upon by the Assessing Officer. 4. In the CIT(A) not deleting the addition of Rs. 75,48,389 and on the contrary enhancing the same by Rs. 20,10,641 notwithst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is control. The reasons which were pressed before us at the time of hearing of the appeal were that the Department did not supply the appellant the necessary documents despite a request made in this behalf. According to the counsel, when the necessary documents which facilitates the filing of the return were not made available to the assessee, how could the provisions of section 158BFA be invoked against him. To the arguments raised by the counsel for the assessee the ld. DR Shri Anirudh Kumar submitted that the provision of reasonable cause are not there in section 158BFA. According to the ld. DR if a particular provision is not available, it cannot be invoked. According to the ld. DR, the moment the delay occurs in the filing of he return, the provisions of section 158BFA(1) and (2) immediately comes into the operation. 13. We have heard the parties and taken ourselves through the record and strenuously considered the submissions made at the bar by both the sides. The challenge is to the charging of the interest under section 158BFA. Section 158BFA falls in Chapter 14B. Chapter 14B we must say is a complete code in itself. When we say that it is a complete code in itself, we me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. (3) No order imposing a penalty under sub-section (2) shall be made,- (a) unless an assessee has been given a reasonable opportunity of being heard; (b) by the Assistant Commissioner or Dy. Commissioner or the assistant Director or Dy. Director as the case may be, where the amount of penalty exceeds twenty thousand rupees except with the previous approval of the Joint Commissioner or the Joint Director as the case may be; (c) in a case where the assessment is the subject-matter of an appeal to the Commissioner(A) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or the Commissioner, whichever period expires later; (d) in a case where the assessment is the subject-matter of revision unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We were persuaded for a moment to agree with him. We were impressed by his arguments and might have held the assessee to be not responsible for delay in filing the return, but we came across a letter on the record filed by the assessee himself which is dated18th November, 1998under the signature of Shri R.P. Mahato, Asstt. Commissioner of IT wherein it has been stated as under: - "After your search on 24th September, 1997 notice under section 158BC was issued and we have on your group on17th April, 1998calling for filing of the return in the block period relevant to the search period. For filing of returns you had requested this office to make you available the photocopies of the relevant documents and the same were made available to you in the month of July, 1998. Till today no return for the block period has been filed by you. You are, hereby required to file the returns immediately on the receipt of this letter to expedite the assessment proceedings. The aforesaid letter clarifies the position insofar as it relates to the supply of documents. It also clarifies that the documents were made available in July, 1998. It also clarifies that despite the availability of documents up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the filing of the return pursuant to notice issued by the Assessing Officer under section 158BC and, thus, we have no hesitation in holding that the provisions of section 158BFA have rightly been invoked. We may also say here itself that the plea of reasonable cause is not available to the assessee under Chapter XIV-B of the Income-tax Act, but we cannot keep our eyes closed to those cases where there is a delay in supplying vital information asked for by the assessee, which information is available with the Revenue and without which information the assessee cannot file his return. The onus to establish that the assessee was in need of vital information without which the assessee could not complete the return is on the assessee. The assessee must discharge this onus by positive evidence. He must demonstrate that without the information asked for by him from the Revenue, he was unable to complete the return. He must also demonstrate that it is the Revenue, which has delayed in supplying the information. If the assessee establishes this, it is then and only then he shall be entitled to the benefit of reasonable cause, otherwise not. The next question that arises is that if the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording of the section and the fact that delay is attributable to the assessee coupled with the fact that the Assessing Officer has also mentioned the same in the body of the order, we have no hesitation in holding that the provisions of section 158BFA have rightly been invoked. 20. Consequent to the above discussion the ground raised by the assessee in the form of additional ground challenging the action of the authorities below charging interest under section 158BFA falls to the ground and we have no hesitation, therefore, in rejecting the same. 21. This beings us to another ground of challenge in the grounds of appeal by which the assessee has challenged the validity of the search and consequential assessment. The main plank of the assessee's arguments was that there was no material before the authorities below which could lead them to form an opinion that there is unaccounted money available at the hands of the assessee. The submission of the counsel for the assessee was that the satisfaction of the authorities with regard to the availability of unaccounted money/wealth is sine qua non i.e. a condition precedent to the order of the search which, according to the counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BA/ 158BC, the Assessing Officer is required to see whether search was initiated in the case. He has no power to go into the validity of search. Similarly, in appeal the Tribunal can consider whether the search was initiated in the case and thereby the Assessing Officer has assumed jurisdiction to issue notice under section 158BA/158BC. This power arose because the impugned assessment was based on the assumption of jurisdiction and the issue of notice and was based on the initiation of search in the case. Thus, the question of validity of search is beyond the pale of power of the Assessing Officer and the Tribunal so far as the making of assessment and adjudication of appeal thereon are concerned. Every authority must act within its powers and jurisdiction. There is no appeal provided in the Act against the power under section 132. If at all the validity of search has to be challenged, it can be challenged in a writ before the High Court. After seeing the search warrant and the grounds of authorization of search the Tribunal was satisfied that there was proper search warrant in the case and the assessee's name was at number one in the said search warrant. There was no question of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appeal falls to the ground and is hereby rejected. 27. This brings us to Ground No.2 of the appeal wherein the grievance of the assessee is that no adequate and reasonable hearing was given by the Assessing Officer and the CIT(A) erred in confirming the action of the Assessing Officer, ld. AR made a statement at the bar that he is interested in quantification of the income and is not interested in the technicalities of the matter. In view of the statement made, we would not have entered into the area of this ground, but since the ground was raised, we scrutinized the record and found that enough reasonable opportunity was given by the Assessing Officer to the assessee to present its case. The CIT(A) who was also seized of the matter in appeal had given adequate opportunities. How was the opportunity being denied and how was the opportunity afforded was inadequate is nowhere substantiated from the record. We in this background are unable to persuade ourselves that the submissions made before us through this ground and, therefore, in view of this observation and in view of the statement of the counsel we have no hesitation in rejecting the said ground. 