TMI Blog2003 (2) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is made use of, the same is to be confronted to the assessee for rebuttal. In the circumstances, we agree with the assessee s counsel that on the limited ground of non-allowance of the proper opportunity the matter needs to be restored back to the file of the AO. The AO is to allow proper opportunity to the assessee to rebut the evidence as collected and to place any material in support thereof. The learned authorised representative gave an assurance that the assessee would fully co-operate with the Department in furnishing any information called for by the AO. In the circumstances we have not gone into the merits of the case and the assessment as framed is set aside in toto to be reframed again". 2. Keeping in view the directions, the AO proceeded to reframe the fresh block assessment and in the said fresh order which is impugned in this appeal, the AO redetermined the total undisclosed income of the appellant at Rs. 3,23,36,688 consisting of Rs. 2,32,34,870 assessed as undisclosed income of the appellant on protective basis and Rs. 91,01,818 on substantive basis. The appellant has challenged both the protective and substantive addition by raising the following grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 in respect of the above-named companies is assailed as totally unauthorized, having due regard to the reported action taken by Revenue against these companies for separate and independent action and proceedings under s. 158BD. (c) Rs. 3,95,405 on account of cash deposits in the bank account in the name of the minor son Ankit of the appellant in Benaras State Bank Ltd., as per discussion in para (14) of the impugned order, by improper rejection of the documentary evidence produced showing that the said bank account stood disclosed to the Department, prior to the date of search. (d) Rs. 62,53,175, as discussed in paras (16) and (17) of the impugned order, on account of peak credits in bank accounts of the account holders named as per annexure to the impugned order on the basis of their blank signed cheque books found and seized from the possession of the appellant (total peak credits as per annexure Rs. 74,59,127 Rs. 12,05,952 on account of peak amounts in the bank accounts of those account holders who personally appeared to depose), by improperly rejecting their written confirmations filed along with their admission of ownership of their bank accounts and proof of ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f two additions of Rs. 1,29,21,000 and Rs. 1,03,13,870 made on protective basis. Even the legality and enforceability of the balance demand attributable to substantive additions is objected to in view of the challenge to the legality and propriety of the balance additions made on substantive basis, as urged in the preceding paras (a) to (I) of ground No. 1. (3) Various observations made by the learned AO while making the above additions are either incorrect or are untenable. The AO had either ignored the submissions made and evidence produced or had not given due weight to the same. (4) The appellant craves leave of this Hon ble Tribunal to add to, alter, vary, modify or otherwise amend the grounds of appeal before the appeal is finally disposed of." 3. Shri O.P. Sapra, advocate, assisted by Shri J.K. Khanna, advocate and Shri Ashutosh Aggarwal, CA, argued the appeal by placing reliance on the paper book and also other paper compilations besides Synopsis-II (Synopsis-I had been filed during the hearing of the stay petition) copies of which were also given to the learned senior Departmental Representative who also advanced her arguments at great length, against which the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors of following five companies were produced and examined: (1) M/s Akriti Media (P) Ltd. (2) M/s Transhead Elec. (P) Ltd. (3) M/s Rush Chemicals (P) Ltd. (4) M/s Prathistha Images (P) Ltd. (5) M/s B.P. Marketing (P) Ltd. 7. Statements were recorded in which they have categorically accepted being the directors of these companies. But in the balance three companies assessee has only furnished the photocopies of the acknowledgement receipts for filing of their returns but failed to produce the directors. Therefore, keeping in view of the judgment in case of CIT vs. Sophia Finance Investment Ltd. (1993) 113 CTR (Del)(FB) 472 : (1993) 205 ITR 98 (Del)(FB), the identity of the companies is not proved because merely by filing acknowledgement receipts could not identify the company or an individual because identity card can prove the physical identity of a person but for financial identity for income-tax purposes identity includes the identity include The identity of the person, genuineness of transaction and capacity to invest. Merely be saying that an individual or company is an income-tax assessee will not prove the capacity to invest. 