TMI Blog2005 (2) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... oom of Smt. B. Surya Prabha. As per the Panchnama neither any cash nor jewellery assets were found or seized. Only following books of account were found and seized: (i) One note book (Vidya Super Delux) cattle computers consisting of 13 pages. (ii) One account book (Kesava) consisting of pp. 1 to 19 and 71 to 173, and (iii) One bundle of loose sheets serially numbered from 1 to 53. 3. The AO issued notice under s. 158BC in the case of Smt. B. Surya Prabha, dt. 11th Nov., 1996, and while in other cases notices were issued as under: ITA No. 177, Authorised Representative, Late B.V.B.S. Prasad, dt. 11th Nov., 1996 ITA No. 180, Smt. B. Madhavi, dt. 11th Nov., 1996 ITA No. 175, Madhavi Finvest (P) Ltd., dt. 17th Jan., 1997 4. As mentioned in the assessment order, notice in the case of Madhavi Finvest (P) Ltd. was issued under s. 158BD while in other appeals it was issued under s. 158BC. After completion of the assessment, the AO vide letter dt. 26th May, 1998 clarified in respect of the group as under: "To be more specific block assessment orders in whose case warrant was issued during search are to be assessed under s. 158BC and block assessment in whose cases warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993-94 IT 5113 31-3-94 1/Kakinada -do- 1994-95 IT 88 30-12-94 3/Kakinada B.V.B.S. 1991-92 WT 451 17-6-92 1/Kakinada Prasad -do- 1992-93 WT 456 17 -6-92 1/Kakinada -do- 1992-93 IT 447 17 -6-92 1/Kakinada -do- 1993-94 IT 5106 31-3-94 1/Kakinada -do- 1994-95 IT 86 30-12-94 3/Kakinada -------------------------------------------------- 7. Mr. B.V.B.S. Prasad, husband of Smt. Surya Prabha, expired on 14th Oct., 1995 and she became the managing director of Madhavi Finvest (P) Ltd. Due to the death of the principal person, Mr. B.V.B.S. Prasad, the regular return for asst. yr. 1995-96 could not be filed in time and in the meantime, the search took place in the case of B. Surya Prabha before the close of the financial year 1995-96. The return for the asst. yrs. 1995-96 and 1996-97 were filed in the case of all the above said four assessees except Madhavi Finvest (P) Ltd. on 10th March, 1997. The note book seized consists of the entries relating to the money-lending activities and agricultural income earned by each of the assessees, the income for which except for asst. yrs. 1995-96 and 1996-97 were alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the cases before us. We find that the additional ground taken by the assessee in all these appeals is a legal ground which does not require the investigation of the facts on record. Since it is a legal ground, we, therefore, respectfully following the decision of Hon'ble apex Court in the case of National Thermal Power Co. Ltd. admit the additional ground of the assessee in each of the case. 11. Now, we will take up each of the appeals. IT(SS) A No. 175/Hyd/1997 : 12. The learned Authorised Representative contended for the additional, ground that the block assessment framed by the AO is void ab initio. There is no material with the AO to initiate proceedings under s. 158BC/158BD. For initiating action under s. 158BC, there must be search in the case of the assessee while for initiating action under s. 158BD, the AO must be satisfied before initiating proceedings on the basis of the material seized that the assessee had undisclosed income. There was no search in the case of the assessee. The search was carried out in the case of Smt. B. Surya Prabha and during the course of the search, no material relating to Madhavi Finvest (P) Ltd. was found. No books of account of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e action required to be initiated. Even in the affidavit in-reply it was not stated that the AO was satisfied and hence issued notice. On the contrary, it revealed that to arrive at a satisfaction, notice was issued and that was clear from the affidavit of the AO. The property, which was referred to, for initiating proceedings had already been disclosed in the return of income. The notices issued under s. 158BD were not valid and were liable to be quashed." 14. The reliance was also placed on the following decisions: (a) Ved Prakash Sanjay Kumar vs. Asstt. CIT (2000) 66 TTJ (Chd) 442 : (2001) 76 ITD 107 (Chd). (b) Smt. Farzana Farooq Desai vs. Dy. CIT (2002) 74 TTJ (Ahd) 507. (c) Suman Dhanji Zalte vs. Asstt. CIT (2000) 68 TTJ (Pune) 273 : (2000) 72 ITD 132 (Pune). (d) Dr. Ajay Kumar Aggarwal vs. Asstt. CIT (2001) 71 TTJ (All) 445. 15. It was further submitted that the assessee did not file any return as there was no business for the asst. yr. 1995-96 while for the asst. yr. 1996-97, due date has not expired. The AO procured the bank statement from the assessee when he filed the reply to the roving enquiries of the AO vide his letter dt. 27th Jan., 1997. Thus, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 5 lakhs, it was submitted that it was a clearing entry through cheque and for which affidavit, duly attested by the notary public, dt. 8th March, 1997 signed by Chandra Sekharan was filed. The copy of the same is available at p. 41 of paper book. For the balance sum of Rs. 4 lakhs and Rs. 1.5 lakhs, it was submitted these funds have come by way of deposit from Maniam Ravi Babu Rs. 1 lakh, Gunnam Sarojini Rs. 1 lakh, Maniyam Shrimullu Rs. 1.5 lakhs, Rs. 50,000 from Endra Venkata Suba Rao, and Rs. 1.5 lakhs from Marini Veeraveni. 