TMI Blog2006 (1) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... s referred to above, and also in view of the circumstances relating to this issue, we find force in the submissions of the learned counsel for the assessee made before us and conclude that no satisfaction note was prepared on 29th Aug., 2002 and this note has been prepared even after 26th Nov., 2002. Thus, it is clear that on or before29th Aug., 2002, the AO of M/s Friends Portfolio (P) Limited and that of Shri Manoj Aggarwal did not record any satisfaction. The note dt.29th Aug., 2002is, therefore, not to be taken for recording satisfaction required u/s 158BC/158BD. If we exclude the alleged note dt.29th Aug., 2002 as recording the required satisfaction then there remains the satisfaction note dt.26th Nov., 2002. The objection of the learned counsel for the assessee for challenging the legal validity of this note is that the AO making assessment in the case of the searched person had jurisdiction to record satisfaction only up to the date of passing assessment order in the case of searched person u/s 158BC and after passing the assessment order, he became functus officio and did not retain any seizin or jurisdiction over the matter and thus he is not authorized or empowered to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seized documents were not confronted to the assessee before making the additions. Since, in the present case, the repeated requests of the assessee were turned down by the AO as well as by the learned CIT(A) for cross-examining Shri Manoj Aggarwal and Shri Neeraj Gupta, it will not be proper to restore the matter back to the AO for this purpose. Thus, the statement of Shri Manoj Aggarwal, which has been used against the assessee, cannot be utilized against it because in denying the right of cross-examination, the AO and the learned CIT(A) have flouted the settled canons of natural justice. On the basis of above observations, we allow ground No. 3 in favour of the assessee. Bogus accommodation book entries in the form of share profits - On the perusal of the show-cause notice dt. 17th Nov., 2004 and the assessment order, it is found that the AO has placed reliance on the documents found and seized during the course of search from the premises of Shri Manoj Aggarwal, the statement of Shri Manoj Aggarwal and that of Shri Neeraj Gupta and certain other circumstances for making the addition. It has to be mentioned here that no search or survey was conducted upon the assessee. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deleted. These grounds of assessee, therefore, stands allowed. In the result, the appeal is partly allowed as above - HON'BLE P.N. PARASHAR, J.M. AND RAJENDRA SINGH, A.M. For the Appellant : Ved Jain and Ms. Rano Jain For the Respondent : Smt. Sangeeta Gupta ORDER P.N. Parashar, J.M.: 1. This appeal has been filed by the assessee against the order of the learned CIT(A), dt. 31st March, 2005. 2. Shri Ved Jain, learned FCA and Ms. Rano Jain, chartered accountant appeared for the assessee whereas Smt. Sangeeta Gupta, learned CIT-Departmental Representative represented the Revenue. 3. The assessee has taken as many as seven grounds in this appeal to challenge the order of the learned CIT(A) dt. 31st March, 2005 for the block period from 1st April, 1990 to 3rd Aug., 2000. However, before taking up specific pleas raised by the assessee in various grounds of appeal, we consider it proper to narrate the background and facts relating to this matter which are as under: 4. The assessee company was a member of the Delhi Stock Exchange. It was carrying on the business of share broking and as such, it was engaged in the sale and purchase of shares on behalf of various clients. One s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to file return for the block period covering asst. yrs. 1991-92 to 2001-2002. Return was required to be filed within 15 days from the service of notice. The assessee filed return in Form No. 2B on 20th Dec., 2002. 4.3 The AO, during the course of assessment proceedings, further recorded statement of Mr. Manoj Aggarwal and issued a show-cause notice on 17th Nov., 2004. Against this notice, the assessee filed a detailed reply dt. 25th Nov., 2004. After considering the material collected by the AO and the reply of the assessee, the AO, held as under: 14. In the light of the above discussions, it is crystal clear that the transactions allegedly conducted by M/s Friends Portfolio (P) Ltd. were actually the transactions conducted by the assessee company on its own trading account and the profit on these transactions had actually been earned by the assessee company. In order to reduce its profit on trading of shares, the assessee company claimed that these transactions were undertaken by it as a broker on behalf of M/s Friends Portfolio (P) Ltd. On account of these bogus accommodation book entries, the assessee has reduced its profit on trading in shares by Rs. 3,26,48,898.84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss than the period prescribed under the statute. Therefore, this notice is bad in the eye of law and all the proceedings done in consequence thereof, are null and void. 8.5 That the notice issued under s. 158BC/158BD is not legally maintainable as the same was issued much after the completion of the assessment order in the case of M/s Friends Portfolio (P) Ltd. and Mr. Manoj Aggarwal. 