TMI Blog2003 (1) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the search, recording the statement under section 131 in post search investigation and while passing the order under section 158BC of the Income-tax Act, 1961. 5. That the post search statement recorded by the Deputy Director of Income-tax (Investigation) being illegal and void ab initio, the addition made on the basis of such statement can't be sustained in the eyes of law without recording of statement by the Assessing Officer who is a Quasi-Judicial Authority. 6. That the CIT (Appeals) was not correct in law in not appreciating that the gifts received by the assessee amounting to Rs.50 lakhs and Rs.10 lakhs received by M.S. Gupta Sons HUF were not the undisclosed income in view of the provisions of the section 158B(b) of the Income-tax Act, 1961 as these gifts, were duly disclosed by the assessee and assessee's HUF by advancing them to M/s. Haryana Acrylic Mfg. Co. (P.) Ltd. Rs.27 lakhs as Share Application Money Rs.5 lakhs as Loan and Advancing to M/s. Mono Acrylic Mfg. Co. (P.) Ltd. Rs.28 lakhs as Loan and all these were duly accepted in the regular assessment of these concerns. 7. That the gifts have been illegally taken as cash credit and added under section 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books filed by the ld. counsel dated 19-8-2003 contained, inter, alia, copies of various Tribunal decisions relied upon as well as statement of audited accounts of the sister concern, namely, Monoacrylic Manufacturing Company Private Limited, New Delhi regarding the profit rate in the business of trading of acrylic sheets, etc. 4. On the other hand, Mr. Peeyush Jain, ld.Sr. DRon behalf of the revenue, filed a paper book running into 81 pages containing, inter alia, copies of the statements of the assessee recorded on25-11-1999as well as29-11-1999and thereafter on various dates as part of post search enquiry by the DDI (Investigation),New Delhi. We have also heard the ld. Representatives at great length. 5. At the outset, we may notice relevant facts having a bearing on the points in issue involved before us. Search and seizure operations were conducted by the income-tax authorities under section 132 of the Income-tax Act, 1961 on25-11-1999at the residence as well as business premises of the assessee resulting in seizure of documents and records. The Assessing Officer issued notice under section 158BC under Chapter XIV-B of the Income-tax Act on20-11-2001for the aforementioned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a 'Parojan Ceremony' function in my family in respect of 4 children of my younger brothers. A large number of relatives and family friends (approx. 400 persons) were invited to grace this occasion. I, being the eldest member of the family, was the chief host of the function. Many of our relations had come from outsideDelhito attend the ceremony. Some of our guests had come even fromAmericato attend the ceremony. Some of the relatives were staying at my residence. All of a sudden when search party came to my house, I requested them to free me immediately to enable me to ensure the final arrangements of the function and also to attend the same. I was told that if I sign the statement I can be freed within 2 hours for attending the function. However, I was not freed by the search party to attend the function in my family due to which I became mentally upset and lost control of my senses. The lunch for the whole family was also arranged in the 'Parojan Ceremony' function. I and my family members including relatives staying with us were not permitted to go to attend the function, even the clothes of some of my relatives were snatched which they were to wear for going to attend the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee with the JCIT,Central Circle,Kanpur. Copies of income-tax and wealth-tax assessment orders of Shri Rampati Singhania, the donor made by the JC, Central Circle under section 143(3) of the Income-tax Act and section 16(3) of the Wealth-tax Act respectively for the assessment year 2000-2001 in which the gifts in question have been made to the assessee were filed before the Assessing Officer and these are available in the first paper book at pages 102 to 105. These assessments have been made in theCentral Circle,Kanpurin the month of July, 2001 much after the search carried out by the income-tax authorities at the premises of the assessee on25-11-1999. Regarding the source of the gift, the assessee explained before the Assessing Officer that the donor issued the account payee cheques to the assessee and his HUF drawn on theHong Kongand Shanghai Banking Corporation which are placed in the first paper book at pages 94 to 96. Shri Rampati Singhania sold his property being Flat Nos.123-124 on the 12th Floor in theSarnathBuildingatBhoorabhai Desai Road,Bombayfor a sum of Rs.2,75,00,000. Photocopies of Form No.34A as well as certificate under section 269UL(3) of the Income-tax Act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. counsel may be briefly referred hereunder: (i) Shri Rampati Singhania is the key figure of well-known industrial group, namely, Juggi Lal Kamlapat ofKanpurknown as J.K. Group. He is a regular income-tax and wealth-tax assessee with Joint Commissioner of Income-tax, Central Circle-1,Kanpur. His affidavit dated 30th May, 1999 affirming the gift have been filed before the Assessing Officer and the same is placed in the first