17. The confirmations in respect of these parties could not be filed because the AO did not give sufficient opportunity and completed the assessment within 10 days of the reply of the assessee. A request by way of a petition under r. 29 for the admission of the additional evidence was filed requesting this Bench to admit the additional evidence for rendering the substantial justice to the assessee. The learned Departmental Representative did not object to the admission of the additional evidence and was fair enough to concede on the basis of the order-sheet in the assessment file that the assessee was not given proper opportunity to adduce evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no diversion of funds for non-business purposes. No income has accrued to the assessee and, therefore, no interest can be added in the income of the assessee. The reliance was placed on the decision of the Hon'ble Gauhati High Court in the case of Highways Construction Co. (P) Ltd. vs. CIT (1993) 111 CTR (Gau) 143 : (1993) 199 ITR 702 (Gau). 21. The learned Departmental Representative produced the assessment record of the assessee-company and was fair enough to state on the basis of the file of the assessee that no notice under s. 158BD was issued to the assessee. The notice under s. 158BC was for the first time issued on 17th Jan., 1997 as per the order-sheet in the file. The photocopy of the order-sheet was filed before us. The learned Departmental Representative even then relied on the following decisions: (a) Digvijay Cements Ltd. vs. Asstt. CIT (2001) 167 CTR (All) 299: (2001) 248 ITR 381 (All) (b) Rushil Industries Ltd. vs. Harsh Prakash (2001) 166 CTR (Guj) 300 : (2001) 251 ITR 608 (Guj) (c) Y. Subbaraju Co. Ors. vs. Asstt. CIT (2004) 85 TTJ (Bang)(SB) 670 : (2004) 91 ITD 118 (Bang)(SB). 22. It was further submitted on the basis of this decision that neith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chartered accountant appeared and filed part of information. Sd/- Illegible. Sd/- Illegible. 3-3-1997 Sri Sundaram chartered accountant appeared. Information filed is placed on record. Sd/- Illegible. Sd/- Illegible. AO is typed on computer as dictated and put up. DN challan put up. Sd/- Illegible. 20-3-1997. Despatched Sd/- Illegible despatcher." 24. From the order-sheet, it is explicitly clear that no action under s. 158BD was taken against the assessee. Even the order-sheet neither states that search has taken place in the case of the assessee nor the action under s. 158BD was taken on the basis of the material seized in the case of Smt. B. Surya Prabha. The learned Departmental Representative was also fair enough to concede on the query from the Bench that there is no material whatsoever gathered during the course of the search on the basis of which the block, assessment proceedings were initiated against the assessee. From the record produced before us, it is apparent that the AO himself was satisfied that he has wrongly and illegally issued the notices and completed assessment under the impression that the search has taken place in the case of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of s. 158BD. The AO himself realized the legal position and, therefore, subsequently he invoked the provisions of s. 158BD when the assessment has already been completed. 26. The provisions of s. 158BD extend the operation of such provisions to the person who is not searched. Sec. 158BD lays down as under: "Where the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or any assets were requisitioned under s. 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall record (under s. 158BC) against such other person and the provisions of this chapter shall apply accordingly." 27. From the reading of the aforesaid section it is clear that for its applicability following essential ingredients are to be complied with: (a) The AO of the person who was searched should be satisfied. (b) That there is undisclosed income unearthed during search belonging to the person other than the one who was searched. (c) The books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court has held that there was no requirement in s. 158BD of affording opportunity of hearing to a party before recording satisfaction and that it was evident from the order of the Tribunal that Dy. CIT, Amritsar, was satisfied that the undisclosed income mentioned in the seized documents pertained to the assessee. This case will not apply to appeal before us, as in the case before us, there is no material seized during the course of search pertaining to assessee. Therefore, there cannot be any satisfaction that the assessee derived undisclosed income. Even AO issued notice under s. 158BC not under s. 158BD. 30. Coming to the case of Rushil Industries Ltd. vs. Harsh Prakash, we find that this case will also not assist the Revenue. In this case, when by way of petition under Art. 226 of the Constitution, notice dt. 29th Aug., 2000, issued by the Jt. CIT under s. 158BC r/w s. 158BD was challenged, the Hon'ble High Court has held that the bare reading of the provisions of s. 158BD showed that for taking action under the said section, the AO was merely required to be satisfied that the books of account or other documents or assets found in the search showed undisclosed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son under the provisions of this chapter. On the basis of the search material in the possession of the AO of a person who is searched, he must come to a prima facie view that undisclosed income belongs to other person. If the satisfaction of the AO that undisclosed income belongs to other person is justifiable the authorities when called in question, cannot escape to demonstrate the material that led to the satisfaction that undisclosed income of other person has been detected by the Department as a result of search. If the Department, for any reason, has no material whatsoever to come to that view, the proceedings under s. 158BD would have to be dropped because the very foundation for the assumption of jurisdiction becomes non-existent. Although the judicial authorities are not entitled to go into the sufficiency of the reasons, the existence of the reasons for satisfaction can always be gone into by the judicial authorities. In the instant case, there was no iota of material to show that there was undisclosed income. When such was the case, the satisfaction that the undisclosed income belonged to such other person was wanting. When that was the case, the entire proceedings fram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not vitiate the proceedings. (para 11). Thus, in the instant cases, the examination of the records did not show the existence of any material for the satisfaction and, consequently, issuance of notice under s. 158BD was not justified. The assessment orders passed in pursuance thereof were vacated (para 12). In the result, all the appeals were to be allowed. (para 13)." 