9. In support of these pleas, the learned counsel placed reliance on various decisions including the following: (i) CIT vs. Ekbal Co. (1945) 13 ITR 154 (Bom); (ii) Prabhat Saw Mills Timber Merchants vs. ITO (1994) 51 ITD 548 (Bang); (iii) Smt. Mahesh Kumari Batra vs. Jt. CIT (2005) 95 TTJ (Asr)(SB) 461; (iv) Chitra Devi vs. Asstt. CIT (2002) 77 TTJ (Jd) 640; (v) Amity Hotels (P) Ltd. Ors. vs. CIT (2004) 192 CTR (Del) 607 : (2005) 272 ITR 75 (Del); (vi) Rushil Industries Ltd. vs. Harsh Prakash (2001) 166 CTR (Guj) 300 : (2001) 251 ITR 608 (Guj); (vii) Aditanar Educational Institution vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC); and (viii) Dayal Industries vs. CCT 100 STC 215. 10. Learned CIT-Departmental Representative, on the other hand, strongly opposed these arguments and placed re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l has challenged these findings. According to him, during the course of search in the case of any person searched, if some undisclosed income or material disclosing undisclosed income is found and seized then the AO, dealing with the case of such searched person, is required to record a satisfaction to initiate proceedings under s. 158BD and to handover the incriminating material pertaining to such other person to the AO of that person. He pointed out that in this case, no asset or document of the assessee relating to its undisclosed income was found during the course of search from the premises of Mr. Manoj Aggarwal. Regarding the alleged satisfaction note dt. 26th Nov., 2002, his contention was that this satisfaction note is mainly based on the statement of Mr. Manoj Aggarwal dt.19th June, 2002 which cannot be treated to be material disclosing undisclosed income of the assessee. It was also pointed out by him that although as per the assessment order, the books of account of the persons searched, i.e., Mr. Manoj Aggarwal and M/s Friends Portfolio (P) Ltd. and the alleged diary containing entries regarding cheques and cash have been made the basis for making the additions of undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olio (P) Ltd. were completed on 29th Aug., 2002. 14.2 The notice under s. 158BD was issued to the assessee company on 26th Nov., 2002. 14.3 As per the Departmental Representative, the satisfaction for initiating proceedings under s. 158BD was recorded by the AO making assessment in the case of Shri Manoj Aggarwal and M/s Friends Portfolio (P) Ltd. on 29th Aug., 2002 also i.e. on the date of passing assessment order dt. 29th Aug., 2002 itself. However, the learned counsel for the assessee has seriously challenged the genuineness and the authenticity of this note. According to him, this note is antedated. He tried to substantiate his argument by demonstrating that if the satisfaction note was recorded on 29th Aug., 2002 then there would have been no necessity to further record the satisfaction again on 26th Nov., 2002. He also pointed out that from the contents and language of the alleged satisfaction note dt. 29th Aug., 2002, it is evident that this note is subsequently prepared. He submitted that if the satisfaction was recorded on 29th Aug., 2002, the notice should also have been issued on that date itself or just thereafter. 14.4 The learned Departmental Representative, on the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction dt. 26th Nov., 2002 and hence this note has been prepared subsequent to satisfaction note dt. 26th Nov., 2002. (ii) Had the satisfaction note been recorded on 29th Aug., 2002 then the record pertaining to the other person not searched should have been transferred to the AO of the present assessee who was a different officer at that time than the officer of the searched person. (iii) The alleged satisfaction makes mention of the proposal and approval regarding centralization of the case. This proposal is dt. 19th Nov., 2002 and is subsequent to the alleged note which fact proves the contention of the learned counsel for the assessee that the notice (sic-note) is antedated. (iv) There is a detailed note by the AO, a copy of which has been filed at p. 33 of the paper book. The concluding observations of the AO in this note are as under: In view of the facts mentioned above and the block assessment orders of Sh. Manoj Aggarwal and M/s Friends Portfolio (P) Ltd., undisclosed income has arisen in the hands of M/s SMC Share Brokers Ltd. which has been found during the course of search and seizure operations in the case of Shri Manoj Aggarwal and his associate concerns. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, submitted that there is no limit prescribed for recording the satisfaction and the AO is fully competent to record satisfaction even after completing the assessment in the case of searched person. 