TMI Blog2003 (9) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... been searched that there was an undisclosed income, which has been found or detected as a result of search and that in support thereof he recorded a note of satisfaction. In the absence of any such valid material and or note of such satisfaction the assumption of jurisdiction and framing of assessment is wholly arbitrary and is thus unsustainable in law. 3. That the learned Dy. CIT Circle 11(1), New Delhi, has erred in framing the assessment under s. 254/158BC(c) of the Act without giving any independent reason for holding there was an undisclosed income and further computing the undisclosed income of the assessee at Rs. 3,31,20,258. The instant assessment made is wholly arbitrary and is without jurisdiction. 4. That in making the instant assessment, he has failed to appreciate that the Hon ble Tribunal was pleased to set aside the assessment with a direction to reassess the issues involved in the assessment made and as such, before making the assessment, he was obliged in law, to have recorded his independent reasons after examining the evidence furnished and bring material to establish that there was any income which had not been disclosed by the assessee, as such, in absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustification to hold the aforesaid loss as undisclosed income of the assessee particularly when the Hon ble Tribunal in the case of Paramount Enterprises Ltd. Ors. cases had deleted a similar addition and as such the action of the learned Dy. CIT is without jurisdiction and totally untenable and unsustainable. 8.2 That the finding of the learned Dy. CIT that the Department had filed a reference against the order of the Hon ble Tribunal and as such, the decision of the Tribunal cannot be applied to the fact of the case of the assessee is against the cannons of principles of judicial propriety as set out by the Hon ble Supreme Court in the case reported in Union of India vs. Kamalksi Finance Corpn. Ltd. 5 ELT 433. 8.3. That further he has erred in concluding that the facts of the assessee s case were not brought before the Hon ble Tribunal in the case of Paramount Enterprises Ltd., and in other cases. The observations made are based on misconception and is without any basis. In fact the learned senior Departmental Representative had in the case of Paramount Enterprises Ltd. had brought out the fact of the case of the assessee before the Hon ble Tribunal by way of a written note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that these books of account had duly incorporated all the transactions on the basis of which, the return of income had been furnished by the assessee. 3.2 In the instant case the assessment was completed by an order dt. 29th Jan., 1999, at an undisclosed income of Rs. 3,31,20258 which order of assessment had been set aside by the Tribunal vide order dt. 21st Feb., 2000, and on further appeal by the assessee under s. 260A of the IT Act, the Hon ble High Court was though pleased not to admit the appeal but held that any finding/observation made by the Tribunal would not be taken into consideration while making the fresh assessment. 3.3. The present assessment which had been impugned before us has again repeated the additions made originally in the order dt.29th Jan., 1999and the Dy. CIT has completed the assessment adopting the same sum as an undisclosed income, as had been held as an undisclosed income by an order dt.29th Jan., 1999. 3.4 While computing the undisclosed income at Rs. 3,31,20,258, the learned Dy. CIT has held the following sums as an undisclosed income: (a) The loss suffered of Rs. 17,65,247 by the assessee on the sale of certain shares in the asst. yr. 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come originally assessed. 29,749 1,480 1,27,887 33,699 Difference being undisclosed income as alleged Break up of undisclosed income 1,93,378 2,91,255 2,81,850 2,90,222 (a) Notional enhancement of the annual letting value under the head "Income from house property" 1,34,137 1,82,789 1,77,622 2,14,582 (b) Disallowance of expenses upon concluding that the activity is not business activity and therefore, expenses incurred cannot be allowed under the head "Income from business" 55,178 99,321 1,04,228 75,640 (c) (i) Disallowance of short-term capital loss under the head "Capital gain" - - - - (ii) Treatment of short-term capital gain as income from undisclosed sources under the head "Income from other sources" - - - - (d) Increase (+)/decrease (-) in income from various sources under the head "Income from other sources" due to reassessment from one head to another. (-)2,341 16,521 - - Gross Total Income 1,86,974 2,98,631 2,81,850 2,90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Total 3,02,244 12,06,912 21,44,767 21,62,983 Particulars 1995-96 1996-97 1997-98 (Previous year 1st April, 1996-21st Nov., 1996) Total Total income adopted by the AO in block assessment 8,11,03,498 46,02,206 27,25,677 9,59,11,038 Less : Total income originally assessed. 6,05,65,541 10,63,984 5,55,209 6,27,90,780 Difference being undisclosed income as alleged Break up of undisclosed income. 