TMI Blog2003 (3) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... said Chapter, on facts and circumstances of the case and as per provisions of law, it be held that the AO erred in considering amount of Rs. 27,50,000 as investment alleged to have been done on account of finance for arranging bogus NRE gifts and holding the same as forming part of the income covered by Chapter XIV-B of the Act in making additions of Rs. 82,500 on account of commission at 3 per cent alleged to have been earned on alleged investment of Rs. 27,50,000 and holding the same as forming part of the undisclosed income, in making addition of Rs. 1,60,000 as undisclosed income on account of amount alleged to be received from Mr. Rajendra D. Mehta till 30th, in making addition of Rs. 4 lacs on account of amount alleged to be received from Rajendra D. Mehta by 15th April, 1994, in making addition of Rs. 4 lacs holding the same as forming part of the income being gifts alleged to have been not genuine in making addition of Rs. 2,52,750 by holding the investment as unexplained stated to have been done in construction of house property, in making further addition of Rs. 18,73,925 holding the same as forming part of the income on account of alleged undisclosed investment in foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 25-9-1997 Additions as per order 30-9-1997 Difference 1. Investment on account of finance for arranging bogus NRE gifts as discussed 27,50,000 27,50,000 2. Commission at 3% on above 82,500 82,500 3. Amount to be received from RD Mehta upto 30th 1,60,000 1,60,00 4. Amount received from RD Mehta by 15-4-1994 4,00,000 4,00.000 5. Income from NRE gifts not genuine 4,00,000 4,00,000 6. Income on account of unexplained investment in construction of house property 2,52,750 2,52,750 7. Undisclosed income on account of investment in foreign exchange - 18,73,925 18,73,925 8. Commission earned for arranging bogus NRE gifts - 4,00,000 4,00,000 9. Commission earned for arranging bogus NRE gifts - 9,00,000 9,00,000 4. Shri Pathak contended that he would first like to make his submissions in relation to additions appearing at Sr. 7, 8 and 9. The learned counsel pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs to patch the weak points of the case. The learned counsel placed heavy reliance on the following decisions: (i) Kasat Paper Pulp Ltd. vs. Asstt. CIT (2000) 69 TTJ (Pune) 924 : (2000) 74 ITD 455 (Pune); (ii) Asstt. CIT vs. Anima Investment Ltd. (2000) 68 TTJ (Del)(TM) 1 : (2000) 73 ITD 425 (Del)(TM); (iii) Smt. Neena Syal vs. Asstt. CIT (2000) 69 TTJ (Chd) 516 : (1999) 70 ITD 62 (Chd); (iv) CIT vs. Jai Prakash Singh (1996) 132 CTR (SC) 262 : (1996) 219 ITR 737 (SC); (v) CIT vs. Bharat Kumar Modi Ors. (2000) 164 CTR (Bom) 273 : (2000) 246 ITR 693 (Bom); (vi) C. Vasantlal Co. vs. CIT (1962) 45 ITR 206 (SC); and (vii) Ponkunnam Traders vs. Addl. ITO Anr. (1972) 83 ITR 508 (Ker). He also drew our attention to the relevant extracts from the Commentary on Income-tax Law by Chaturvedi and Pithisaria Vol. 3, 5th Edn. p. 4845 to support his contention about cancellation of such addition instead or restoring the matter back to the AO. 5. Shri S.U. Pathak submitted that all these additions mentioned at Sr. No. 7 to 9 of the chart which have been made in violation of the principles of natural justice are also devoid of any merit. He drew our attention to the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of Mr. Rajendra D. Mehta, cannot be taxed once again in the hands of the assessee. After the order of the Tribunal in the case of Mr. Rajendra D. Mehta, the addition so made in the hands of the assessee in respect of those very items should be deleted. 6. Shri Pathak, the learned counsel then made his submission in relation to the additions made at Sr. No. 1 to 5 of the said Chart. The learned counsel pointed out that these additions have been made by the AO on the basis of documents found and seized from the possession of the assessee Mr. Prakash Bafna by the Enforcement Directorate (FERA) during the search conducted on 23rd Sept., 1995. A photocopy of the seized documents has been placed at pp. 2 to 32 of the compilation. It was pointed out by the learned counsel that all these additions have been made on the basis of the seized papers a photocopy whereof has been placed at p. 2 of the peper book. The English translation thereof was also submitted during the course of hearing on 25th Feb., 2003 in supplementary paper book at p. 45. The English version as given by the learned counsel of this chit at p. 2 of the paper is reproduced below. "1. R.D. account to be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or providing finance for arranging bogus NRE gift as discussed above, is consequential to the aforesaid addition of Rs. 27,50,000. The submissions in respect of this addition are similar as have been made in respect of the addition of Rs. 27,50,000. 