20. We have carefully considered the entire material and the rival submissions. The AO of the searched person can record satisfaction regarding the undisclosed income of the other person at any stage during the assessment proceedings under s. 158BC or even thereafter but such satisfaction has to be recorded in writing as held in the case of Amity Hotels (P) Ltd. Ors. vs. CIT. In the Act, there is no period of limitation provided for recording for satisfaction. The only period prescribed is for completing the assessment under s. 158BD, which is two years from the end of the month in which the notice under s. 158BD has been issued in the cases where search is initiated after 1st Jan., 1997. 20.1 The next plea of the assessee is that the satisfaction note makes no reference to the seized material and thus the proceedings under s. 158BD judged from the satisfaction note cannot be justified. We do not find force in this submission also. The satisfaction note dt.26th Nov., 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the appellant that the assessment has been concluded in violation of the principles of natural justice and the material gathered at the back of the appellant has been used without giving opportunity to the appellant to rebut the same. 25. The contention of the learned counsel for the assessee was that the main basis for making the addition in the case of the present assessee is the statement of Shri Manoj Aggarwal, which was recorded at the back of the assessee and despite repeated requests, the assessee was not allowed opportunity to cross-examine him. In this regard, the learned counsel made reference to the letter dt. 19th Nov., 2004 and 25th Nov., 2004 which are available at pp. 36 and 72 of the paper book. According to him, this plea was taken even before the learned CIT(A) but he did not consider it proper to offer any further opportunity of giving right to cross-examination of Shri Manoj Aggarwal to the assessee. In support of his submission, the learned counsel placed reliance on the following decisions: (i) M.K. Thomas vs. State of Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m various parties. Details/addresses of which I am ready to provide in case I receive photocopies of all the documents seized from various premises. I hope you will suitably deal with the above. His statement was firstly recorded on 11th Sept., 2000 thereafter, on 14th Dec., 2000. The statement of Shri Manoj Aggarwal was also recorded on 19th June, 2002. A copy of this statement is available at pp. 112 to 115. Thus, the statement of Shri Manoj Aggarwal was recorded on three different dates during the course of assessment proceedings in the case of M/s Friends Portfolio (P) Limited. During the assessment proceedings of these persons, the present assessee was never examined nor summoned to confront or cross-examine Shri Manoj Aggarwal. 27.2 During assessment proceedings of the present assessee, the AO issued notice dt. 3rd Feb., 2003. The assessee filed detailed reply on 15th Sept., 2004 and 29th Sept., 2004. The statement of Shri Manoj Aggarwal was further recorded during the course of assessment proceedings of the present assessee on 9th Nov., 2004 and thereafter a show-cause notice dt. 17th Nov., 2004 was issued. The assessee filed reply to this show-cause notice on 25th Nov., 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tally/resemble each other. The one and only possibility to follow this non-genuine practice being a mala fide, deliberate attempt to deny signatures and responsibility of documents later on. In this connection attention is drawn towards following: Letter filed on 22nd Aug., 2000 before DI (inv) The name Manoj is followed Agg.... Statement dt. 11th Sept., 2000 The name Manoj is followed Ag i.e. instead of Agg.... The signatures show Ag.. Statement dated 14th Dec., 2000 The signatures on page 4-7 do not tally with each other. Statement dt. 19th June, 2002 All the pages have been signed in Hindi except page No. 2 which has been signed in English. even the Hindi signatures appearing differently on different pages. Statement dated 9th Nov., 2004 The signature on this statement do not tally or even resemble with any of the signatures in earlier statements. The signatures even tend to differ from page to page 7 Other errors in the statements of Mr. Manoj Aggarwal In this connection we respectfully invite your kind attention to declaration made by Mr. Manoj Aggarwal on last page of following statements: Statement dt. 11th Sept., 2000 Statement dt. 14th Dec., 2000 It has been categorically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riousness of matter a cross-examination being legitimate right of the, assessee was demanded. It maybe noted that under the circumstances the onus is on the Revenue to prove the contrary as well as to provide the assessee an opportunity to cross-examine witness, which is being denied. In this connection we respectfully place reliance on the following cases supporting legitimate right of the assessee to cross-examine. CIT vs. Eastern Commercial Enterprises, Gargi