2,05,37,957 35,38,222 21,70,468 3,31,20,258 (a) Notional enhancement of the annual letting value under the head "Income from house property" 17,17,263 17,48,286 10,84,188 97,15,364 (b) Disallowance of expenses upon concluding that the activity is not business activity and therefore, expenses incurred cannot be allowed under the head "Income from business" 12,51,217 6,46,003 10,54,982 47,97,974 (c) (i) Disallowance of short-term capital loss under the head "Capital gain" 1,76,52,477 - - 1,76,97,857 (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stification for holding that there was any undisclosed income of the asst. yrs. 1995-96, 1996-97 1997-98. The appellants counsel specifically submitted that for either of three assessment years namely 1995-96, 1996-97 1997-98 no addition has been made of any undisclosed income, on the basis of any document found as a result of search or on the basis of any entry not found recorded in the books of account of the assessee. It was thus submitted by him, that the order of assessment made shows complete non-application of mind and the additions have been made merely for the sake of making addition and in doing so, the learned Dy. CIT exceeded in his jurisdiction in repeating the additions which had been made in the original order of assessment dt.29th Jan., 1999, which were totally unwarranted both on facts and in law. 4.1 The appellant s counsel further contended that the main addition made pertaining to the asst. yr. 1995-96 of Rs. 1,76,52,477 is entirely erroneous both on fact and in law. Explaining the nature of the aforesaid addition it was submitted by him that the aforesaid sum, which has been held to be undisclosed income, represents loss suffered by the assessee genuinely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties declared deserves to be enhanced by adopting higher annual letting value including the notional amount of interest on the advance against rent or security deposit received by it. It was thus contended that in doing so, the learned Dy. CIT since had not found that the assessee had either not disclosed the income of the properties held and owned by it or any material has been found showing that the assessee had received any rent over and above the declared rent, there was no justification in law to disturb the declared income and treat the notional sums as an undisclosed income. It was further submitted by the assessee that all the facts that it had received the advance against the rent and all the details of letting out of properties had duly been disclosed in the return of income and is part of the balance sheet, no addition could be warranted in law. It was contended that there had been no evidence or material found as a result of search on the basis of which it could be concluded that there was any undisclosed income found or detected as a result of search, the addition made and held as an undisclosed income is wholly erroneous both on facts and in law. 4.4 It was furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee could be said not to have disclosed the transactions, only because in the opinion of the learned Dy. CIT making the assessment the income should have been assessee under a head other than disclosed and so assessed. The counsel further contended that the learned Dy. CIT has not disputed that the expenses incurred and found to have been debited had not been incurred and were thus bogus. It was thus submitted that this is a case of mere reassessment of income, which is unwarranted in law. The learned counsel for the assessee, in support relied upon the following judgments wherein it has been held that the provisions of Chapter XIV-B of the IT Act cannot be invoked to assess any income duly disclosed but these are the provisions to bring to tax an undisclosed income where the transaction has not been recorded in the books of account: 1. Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai) 2. J.K. Narayanan (HUF) vs. Asstt. CIT (2000) 245 ITR 45 (Mad) (sic) 3. J.K. Narayayan (HUF) vs. Asstt. CIT (1999) 64 TTJ (Mad)(TM) 823 : (1999) 69 ITD 104 (Mad)(TM) 4. CIT vs. N.R. Papers Boards Ltd. (2000) 162 CTR (Guj) 488 : (2001) 248 ITR 526 (Guj) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal order and also as restated in the Tribunal s order, were not brought to the notice of Hon ble Tribunal in the case of Paramount Enterprises Ltd. It is also worthwhile to mention that had the search not taken place, the facts leading to addition and detection of aforesaid undisclosed income would have never come to the notice of the Revenue." 4.11 The learned counsel for the assessee, assailing the aforesaid observations, contended that the learned Dy. CIT has incorrectly stated that any reference has been filed before the Hon ble High Court against the order of the Hon ble Tribunal in the case of Paramount Enterprises Ltd. A copy of the aforesaid order has been placed in the paper book at p. 829. It was submitted that the facts as noted in the said order are identical to the fact of the instant case. In fact, it was submitted by the assessee s learned counsel that there is no question of filing any reference as the provisions of filing reference under s. 256(1) of the IT Act had been omitted w.e.f. 1st Oct., 1998 and he has stated that no appeal against the order of the Hon ble Tribunal under s. 260A had been filed and it has received no notice on the basis of which it could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ABB Ltd., on which it had made handsome gain. The Revenue, it was submitted, has not disputed that these shares were purchased at the market rate and before the sales were made, it had made handsome gain. It has also not been disputed that the sales were made through the broker M/s Rajendra Kumar Agarwal and was made at the market rate. In fact, the assessee s learned counsel for the assessee has vehemently contended that the market value of the shares never went higher than the rates on which the shares were sold by it on8th March, 1995. (b) The assessee has also submitted that the shares purchased by it yielded dividend before the sale was made by it on 8th March, 1995 to M/s Rajendra Kumar Agarwal, which has duly been assessed in its hands. The income by way of dividend thereafter has duly been assessed in the hands of M/s Lakshmangarh Estate Trading Co. Ltd. who had purchased the shares from the assessee-company of course, through the broker and at the market rate. It is also not a case of the Revenue that the dividend income earned by the assessee from the shares held by it before its sale to M/s Lakshmangarh Estate Trading Co. Ltd., was not its income or it continues to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrained to observe with sense of concern that the approach adopted by the learned Dy. CIT in making the impugned order of assessment is highly casual. In the instant