32. This case we find is squarely applicable to the case of the assessee. In case the AO treats that the assessment has been completed in pursuance of notice under s. 158BD, as in impugned case there was no material in existence for initiating action under s. 158BD. Similarly there is no material in existence for taking action under s. 158BD rather the Revenue has fairly agreed that there is no material found as a result of search in the case of the assessee which may point out the undisclosed income of the assessee. The decision of the Special Bench is binding before us. The decisions relied on by the learned Authorised Representative of the various Benches of Tribunal have also taken the view that if there is no material found as a result of the search which may pinpoint the existence of undisclosed income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of M/s Golden Agro Tech. Industries Ltd., so that the Benami shareholdings of the promoters can be sold at higher rate. However, as the share prices fell down below the par the assessee loaded with the shares purchased at heavy premium for which there was no market. Under these circumstances, Rs. 45,00,000 was taken as loan from M/s Golden Agro Tech. Industries Ltd. The assessee did not repay the loan taken from the Vysya Bank. However, while repaying the loan the said cash credit was taken by the assessee. Since no satisfactory information was offered except stating that this cash credit represents repayment of the loan given, it was decided to bring the amount of cash credit of Rs. 35,50,000 to tax for the block asst. yr. 1996-97. Page 39 of the paper book consisting of letter dt. 10th March, 1997 showing the details for the sum of Rs. 13,00,000, Rs. 8,00,000, Rs. 5,00,000 and Rs. 4,00,000 proves the confirmations were duly filed. The same are available from pp. 39 to 67 of the paper book, and were duly verified by the AO. For a sum of Rs. 4,00,000 and Rs. 1,50,000 which were received on 1st March, 1996 and 2nd March, 1996, the evidence has been first time filed before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of the search. Only on this ground it is liable to be deleted as it cannot be considered during block assessment. 38. We have gone through the decision of Hon'ble Gauhati High Court, we find that the case of the assessee is duly covered by the decision of said High Court, in which the Hon'ble High Court, when the interest-free loan were given to the directors from the amount borrowed on interest has held that notional interest can be assessed to tax although the disallowance of the interest may be justified. No contrary decision, has been brought to our notice by the learned Departmental Representative. We therefore, respectfully following the said decision delete the addition of Rs. 1,62,575 made by the AO towards presumptive income. 39. In the result, the appeal of the assessee is allowed. ITA 176/Hyd/1997 40. The learned Authorised Representative contended that there was no material found during the search and seizure, which may pinpoint the undisclosed income of the assessee. The additions are made merely on the basis of presumptions, conjectures and surmises. No doubt there was search in the case of the assessee, which took place on 22nd March, 1996 but no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing decisions: 1. Continental Commercial Corporation vs. ITO Anr. (1975) 100 ITR 170 (Mad) 2. P. V. Doshi vs. CIT (1978) 113 ITR 22 (Guj) 3. CIT vs. Kurban Hussain Ibrahimji Mithiborwala 1973 CTR (SC) 454 : (1971) 82 ITR 821 (SC) 42. For the proposition that the transactions do not fall under the purview of the provisions of Chapter XIV-B where these are recorded in the regular books of account, in the absence of any material to show that these transactions are bogus, the reliance was placed in the case of CIT vs. Gom Ind. Ltd. (2002) 176 CTR (MP) 527 : (2002) 257 ITR 78 (MP). 43. For the proposition that the transactions disclosed in the return, which were the subject-matter for regular assessment, cannot be considered in block assessment, the reliance was placed on the following cases: 1. Monga Metals (P) Ltd. vs. Asstt. CIT (2000) 67 TTJ (All) 247 2. CIT vs. Vikram A. Doshi (2002) 256 ITR 129 (Bom) 44. Relying on the decision of Ravi Prakash Agarwal (HUF) vs. Asstt. CIT (2000) 67 TTJ (Del) 234, it was submitted that unless some material is found which is not recorded in the books, no addition can be made in block assessment. Further submitted that the AO c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition of site at Kakinada, firstly it was contended that this does not satisfy the condition laid down in s. 158BB(1). This addition was made on the basis of the receipts and payment account as well as statement of affairs as on 31st March, 1996 filed by the assessee after the search and does not relate to the material/evidence found during the course of search. Our attention was drawn to the receipt and payment account in which investment in house at Kakinada is shown at Rs. 6,50,000. These payments were made through cheques drawn on Andhra bank, the copy of bank account given at p. 149 of the paper book. No doubt following entries appear at the credit in August, 1995 (not in April, 1995): 19-8-1995 Cash 1,50,000 By Transfer 2,50,000 By Transfer 2,00,000 46. The cash was deposited out of amount realized from debtors amounting to Rs. 1,26,500 and Rs. 25,000 interest received from debtors. The assessee was engaged in the money-lending business is not disputed and the money advanced was received back and deposited. This fact is self-explained from the receipt and payment account. No query or question for the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings in the case of B. Ravi Prasad were dropped. No evidence or material to counter the assessee's version was brought on record. The cash less than Rs. 50,000 is not considered as asset for wealth-tax purpose. Thus, keeping in view the family status and fact some cash has to be kept at house, the addition should have been deleted. 