8. According to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings for reassessment of block assessment, showing the share capital recorded in regular books of the companies and disclosed by them to the IT Department before the date of search as under: Name of the company Copy of Ack. receipts Copy of balance sheet (Ref. Page No.) (Ref. Page No.) (i) M/s Trousseau Overseas (P) Ltd. 113-122 633-646 (ii) M/s Alankit Imaginations (P) Ltd. 123-126 647-675 (iii) M/s Indradhan Agro Products Ltd. 629-632 676-707 2. Alok Agarwal, director of M/s Alankit Imaginations (P) Ltd., was appearing before AO from time to time. (b) In case of M/s Indradhan Agro Products Ltd., copy of order dt.29th May, 1998, for the asst. yr. 1996-97 under s. 143(3) placed at page Nos. 99 to 103 of the paper book showing share capital assessed in the hands of the company. (c) Statement of Sh. Ashok Kumar Agarwal, the director of M/s Indradhan Agro Products Ltd., recorded by AO placed at page Nos. 104 and 105 who is not questioned by AO on the share capital of the company. 3. Affidavit of Shri Ashutosh Aggarwal, authorised representative of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the AO misdirected himself in holding that the identity of a company can be proved only when its director appears and admits that he/she was/is director. The AO, according to the argument of the counsel, failed to appreciate that the proof of the identity of a company does not depend on appearance and admission of a director of a company that he is a director, but being a legal entity, having a separate and independent corporate existence, its identity is proved by the relevant documents. The counsel of the appellant proceeded to vehemently argue that the AO was in palpable error in deriving support from the decision of the Full Bench of the Hon ble Delhi High Court in the case of Sophia Finance Investment Ltd. to buttress his reasoning that as per this decision, the identity of a shareholder to be proved would include not only his physical identity but also his financial identity, that is to say, by the proof of genuineness of transaction of investment by him in the share capital of the company and his capacity to invest. The learned counsel argued that the AO misread and misconstrued the ratio of this decision, and submitted that what the ratio of this decision lays down is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 21 and 22 and 14 to 20 of the paper compilation filed on 17th July, 2002. It was, therefore, submitted that the impugned addition cannot stand and is liable to be deleted. 10. The learned Departmental Representative, in her reply, strongly relied upon the AO s order to support the addition in question. The learned Departmental Representative also sought support from the original block assessment order and the various observations made therein about the alleged conduct of the appellant in relation to these companies to argue that the addition in question was fully justified and in order to support the protective assessment, the learned Departmental Representative placed reliance on the decision of Kerala High Court in the case of T.S. Sujatha vs. Union of India (1998) 149 CTR (Ker) 343 : (1999) 238 ITR 599 (Ker) and argued that as per this decision, protective assessment even under s. 158BC of Chapter XIV-B is permissible to protect the interest of Revenue. Therefore, she argued that no fault can be found with protective assessment of the share capital of these three companies whose directors failed to appear to confirm the transactions of investment in their respective shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order at this stage when the appeal is being heard, as the original block assessment order after it was set aside has become non-existent and non est, for any purpose whatsoever, much less for the purpose of taking any support to justify an addition made in the present order under appeal now. 13. It was next submitted by the learned counsel that even on merits, various observations made by the AO in original block assessment order as relied upon by the learned Departmental Representative were factually wrong inasmuch as the AO had not conclusively proved those observations made and the adverse inference drawn, otherwise the Tribunal would not have set aside the order. In fact, the AO who has passed the impugned block assessment order has also not relied upon any of the observations made by the AO in the original block assessment order. He has made the addition merely on the ground that the appellant had not produced the directors. Rather, the AO accepted the fact that the appellant had filed the documentary evidence to prove their identities because all the three companies were being assessed to tax and each one of them had duly disclosed the share capital in their ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rs. 5,42,21,070 as bogus share holdings The books of accounts of the 23 companies were seized during the course of search operation. During the course of original assessment, the assessee was confronted to explain why these books of accounts were available in his premises or in the premises held by him and why not the capital raised in the accounts of these companies may not be held as his investment from undisclosed sources in the name of shareholders of these companies. 