8. The addition of Rs. 1,60,000 at Sr. No. 3 of the chart in relation to the amount alleged to have been received from "R.D. Mehta upto 30th was based on the same said seized paper is also patently wrong, says the learned counsel. He submitted that the contents of the seized paper do not indicate as to whether the amount was to be paid or to be received from Shri Rajubhai. Moreover, it only indicates an intention to pay/receive but does not represent the actual transaction having taken place. He submitted that no tax can be levied on transaction intended to be carried out on a future date. 9. As regards the addition of Rs. 4 lacs mentioned at Sr. No. 4 of the said chart being alleged "amount received from R.D. Mehta by 15th April, 1994," the learned counsel contended that the said seized paper does not indicate whether the assessee had to pay that amount to R.D. Mehta or they have to receive the amount in question from him. As regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de order dt. 5th Jan., 2001, has dropped the penalty proceedings against the assessee. The learned counsel submitted that no reliance should by placed on the aforesaid statement given by the assessee before the FERA authorities. 13. The learned counsel then made his submissions in respect of the addition of Rs. 2,52,750 mentioned at Sr. No. 6 of the chart, which represents the addition made on account of unexplained investment in construction of house property. The assessee had disclosed cost of construction at Rs. 2,74,450. The registered valuer determined the cost of construction at Rs. 2,77,400. The Departmental Valuation Officer (DVO) determined the cost of construction of Rs. 5,27,200. The AO has added the difference between the estimate of cost of construction made by the DVO as compared to the cost declared by the assessee amounting to Rs. 2,52,759. The learned counsel contended that such an addition made on estimate basis would not come within the ambit of undisclosed income defined in Chapter XIV-B relating to assessment for block period. Reliance was placed on the decisions reported as CIT vs. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conducted before 1st Jan., 1997. The learned Departmental Representative placed heavy reliance on the elaborate reasons given in the assessment order. He also pointed out that the CIT has granted the approval to the said draft order and after providing adequate and reasonable opportunity to the assessee. The learned Departmental Representative thus strongly supported the assessment order. 15. We have considered the rival submissions made by the learned representative and have gone through the orders of the learned departmental authorities. We have also perused all the documents submitted in the compilation, to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives of both the sides. 16. The assessee Shri Prakash B. Bafna is one of the partners of the firm M/s Ratandeep jewellers. The other partner in the firm was Shri Raju D. Mehta. The officers of the Enforcement Directorate (FERA) conducted a search at the premises of the assessee on 23rd Sept., 1995. The statement of the assessee was recorded by the officers of the Enforcement Directorate (FERA) in his own handwriting on 23rd Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange from the customer, value equivalent to the cheque and premium on the same at 10-12%." Again on 24th Sept., 1995, further statement of Shri Prakash Bafna was recorded by the officers of the Enforcement Directorate (FERA) and the relevant extracts from the statement recorded on 24th Sept.,1995, are reproduced below: "I have read again my statement recorded at Pune 23rd Sept., 1995. I state that my statement recorded on 23rd Sept.,1995 is true and correct. I continue my statement in writing below. I have been shown and explained in Hindi, the statement of Mr. Raju Mehta recorded on 22nd Aug., 1995 and 23rd Aug., 1995, in English under s. 40 of the FERA. According to Mr. Raju Mehta I used to finance NRE a/cs opened by him and I used to finance funds required for the purpose of purchase of foreign currency illegally from the open market and for depositing such foreign currency in the a/c of P.B. Panwani and Shri J.G. Lalwani and NRE a/cs of other NRIs. It is also written in his statement recorded that foreign currency purchased illegally from open market equivalent to Rs. 1.5 crores in aggregate, out of funds financed by me has been deposited in these NRE a/cs. It is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished photocopy of statement recorded by Enforcement Directorate of (FERA), Mumbai on 23rd Sept., 1995, and you have filed English translation of the same on 15th Oct., 1996. What you have to say about this ? Ans.: I admit the above facts. Q. No. 4: I have shown you chit No. 8 in bundle of papers serially numbered from 1 to 15 received from Enforcement Directorate, (FERA), Mumbai dt. 19th Dec., 1996. In you statement dt. 23rd Sept., 1995, to Enforcement Directorate, (FERA) Mumbai it is stated that this paper is written in your own handwriting. In 6th line of this Chit (document) following words and figures are stated." The assessee contended that the copy of the statement recorded by the AO on 18th Sept., 1997, was not supplied to him. He drew our attention to letter dt. 19th Sept., 1997, placed at p. 197 of the paper book in which Mr. Bafna requested the AO to supply copy of the statement recorded on 18th Sept., 1997. However, the assessee has nowhere stated before the AO nor the learned counsel has stated before us that the extracts reproduced from statement dt. 18th Sept., 1997, in para 9.1 of the assessment order are incorrect. It is, therefore, clear that the facts menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18th Sept., 1997. Thus after a gap of two years, Mr. Bafna had once again admitted that all the facts stated in statement dt. 23rd Sept., 1995 are true and correct and he admits all those facts. Mere submission of a letter at the fag end of the assessment proceedings to the CIT without any evidence to prove the fact of exercise of any coercion or threat by the officers of the Enforcement Directorate or by the AO, has no legal value. Moreover, it was admitted by the learned representatives of both the sides during the course of hearing that various gifts made out of bank accounts of different NRIs referred to in assessment order have offered the amount of such bogus foreign gifts received by them, as income liable to tax and they have paid the taxes on such amounts. The Tribunal in some cases of recipients of such bogus foreign gifts have even sustained penalty under s. 271(1)(c) to the extent of 100 per cent of the tax sought to be evaded by them in respect of such bogus foreign gifts. 19. It may also be relevant here to refer to the extracts of statement of Mr. Bafna recorded in the course of assessment proceedings in the case of Mr. R.D. Mehta. The AO has reproduced the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also pointed out that the material brought on record of Mr. R.D. Mehta were not supplied to the assessee nor any opportunity was granted for cross-examination in relation to such material before placing reliance on all such material while completing the assessment in the case of the assessee. 20. After giving our deep and thoughtful consideration to the entire relevant facts, we are of the considered opinion that the aforesaid case needs further probe and detailed investigation. 21. The request made by the assessee s counsel that the assessment should be annuiled or cancelled or set aside and the matter should not be restored back to the AO for passing fresh order, has no merit in view of the facts and discussions made hereinbefore. It is a case where the involvement of Mr. Bafna (assessee) along with Mr. R.D. Mehta for running a racket of giving bogus gifts out of bogus NRE accounts, appears to be certain. However, it was also necessary that adequate and reasonable opportunity ought to have been given to the assessee in respect of the entire material on which reliance has been placed in the assessment order against the assessee. 22. It may now be relevant to make a useful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or conducting further probe and full investigation. The AO provided a reasonable opportunity which was possible keeping in view the limitation of time. The conduct of the assessee as indicated from the statement recorded by the officers of the Enforcement Directorate (FERA) and by the AO is also extremely relevant. The assessee, after completion of the draft order, has submitted a letter to the CIT, for the first time, one day before the assessment was going to be time barred by limitation stating that the statement was recorded by the Enforcement Directorate (FERA) under threat and ceoercion. In this letter the assessee has not even stated a word about his accepting the same statement once again before the AO in his statement on oath recorded on 18th Sept., 1997. Now, the learned counsel wants that the assessment made under s. 158BC without providing an adequate and reasonable opportunity in respect of some material should be annulled. Such a request by the learned counsel is clearly contrary to the principles of law enunciated from the judgments of the Hon ble Supreme Court and the Hon ble Bombay High Court referred to above. 