48. The learned Departmental Representative did not advance any argument except relying on the-assessment order. On a query from the Bench, the learned Departmental Representative clarified that the additions for the asst. yrs. 199596 and 1996-97 were made on the basis of bank statement collected subsequent to the search during block assessment proceedings. 49. We have considered the rival submissions and perused the material on record and also the order-sheet as well as the block assessment file as was put up by the learned Departmental Representative. We have gone through the case laws relied on from both the sides. First, we would like to deal with the additional ground of the assessee, which relates to the validity of the assessment made by the AO. From the copy of the assessment order, it is clear that the assessment in this case was comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und as a result of search. During the asst. yr. 1996-97 additions made are also not related to the material found during the course of the search. The additions are based on the basis of the bank statements and the receipt and payment account filed by the assessee in the course of block assessment proceedings. Chapter XIV-B which consists of s. 158B to s. 158BH was introduced by the Finance Act, 1995 w.e.f. 1st July, 1995 to make procedure of assessment of cases in which search is initiated under s. 132 or where books of account, other documents or any assets are requisitioned under s. 132A. The chapter is titled 'special procedure for assessment of search cases'. The scheme of block assessment enacted under this chapter laying down procedure for the block assessment proceedings is intended by the legislature to operate simultaneously with the normal and regular scheme of assessment indicated under Chapter XIV of the IT Act. Both the tax schemes are independent of each other and they are mutually exclusive. Block assessment under Chapter XIV-B is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to material unearthed during search. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis for computation of undisclosed income. 53. On the basis of the aforesaid legal provision, we are of the firm view that the income which the assessee had duly disclosed in the regular assessment and the books relating thereto not showing any unearthed income and the returns and documents filed by the assessee subsequently will not entrust the jurisdiction on the AO to make assessment under Chapter XIV-B. The learned Departmental Representative has not brought out before us from the file of the assessee that the AO on the basis of the evidence found as a result of search unearthed any undisclosed income. The income detected by the AO on the basis of the returns, evidence and material filed by the assessee during block proceedings are not relatable to the evidence found as a result of search and may be a subject-matter of regular assessment but cannot be considered as part of the block assessment. In the case of CIT vs. Ravi Kant Jain, the Hon'ble Delhi High Court has held that a block assessment under Chapter XIV-B of the Act is not intended to be a substitute for a regular assessment, that its scope and ambit is limited in that sense to materials unearthed during the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be the undisclosed income in view of cl. (ca) of sub-s. (1) of S. 158BB. Therefore, the addition made .for the interest income and agricultural income for the asst. yrs. 1986-87 to 1994-95 stand deleted. For the asst. yr. 1996-97, since the income was earned from the same source, i.e., the interest from money-lending business and also from the agricultural land, the return for the assessment year was not due till 22nd March, 1996 when the search took place, the source of such income was already disclosed in the earlier assessment years. This income on the basis of the return filed by the assessee after the search cannot be regarded to be the undisclosed income of the assessee. This was the income, which was disclosed in the regular return and was subject-matter of the regular assessment. No material was pointed out by the learned Departmental Representative, which may point out that this income was based on the bogus transactions. This income may be a part of regular assessment but cannot form part of the undisclosed income. The income was duly disclosed in the return filed although subsequent to the search as the due date of filing the return had not expired. There is, no wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order are stated that the sources for the amount was said to be loans from Smt. P. Vankayamma and Shri P. Brahmaji but no confirmation letters from these parties were filed and no address was given for further verification. The sum of Rs. 1,50,000 was added as the assessee did not submit proper explanation and in his reply dt. 16th Jan., 1997, the assessee stated it is out of the compensations received on account of death claims. We have gone through the letter dt. 16th Jan., 1997, we