10. In the original assessment the assessee has replied that the assessee being a chartered accountant and engaged in the profession of audit of company matters was required to keep complete statuary records of his clients for compliance of various provisions of Companies Act, 1956. It is in this connection that the books of these companies referred to above were found from the assessee s premises. The assessee has not made any investment in the shares of these companies. A perusal of paper seized during the course of search would show that the documents found were in the process of completion. During the course of assessment proceedings, the assessee was allowed fresh opportunities to produce the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts before AO and placed in the paper book filed before us, as mentioned in Synopsis-II, namely: "1. (a) Statement of facts page Nos. 20-34 relevant page being 26. (b) Appellant s letter dt.22nd March, 2001, page Nos. 78 to 85 2(a) Copes of acknowledgement receipts in proof of filing returns of income by these five companies for various assessment years falling within the block period filed before AO as under: Name of the company Page No. of the paper book (i) M/s A to Z Assignements (P) Ltd. 127-138 (ii) M/s Excellent Security Services (P) Ltd. 139-158 (iii) M/s Real Overseas (P) Ltd. 159-181 (iv) M/s Npar Cans (P) Ltd. 182-187 (v) M/s Npar Drugs (P) Ltd. 188-192 (b) Copies of balance sheets of these companies filed along with returns for various years, as aforesaid, as filed before AO also in the course of original block assessment proceedings again placed in the paper book filed before the Tribunal in ITA No. 124(SS)/D/1997 against the original block assessment, which paper book filed before AO passing the impugned order under appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income." 17. On the other hand, stand of the learned Departmental Representative even in respect of this protective addition was, by and large, the same as in respect of the preceding addition contested vide ground No. 1(a). The learned Departmental Representative relying upon and taking support from the original block assessment order and various observations made therein, contended that all these seven companies were related to the appellant. The validity of the addition made on protective basis was sought to be similarly supported on the decision of the Kerala High Court in the case of T.S. Sujatha. The focus of the learned Departmental Representative was that the directors of these companies were close relatives of the appellant who was exercising control over them and the funds invested in the share capital of these companies flowed from the appellant and came back to the appellant through the various bank accounts in the name of various persons under his control. This was the position as per observations made in the original block assessment. The learned Departmental Representative strongly relied upon the AO s order and on the fact that the directors of these seven comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive. Reiterating their similar argument as advance in respect of the ground No. 1(a), the learned counsel of the appellant strongly contended that no support is permissible to be drawn by the Revenue from the original block assessment order after it became non est upon having been set aside in toto. Moreover, the AO passing the impugned assessment order had also not mentioned anywhere the submissions raised by the learned Departmental Representative as regards non production of the directors of these 7 companies. The learned counsel made reference to and dew our attention to Synopsis-II to emphasise that the directors of the company, M/s A to Z Assignments Ltd., Shri Alok Agarwal, the appellant and Shri Ashutosh Aggarwal, his authorised representative were appearing before AO who never questioned them on the affairs of this company, despite his knowledge that they were the directors. Likewise, Sh. R.P. Aggarwal, director in M/s Excellent Securities Services (P) Ltd. appeared before AO but was not questioned by AO. Directors of the other companies also appeared before AO as per submissions in Synopsis-II, but were not questioned by AO. 20. It was next submitted by the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l) 566 : (2001) 250 ITR 141 (Del) jurisdictional High Court (For the proposition that assessment of undisclosed income has to be based on evidence found as a result of search) (o) Sheo Narain Duli Chand vs. CIT (1969) 72 ITR 766 (All) (For the proposition that there is no presumption that witnesses appearing for an assessee come forward to give false evidence to oblige the assessee.) (p) Daulat Ram Rawat Mal vs. CIT 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC) (For the proposition that in the context of Benami property or beneficial ownership, the onus to prove that the apparent was not real was on the party who claimed it to be so). 22. The learned counsel distinguished the case law relied upon by the Learned Departmental Representative vide Annex-II to the written rejoinder dt.17th Oct., 2002, as under : "The following case law are relied upon by the learned Departmental Representative had no application to the facts of A case. (a) Bharti (P) Ltd. vs. CIT Held : Mere filing of confirmatory letters did not discharge the onus that lay on the assessee and there was no material on record to establish the identity of the creditors. (b) ShankerInd.vs. CIT where the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded as undisclosed income of the (company)", are not (1997) 228 ITR 113 (Mad). In this case, the principle laid down is that under s. 110 of the Evidence Act, the person who is found to be in possession of any thing has to show that he is not the owner of it. In this case, there is enough material/evidence brought on record showing that the assessee has