TMI Blog1997 (8) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... 1996-97 by filing the returns and paying income-tax also. The Assistant Director of Inspection also took an oath statement from the assessee on 4-12-1995. The copies of oath statements translated in English have been placed in the paper book filed on 25-6-1997 from pages 2 to 11. 3. On the basis of search operations, the Assessing Officer issued a notice on 24-7-1996 under section 158-BC of the Act directing him to file a return for the block period of 10 years giving 15 day's time in respect of undisclosed income. After the issue of notice under section 158BC read with section 142(1) of the Act, the Assessing Officer conducted enquiries on the basis of seized materials and also called for certain other documents and papers and other related information to enable him to complete the block period assessment of undisclosed income of the assessee. The assessee filed the block period return on 7-10-1996 returning undisclosed income of Rs. 1,06,92,950 the details of which are as under : Undisclosed assets 16,18,725 Unexplained expenses 50,00,000 Profit for the year as 40,74,221 declared by assessee ------------------------- Total income 1,06,92,946 or 1,06,92,950 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1-4-1995 to 17-10-1995 did not attach the profit and loss account and balance-sheet as on that period. Though the return was filed on 7-10-1996 the details of sundry creditors were given much later and some confirmation letters were filed on 25-10-1996 when the assessment was getting time barred on 31-10-1996. According to the Assessing Officer since the time was short only a test check was made of the sundry creditors for finding the genuineness and therefore Inspectors were deputed on 30-10-1996, and they enquire with 4 creditors aggregating to Rs. 41,05,857, the names and addresses of which have been given by the Assessing Officer in pages 8 9 of para 7 of the impugned order. The Assessing Officer has stated in page 9 of the impugned order that the Inspectors who were deputed to enquire about the genuineness of the loans reported that the four creditors were agriculturists and did not have business activities and that their standard of living was average. The Inspectors reported to the Assessing Officer that the 4 persons voluntarily had given in writing to them that they have not given any money or supplied any goods to the assessee. The Assessing Officer, therefore, conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.No.1429(16)/95-96 dated 29-10-1996 directing, in para 2(iv) of the said note, the Assessing Officer to conduct enquiries and investigations in the manner directed by her. We think the entire contents of the note of the Commissioner of Income-tax, Coimbatore are very important and require to be incorporated so as to make it part of this order. We reproduce the same as under : "NOTE C.No. 1429(16)/95-96 Shri T.S. Kumarasamy, Tiruchengode. Shri M. Maniyandi, Assistant Commissioner of Income-tax, Special Investigation Circle, Salem who is the Assessing Officer in the present case, was directed vide this office D.O. letter dated 1-10-1996 to submit the draft block assessment order in the above case, which is getting barred by limitation on the 31st of November, 1996, on or before 11-10-1996 positively and to come for a personal discussion on the same date. The Assessing Officer and Shri Artabandbu Patra, Deputy Commissioner of IT, Salem were present in this office on 11-10-1996. The unsigned draft block assessment order, together with the six page note, brought by the Assessing Officer was sketchy and did not cover any of the major points raised in the appraisal report. Detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the Fixed Deposits of Rs. 1.72 crore have been made by transfer entries from any other bank account, or they have been made in cash; and source of income for the deposits. (d) The correctness of the turnover reported by the assessee obtaining the original contract award from the TNIP, as there is a possibility that a few of the cheque received from TNIP could have been encashed at some other bank/place. (e) Complete details of the various immovable properties purchased by the assessee in his name and in the names of his family members to see whether on-money was paid over and above the documents prices; (f) The adequacy of the valuation of Immovable Properties reported by the assessee to be checked, if necessary with a reference to the Departmental Valuation Cell. (g) Genuineness of the purchases, including shandy purchases; and (h) Applicability of the provisions of section 40A(3). The above significant points were required to be examined in great detail by the Assessing Officer, in addition to the specific suggestions mentioned by the ADI in his appraisal report regarding follow up action. 