find that this letter was submitted by the assessee in reply to the letter of the AO dt. 2nd Jan., 1997 in which under para VI, the AO asked the assessee to explain the sources for the cash credited in his account with Andhra Bank and the assessee in reply thereto submitted that most of the credits in the said account is received on account of realization and compensations received on account of death claims of my late husband and also amount received from M/s GATIL by way of salary, car hire, etc. She further stated that she had applied to the bank to supply her account copy and soon after the transactions with the said bank. The AO carne to know about the loan from Smt. P. Vankayamma and Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO in our opinion was not correct in law in adding as undisclosed income of the assessee in accordance with law. The AO is free to consider these entries in the bank account in the regular assessment of the assessee. Thus the ground of appeal relating to the addition of Rs. 4,50,000 and 1,50,000 are allowed and both the additions made are deleted. 60. The last issue relates to the addition of Rs. 36,655 for the asst. yr. 1996-97. The AO made the said addition on the basis that there was no withdrawal from the bank account in the month of March by the assessee. The AO in our opinion ignored the fact that there were three assessees putting up together, where the search has taken place and out of the cash in hand shown by the assessee on 31st March, 1996 only Rs. 7,028 belong to the assessee, Rs. 14,729 relate to the HUF and Rs. 19,950 relate to Shri B. Ravi Prasad son of the assessee, in whose case proceedings for block assessment were dropped by the Department keeping in view of the quantum of cash, status of the assessee and the fact that no wealth-tax is payable on the cash upto Rs. 50,000. In our opinion the AO was not correct in law in making this addition merely on presumpti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch. Even no material pointing out the undisclosed income of the assessee was either found during the course of the search, which may justify issuance of the notice even under s. 158BD. Attention was drawn to p. 11 of the paper book which consists of a letter addressed by the AO to the assessee dt. 2nd Jan., 1997 in which the AO asked for the information regarding the Madhavi Finvest (P) Ltd. and also cash deposits made and credited to the Madhavi Finvest.(P) Ltd. account. The letter was addressed to the assessee as director of Madhavi Finvest (P) Ltd. It is only the following query which relates to the personal income of the assessee which is reproduced as under: "The following amount are credited to the account of Madhavi Finvest (P) Ltd. with SBI account No. 091/5238 Date Amount 4-11-1995 Rs. 1,20,000 4-11-1995 Rs. 80,000 20-12-1995 Rs. 50,000 Please explain the source for the credit reflected in the account of Madhavi Finvest (P) Ltd. and also in your personal account. You may please note that in the absence of satisfactory explanation these cash deposits are liable to taxed as per the provisions of s. 68 of the IT Act." 65. The learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . yr. 1996-97, it was stated that the receipt and payment account filed along with the return duly disclosed the sources for the investment in the house at Kakinada amounting to Rs. 8,50,000. The sources thereof were a loan of Rs. 1.50,000 from the mother of the assessee and Rs. 1,00,000 from the brother of the assessee, the assessee has also received gifts amounting to Rs. 5,26,122 at the time of marriage. The confirmation and the details of gifts received were duly filed before the AO, the copy of which was filed before us in the paper book from pp. 69 to 164. For a sum of Rs. 2,50,000 it was submitted that the AO made the double addition on the one side, the AO added investment of Rs. 8,50,000 for which the source was explained to be of Rs. 2,50,000 - Rs. 1,50,000 as loan from the mother and Rs. 1.00,000 as loan from her brother. The AO made the addition of Rs. 8,50,000 as well as for Rs. 2,50,000 Le., both investment and source of the investment. The AO has wrongly observed that the assessee has not filed any IT return, the assessee even filed block return also, the copy of which was filed at p. 13 of the paper book in which the undisclosed income was shown at nil. The AO compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment file of the assessee put up before us by the learned Departmental Representative on our direction. We have also gone through the legal luminaries cited before us. We find that the facts on record in this case are similar to the facts in the case of Madhavi Finvest (P) Ltd. ITA 175/H/1997. In the order-sheet also we find that the notice under s. 158BC was issued in the case of the assessee not under s. 158BD. Even we do not find any mention on the order-sheet about the material, which would have been found during the course of the search on the basis of which the AO would have formed the prima facie satisfaction for initiating action under s. 158BD. The order-sheet upto the date of the assessment order is reproduced as under: "11-11-1996 The case is notified under s. 127 of the IT Act. Search was conducted on Golden Agro Tech Ind. Ltd., on 22nd March, 1996. Notice under s. 158BC put up Sd/ - Illegible Sd/ - Illegible 2-1-1997 Letter to the A put up. Sd/- Illegible Sd/- Illegible 16-1-1997 As Authorised Representative Sri V.V. Sundaram, chartered accountant, along with Sri Ramprasad appeared and the case is heard. Sd/ - Illegible Sd/ - Illegible 17 - 1- 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endorsing our finding given under in that case hereinabove, we quash the block assessment order passed in the case of this assessee also. 71. Now coming to the merits of the case, since the learned Authorised Representative vehemently contended that this Bench should give finding in view of the fact that in case the order of the Tribunal is set aside on the legal issue, the assessee may have not to come again to decide the issue on merit. We, therefore, give our finding on the issue relating to the grounds taken on merits also for the disposal of all the grounds of appeal. 