case, an assessment of undisclosed income had been framed by an order dt.29th Jan., 1999, computing the total undisclosed income at Rs. 3,31,20,258, which assessment was set aside by an order of the Tribunal dt.21st Feb., 2000. It is seen that thereafter no proceedings were initiated to frame a fresh assessment as a result of the set aside of the order which assessment was to get barred by limitation on 31st March, 2002, till a notice under s. 143(2) of the IT Act was issued to the assessee to appear before the learned Dy. CIT on 5th March, 2002. On the aforesaid date, the assessee had appeared but the case was adjourned to11th March, 2002, which was again adjourned to13th March, 2002, and further adjourned to15th March, 2002. On15th March, 2002, the assessee has filed a detailed reply along with the necessary annexure as have been placed in the paper book from pp. 775 to 848 in support of its submissions that there is no undisclosed income. The hearing was thereafter adjourned to 20th March, 2002, which again was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in the books of account or was meant not to be recorded. In our opinion, as such, the initiation of proceedings on the assessee, on the basis of the books of accounts maintained by it, by itself could not be held to be legal, valid and on proper basis. All what we find, from the communication of the learned AO, having jurisdiction over the Mody Group of cases, to the AO having jurisdiction over the assessment of the assessee, that the books of account of the assessee found and seized have merely been forwarded to him. In our considered opinion, mere forwarding of such books of accounts by itself is insufficient to conclude that the learned AO, having jurisdiction over the Mody Group of cases was "satisfied" that any undisclosed income was found or detected as a result of search, on the basis of which, proceedings under s. 158BD of the IT Act could have been initiated against the assessee. 6.2 Apart from the aforesaid, in our opinion, further we find that in the instant case, the learned Dy. CIT, while framing the assessment was entirely incorrect in holding that there was any undisclosed income particularly because no books of account or any other document was found or seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion by treating the income earned by the assessee in the course of business as "income from property" which income had been earned and declared as the income earned by way of "service charges". In our opinion the learned Dy. CIT has completely misconstrued the provisions of Chapter XIV-B of the IT Act and has failed to appreciate that while framing the assessment under Chapter XIV-B of the IT Act any undisclosed income found as a result of search, alone could be brought to tax. In view thereof, in our opinion, the learned Dy. CIT has erred in making any addition by way of undisclosed income for the asst. yrs. 1987-88 to 1994-95 and also for the asst. yrs. 1995-96 to 1997-98 as it is admitted position that no books of account or other documents were found as a result of search, showing any undisclosed income of the assessee. Further, in our opinion, on the basis of judgment cited by the assessee s learned counsel we find no justification that the ALV of the properties as adopted could be enhanced. 6.5 So far as asst. yr. 1996-97 is concerned we find that the return of income was filed by the assessee on23rd Nov., 1995under s. 139(1) of the IT Act and all the transactions, relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the sale proceeds received which amount had been invested by it in its business. We find that the issue has been dealt with by the various Benches of the Tribunal and while relying upon the said findings of the Tribunal in such cases, we are of the considered opinion that the loss suffered and set off against the capital gains has to be allowed as had rightly been claimed by it. 6.7 We also find that as the facts of the instant case are identical to the facts in the case of Paramount Enterprises Ltd. and that of Orient Bonds Stocks Ltd., which have been decided by the Tribunal vide its orders dt. 17th Jan., 2001 and 19th Jan., 2001, respectively, in our opinion, the loss suffered cannot be said to be not a genuine loss and in fact, there is no finding recorded by the learned Dy. CIT in the impugned order that the said loss is not a genuine loss. Thus, relying upon the findings recorded by the Tribunal in ITA Nos. IT(SS) 324/Del/1997 and ITA No. 5326/Del/1998, we hold that the Dy. CIT was not justified either on facts or in law to hold that the said sum is the undisclosed income of the assessee-company, liable for assessment under Chapter XIV-B of the IT Act. We also hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In fact no adverse material whatsoever has been brought to our notice on the basis of which it could be held that as a result of search conducted on Mody Group of cases, any undisclosed income of the assessee was detected or found. It is seen from the record that all what had been seized as a result of search conducted on Mody Group of cases, is the regular books of account of the assessee-company for the financial years 1994-95, 1995-96 and 1996-97 (up to 21st Nov., 1996) and no more such material was either found or gathered before either initiating the proceedings or framing the assessments on the basis of which it could be held there was an undisclosed income. 7.3 We also find that the learned Dy. CIT has further erred in treating the short-term capital gain of Rs. 47,200 for asst. yr. 1993-94 as income from undisclosed sources under the head "income from other sources" while making reassessment from one head to another. However, since in our opinion, there is no undisclosed income, falling within the block period, the same will have no effect. 8. In respect of the contention of the appellant about the levy of interest under s. 158BFA of the Act of Rs. 31,79,536 we find ..... 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