3. A perusal of the draft assessment order brought now by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by him during the block period. (ii) The Assessing Officer should collect details regarding the comparative figures in the case of a similar trader viz., Karnataka Agro Corn Products, Bangalore, who earlier supplied the product to the Government of Tamil Nadu, who is assessed by Company Circle. IV(4), Bangalore. These figures will give a basis for estimating the undisclosed income after taking into account the investments made/expenditure incurred by the assessee. [The D.C. (H.Q.), Bangalore was contacted and requested to fax the P L Account and the Balance Sheet of this company for the Y.E. 31-3-1993, 31-3-1994 31-3-1995, to this office to help the Assessing Officer] (iii) The creditors balance as on 31-3-1994 is Rs. 98 lakhs. The accretion in the creditors balance for the period 1-4-1995 to 17-10-1995 is Rs. 34 lakhs. For the year ended 31-3-1995, where the turnover is as high as Rs. 13 crores, the income has been estimated and assessed at a figure of Rs. 8 lakhs. The Assessing Officer has been directed to ascertain the correct figure of trade creditors as on 31-3-1995 to consider the genuineness of the total of trade creditors reported as on 17-10-1995 at Rs. 2.92 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n October 1995, the assessee has filed the return of income with only a Receipt and Payments Account under the block assessment scheme, only on 7-10-1996, in response to the notice issued under section 158BC as early as July, 1996. Relevant details like Profit and Loss Account and the Statement of Affairs were filed by him only subsequently. Some of the confirmation letters from creditors etc., have been filed even as late as 24-10-1996. The assessee appears to have deliberately filed the return of income and the details in the last minute of the assessment proceedings, so as to thwart any further enquiry/investigation by the department in respect of the details furnished by him. As per his own statement, the assessee makes mainly cash purchases in shandy and from agriculturists through brokers. The balance of trade creditors as on 17-10-1995 is reportedly Rs. 2.95 crores. The assessee does not have any evidence in support of this very huge figure of trade credits. From a few of these alleged creditors the assessee had filed confirmation letters. However, all of these typed letters are in the assessee's letter heads and do not appear genuine. Due to paucity of time, when the Depu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the net profit, after deducting all expenditure including secret commission to certain persons would not be less than 8 per cent, especially when the State Government has made substantial increase in the contract payments to him during the relevant period. Sd/--- Dated : 31-10-1996 Commissioner of Income-tax. Sd/--- Sd. 31/10/1996 DC/SIC/SLM (Representative) Sd. 31-10-1996 Fresh Draft assessment order reed. from Assessing Officer put up. Sd 31-10-1996 ACIT Discussed and approved subject to the memo issued separately. Sd 31-10-1996 Letter to AO DC put up. Sd 31-10-1996 Sd 31-10" ACIT 5. After getting the approval of the Commissioner on 31-10-1996 on the draft order dated 31-10-1996, final order was passed on the very same day viz., 31-10-1996 and this order was also served on the assessee on 31-10-1996. 6. We would like to record that the notes of the Commissioner of Income-tax, Coimbatore dated 29-10-1996 and 31-10-1996 in file C. No. 1429(16)/ 95-96 were brought to our notice by the Senior Authorised Representative of the Department, Shri K. Satyanarayana, during the course of hearing of this appeal on 23rd and 25th June, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-1996. It was further contended that by failure to give hearing by the Commissioner before giving approval to the proposed draft order by the Assessing Officer under Chapter XIV-B of the Act amounts to violation of principles of natural justice and the impugned order therefore requires to be annulled. (5) The impugned order has been passed by the Assessing Officer without application of mind as he has taken into consideration irrelevant factors not germane to computation of undisclosed income as provided in section 158B of the Act. The assessment, therefore, impugned in the present appeal is illegal and requires to be quashed, submits assessee's counsel. Elaborating further, the assessee's Counsel submitted that the draft order was prepared on 31-10-1996 running into 15 typed pages and the Assessing Officer on the very same day alongwith the assessee approached the Commissioner and the Commissioner making an ideal formality of hearing approved the draft order without application of mind and in a mechanical manner and the draft order was again fairly typed on the same day and it was served also on 31-10-1996. The assessee's counsel submitted that these factual events clearly go t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that he completed the assessment without being influenced by the directions of the Commissioner and, therefore, the assessment is perfectly valid and does not require to be cancelled as contended by the assessee's counsel. (iii) Regarding the hearing to be given by the Commissioner before giving approval to the draft order, the Sr. Departmental Representative submitted that it was merely on administrative act and the law also did not postulate giving of any hearing to the assessee before giving approval to the draft order passed by the Assessing Officer. According to the Sr. Departmental Representative, impugned order was therefore perfectly valid and no case made out by the assessee's counsel for cancellation of the assessment or even for the deletion of addition of Rs. 1.68 crores. The Sr. Departmental Representative wanted the dismissal of the assessee's appeal upholding the impugned order. 