24. The learned counsel, inter alia submitted that v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the entire funds required by carrying out such racket for arranging bogus gifts out of bogus NRE a/cs. The commission income was shared both by Mr. Bafna and Mr. Mehta. The facts so clearly and categorically mentioned in the statement dt. 23rd Sept., 1995, and 24th Sept., 1995, before the officers of the Enforcement Directorate (FERA) and once again confirmed before the AO in the statement on oath recorded on 18th July, 1995, are important piece of evidence against the assessee. The assessee is, of course, entitled to an opportunity to show that the aforesaid facts are incorrect or that such statements were recorded under coercion or threat. The assessee will have to discharge the burden of proving this by producing clinching and conclusive evidence. Likewise the AO will also have to provide copies of the entire material discussed in the assessment order of R.D. Mehta to the assessee and provide him a reasonable opportunity thereafter to make his submissions in that regard and to submit evidence in rebuttal thereof. It may be worthwhile to mention, that if as a result of further probe and deep investigation, it is found that the entire income or part of such income is rightly ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elaborate submissions with regard to the additions mentioned at Sr. No. 1 to 5 on the basis of paper found and seized from the possession of the assessee during search on 23rd Sept., 1995, by officers of Enforcement Directorate. 26. It has been submitted that the content 27/50 cannot be interpreted to mean that it represents the amount of Rs. 27,50,000 as investment made by the assessee on account of financing the arrangement of bogus NRE gifts. It was also contended that the amount should be read as Rs. 2,75,000 as mentioned by Mr. Bafna in his statement dt. 23rd Sept., 1995, before the FERA authority. It is true that there is no basis of translating 27.50 mentioned in the siezed document placed at p. 2 of the paper book and English translation of the said chit placed at p. 45 of the supplementary paper book. It is pertinent to repeat that the learned counsel appearing for the assessee has admitted before us that the said paper was found from the possession of the assessee during search and contents mentioned in the said sized paper relate to the assessee. He does not dispute that the assessee was the owner of the said paper and the contents thereof relate to him. A careful rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) The AO should prepare a complete list of all the persons who have received such bogus gift through various NRE a/c mentioned in the impugned assessment order. He should also verify from the assessment records of all those persons who have received bogus gifts and find cut as to how many persons amongst them have admitted that those gift cheques/demand drafts are bogus gifts and they have offered that amount as income liable to tax in their hands. A summary thereof and taxes paid on such bogus foreign gifts should be prepared. The fact that large number of these persons who have received such gifts have paid taxes thereon by accepting that such gifts are bogus will support the view of the AO in sustaining the addition in respect of unexplained capital invested by the assessee and commission income derived by them from such illegal activities. (b) The AO should examine some of those persons who have admitted such gifts to be bogus gifts and who have paid taxes thereon in the presence of the assessee and find out as to who are the real persons who arranged such bogus gifts from such NRE a/cs. And how much premium/commission was paid by them. (c) It may also be relevant here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt material discussed in the assessment order of Mr. R.D. Mehta to the assessee and should grant thereafter a reasonable opportunity to make his submissions in that regard and also to lead evidence in rebuttal if any. (j) The AO may also consider the entire evidence including the diary seized from the possession of Mr. Bafna by the Officers of the Enforcement Directorate (FERA) in the light of amended provisions contained in Chapter XIV-B with specific reference to the amendment made in the relevant provisions with retrospective effect. The proviso (b) to s. 158BC now provides that the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BC and the provisions of s. 142, 143(2)(iii), 144 and 145 of the Act so far as may be applicable. The resort to estimation as per s. 145 based on the incriminating documents and material found during the course of search by invoking s. 145 may be justified in view of the facts and circumstances of the case. (k) It may also be imperative to prepare a peak statement of all the bogus NRE a/cs with various banks in the names of all the concerned persons, from whose accounts bogus gifts cheques/DD ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