Din Jawala Prasad vs. CIT, Pahar Chand Sons vs. State of Punjab (1972) 30 STC 211 (Pun), Banwarilal Sitaram vs. State of Orissa (1974) Tax LR 1960 (Ori), State of Kerala vs. K.T. Shaduli Yusuff (1977) 39 STC 478 (SC) and Prarthana Construction (P) Ltd. vs. Dy. CIT (2001) 118 Taxman 112 (Ahd) (Mag). In the last the assessee made following prayer: In view of the above, it is thus evident that any other inference other than genuineness of transactions incurred during normal course is incapable of being drawn. However, in case, your goods elf still forms an adverse view, it is requested that the factual and legal position as well as reliance on the cases as reported above may please be rebutted and an opportunity of being heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Kishinch and Chellaram vs. CIT (1980) 19 CTR (SC) 360 : (1980) 125 ITR 713 (SC). The learned CIT(A) has reproduced the reply of the assessee and also the decisions on which reliance has been placed by it. However, no finding on ground No. 2, as taken before him by the assessee, was recorded. The learned CIT(A) has simply rejected ground Nos. 1, 2 and 9. Thus, he too did not consider it proper to allow the opportunity to the assessee to cross-examine Shri Manoj Aggarwal which was the main basis for making addition against the assessee. In view of the above facts, it is clear that neither the AO nor the learned CIT(A) gave any opportunity to the assessee to cross-examine Shri Manoj Aggarwal despite repeated requests made in this regard in writing before them. 31. On going through the assessment order and the order of the learned CIT(A), it is found that the statement of Shri Manoj Aggarwal has been mainly used for making addition in the hands of the assessee. The AO has repeatedly made use of the statement of Shri Manoj Aggarwal in the assessment order and, in fact, has based his conclusion on the basis of this statement for holding that the transactions carried out by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice was required by 19th Nov., 2002. The assessee filed letter dt. 19th Nov., 2004 and demanded opportunity to cross-examine Shri Manoj Aggarwal. Further, vide letter dt. 19th Nov., 2004, the assessee again demanded this opportunity. 32.1 Vide another letter dt. 25th Nov., 2004 available on p. 72, the assessee made reference to various statements of Shri Manoj Aggarwal and after pointing out discrepancies in para 6 of this letter, reproduced above, made a request to the AO to examine him and other person. In para (i) on p. 93, the following allegation was made by the assessee: (i) The proceedings are being concluded without giving proper and sufficient opportunity of being heard to the assessee and denying it its legitimate right to cross-examine other parties (Mr. Manoj Aggarwal and Mr. Neeraj Gupta). 33. The assessee also gave a petition to the Addl. CIT for issuance of direction under s. 144A of IT Act. On this petition, the comments of the AO/Dy. CIT were obtained. In these comments also, nothing is stated about the request of the assessee for cross-examination of Shri Manoj Aggarwal. 34. As pointed out above, the assessee took the specific ground before the learned CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence and finding himself cornered in the appellate proceedings, request the appellate authorities to assume the role of AO and carry out the investigation on his behalf. Thus, we strongly object to this request of the AO. Acceding to such request shall also be against the law as a decision after cross-examination shall be in appellate proceedings as against assessment proceedings. However, without prejudice to the above, we are ready to have the cross-examination of Mr. Manoj Aggarwal as and when it is arranged. However, even the learned CIT(A) did not consider it proper to grant opportunity to cross-examination to the assessee. Thus, the Departmental authorities, for reasons best known to them, avoided cross-examination of Shri Manoj Aggarwal though the assessee kept on demanding the right of cross-examination to meet out the allegations levelled against him. 35. On closer scrutiny of various documents and on consideration of the entire relevant material, this case presents peculiar facts and circumstances. On the one hand, the Department was eliciting entire information from Shri Manoj Aggarwal by recording his statement again and again and on the other hand, it was denying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings. 36. If we go to the background of the entire matter and in particular of various statements of Shri Manoj Aggarwal, then it becomes all the more clear that he was trying to exculpate himself by involving the assessee and others. Thus, he was not an independent witness but an interested witness and the testimony of such interested witness cannot be viewed without caution. As the AO has violated the rules of natural justice in denying the opportunity of cross-examination to the assessee, the statements recorded behind the back of the assessee of such witness cannot be utilized against