discharged his onus of showing that he is not the owner of the bank accounts or the share capital of various companies, added in his hands. (e) CIT vs. Korlay TradingCo.. Two following questions had been posed before the High Court vide p. 822. Question No. 1 had been answered in favour of the A by relying on Supreme Court judgment in CIT vs. Orisa Corp. (P) Ltd. and, therefore, this Calcutta High Court judgment applies with all force to the facts of our case. Rather, the facts in A s case are on much stronger footing keeping in view the documentary evidence produced before the AO with regard to all the issues which are neither been controversed nor disputed. As regard question No. 2 it was decided against the A because only a confirmation with regard to cash credit of Rs. 21,800 in the name of Kaushlya Devi Gupta had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. So far as non-production of the directors of such companies are concerned, no adverse inference could be drawn against the appellant firstly, because the appellant did make request before the AO to summon them and further we also find that some of the directors had also actually appeared before the AO a fact ignored by him. Above all, the AO having made both the additions on protective basis it cannot be held that the amounts represented undisclosed income of the appellant conclusively. The fact that assessments have already been completed under s. 158BD of the IT Act in the above cases, also lends support to the case of the appellant that the additions as made by the AO could not represent appellant s undisclosed income. Both the additions are, therefore, deleted on the facts of the case as discussed above. 25. The next ground No. 1(c) objects to addition of Rs. 3,95,405 on account of cash deposits in the bank account of minor son Ankit with Benaras State Bank Ltd. The reasons for making this addition as undisclosed income of the appellant as per AO appear in para (14) on pp. 6-7 of the block assessment order under appeal. From the perusal of these reasons it is clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minor son, Ankit, stood already disclosed to the Department is not controverted by the AO and/or the learned Departmental Representative during the hearing. The only ground that is considered by the AO in this regard is that there is no known source of income of the minor which we find is incorrect in view of the facts that are submitted by the learned authorised representatives which go uncontroverted by the Revenue. We are of the view that the provisions of Chapter XIV-B cannot be applied to bring to tax income out of disclosed bank account. If the AO feels that there was no proper sources of funds deposited in cash in this bank account of the minor, though the same were through regular account book, the remedy to bring such unexplained deposits to tax cannot be found under Chapter XIV-B, the provisions of which authorize taxation of undisclosed income out of undisclosed transactions of investment. 29. Hence, we hold that the impugned addition of Rs. 3,95,405 made by AO was without justification on the facts and in the circumstances of the case, the same is deleted. 30. The next ground of appeal No. 1(d) is against the addition of Rs. 65,53,175 being the peak credits in vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department. Before the AO, the appellant explained that all such bank account holders whose cheque books were found were clients of the firm M/s Alok Co. CA who had left their cheque books with the appellant for payment of their taxes, etc., and for preparation of returns. In the course of hearing of appeal, the learned counsel for the appellant took us through various documentary evidence as filed before the AO as per details given in the Synopsis-2 as reproduced below: "2. Appellant s letter dt.22nd March, 2001and letter dt.23rd March, 2001, filed before AO. 3. Written confirmations from the account holders along with their complete address (who did not appear in person), owned up their respective bank accounts by sending in their written confirmations along with supportive documentary evidence regarding their identity and assessment particulars, as filed before AO and placed at page Nos. 244 to 437 of the paper book. Relevant page number each person-wise is annexed herewith as Annex-1. 4. Copy of letter dt.17th Aug., 1999, filed before AO in the course of original assessment proceedings explaining circumstances under which 52 signed cheque books were found, placed at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to summon such account holders in whose accounts that deposits were made. It was emphatically argued by the learned counsel that no evidence whatsoever has been brought on record by the AO either to show that their bank accounts had been opened by the appellant or that any of such amounts deposited in their bank account had been given by the appellant or any withdrawal made from such bank accounts had come to the appellant. Moreover, all such account holders were also being assessed to tax in their own rights before the date of search and they had duly disclosed such bank account in their account books, and also before the IT Department before the date of search as stood proved from the relevant evidence of their being assessed to tax, and their balance sheet, etc. placed at pp. 244 to 437 of the paper book and compilation filed with appellant s letter dt.13th Sept., 2002, in the course of hearing of appeal. The mere fact that some of the bank account holders could not be produced though their confirmatory letters alongwith supporting documentary evidence have been duly filed could not be made the basis for making the impugned addition as undisclosed income of the appellant. