TMI Blog2006 (10) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the findings of the learned CIT(A) in which he confirmed an addition of Rs. 1,78,204, made by the Assessing Officer, for commission paid by the assessee for obtaining accommodation entries aggregating to Rs. 1,78,20,411 from M/s. Friends Portfolio Pvt. Ltd. (hereinafter called 'Friends Portfolio'). Ground No. 4 is against confirmation of the findings of the Assessing Officer regarding the charging of interest under section 158BFA. 2. On perusal of the assessment order, it is seen that the genesis of issue of notice under section 158BC read with section 158BD of the Act was search and seizure operation conducted at the premises of Friends Portfolio. In the course of the search, statements of Shri Manoj Aggarwal and other persons were recorded and thereafter assessment was completed in their cases. It was found that all the transactions undertaken by Shri Manoj Aggarwal through Friends Portfolio and his other concerns were bogus transactions, in the nature of merely providing entries without any real physical transactions relatable to those entries. Such entries were taken by a number of persons, namely, S/Shri C.P. Khanna, Puneet Khanna, Rajiv Aggarwal, Dhanraj Singh, Harjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period. It was explained that the assessee has dealt in shares through Friends Portfolio, for which he received aggregate amount of Rs. 1,78,20,431. The facts regarding the amount disclosed in the return for assessment year 2000-01 and in the return for the block period were reiterated. It was also explained that the amount of about Rs. 28 lakhs was offered for taxation in the assessment of block period as the assessee could not collect the details subsequently. It was also explained that income of Rs. 1,50,30,137 was declared in the return for assessment year 2000-01 as 'Income from other sources', the details of which were recorded in the books of account. Therefore, it was agitated that the income declared in the return for assessment year 2000-01 could not be brought to tax as the UDI of the block period. It was also explained that the assessee had no connection with either Shri Manoj Aggarwal or Shri Bhushan. The transactions with Friends Portfolio were conducted through the employees of the assessee. No commission was paid either to Shri Manoj Aggarwal, Shri Bhushan or Friends Portfolio. On the basis of the facts and after considering the arguments of the assessee, the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee paid cash plus commission for getting accommodation entries by way of cheques of the total amount of Rs. 1,78,20,431. He also added a sum of Rs. 1,78,204 as estimated commission paid for the services rendered by Shri Manoj Aggarwal and others. In this connection it was represented before him that the impugned amount represented profit on share of shares, the details of which were not traceable. Therefore, a sum of Rs. 1,50,30,137 was shown as income from other sources in the return of assessment year 2000-01, on which tax was paid. Since the details in support of the cheques were not traceable, the assessee bifurcated the amount as aforesaid on the basis of his memory. Therefore, his case was that since the sum of Rs. 1,50,30,137 had been entered into the books of account, declared in the return for assessment year 2000-01 and tax was paid thereon, therefore, the finding of the Assessing Officer that this was done to reduce the rate of tax from 60 per cent to the maximum marginal rate on this amount was at best only a conjecture as there was no evidence in support of the aforesaid finding. In any case, the assessee's case was covered under section 158BB(1)(c)(A), which provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed below:- -------------------------------------------------------------- -------------------------------------------------------------- Sl. No. Date Event -------------------------------------------------------------- 1. 15-3-2000 Advance-tax paid 2. 31-3-2000 Previous year ended in which assessee received cheques from Friends Portfolio, deposited in his Bank account and shown in the Books of account. 3. 3-8-2000 Search at the premises of Friends Portfolio 4. 31-8-2000 Due date of filing return under section 139(1) for assessment year 2000-01 5. 5-11-2000 Filing of return under section 139(4) showing income of about Rs. 1.50 crores from the amounts received from Friends Portfolio as "Income from other sources". 6. 17-10-2003 Notice issued to the assessee under section 158BD (It should be read as 158BC). -------------------------------------------------------------- -------------------------------------------------------------- 1. 15-3-2000 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n various bank accounts, including Central Bank of India and Citi Bank, was offered for taxation and, therefore, the bank accounts had been disclosed to the department in the return of income. He again referred to this very page, which shows that advance tax of Rs. 53 lakhs was paid by the assessee and on this basis, his case was that the aforesaid transactions, leading to income of Rs. 1,50,30,137, had been disclosed in the return of income. At this juncture, we may also refer to page 6 of the paper book, which shows receipts of other amounts of Rs. 27,90,447 from Friends Portfolio, which was credited to the account of Odiswi and debited to ICICI Bank and ANZ Grindlays Bank between 19-6-1999 to 10-8-1999. Both these bank accounts do not find any mention in the list of bank accounts operated by the assessee and placed at page 14 of the paper book. It may also be pointed out that in the statement of income, on page 3, after deducting TDS, the assessee had shown liability of Rs. 97,65,048. After deducting advance-tax paid of Rs. 53 lakhs, a sum of Rs. 44,65,048 was still payable, which was paid on 31-10-2000 as per copy of the challan placed in the paper book on page 10. The date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as offered for taxation, the entries appeared in the books of account, and advance-tax was partly paid on the income liable to be taxed in assessment year 2000-01, therefore, the income could not be termed as VDI of the block period. 