him. 37. The AO has considered the submissions of the assessee on this issue and rejected the request for cross-examination by placing reliance on the decision of Hon'ble Kerala High Court in the case of M.K. Thomas vs. State of Kerala 1977 CTR (Ker)(FB) 267 : 40 STC 278 (FB), decision in the case of Manindra Nath Chatterjee vs. CCE 1977 Tax LR 1754 and the decision of Madras High Court in the case of T. Devasahaya Nadar vs. CIT (1964) 51 ITR 20 (Mad) and has held that it could not be stated as a general proposition of law that 'any evidence' upon which the Department might rely sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance attached to the statement of Shri Manoj Aggarwal and various discrepancies in his statement, the requirement of opportunity of cross-examination was most essential and fundamental. 39. The other cases on which the AO has placed reliance are also distinguishable on facts. 40. The issue has been considered by various authorities and the right of cross-examination has been considered an essential ingredient of reasonable opportunity to be afforded to an assessee. In the case of K.T. Shaduli vs. State of Kerala, the view of the Hon'ble Kerala High Court was upheld by the Hon'ble Supreme Court. This decision is reported in 39 STC 478. 41. In the case of Vasanji Ghela Co. vs. CST 40 STC 544, the Hon'ble Bombay High Court has considered various authorities and has held as under: Held, that, on the facts and circumstances of the case, the order of the Dy. CIT was bad on the ground of non-compliance with the principles of natural justice and the order of the Tribunal which upheld the order of the Dy. CIT was also bad on the same ground. The rules of natural justice do require that normally speaking, if the statement of a person is intended to be used as evidence against a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and after making reference to other decisions, the Hon'ble Court held that it was the duty of the Dy. CIT to have given an opportunity to the assessee to cross-examine Keshavji Hirji and his failure amounts to violation of principles of natural justice. On this basis, the order of the learned CIT was held bad in law and the order of the Tribunal was also held bad in law for the same reason. 42. The assessee has also placed reliance on the decision of Delhi Bench of Tribunal in the case of Satish Gupta vs. ITO rendered by Tribunal, Delhi Bench SMC-IV in ITA No. 57 and 100/2004 (asst. yr. 1995-96). In this case also, the issue involved was as to whether the AO was required to afford an opportunity of cross-examination of Shri Anand Prakash. This statement was made by the AO in addition to other evidence. The assessee was not given opportunity to cross-examine despite having asked. The Tribunal, after considering the decision of Hon'ble Supreme Court in the case of Kishanchand Chellaram vs. CIT, deleted the addition by holding that the AO's failure to allow cross-examination vitiates the entire addition. The observations of the Bench in the order dt.2nd July, 2004are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement against the assessee. Again, no opportunity was given to the assessee to cross-examine even this witness, which further strengthened the allegation of the assessee that the denial of cross-examination of this witness was also to the disadvantage of the assessee. On examination of the entire material, therefore, we are unable to appreciate the approach of the AO who was expected to be fair to the assessee also in the quasi-judicial proceedings conducted by him. In the case of CIT vs. Simon Carves Ltd. 1976 CTR (SC) 418 : (1976) 105 ITR 212 (SC), the Hon'ble Supreme Court of India has observed as under: The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighed against the assessee. 44. At the time of hearing, learned CIT-Departmental Representative submitted that if any prejudice has been caused to the assessee then the matter may be remanded and opportunity to cross-examination may be given by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince, in the present case, the repeated requests of the assessee were turned down by the AO as well as by the learned CIT(A) for cross-examining Shri Manoj Aggarwal and Shri Neeraj Gupta, it will not be proper to restore the matter back to the AO for this purpose. 46. In view of the above, the statement of Shri Manoj Aggarwal, which has been used against the assessee, cannot be utilized against it because in denying the right of cross-examination, the AO and the learned CIT(A) have flouted the settled canons of natural justice. On the basis of above observations, we allow ground No. 3 in favour of the assessee. 47. Ground Nos. 4 and 5 challenge the sustenance of addition of Rs. 3,26,48,898.84. 