paper book at page 86. In this affidavit, he has deposed that gifts have been made by him by account payee cheques drawn on his bank account No.051194116CO6 with the Hong Kong Shanghai Banking Corporation Limited, K.G. Marg,New Delhi. He further deposed that sale proceeds of his self acquired immovable property have been deposited in the aforesaid bank account on which cheques have been issued to the assessee as well as his HUF. (ii) Gift deeds have been executed on30-5-1999and20-6-1999placed in the first paper book at pages 87 to 89. The genuineness of the gift deeds have not been questioned by the revenue authorities. (iii) Photocopy of bank account of the donor with Hong Kong Shanghai Banking Corporation Limited from where payment of gifts have been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and pressure. Shri Jain filed an extract from the Kelkar Committee's Report, wherein the Committee has made a critical reference to the practice adopted by the Departmental Officers obtaining forced confession from the assessees during the course of search operations. The Finance Minister in his Budget Speech for the financial year 2003-2004 observed that in view of the recommendations of the Kelkar Committee, it has been decided that no confession shall be obtained during search and seizure operations. Ld. counsel filed a copy of the letter issued by Central Board of Direct Taxes from the file F. No. 286/ 2/2003-IT (Inv.) on 10th March, 2003 pointing out that instances have come to the notice of the Board where assessees have been forced to confess undisclosed income during the course of search and seizure and such confessions, if not based upon credible evidence, are later retracted by the concerned assessees. The Board, therefore, advised the Field Officers that no attempt should be made to obtain confession as to the undisclosed income. The Board further advised that in respect of pending assessment proceedings, Assessing Officer should rely upon the evidences gathered during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal in support of his contention that the same meaning as applicable for the purposes of section 132(l)(c) would be attached to these words under Chapter XIV-B: (i) Sunder Agencies v. Dy. CIT [1997] 63 ITD 245 (Mum.) (ii) Parakh Foods Ltd. v. Dy. CIT [1998] 64 ITD 396 (Pune). 15. Relying upon the aforesaid decisions, ld. Counsel argued that since the gifts transactions in question are disclosed and properly accounted for in the accounts of the donor as well as the donee, these transactions are not covered under section 158B(b). According to the ld. Counsel, these gifts were received in May 1999, vide Gifts Deeds dated30-5-1999and20-6-1999and the search took place on25-11-1999. The gifts, therefore, fall in the assessment year 2000-2001 and the due date for filing the return was30th June 2000. The amounts received by the assessee and his HUF as gifts were disclosed in the return which became due after the date of search. The amounts received were deposited in the regular bank accounts of the assessee and his HUF as appearing at pages 109 and 111 of the first paper book. Before search, the amounts received were advanced to the following two companies: (i) Haryana A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es officer cannot in any manner be treated as evidence found during search. The evidence found during search would obviously be some documents, papers, slips, books of account or other such tangible material which may confer jurisdiction on the Assessing Officer for the purposes of block assessment. In support of his contention, reliance has been placed on the following decisions of the Tribunal: (i) Chitra Devi v. Asstt. CIT [2002] 77 TTJ (Jodh.) 640 (ii) Davi Sarin v. Asstt. CIT [2003] 79 TTJ (Agra) 39. 17. Ld. Counsel submitted that since the gift transactions in question are disclosed and accounted for and duly acknowledged by the donee who is a leading Industrialist belonging to well-known J.K. Group of Kanpur, the addition of Rs.61,80,000 as undisclosed income is factually and legally unjustified and without jurisdiction. 18. Ld. Counsel next referred to the alternative basis adopted by the Assessing Officer whereby income from the following six benami concerns has been estimated at Rs. 1,31,76,257: (a) M/s. Universal Enterprises, B-23,South Extn., New Delhi-49 (b) M/s. Vishal Vyapar, Khasra No. 32, Siraspur, Delhi-42 (c) M/s. Kumar Traders, 2/80, Roop Nagar,Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om above figure on this account. (b) As already submitted, the assessee has done many transactions of purchases/sales/discounting of hundi/cheque/draft etc. on a commission of as small as 0.25 per cent to 0.50 per cent. Such transactions cannot be equated with normal trading transactions, hence need to be separated and small rate of profit has to be applied on them. However in the absence of detail it is not possible to compute such amount, hence we request you to consider at least 20 per cent of above amount i.e. Rs. 3,38,52,930 (20 per cent of total - 10 per cent) on account of such turnover and apply lower net profit rate. According to the assessee, the figure of turnover based on banks should be Rs. 16,92,64,650 and out of this Rs. 3,38,92,930 would involve lower net profit rate. 21. With regard to cash sales, the assessee pointed out various discrepancies in the figures proposed to be adopted by the Assessing Officer and such discrepancies have apparently been reconciled and figure of cash sales as suggested by the assessee have been adopted in the block assessment order at Rs. 7,54,53,311. Thus, according to the assessee, the figure of total turnover would work out to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his unexplained investment/expenses. When the assessee has already declared his undisclosed income on the basis of undisclosed income on the basis of undisclosed investments/ expenses, the question of estimation of profit rate does not apply. 