4.4 The second argument was based upon the provisions contained in section 158BA(3). This sub-section, inter alia, provides that in a case in which the due date for filing of the return of income under sub-section (1) of section 139 for any previous year has not expired and such income or the transactions relating to such income have been recorded on or before the date of the search in the books of account or other documents maintained in the normal course relating to such previous, year, the said income shall not be included in the block period subject to the satisfaction of the Assessing Officer on the proof furnished by the assessee. On the basis of this sub-section, the case of the learned counsel was that the income of the block period has to be computed in accordance with the provisions of Chapter XIV-B, as provided in sub-section (1) of section 158BA. Sub-section (3) provides that where the due date of filing the return has not expired and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the total income of the previous year for working out UDI of the block period. If the same is done, the inference will be that the UDI is nil insofar as the impugned income is concerned. 4.6 The fourth ground taken up by the learned counsel to support his argument was that order under section 143(3) read with section 147 was passed in this case on 31-3-2006, in which the impugned amount was taxed. In this connection, he referred to the provision contained in Explanation (b) below sub-section (2) of section 158BA, which provides that the UDI shall not include the income assessed in any regular assessment. It may be mentioned here that Explanation (c) of the same sub-section further provides that the income assessed under Chapter XIV-B, being the UDI, shall not be included in the regular assessment of any previous year of the block period. 5. Coming to the decided cases, reliance was placed on the decision of Hon'ble ITAT, Jaipur Bench in the case of Om Prakash Sharma v. Dy. CIT [2004] 83 TTJ 246. In that case search and seizure operation was carried out on 25-2-2000 and, therefore, the previous year consisting of the period 1-4-1999 to 31-3-2000 had not expired. Consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the conducting of search and seizure operation. Therefore, the Hon'ble ITAT came to the conclusion that the surrender was made on misconception of facts and consequently deleted the addition. As mentioned earlier, the material question before us would be whether the impugned income had been recorded in the books of account or not before the date of search even though it was shown in the return of income filed under section 139(4). 5.2 The learned counsel also furnished brief synopsis, in which a number of other cases were relied upon. A mention was made regarding the decision of Hon'ble Gauhati High Court in the case of Dr. Alka Goswami v. CIT [2004] 268 ITR 178. In that case, the Assessing Officer included the income for assessment year 199596, for which the previous year had not ended on the date of search, and which was covered by the advance-tax paid by the assessee. The Hon'ble Court held that the income covered by payment of advance-tax would be an income disclosed to the revenue and it could not be said to be the VDI of the block period. In this case, the impugned income was not covered by the payment of advance-tax and, therefore, the learned counsel fairly conceded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no question of the computation of the UDI. However, in the instant case, substantial evidence was found in the course of search of Friends Portfolio, which led to a conclusion that the transactions of the assessee with it were bogus. Therefore, the question here is materially different from the question in the case of M.S. Aggarwal. 5.4 The learned counsel had also relied on the decision of Hon'ble Madras High Court in the case of Asstt. CIT v. A.R. Enterprises [2005] 274 ITR 110. The issue in that case again was regarding the computation of UDI when the assessee had paid advance-tax. The Hon'ble Court came to the conclusion that the income covered by the payment of advance-tax would be income disclosed to the revenue, which cannot be treated as the UDI for the relevant assessment year. However, as mentioned earlier, the facts of the instant case are somewhat different, as advance-tax was not paid on the UDI, computed by the Assessing Officer. Certain other cases were also cited on the same issue, which are not discussed as the ratio is the same as in the case of A.R. Enterprises and Dr. Alka Goswami. 6. As against the aforesaid, the learned DR pointed out that search and sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". The entries made in the books do not show the transactions on which profits were made under the specious plea that the details of transactions were not available. His case was that no actual transaction had taken place and, therefore, there was no question of any details of the transactions available with the assessee. Having learnt about the search and seizure operation in the case of Friends Portfolio, the assessee was cornered and, therefore, declared a part of the income in black return and a part in the return filed under section 139(4). The income returned in the latter return was not covered by the payment of advance-tax, which clearly leads to the inference that the income was not intended to be shown to the revenue. It was stressed that if the income had been included in the books of account on 31-3-2000, there could not have been such a huge gap between the income returned and the income covered by payment of advance-tax. Therefore, it was agitated that if totality of circumstances is taken into account along with the conduct of the assessee, there was inescapable conclusion that the impugned income was not intended to be shown to the revenue. 