48. The AO has made addition of Rs. 3,33,24,965.84 on account of bogus accommodation book entries in the form of share profits. For this purpose, he has mainly placed reliance on the entries in the diaries seized (Annex. A-18) during the search under s. 132 from the premises of Shri Manoj Aggarwal and Annex. A-13 copy of account of M/s Friends Portfolio (P) Limited. It was observed by him that pp. 83 to 85 of Annex. A-13 contained details as per which profit of Rs. 3,26,48,898.84 was shown to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out by him that in the statement recorded on11th Sept., 2000, Shri Manoj Aggarwal gave names of various persons with whom his transactions were not genuine but, in the last, the name of the assessee did not appear. It was further pointed out by him that even in the statement dt.19th June, 2002, Shri Manoj Aggarwal confirmed his statement dt.11th Feb., 2000wherein name of the assessee did not appear. It was also submitted by the learned counsel for the assessee that the statement of Shri Manoj Aggarwal has not been accepted by the AO in its entirety and although the AO has held the transactions carried out by him as bogus but no addition even on substantive or protective basis has been made in his case. The learned counsel also placed reliance on following judgements: (i) CIT vs. Eastern Commercial Enterprises (ii) Gargi Din Jwala Prasad vs. CIT (iii) Paharchand and Sons vs. State of Punjab 5.2 The submission of the assessee was that the assessee had carried out all the transactions through stock exchanges and made all the payments through account payee cheques. It was pointed out by him that the transactions have been duly recorded in the accounts of M/s Friends Portfolio (P) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of profit of M/s Friends Portfolio (P) Ltd. cannot be taken to be incriminating evidence against the assessee and on the basis of these contents, it cannot be said that the profit shown to have been earned by M/s Friends Portfolio (P) Ltd. was the income of the assessee. 54.1 The other document found and seized. during the course of search is Annex. A-18 on p. 110 of this diary two cheques bearing Nos. 005357 and 005356 of Rs. 50 lacs each have been mentioned on 25th March, 2000. These cheques have been received from M/s SMC. Again, since the payments were made by M/s SMC, i.e., the present assessee through cheques and further since the assessee has not denied the issuance of these cheques to M/s Friends Portfolio (P) Ltd., the cheques cannot be treated to be a material relevant for making the addition of Rs. 3,26,48,898.84. 55. The entry of cheques of Rs. 50 lacs each issued in the name of M/s Friends Portfolio (P) Ltd. finds place in the books of account of the assessee. From the statement of account of the assessee of Canara Bank for the period 21st March, 2000 to 31st March, 2000 available at p. 240 of the paper book, it is found that both of these cheques, which were issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borate this document and to connect the same with the assessee. The assessee, on the other hand, has denied the allegations levelled against it. 58. Shri S.C. Aggarwal, director of the assessee company was examined by the AO on21st Oct., 2004. Against the above entries, he has categorically submitted that the transactions undertaken by M/s SMC with M/s Friends Portfolio (P) Ltd. were genuine transactions. It has been specifically stated by him that Shri Manoj Aggarwal had taken the profit through account payee cheques. He has also categorically stated that he had never taken any cash from Shri Manoj Aggarwal. In support of this version, the assessee has filed the detailed accounts including the contract notes, bank accounts, sale bills, etc., copies of which have been filed in the paper book also. Thus, on the one hand, there is documentary evidence fully corroborated by the oral evidence of the assessee to substantiate its version and on the other hand, there is only dumb document in the shape of unexplained entry of payment of cash to the assessee. 58. A The evidence in the shape of entry regarding payment of cash of Rs. 99 lacs has not been considered against Shri Manoj Aggarwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lata Mangeshkar 800 W plus L.F. Rs. 700 B 102 1,500 11-6-1963 16/5 To Lata 123 2000 123 2000 Shri N. Vasudev Menon, the managing partner of Vasu Films and one C.S. Kuma r, the firm's Bombay manger also explained that the letter 'W' put against the figures mentioned in the entries represented payment in White while the letter 'B' to be against some items indicated payments in Black. The assessee was given an opportunity to cross-examine these persons. The AO accepted the entries as showing payments made to the assessee and as the assessee had not shown these payments, these were treated to be the payments made outside the books of account. The AAC confirmed the additions. Before the Tribunal while challenging the addition, it was submitted that the lower authorities were not justified in drawing the presumptions or suspicions on the basis of entries in the diary. The Tribunal deleted the addition by accepting the plea of the assessee. The Hon'ble Bombay High Court upheld the view taken by the Tribunal. It was observed by the Hon'ble Court that the corresponding entries were not found in the day book and in absence of that, mere