28. We now propose t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een pumped into, business which led to unaccounted sales of Rs. 202 lakhs was never paid for, initially. The ld. DR contended that the onus that material was bought on credit was on the assessee. As there was no material evidence available on the record to substantiate such an assertion, the assessee according to the ld. DR failed to discharge the onus and thus no interference in the order of CIT(A) in this regard is called for. 30. We have heard the parties and taken ourselves through the record as far as this issue is concerned. It is a matter of common knowledge that for any business some initial investment is needed. If it is a case of new business the element of investment may be more, but if it is in the case of an established business, the element of investment may have to be measured with a different barometer. One fact remains and which cannot be denied, is that in any business there has to be an element of initial investment. The assessee, we are informed, are into the business of saris since 1954. We may say that from 1954 up till the date of search is not a small period and thus it can safely be said that the assessee is established businessman in the said trade. Duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n there is no challenge to unaccounted stock the only thing which needs to be worked out is as to how much is the net profit. This is not a difficult question. When we talk of unaccounted profit, we have no options as the assessee in the diary has on the sale of unaccounted stock depicted a net profit rate of 22.36 per cent. 32. We take this as the benchmark and follow the same net profit rate as shown by the assessee himself as the net profit on unaccounted stock as per his diary. This is what we propose to do. But the assessee says we cannot do this. He repeated the same arguments that entries in the diary are not conclusive, unless corroborated by other material. We feel that the objection is unfounded. The entries in the diary and in this case are primary evidence. How they are primary evidence and how they have been corroborative, we shall be dealing with it a little later, while discussing ground Nos. 3 5 of the appeal. The assessee has questioned the diary. The CIT(A) has based his claim on the diary which contains the sale of accounted and unaccounted stock and where the assessee himself has declared a net profit rate more or less same to the one assessed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) in certain concerns. He keeps financial records of partner, proprietor, Director in certain concerns which is mentioned in page 2 of the assessment order. Shri Rati Ram Gotewala has his own way of working. He at the time of search was 75 years old and he has spent his entire life in business. He is an experienced businessman. Apart from the record which is maintained in the regular course he also keeps record of financial aspects of business which is not recorded and to achieve he maintains a diary. The diary which we are talking about is the diary which is found at the time of search from the residential/business premises of Shri Rati Ram Gotewala. This diary contains the financial results of the concerns with which he is associated. As stated above this diary has two phases/ parts. One phase/one part deals with the business which is duly accounted for and the entries in diary tallies with entries/result(s) as per the books of account. The other part contains some entries with regard to the business, but on a comparison there is a complete black out with regard to this part of the diary in the books of account maintained in the regular course of business. Apart from this, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no corroborative evidence to establish that the entries in the diary are correct, has no force. When we say so, we say so on the strength that apart from this diary cash hundis to the extent of Rs. 1,15,49,000 are found. Shri. Rati Ram Gotewala does not say that the Hundis which depict cash loans transactions, the funds for the same were from somewhere else. Not only this the existence of the said amount is not disputed. That apart, the assessee surrenders the same. Had he indicated the source of these Hundi loans, the situation would have been different. If there is no source of cash Hundi loans, then obviously the source of cash Hundi loans is from the undisclosed income of Shri Rati Ram Gotewala, which is from the unaccounted business and the results of the same are reflected in the diary. This is one piece of corroborative evidence. The other piece of corroborative evidence is that the CIT(A) has given an adjustment of Rs. 30 lakhs being the amount spent by the family members of Shri Rati Ram Gotewala in the family house at Pitampura. The said amount of Rs. 30 lakhs stand shown by the family members of Shri Rati Ram Gotewala in their individual returns. The source of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch we feel he cannot. The net effect of the above is that the diary maintained by Shri Rati Ram Gotewala is nothing but primary evidence of the affairs of business and can be relied upon. 36. The next issue which comes is that the sums were conditionally offered, we fail to understand as to how the said ground has been raised. The statement of Shri Rati Ram Gotewala was recorded and in the statement he has categorically stated before the authorities below that he out of his own free will is offering the amount for taxation. When we proceed further we find that the children of the assessee who are part and parcel of his business activities have also stated that they have no objection whatsoever to the amount having been surrendered by Shri Rati Ram Gotewala in his personal capacity. These observations about the statement of the children that they have no objection to the surrender of the amount by Shri Rati Ram Gotewala is recorded by the Assessing Officer at page 5 in the terms "none of the Directors/partner/ proprietor is, therefore, questioned computation whatsoever amount has been surrendered by Shri Rati Ram Gotewala in his personal capacity as an individual". 37. When we e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee will be entitled to make the claim of the bad debts in the subsequent years as they pertain to post search period as per the assertions of the assessee. 39. This brings us to Ground No.6 of the appeal wherein the challenge is to the order of the CIT(A) who has confirmed the action of the Assessing Officer in making an addition of Rs. 12,44,084 which obviously is on account of interest. The case of the Revenue was that on the Hundi documents the Hundi loans had been advanced in different financial years. The Hundi documents indicates that loans are interest-bearing loans. According to the Revenue the assessee was asked to give details of the interest received and receivable of this Hundi loans. The assessee explained that whatever interest had been received in the past had been included in the amount of Hundi documents because the investments in the Hundi loans is the net amount. When the investigation into the said assertion was undertaken by the Revenue, the Revenue found that the assessee has not produced any document to prove that the interest on Hundi documents found as on the date of search had already been received and reflected/ included in the face value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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