6.1 In the aforesaid co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from the property should not be taxed in his hands and for this purpose he relied on the deed of conveyance in his favour executed by his wife about a year ago. In the deed, it was inter alia stated that a sum of Rs. 2 lakhs was lying in the hands of her father-in-law as her Stri Dhan. There was no evidence regarding her independent source of income. The ITO taxed the income from the property in his hands. This decision was affirmed by the Tribunal. Subsequently, after a lapse of about 16 years, the plea of the trust was revived again by the assessee, which was rejected by the Tribunal. On a reference, the High Court held that the finding of the Tribunal was not correct when it held that the property was not trust property. The Hon'ble Supreme Court, reversing the decision of Hon'ble High Court, pointed out that it could not be said that the finding of the Tribunal was devoid of reality or it was not based on evidence or it was otherwise vitiated. In this connection, it was pointed out that while apparent state of affairs may be considered as real until it was shown that there were reasons to believe that the apparent was not real, however, in a case where the party relies on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition of UDI, is similar to section 5 of the Act regarding "scope of total income" in content insofar as the scope of UDI is concerned. Thus, it is clear that any income which falls beyond the ambit of the aforesaid definition, cannot be made a subject-matter of assessment under Chapter XIV-B. This definition has been reproduced in paragraph 4.2 of this order. The definition is inclusive and includes in its ambit inter alia any income based on any entry in the books of account or other documents or transaction which has not been or would not have been disclosed for the purpose of this Act. Thus, any disclosed income or any income which was intended to be disclosed for the purpose of this Act cannot be included in the UDI. The case of the learned counsel was that the income has been shown in the return of income for assessment year 2000-01. As evidenced at page 2 of the paper book. It is seen that the return was filed on 30-11-2000, after the date of search in the case of Friends Portfolio on 3-8-2000. Further case of the learned counsel was that this income has been entered in the books of account in the ledger account with the head "Income from other sources". On perusal of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance on the prescribed dates or the transactions were entered in the books of account maintained in the normal course before the date of search. This view gets strengthened by the fact that details of the transactions were not entered in the books. If the transactions had been entered in the normal course, references would have made to the actual transactions, their nature and the amount bf profit involved therein. The amounts were summarily entered as receipts in the impugned account. Further, similar receipts in the period 19-6-1999 to 10-8-1999 were not entered in the books of account and the cheques were deposited in the accounts which were not disclosed to the revenue. We also do not know whether the accounts of Central Bank of India and Citi Bank, in which cheques were deposited, had been disclosed to the revenue before the date of search. All these facts lead to a very clear conclusion that the impugned amounts were inserted in the books after the search in the case of Friends Portfolio. It was also pointed out by the learned counsel that the assessee received notice under section 158BC of the Act on 17-10-2003. Therefore, he came to know about the search in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if income or transactions relating to the income are recorded on or before the date of search in the books of account or other documents maintained in the normal course, and the assessee proves the aforesaid facts to the satisfaction of the Assessing Officer, then, the said income shall not be included in the UDI. This sub-section contains two pre-requisites, namely,- (i) transactions relating to such income are recorded on or before the date of search in the books of account or other documents maintained in the normal course, and (ii) the aforesaid fact is proved to the satisfaction of the Assessing Officer. The case of the learned counsel was that all the ingredients of this sub-section are satisfied and, therefore, the Assessing Officer ought to have excluded the impugned income in assessing the UDI of the block period. It has already been discussed that certain transactions were not recorded in the books of account. However, such transactions were shown as undisclosed income in the return of the block period. Certain other transactions were recorded in the books of account, but it is not proved that these transactions were recorded before the date of search. We have also se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BA. The Explanation provides that total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period. In view of the fact that the impugned income was assessed under section 147, albeit after completing the block assessment on or about 31-10-2005, the same cannot be included in the VDI of the block period. It was pointed out in para 4.6 that Explanation (c) provides that the income assessed in this chapter shall not be included in the regular assessment of any previous year. Having considered the arguments of the learned counsel on this issue, we are of the view that these two Explanations have to be read harmoniously and Explanation (b) cannot be read in isolation of the other Explanation (c). If that is done, it will transpire that it will first have to be determined whether the income falls within the ambit of "undisclosed income" under Chapter XIV-B. The provisions of this chapter have overriding effect as section 158BA contains a non obstante clause. If that is done, on assessment of income under this chapter, the same shall not be assessed again in the regular assessment of any previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... folio, had clearly deposed to the effect that he was issuing cheques in lieu of the cash receipts from various parties, which could have been entered by them in any manner, i.e., as gifts, loans, income etc. He had further deposed that he was charging commission @ 50 paise per Rs. 100 involved in the entries. He had also deposed that the commission was paid to the intermediary and in this case Shri Bhushan was the intermediary. The Assessing Officer had granted opportunity to the assessee to cross-examine Shri Aggarwal, Shri Bhushan or any other person involved in the impugned transactions. Surprisingly, the assessee chose not to cross-examine any of the persons involved in the transactions. Therefore, it cannot be said by any stretch of imagination that there was no evidence on record for making addition, albeit on estimated basis, in respect of expenditure incurred by way of commission on procuring the aforesaid entries amounting to Rs. 1,78,20,431. The Assessing Officer has made addition in respect of the expenditure @ 1 per cent of the amount involved in all the entries. To our mind, the estimate is reasonable and, therefore, we do not see any reason to interfere with the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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