production of ledger entrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Punjab and Haryana High Court has observed that such entries though relevant were only a corroborative evidence and it is to be shown further by some independent evidence that the entries represent honest and real transactions and that monies were paid in accordance with those entries. (iv) Prarthana Construction (P) Ltd. vs. Dy. CIT Certain documents were found during the course of search operations at the residence of one Shri Sureshbhai Patel which contained details of payment made to one Shri Arunbhai. On these pages, there were number of entries with dates giving the name of the appellant and the purpose for which the same were given. The statement of Shri Sureshbhai Patel was also recorded whereby he explained that these payments were his own money paid to the appellant. The appellant was confronted with the statement of Shri Sureshbhai Patel as well as the documents. The AO rejected the explanation of the assessee/appellant on the ground that the statement of Shri Sureshbhai Patel are to be relied upon as these amply confirm the seized documents. In the appellate proceedings, the assessee again denied alleged payment and contended that no conclusion can be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry in the diary and the statement of Shri Manoj Aggarwal. 62. So far as the statement of Shri Manoj Aggarwal is concerned, it is not proved that the entire amount of profit paid to M/s Friends Portfolio (P) Ltd. was the income of the assessee. Firstly, the earlier statements did not relate to the assessee and secondly the statements are general and vague in nature. The statement cannot be used against the assessee in absence of opportunity to confront that witness and in absence of his cross-examination as has been held by us while deciding ground No. 3 of this appeal. Shri Manoj Aggarwal did not refer to any transaction relating to the assessee in his letter dt. 22nd Aug., 2000 when he admitted that transactions amounting to Rs. 100 crores approximately were done by him on commission basis. In his statement dt. 11th Sept., 2000 and 19th June, 2002 also, no specific allegation was made against assessee. So far as the statement dt. 19th June, 2002 is concerned, the assessee has even challenged the genuineness and authenticity of this statement by pointing out that the signatures of Shri Manoj Aggarwal on this statement did not tally with his signatures to his statement dt.14th Dec., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into by Shri Manoj Aggarwal were bogus transactions. In fact, even Shri Manoj Aggarwal, in the first instant, did not accept that all the transactions entered into by him were bogus. Otherwise also, merely because some of the beneficiaries, for any reason, approached the Settlement Commission that by itself cannot be used against the assessee. (D) Abnormality of transactions in shares: The AO has also pointed out certain abnormalities in the transaction of shares carried out by assessee for M/s Friends Portfolio (P) Ltd. One of such abnormality as pointed out by him that the shares were not transferred in the D.Mat Account of M/s Friends Portfolio (P) Ltd. The explanation of the assessee in this regard was that enough money was not provided by M/s Friends Portfolio (P) Ltd. and if the transactions are on credit basis, the brokers are not supposed to deliver in the account of their clients till they receive the payment from the account of M/s Friends Portfolio (P) Ltd. It was pointed out by the learned counsel for the assessee that they have not made full payments as such the delivery was delayed. The inference of the AO is that the transactions entered into by the assessee were b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions and received cheques etc. Since the cheques were deposited in his account and in the account of M/s Friends Portfolio (P) Ltd., it was to be examined as to whether such transactions were benami in nature. The learned CIT(A) has supported the view taken by the AO without going into the documentary evidence filed by the assessee on record and without assigning reasons for discarding the same. The evidentiary value of Shri Manoj Aggarwal was required to have been examined in the context of the facts stated above but the learned CIT(A) upheld the allegation made by the AO regarding the addition of Rs. 3,26,48,898.84 although no direct testimony was available to sustain this addition. There is not an iota of evidence to show that the whole amount transferred by the assessee to M/s Friends Portfolio (P) Ltd. was refunded back to the assessee and was, in fact, its own income. In absence of documentary or circumstantial evidence, the addition cannot be justified in the block assessment done under s. 158BD without there being material found in the course of search to substantiate the same. The addition is, therefore, based on assumption without there being any material or evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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