9. Upon our directions, the Sr. Departmental Representative, Shri Satyanarayana through letter dated 26-6-1997 filed the notes of the Commissioner of Income-tax, Coimbatore dated 29-10-1996 and 31-10-1996 in file C. No. 1429(16)/95-96 and they have been placed on record. After the compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h statement of the assessee has been placed at pages 2 to 11 of the paper book, filed by the assessee's counsel on 25-6-1997. The UDI declared by the assessee in the return was inclusive of Rs. 50 lakhs from out of the expenditure of the block period aggregating to Rs. 1.70 crores. We do not know how the expenditure recorded in the account books though not supported by proper evidence can be UDI as defined in section 158B(b) of the Act. However, we refrain from expressing any opinion in this regard as the assessee himself had admitted in his oath statement on 25-10-1995 under section 132(4) before the ADI that the same is UDI and even in the return filed after the issue of notice to him under section 158BC read with section 142(1) declared the sum of Rs.50 lakhs as UDI. Though the assessee has retracted from the admission through his letter dated 31-10-1996, he has not given enough good reasons for retracting from the voluntary admission and confession made on 25-10-1995 in oath statement rendered on that day before the ADI under section 132(4) of the act. In the absence of any cogent reasons with credible evidence we are unable to believe that the admission was involunatary or und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing further notice under section 143(2) and completed the block period assessment, even under section 144 of the Act as provided in section 158BC(b) of the Act. But he did not do so and waited till the fag end of the limitation period prescribed in section 158BE of the Act. The addition of Rs. 1.68 crores in the impugned order is thus wholly arbitrary and preposterous addition purely based on assumptions and inferences on the basis of the report given by the I.T. inspectors after making enquiries with the 4 creditors only from out of 43 creditors, without putting the report of I.T. Inspectors and the evidence gathered by them to the assessee for answer and rebuttal. 13. If the Assessing Officer had less time at his disposal for making valid and proper enquiries for making assessment he cannot be unfair to the assessee and make unjust and arbitrary addition of Rs. 1.68 crores. In our view, the impugned addition of Rs. 1.68 crores is vitiated on this count and can be declared as illegal. 14. There is one more reason why the addition of Rs. 1.68 crores cannot be sustained. The provisions of Chapter XIV-B have been brought on the statute book by the Finance Act, 1995 for assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, instructions, directions can be given to any IT authority in such proceedings etc. by any stranger/outsider even if such stranger/outsider is higher or highest authority in the hierarchy of the department. If an order is passed or a decision is rendered by an income-tax authority in such quasi-judicial proceeding at the behest of or upon the directions or Instructions, of any superior officer or authority then such an order/decision is illegal and a nullity in law because it shall be deemed in law that such an order/decision is not of that quasi-judicial authority but of some other authority who directed or issued orders/instructions to the lower authority to act and thereafter pass an order/decision in a particular manner. Though there are several decided case laws on the subject we would only refer to and discuss few decisions in this regard as below : (i) The Hon'ble Supreme Court in the case of M. Chockalingam and M. Meyyappan v. CIT [1963] 48 ITR 34 at page 40 have laid down as under : " The authorities acting under the Indian Income-tax Act have to act judicially and one of the requirements of judicial action is to give a fair hearing to a person before deciding agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute according to procedure consistent with the principles of natural justice : he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Section 13 of the Wealth-tax Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of the officers of the department in matters administrative but not quasi-judicial." 