72. The assessee was a regular assessee and investment of shares in GATIL were duly disclosed during the asst. yr. 1993-94 amounting to Rs. 2,00,000 in the regular return of the assessee, a copy of which was filed before us. In our opinion, this income, which has already been disclosed in the regular assessment, cannot be regarded to be the undisclosed income under Chapter XIV-B in view of the definition under s. 158B(b). We therefore, delete the addition of Rs. 2,00,000 made in the asst. yr. 1993-94 by adopting the reasoning given in paras 55, 56 and 57 hereinabove. Similarly, the addition of Rs. 1,00,000 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of completion of the assessment and filing of the return was not due as on the date of the search in the case of the mother of the assessee. The assessee has also filed the receipt and payment account, and from the receipt and payment account it is apparently clear that the assessee has received the money as under: (a) Realization debts Rs. 50,000 (b) Interest received from debtors Rs. 9,000 (c) Loan from mother Rs. 1,50,000 (d) Loan from brother Rs. 1,00,000 (e) Marriage gifts received Rs. 5,26,112 75. The AO made separate addition for a sum of Rs. 2,50,000 in respect of the loan from the mother and the brother, which have been made under s. 68 of the IT Act. So far the gifts are concerned, we find that the assessee has filed the details of list showing the names of the donors and the details of the gifts received by the assessee. The copy of such details of the gifts, are given from p. 149 onwards. Some of the gifts consisting of Rs. 20,000, Rs. 20,000, Rs. 25,000, Rs. 25,000, Rs. 30,000, Rs. 30,000, Rs. 30,000 and Rs. 20,000 were received by the assessee through demand drafts from her close relatives. The relation has also been mentioned at p. 149 of the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted. 76. Coming to the addition of Rs. 2,50,000, we find that this amount consists of two loans i.e., Rs. 1,50,000 from her mother and other Rs. 1.00,000 from her brother. The loans were used as source investment in the purchase of house property amounting to Rs. 8,50,000. Since we have already deleted the addition of Rs. 1,50,000 being loan given by the mother of the assessee and Rs. 1,00,000 in respect of the loan from her brother, in our opinion, the AO has made this addition twice, once while considering addition of Rs. 8,50,000 as undisclosed investment and the other when the assessee received loan as source of Rs. 8,50,000, thus the addition has to be considered only once, we, therefore, delete the addition of Rs. 2,50,000. 77. Thus, the appeal of the assessee is allowed. IT(SS)A No. 177/Hyd/1997 78. In this case also in respect of the additional ground, the learned Authorised Representative relied on the submissions already made in ITA No. 175/H/1997 and ITA No. 180/H/1997, as the facts in this case, relating to the issue of the notice under s. 158BC without issue of search warrant and without invoking provisions of s. 158BD, are similar as were in those cases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut invoking s. 158BD. There was no search in the case of B.V.B.S. Prasad, HUF. In view of our finding in ITA No. 175/H/1997 under paras 23 to 36 hereinabove, we allow the additional ground of appeal and quash the block assessment proceedings. 81. We may also like to mention in this case that although the block assessment proceedings are against the HUF i.e., B.V.B.S. Prasad, HUF, which consists of two members, Smt. B. Surya Prabha and Shri B. Ravi Prasad. The assessment has been framed by the AO in the name of Sri (late) B.V.B.S. Prasad through legal representative, Smt. B. Surya Prabha, mentioning the status as HUF by issuing the notice under s. 158BC addressed to "Authorised Representative" of late Shri B.V.B.S. Prasad. The notice issued itself is illegal as in the case of the HUF, the notice has to be issued as per s. 282(2) on the Karta or the adult member of the family. The proceedings cannot be initiated by issuing the notice on the Authorized Representative. Thus, the block assessment proceedings in our view are illegal and void ab initio in the absence of valid notice and valid service thereof. After the death of Sh. B.V.B.S. Prasad, his eldest son, Sh. B. Ravi Prasad bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter, that it was they who had invested their own funds in the promoter quota of M/s Golden Agro-Tech Industries Ltd. All the promoters had required and sufficient resources such as agricultural income, dairy income, etc. to invest in the promoters quota of the said company. It was an admitted fact that the assessee Shri B.V.B.S. Prasad had expired on 14th Oct., 1995, i.e., much earlier to search operation. The relevant share certificates had been found in the suitcase in a flat belonging to Shri Ramakrishna at Hyderabad on 22nd March, 1996. Mr. Ramakrishna was not a family member of the assessee. The assessee used to live in Kakinada and not at Hyderabad where the said share certificates had been found in a flat belonging to a very distant relative of the assessee. In a deposition taken by the search officials at the time of search operations from Smt. Hymavathi, wife of Sri Ramakrishna at Hyderabad, there was no allegation that the said suitcases had been given to her by the assessee. She also stated that Mr. B. Ravi Prasad had given the suitcases for safe custody. Neither Shri Ramakrishna nor his wife Smt. Hymavathi had deposed that it was the