TMI Blog2000 (8) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... 997 in which undisclosed income was determined at Rs.9,88,82,491. The assessee filed appeal before the ITAT, which was disposed of vide IT(SS) A.No. 11/Mum./96 by order dated 20-11-1997. The Assessing Officer gave effect to the order of the Tribunal vide his order dated 20-3-1998. As per this order of appeal effect, undisclosed income was determined at Rs.10,36,62,071. Aggrieved with the order of appeal effect, the assessee again filed appeal before the ITAT. The same was disposed by the ITAT vide IT(SS) A.No. 98/Mum./98 vide order dated 31-7-1998. In this order, the ITAT recorded a finding that the Assessing Officer had not complied with the decision of the Tribunal while giving effect to the Tribunal's order. Thereafter, the ITAT concluded that the net assessed loss would be worked out at Rs.3,93,19,629. In the meanwhile, notice under section 158BD was issued on 5-3-1998. The basis for issue of notice under section 158BD was search operation under section 132 in the case of Mahavir Group of Companies at Hyderabad, which was conducted on 14-9-1995. The Dy. CIT, Spl. Rg. 2, Hyderabad, has recorded his satisfaction note which is given at pages 3 4 of the assessment order and for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed income of Rs.9,13,17,953. The undisclosed income was determined by disallowing sales promotion expenses at Rs.7,94,06,916 and by adding 15% thereon, i.e., Rs.1,19,11,037 being commission for getting bogus bills for sales promotion expenses. The assessee, aggrieved with the order under section 158BD read with section 158BC, is in appeal before us. 3. The learned counsel for the assessee argued at length. For the sake brevity, the same is summarized below: (a) There was no basis or material for the satisfaction which was necessary for initiating proceedings under section 158BD. The assessee made purchases of items of sales promotion from M/s. Mahavir Combines P. Ltd. (hereinafter will be referred to as "MCPL") and M/s. Unique Plastic Ltd. (hereinafter will be referred to as "UPL"). MCPL and UPL made purchases from M/s. Swetha Traders and M/s. Sreedev Krupa Traders. Perhaps, some enquiry was conducted by the revenue in the case of M/s. Sreedev Krupa Traders and M/s. Lakshmi Trading through ADI, Mumbai. According to the ADI, Mumbai, these two concerns were not found to be in existence. Therefore, the Assessing Officer, who was assessing MCPL and UPL, drew an inference tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Suman Dhanji Jalte v. Asstt. CIT [2000] 72 ITD 132 (Pune). (3) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). (4) ITO v. Dwarka Dass Bros. [1989] 131 ITR 571 (Delhi). (b) Purchases from MCPL and UPL were already considered in block assessment. In this respect, he referred to various pages of his paper book, i.e., page Nos. 45 to 47, 129, 213 214, wherein these details were furnished during the proceedings under section 158BC. These purchases were also considered in the regular assessment for the assessment year 1995-96. To support this contention, he referred to various pages of his paper book, namely, page Nos. 89, 94, 97, 98, 103, 109, etc. He stated that the regular assessment under section 143(3) was completed on 30-3-1998, i.e., after the initiation of 158BD proceedings. Even in this regular assessment, the genuineness of purchases from MCPL and UPL was not doubted. He stated that 158BD proceedings cannot be taken on the basis of information which was already available with the Assessing Officer. In support of this contention, he relied upon the decision of ITAT, Hyderabad Bench, in the case of Essemn Intra Port Services (P.) Ltd. v. Asstt. CIT [2000] 72 ITD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. The assessee was not given any opportunity to cross examine those parties. Therefore, the assessment was in violation of natural justice and was a nullity. In support of this contention, he relied upon the following decisions: (1) M.O. Thomakutty v. CIT [1958] 34 ITR 501 (Ker.) (2) Addl ITO v. Ponkunnam Traders [1976] 102 ITR 366 (Ker.) (3) Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 67 TTJ (All.) 247. He further stated that the sales promotion expenses were properly incurred for the purposes of business and the revenue has examined it twice, once during the proceedings under section 158BC and also in regular assessment. The addition is made only on the basis of presumptions, surmises and conjectures. The same is liable to be deleted. (h) That there is no evidence of any commission of Rs.1,19,11,037 paid by the assessee. The purchases of items for sales promotion by the assessee were genuine and there is no question of any expenses on commission thereof. This addition is also based upon presumptions and surmises only. The same is to be deleted. (i) He further stated that the Assessing Officer has not deducted the loss already determined in the block assessment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department is not required to prove conclusively with regard to undisclosed income for issuance of notice under section 158BD. The only thing required is the prima facie satisfaction of the Assessing Officer which was clearly established in this case by the satisfaction recorded by the DCIT, Hyderabad, who made the assessment of MCPL and UPL. The Assessing Officer, while making the assessment of MCPL, found evidence that MCPL purchases the goods from non-existent parties. Thus, the purchases by MCPL were bogus. When there is no purchase by MCPL, obviously, the sale of goods by MCPL to the assessee is also bogus. Therefore, the Assessing Officer had sufficient material to come to a prima facie conclusion that the purchases by the assessee were bogus. This prima facie satisfaction was sufficient to issue notice under section 158BD. He also stated that the facts of various decisions of the Tribunal relied upon by the assessee's ld. counsel are altogether different. In those cases, no satisfaction at all was recorded before issue of notice under section 158BD. But, in the case under consideration, there was enough material and a proper satisfaction note was duly recorded by the DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 