17. In the instant ease, the Commissioner of Income-tax, Coimbatore had summoned the Assessing Officer and Range, Dy. CIT on 28-10-1996 and gave directions to the Assessing Officer through written note dated 29-10-1996 in file C. No. 1429(16)/95-96 to conduct enquiry and investigation in the manner desired by her. We have verbatim reproduced elsewhere above in this order the contentions of the said note dated 29-10-1996 of the Commissioner in the manner desired by her from which it is self evident that the Assessing Officer has not acted independently and on his own but has very faithfully and obediently carried out the orders and directions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before them during the course of search operations or during the course of any proceedings before them then we think such statements, admissions and confessions are binding and cannot be retracted, unless and until, we repeat, unless and until it is proved by legally acceptable evidence that such admission, confession or oath statement was involuntary or tendered under coercion or duress. No such circumstances existed or proved to have existed. In saying so we are supported by the observation of their Lordships of the Supreme Court in the case of Surjeet Singh Chabra v. Union of India [1997] 1 SCC 508. We, therefore, cannot come to the rescue of the assessee in ordering deletion of the sum of Rs. 50 lakhs from out of the UDI of Rs. 1,06,92,950, returned by the assessee himself. 19. Since we are holding that the impugned addition of Rs. 1.68 crores is illegal and unwarranted and directing the deletion of the same, we are not going into the finer arguments advanced by the assessee's counsel that hearing should have been given by the Commissioner before giving approval as provided in section 158BC of the Act. From the note prepared on 31-10-1996 by the Commissioner brought on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill in the interest of justice delete from the income to be assessed for the regular assessment for the assessment year 1996-97 the cost of such assets if the same have already been included in the statement of affairs as on 17-10-1995. We think that the assessee might not be fully conscious and wholly conversant with the new provisions of making of assessments in search cases enacted in Chapter XIV-B of the Income-tax Act and he might have agreed at the time of search to offer as income the cost of these assets and perhaps he did not distinguish between the income of the block period and the income of the regular assessment viz., 1996-97. 21. Before closing this case, we would like to mention that neither the Commissioner of Income-tax nor the Assessing Officer have understood in proper legal perspective the provisions of Chapter XIV-B brought on the statute book by Finance Act, 1995. These provisions have been enacted for speedy completion of assessment in search cases where undisclosed income is found or detected as defined in section 158B(b) of the Act. Both the lower tax authorities have proceeded on the Presumption that the block period assessment under Chapter XIVB is like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... typewriters) prepared demand notice, challan and completed other formalities on 31-10-1996 itself and even served the impugned assessment order as well as the demand notice, challan etc. on the assessee on that very same day, that is to say, on 31-10-1996. Very strange and curious but it did happen in this case. As narrated to us by the Assessing Officer who was all along present in the Court Hall at the time of hearing of this appeal assisting the learned Departmental Representative of the Income-tax Department, we hope these strange happenings will not recur. 23. In the result, the appeal is partly allowed with the above directions. Per Kalsian, A.M.: I agree with the conclusion of my ld. Brother recorded in para-19 of the order proposed by him. But I differ from certain observations made by him on the following points : 1. In section 132(4A) there is a presumption that contents of the books of account and other documents found during the course of search in the possession and control of any person are true. This presumption is rebuttable. The assessee can rebut this presumption by producing such evidence which would prove that the entries in the books of account are not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be passed without the approval of the Commissioner. Though the Commissioner cannot interfere with the quasi-judicial functions of the Assessing Officer, but in order to satisfy himself before giving approval the Commissioner is entitled to look into the seized material and find out how that material has been utilised by the Assessing Officer. The Commissioner is not required to accord approval on the proposal submitted by the Assessing Officer in a mechanical or superficial manner, or refuse approval. The approval of the Commissioner is a statutory requirement and, therefore, when Commissioner is required to give approval to the order of assessment to be passed by the Assessing Officer, he is certainly entitled to look into the seized records and other material to find out whether the Assessing Officer has framed the assessment according to the provisions of law and has considered all the material. Otherwise how the Commissioner is going to give approval to the order of assessment to be passed by the Assessing Officer? The power of approval to be given by the Commissioner to the order of assessment to be passed by the Assessing Officer imply that the Commissioner can ask clarific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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