assessee who had given the said su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uram 85. The following promoter-shareholders of the said company had given written statements before the learned IT Inspector, office of the Asstt. CIT, when he examined the following persons at their places of residences in East Godavari District in February, 1997, that they had invested their own funds in the promoters quota of the said company: 1. P. Veerraju 2. Sri P.V.V. Satyanarayana 3. Sri E. Veerraju Chowdary 4. Sri P.S. Prabhakara Rao 5. Sri M. Bramhaji 6. Sri P.S. Prabhakara Rao 7. Smt. A. Surya Prabhavati 8. Smt. M. Papa 9. Smt. M. Nagamani 10. Sri Y. Macharrarao 11. Sri Y. Ramarao 12. Sri Y. China Krishnammurthy 13. Sri B. Veera Venkata Rao 14. Sri I. Subbarao 15. Smt. Y.V.V. Lakshmi 16. Sri M. Butchiraju 17. Smt. R. Satyavathi 18. Smt. P. Papayamma 19. Smt. V. Veerayamma 20. Kum. V. Usha Anantha Padamavathi 21. Sri B. Venkateshwara Rao 22. Sri B. Veera Raghavulu 23. Sri P. Venkata Rao 86. The learned Authorised Representative also stated that the rest of the promoters could not personally attend to Hyderabad due to travelling from their own villages in East Godavari District in response to the summons issued by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odavari canal waters. All the promoters had other sources of income also such as diary incomes. Therefore, the promoters could satisfactorily explain the sources of their investments in the said company. 88. The learned Authorised Representative alleged (sic-oppugned) the observation of the learned Asstt. CIT that the promoters had not ever claimed their rights to the share certificates and the promoters were not aware of the fact that the share certificates had been pledged. The learned Authorised Representative submitted that it was not correct, as all the promoters had claimed their right to their share certificates in the said company. The promoters had given the share certificates to the officials of the company for the sake of pledging their certificates for obtaining loans for the business of the company and also to sell their shares if there has been an increase in the market rate of shares of the company as per the statements given by them to the IT Inspector of the office of the Asstt. CIT when he had examined them in the premises of the shareholders. 89. Regarding the allegation of the learned Asstt. CIT that there were variations in the signatures of the promoter-sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full of share certificates. Please tell how is it that they are in your residence? Ans. The shares certificates do not belong to me. Mr. B. Ravi son of Mr. B. Prasad has kept the share certificates in our flat. At the time of keeping the share certificates Mr. Ravi told us that since they are going to Kakinada they want to keep the share certificates in our flat. At the time of keeping two suitcases they only told us that the two cases contain some papers relating to the factory Golden Agro- Tech. We do not know about the share certificates. Since he is our relative, we allowed him in keeping the share certificates in our flat. Mr. B.V.B.S. Prasad has expired since two months back because of some medical problem. After that nobody came to take the share certificates from us. The share certificates are lying here since last two months." 92. On this, the statement of Shri B. Ravi Prasad was recorded under s. 131. The relevant portion of his statement is reproduced as under: Statement of B.B. Ravi Prasad recorded on 25th March, 1996 under s. 131 of the IT Act, 1961 "Q. NO.5 Under what circumstances shares of Golden Agro-Tech Ind. Ltd. was kept by you at the residence of Mr. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplex, Masab Tank, Hyderabad and under what circumstances these were found, at his residence? Ans. The suitcases contained the following: ------------------------------------------------- 1. Boddu Venkatalakshmi 13,600 Shares ------------------------------------------------- 2. Balusu Veerarnma 5,000 Shares ------------------------------------------------- 3. Y. Ramana Chowdary 12,000 Shares ------------------------------------------------- 4. V.V.V.N. Mohan Rao 6,500 Shares ------------------------------------------------- 5. Y. Surya Kumari 10,000 Shares ------------------------------------------------- 6. V. Trimuruthulu 4,500 Shares ------------------------------------------------- 7. P. Abbulu 2,650 Shares ------------------------------------------------- 8. S. Subba Rao 4,050 Shares ------------------------------------------------- 9. K. Ramakrishna 50 Shares ------------------------------------------------- 10. K. Krishnamurthy 50 Shares ---------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VeeravenkataSatyavathi 10,000 Shares ------------------------------------------------- 35. B. Vijaya Kumari 5,000 Shares ------------------------------------------------- 36. Y. Kanaka Srinivasrao 10,000 Shares ------------------------------------------------- 37. P. Madhavi Pramila 10,000 Shares ------------------------------------------------- 38. B. Rama Tulasi 5,000 Shares ------------------------------------------------- 39. Y. Varahalamma 10,000 Shares ------------------------------------------------- 40. Y. Usha 15,000 Shares ------------------------------------------------- 41. E. Veeraraju 10,000 Shares ------------------------------------------------- 42. V. Pattabi Rama Rao 1,000 Shares ------------------------------------------------- 43. E. Ananthalaxmi 10, 000 Shares ------------------------------------------------- 44. E. Janakiratnam 5,000 Shares ------------------------------------------------- 45. V. Subrahmanyam 10,000 Shares ----------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . P. Suryanarayana 10,000 Shares ------------------------------------------------- 70. M. Venkatlakashmi 