158BD on 5-3-1998, i.e., just within 3 days. Therefore, the Assessing Officer having jurisdiction over the assessee has acted very promptly. The ld. counsel for the assessee has pointed out that the satisfaction note was recorded by the DCIT, Hyderabad, after one year of 158BD proceedings in the case of MCPL. He stated that there is no time limit in the IT Act for initiation of 158BD proceedings and, therefore, the time taken by the Assessing Officer one year cannot be said to be undue delay so as to invalidate the proceedings. He, therefore, submitted that there was no undue delay from the side of the department but, on the other hand, the assessee made undue delay during the course of assessment proceedings. The Assessing Officer has recorded the details at pages 9-10 of the assessment order that in spite of allowing a number of opportunities to the assessee, it was seeking adjournment on one pretext or the other. Thus, it is a case where undue delay was taking place on the part of the assessee and not the revenue. (e) That there was no violation of natural justice. The statement recorded during the assessment proceedings was confronted to the assessee's representiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring before the Sales-tax authorities by the assessee does not amount to waiver or acquiescence in the invalidity. He stated that the above decision of the Hon'ble jurisdictional High Court would be squarely applicable to the facts of the case under appeal and the notice under section 158BD should be quashed having not been served as per the mandatory provisions of section 282 of the Income-tax Act. He further stated that it is not a technical or clerical error and cannot be cured by section 292B of the Income-tax Act. He distinguished the various decisions relied upon by the ld. D.R. and pointed out that the facts in those cases are altogether different than the facts in the present appeal. He further stated that Mr. Homi Doctor, the representative of the assessee, had been to the office of the Assessing Officer for seeking adjournment. The Assessing Officer recorded his statement and during the course of recording of his statement, he was shown the statements of various wine merchants which were recorded by the Assessing Officer. He was asked to comment on those statements. Since Mr. Homi Doctor was unable to make any comment instantly, he stated that he is not in a position to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et us examine in the light of above definition of "undisclosed income" whether in the case of the assessee there was any undisclosed income for the purpose of section 158BD. Section 158BD proceedings have not been initiated on the ground of possession of any money, bullion, jewellery or other valuable article or thing. Therefore, the only thing remains to be examined is whether there was any income based on any entry in the books of account or other documents or transaction which represents wholly or partly income which has not been or would not have been disclosed for the purposes of this Act. In assessee's case, section 158BD has been initiated on the alleged ground of certain bogus purchases from MCPL. So far, the assessee's case is that the entire purchases were not only disclosed in the books of account but were also disclosed in the audited statement filed before the Assessing Officer. It is contended that the details of purchase of sales promotion articles, which includes purchases from MCPL, were duly considered during the proceedings under section 158BC as well as in the regular assessment for the assessment year 1995-96. Neither in the block assessment nor in the regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding-- Ref.: Your letter Confidential dated 13-1-1997 F.No. GIR No. U.5 Kindly refer to the above. 1. The enquiries were made in respect of all the 3 parties mentioned at Para No. 3 of your above referred letter. But none of the parties could be located at the given address. 2. In the local enquiry the building by name Prem Chambers were not found at Mohammedali Road, in fact it was learnt that no such building is available on Mohammedali Road, Mumbai-3. Hence the concern by name M/s. Laxmi Trading Co., could not be located. 3. As regards Vimal Plastic Industries no such concern could be located on Bandari Cross Lane No. 1, Mumbai-3, as the name of the building has not been given. 4. Efforts made to locate Sree Dev Kripa Traders were also in vain as the building named Mulji House could not be located at Bhuleshwar Road, Plot No. 45 is a single storeyed structure where a business in the name of M/s. Mohan Mitaiwala is being carried on. Plot No. 47 is an old building without any name. 5. In view of the above, you are requested to furnish some more details about the said 3 concerns well in advance to enable me to locate and conduct necessary enquiries. Sd (S.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the group started its manufacturing base where major portion of own production was sold outside accounts. Large scale suppression of income from manufacturing and trading activities was established by seizure of unaccounted sales vouchers...". Thus, the finding by the same Assessing Officer while completing the assessment of MCPL was that MCPL had its own manufacturing base, the production was on large scale and major portion of the production was unaccounted. Therefore, it cannot be said that MCPL did not have the goods which they sold to the assessee. In fact, at the search of premises of MCPL and UPL, trading stocks worth Rs.55 lakhs and 1.87 crores respectively were found. In their block assessment, sales were found at Rs.13.62/20.18 crores respectively. Such a huge quantity of trading stock, which was found and physically verified by the revenue authorities at the time of search, clearly proves that they were actually selling the goods and not only the havala transactions. We may clarify that we are not deciding any issue that may arise in the appeals of MCPL or UPL but our observations are limited to and in the context of disposal of the appeal before us. From these facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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