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion arising out of these seized material, and it was for the learned AO to prove by conclusive legal evidence that the appellant was the legal as well as the beneficial owner of these bank accounts, and the funds were provided by him. The material which is referred to by the learned Departmental Representative as mentioned in the original block assessment order may be sufficient to raise suspicion, may be strong suspicion, but the same does not and cannot amount to proof required for justifying and sustaining impugned addition. The appellant places reliance on the various case law being submitted along with this rejoinder vide separate Annex.-II." 36. We have given our thoughtful consideration to the facts as stated and the submissions made by both the sides. We have also perused various documentary evidence placed on record. We find that the addition of Rs. 2,24,31,868 with reference to the bank accounts for which the signed blank cheque books as found had been made by the AO but in the impugned fresh assessment order, he has made an addition of Rs. 62,53,175 only on peak basis on the only ground that some of the bank account-holders had not been produced though he concedes tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by AO. 37. Next ground of appeal No. 1(e) is directed against addition of Rs. 9 lacs made on account of seized material as per discussion of AO appearing on p. 8 vide paras (18) and (19) of the impugned order. The AO referred to the seized material which relate to cash receipt signed by the appellant in acknowledgement of loans received by the appellant through Shri N.L. Goyal. The AO held that no explanation was filed by the assessee to justify the cash payment returned back to the creditor. In absence of any evidence and explanation, an addition of Rs. 9 lacs is made as income from undisclosed sources. 38. The learned counsel for the appellant contended that in the original block assessment order, only Rs. 4 lacs were added on the basis of the above seized material, which is enhanced now by Rs. 5 lacs to Rs. 9 lacs in the impugned fresh assessment order. The learned counsel argued that the seized material only constituted evidence of loan received by the appellant and loan cannot represent income. Thus, the addition of the amount of loan as representing undisclosed income of the appellant was patently wrong. The reason given by the AO that the assessee failed to furnish an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from residence. Out of total amount of Rs. 21.10 lacs, the investment in the hands of Akriti, minor daughter of the assessee, is not explained as she has no source of income being minor. It is further stated by the AO in his order that : "Although the assessee has taken the plea that investment has been declared in the regular returns of the assessee, but the source of investment in the hands of Akriti, minor daughter, has never been examined in regular returns for the block period as these were accepted under s. 143(1)(a). Therefore, the investment of Rs. 9,26,771 is treated as undisclosed income of the assessee." 42. It was submitted by the learned counsel of the appellant that like Ankit, the minor son of the appellant, regular returns of income of the minor daughter, Akriti of the appellant, were also being filed independently upon asst. yr. 1992-93, duly accompanied with the balance sheets of each year of the minor prepared from the minor s separate books of accounts, kept and maintained in the regular course. In the balance sheet all the investments made out of funds of the minor had been disclosed year after year. From asst. yr. 1993-94, since there was an amendment of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 1(i) in the sum of Rs. 1,00,000 on account of unexplained investment in silver. As regards the unexplained jewellery of Rs. 57,102, the only evidence filed by the appellant is his own affidavit that this jewellery belonged to his HUF. The HUF of the appellant was an existing assessee, while there was no disclosure made to the Department about the said jewellery. Hence, the AO was justified in making the addition of Rs. 57,102 and we also do not have any hesitation in confirming this addition. 46. As regards the silver and diamond, it is brought to our notice by the appellant that these valuables were found and seized from the bank lockers along with their purchase bills and that no evidence had been found by the search term that the appellant had made payments of the cost of the same from his unaccounted funds. The additions were made only on the ground that the payments were made after search and no evidence about non-payment before the date of search having been given, their values represented the undisclosed income of the appellant. 47. The appellant s counsel referred to the documentary evidence placed on record as per Synopsis 2, which included the Panchnama vide whi ..... 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