24. Ld. Counsel reiterated the submissions as made before the Assessing Officer as above and separately furnished written submissions on the issue vide pages 1 to 4 of the paper book No. 4. In the said paper book, return of income, assessment order as well as audited statement of accounts of Mono Acrylic for assessment years 1998-99 to 2001-2002 have been enclosed at pages 5 to 130. Ld. Counsel argued that the sister concern of the assessee, namely, Mono Acrylic is in the same line of business as the assessee and the assessment of the company has been done by way of scrutiny assessment for two years out of the preceding four years and, therefore, the action of the Assessing Officer in applying net profit rate of 5 per cent is wholly justified. Ld. Counsel further pointed out that the Assessing Officer as well as the CIT(A) have ignored the comparable results of the sister concern while sustaining the net profit rate of 5 per cent in ad hoc m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer and sustained by the CIT(A), Ld. DR invited our attention to page 1 of the paper book filed by him wherein while sending a quotation for acron sheets, profit @ 5 per cent has been adopted.Ld. DRsubmitted that net profit rate of 5 per cent, adopted on the basis of the seized document, is fair and reasonable and deserves to be sustained. Regarding the comparable results of the sister concern, namely Mono Acrylic wherein much lower profits ranging from 1 per cent to 2.67 per cent have been shown in similar line of business and accepted by the Assessing Officer.Ld. DRhas not offered any comments and submitted that the seized paper containing quotation for acron sheets quoted to ICI justifies the net profit rate of 5 per cent. Similarly, with regard to figure of total turnover adopted by the revenue authorities at Rs. 26,35,25,144, ld. DR submitted that the figure is based on the bank accounts as well as seized documents bearing Nos. A-40, A-42 and A-46. Concluding his arguments,Ld. DRurged that the impugned order of the CIT(A) confirming the block assessment deserves to be sustained. 28. We have carefully considered the rival submissions and also gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act [or any expense, deduction or allowance claimed under this Act which is found to be false]." If we analyse the aforesaid definition, it provides that undisclosed income includes - (i) Any money, bullion, jewellery or other valuable article or thing or; (ii) any income based on any entry in the books of account or other documents or transactions; (iii) such money, bullion, jewellery, valuable article, thing, entry in the books of account or other documents or transactions represents wholly or partly income or property; (iv) which has not been or would not have been disclosed for the purposes of this Act. From the aforesaid analysis of the definition, it clearly emerges that if any asset or any income as recorded in the books or documents has been disclosed or intended to be disclosed to the income-tax authorities, this would be outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot conceivably be construed as a statement under section 132(4) of the Income-tax Act. The decision of Bombay High Court in R.R. Gavit v.Smt. Sherbanoo Hasan Daya [1986] 161 ITR 793 support the view taken by us. The statement of admission dated 25-11-1999, which is the sole basis adopted by the Assessing Officer for bringing the gifts within the purview of undisclosed income under section 158BB for the purposes of block assessment cannot thus be treated as evidence found as a result of search. We are, therefore, of the view that the genuineness of the gifts cannot possibly be treated as covered within the limited scope and purview of undisclosed income under the block assessment. On this legal ground alone, the impugned addition of undisclosed income treating the gifts as non-genuine is held to be outside the purview of block assessment and liable to be deleted. 32. We may next consider the facts concerning the gifts received by the assessee and his HUF in the context of definition clause, namely, section 158B(b) which defines the undisclosed income as reproduced above. The important limb of the definition which constitute the basic essence is "income or property which has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer. Shri Rampati Singhania has sworn affidavits dated 13-5-999 and20-6-1999much before the search and these affidavits have been filed during the block assessment proceedings and are placed in the first paper book filed before us. From these facts, it is amply evident that the gift transactions are duly disclosed and accounted for in the books of account of the donor as well as the donees. These transactions cannot be considered as secret, hidden or concealed. The surrounding facts and circumstances like routing the transactions through regular