5,000 Shares ------------------------------------------------- 71. M. Lakshmi 10,000 Shares ------------------------------------------------- 72. K. Ammaji 10,000 Shares ------------------------------------------------- 73. Y. Narayana Murthy 10,000 Shares ------------------------------------------------- 74. Y. Papa Rao 5,000 Shares ------------------------------------------------- 75. K. Chakra Rao 5,000 Shares ------------------------------------------------- 76. E. Rama Rao 5,000 Shares ------------------------------------------------- 77. B. Ramakrishna 5,000 Shares ------------------------------------------------- 78. P. Ramakrishna 40,000 Shares ------------------------------------------------- 79. P. Mahalaxmi 10,000 Shares ------------------------------------------------- 80. B. Madhavi Devi 7,000 Shares ------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st us in shifting these suitcases since at a time only one suitcase was shifted and the driver kept a vigil over the other suitcase in the car. Q. NO.7 Who was available at the residence of Mr. K. Ramakrishna and whether he was aware of your intention of shifting the suitcases to his residence? Ans. Mr. K. Ramakrishna was not available at the residence when reached his flat with one suitcase along with the auto drivers. Further, he was not aware of the fact that I am bringing the share certificates. I waited for about one hour before he came alone. The second suitcase was brought by the driver and we waited outside the flat for one hour. Q. NO.8 Are you sure that these suitcases did not contain any other material other than those specified by you in response to Q. NO.5? Ans. Yes. I am sure that these suitcases did not contain anything else. I had locked these suitcases and retained the keys with me when I handed over these suitcases to Mr. K. Ramakrishna." 94. We find again the statement of Ramana Chowdary was recorded, the relevant portion of the same is reproduced herewith: Statement of Mr. Y. Ramanna Chowdary recorded on 29th March, 1996 under s. 131 of the IT Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in his books of account. Even from the records produced before us, we found no explanation was asked for-by the assessee from the assessee-HUF. The letters were issued by raising the queries either to Smt. Surya Prabha, Authorised Representative of Shri (late) B.V.B.S. Prasad, Golden Agro-Tech Industries Ltd., and managing director thereof. The learned Departmental Representative was also not able to produce any letter calling (for) explanation from the assessee during the course of lengthy hearing. Sworn statements of 12 persons were filed before the AO but he did not bother to counter those persons by cross-examining, in their sworn statements they have stated that they have invested the money. In our view, if the AO wanted to reject the sworn statement/affidavit, he must have cross-examine these parties. Our said view is supported by the decision of Hon'ble apex Court in the case of Mehta Parikh CO. vs. CIT (1956) 30 ITR 181 (SC). We are also of the view that no addition can be made in the hands of the assessee without giving him the opportunity. From para 3.8 of the assessment order also it is explicitly clear that the AO computed the income in the hands of the legal repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee in the course of block assessment proceedings do not satisfy the condition prescribed in s. 158BB(1). These can be looked into during regular assessment proceedings but not in the block assessment proceedings. The addition of Rs. 6,00,000 for Madhavi Finvest was made on the basis of the information gathered after the search from the said company and no opportunity was given to the assessee to explain these additions. The reliance was vehemently placed in the case of V.L. Dutt vs. CIT 1976 CTR (Mad) 210: (1976) 103 ITR 634 (Mad) at p. 648. The reliance was also placed on the cases as relied in the case of Smt. Surya Prabha. The reliance was also placed strongly on the judgment of Dr. (Mrs.) Surjit Tosaria vs. Jt. CIT. The copy of the bank account and the IT returns were tiled in the course of block assessment and, therefore, cannot be considered either as evidence found as a result of the search and, therefore, addition in respect thereof should not be sustained. The learned Departmental Representative relied on the order of the AO. 97. We have considered rival submissions in respect of the issue relating to the interest income from money-lending activity and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich may point out that this income was, based on the bogus transactions. This income may be a part of regular assessment but cannot form part of the undisclosed income. The income was duly disclosed in the return filed although subsequent to the search as the due date of filing the return had not expired. There is no evidence which may suggest that the assessee would not have disclosed this income for income-tax purposes. Rather by filing the return, the intention of assessee of disclosing this income is proved. The provision of s. 158B(b) which defines the 'undisclosed income' in, our opinion is also a charging provision as any income which can be assessed under Chapter XIV-B have to be first 'undisclosed income'. Sec. 158BB deals with the computation of undisclosed income of the block period but it cannot override the S. 158B(b). If there is any conflict between the charging and computation provision, the charging provision of S. 158B(b) will prevail. The assessee has shown the income from the source from which he was regularly getting the income. This income on the basis of the return even if filed late cannot be regarded to be the undisclosed income and such income in our view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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