banking channels by the donor and the donees and accounting for all the amounts in their respective books of account and further gifts being evidenced by gift deeds as well as the affidavits of the donor provided ample evidence that the transactions are disclosed and accounted for and lie outside the pale of the definition of undisclosed income as contained under section 158B(b). We feel that the gifts in question have been duly disclosed and reflected in the books of account as well as tax returns of the donor and the donees. Such transactions would clearly fall outside the purview of block assessment. On this ground also, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avy onus lay upon the assessee to refute and controvert the admission made at the time of search operation. In the instant case before us, documents and evidence filed by the assessee during the course of assessment proceedings before the Assessing Officer to which reference has been made hereinbefore by us amply established that the gifts in question have been made by Shri Rampati Singhania, a leading industrialist of Kanpur belonging to J.K. Group and such gifts are evidenced by gift deeds duly executed before the date of the search. Source of the gift, creditworthiness of the donor as well as genuineness of the transactions have been established by filing the copies of the bank account of the donor showing credit of sale proceeds of the property as duly reflected in the income-tax and wealth-tax assessment of the donor. With regard to the mass of evidence filed by the assessee before the Assessing Officer, the revenue authorities have not been able to assail or refute such evidence while treating the impugned gifts as non-genuine. Even before us, the ld. Sr. DR when called upon to comment upon such evidence fairly conceded that income-tax and wealth-tax assessment in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(xii) of the Gift-tax Act. The conditions laid down there are there should be transfer by one person to another of any existing movable or immovable property, the transfer should be voluntary and should be made without consideration of any money." 39. At this stage, we may also refer to the observations of the Delhi High Court in the case of CIT v. Mrs. Sunita Vachani [1990] 184 ITR 121 as referred by the ld. counsel. The Hon'ble High Court observed, "The Tribunal has examined the evidence which was available on the record and has arrived at the aforesaid findings. Even though it may be surprising as to how large sums of money are received by a family inIndiaby way of gifts from strangers from abroad, unless there is something more tangible than suspicion, it will be difficult to regard the moneys received inIndiafrom abroad as money representing the income of the assessee inIndia. On the facts as existing on the records, we are unable to come to the conclusion that any question of law arises. The petition is dismissed." 40. Having regard to the aforesaid discussion, we feel that the assessee has succeeded in disproving the admission regarding the genuineness of transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fly reproduced hereunder: ---------------------------------------------------------------------------- Particulars Financial Year ---------------------------------------------------------------------------- 1999-2000 1998-1999 1997-1998 1996-1997 ---------------------------------------------------------------------------- Sales 2,80,68,773 2,21,93,023 98,38,310 7,12,89,637 ---------------------------------------------------------------------------- Cost of Goods Sold 2,31,43,215 1,93,77,122 87,69,376 6,89,46,023 ---------------------------------------------------------------------------- Other Expenses 43,11,072 22,29,632 10,63,328 23,13,610 ---------------------------------------------------------------------------- Total Cost of Sales 2,74,54,287 2,16,06,754 98,32,704 7,12,59,633 ---------------------------------------------------------------------------- Net Profit Rate 2.19% 2.64% 0.06% 0.04% ---------------------------------------------------------------------------- Add: Misc. Income 69,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is unsubstantiated and cannot be accepted as fair and reasonable. We would accordingly accept Ground No. 11 concerning the estimation of profit from the business concerns. 45. From the aforesaid discussion we have come to the conclusion that the additions made by the Assessing Officer treating the gift transactions as non-genuine as well as the alternative basis adopted for supporting the aforesaid addition are mis-conceived and unsustainable. We hold accordingly. 46. Before parting with this appeal, we may point out that in block return filed by the assessee, undisclosed income has been shown at Rs.86,82,110 whereas while computing the total undisclosed income, the Assessing Officer has adopted the disclosed figure as Rs. 82,82,110. There is, thus, a discrepancy of Rs. 4 lakhs in the figures adopted by the Assessing Officer from the block return while computing the undisclosed income. While we have held above that the addition of Rs. 61,80,000 on account of gift transactions is liable to be deleted yet we would hold that after deleting the addition as above, the Assessing Officer would adopt the total undisclosed income at Rs.86,82,110 as disclosed by the assessee in the bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
