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TMI Blog2012 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... cific directions of the Hon'ble ITAT; 3. That on the facts and circumstances of the case and in law, the ld. CIT (Appeals) has erred in confirming the action of the AO, to the undisclosed income on account of alleged undisclosed expenditure for the block period at Rs.3,82,66,276/-. Observations made, inferences drawn and finding recorded in this regard, are uncalled for, and without any basis besides being illegal; 4. That on the facts and circumstances of the case and also in law, the ld. CIT (Appeals) has erred in confirming the action of the AO in making addition as undisclosed income on account of alleged suppression of receipts and inflation of expenses to the extent of Rs.1 crore; 5. That on the facts and circumstances of the case and also in law, the ld. CIT (Appeals) has erred in upholding charge of interest under section 220(2) of the Income Tax Act, 1961 which is patently illegal; 6. That the appeal order dated 16-03-2011 as passed by the ld. CIT (Appeals) Meerut is arbitrary, erroneous and unlawful since the evidences and submissions available on record have not been appreciated in the right perspective and hence deserve to be quashed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co.; (ii) Annexure LP-1 - Loose papers related to M/s. Jeet Construction Co. (3) 187-A, Abu Lane, Meerut, business premise of M/s. Jeet Construction Co. following annexures were seized" 5. The assessing officer in respect of entries recorded in the seized document observed as below: "(i) Annexure A-1: It is the cash book from 1/04/2001 to 31/03/2002. The cash books is not fully written. The opening balance as on 1/04/2001 opening cash balance is not mentioned. Some entries are made upto 8/06/2001; Annexure A-2: Are the computerized accounts of M/s. Jeet Construction Co. The opening cash balance on 1/04/1997 is shown Rs.1,96,400/- and closing balance on 31/03/1998 Rs.41,286/-. It also contains Journal register from 1/04/1997 to 31/03/1998, purchase register from 3/04/1997 to 10/03/1998, bank accounts and all ledger accounts; Annexure A-3: Ledger of M/s. Jeet Construction Co. from 1/04/2001 to 31/03/2002. Only some entries are made on page 33, 34, 46. This is not complete. Annexure A-4: Computerized Account book of M/s. Jeet Construction Co. from 1/04/1999 to 31/03/2000. The opening cash balance on 1/04/1999 is Rs.77,862/- and closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period and estimated the income at Rs.51,44,968/-. The assessing officer made the addition of Rs.51,44,968/- without giving credit to the income already returned/assessed. 7. The assessee preferred appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) vide his order dated 13/08/2007 in Appeal No. 360/2006-07 deleted the addition of Rs.51,44,968/- on the ground that provisions of section 44AD were not applicable to the facts of the assessee's case. Mere non-verification of expenses because of non-availability of the vouchers could not by itself be a ground for making an addition and more so, in any case in block assessment. There was not even a single paper in the entire seized documents, which could establish that the assessee had either suppressed the contract receipts or has claimed fictitious expenses. Assessment for Assessment year 1998-99 had been completed under section 143(3) after detailed scrutiny wherein trading/book results had been accepted. The AO had not failed to establish any inflation of expenses vis-à-vis seized document, but had also grossly erred in invoking section 44AD of the Act which in terms did not apply in assessee's case as it had mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of the assessing officer to be reexamined and re-decided in the light of this observation." 10. From the decision of the ITAT it is clear that the issue has been set aside to the file of the assessing officer with the directions to compute the income under section 158BD (1) and decide the issue of un-explained expenditure of Rs.5,88,500/- with the specific directions. Here we may like to mention that before the ITAT in the first round of proceedings, the assessee had not taken any ground relating to assumption of jurisdiction under section 158BD of the Act. 11. In remand proceedings the assessing officer completed the assessment on 31st December, 2009 by making additions on account of (i) un-explained expenditure Rs.3,82,66,276/-; (ii) suppression of receipts and inflation of expenses Rs. 1,00,00,000/-; and (iii) illegal payments Rs.6,38,500/-. Thus the assessing officer added Rs.4,89,476/- on account of undisclosed income/illegal payment out of which he allowed credit for the amount declared in the block return at Rs.4,00,000/-. 12.1 Before the ld. CIT (Appeals) the assessee had taken ground relating to assumption of jurisdiction that no search was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ld. CIT (Appeals) confronted the assessee with the reasons as forwarded by the AO and after considering the remand report on that behalf from the assessing officer, decided the issue upholding the assessment made u/s 158BD of the Act. 12.3 The ld. AR of the assessee has further submitted that notice under section 158BD is dated 16/11/2003. This notice also contains date written in hand at its bottom as 20/9/04. It was also pointed out that the first written date was 20/11/2003 which has been altered to 20/09/2004 through over-writing. The document itself had not been made available to the assessee despite Tribunal's clear directions in that behalf during the hearing which has impaired assessee's inability to make adequate submissions. It was also submitted that satisfaction note does not contain any date at its head. The concerned assessing officer has endorsed the date below his signature as 16/9/2004. The un-answered question once again is as to why the established official procedure of typing the date on the top of the memo has been given a go-bye. The ld. AR of the assessee further submitted that notice under section 158BD was prepared first. At the point of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 158BD notice by recording satisfaction note would be a make-up and make-belief which would not nullify the original defect, deficiency and delinquency of having a notice under section 158-BD without a satisfaction note. He placed reliance on the decision of Hon'ble Supreme Court in the case of Manish Maheshwari vs. ACIT 289 ITR 341 (SC). Ld. A.R. of the assessee further submitted that the ld. CIT (A) had also erred in holding that since proceedings had been initiated in pursuant of a warrant of authorization under section 132 of the Act in the name of Shri Baljeet Singh Bakshi, the proceedings initiated in the case of the assessee u/s 158BD were valid. The fact of the matter is that reasons as couched by the assessing officer mentioned not only Shri Baljeet Singh Bakshi, but also referred to other persons viz. Baldev Singh and Shri Pankaj Narang. The notice, therefore, contains multiple references. It is on the basis of such multiple references that the satisfaction warranting action under section 158BD emanates. This again is ab-initio illegal and untenable. The provisions of section 158BC of the Act do not envisage a conjoint and consolidated recourse in a case based on div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed records from the person searched to the record of person to whom they relate and it is with such transfer of document that proceedings under section 158BD gets initiated. However, the impugned satisfaction has not been recorded prior to such transfer of documents, but has been recorded in the case of assessee after transfer of documents, as is evident from the contents of the satisfaction note itself which has reference to various documents seized in the course of search on several persons at different places. Thus the impugned satisfaction as alleged to be recorded by the ld. AO is not in accordance with the provisions of section 158-BD. The ld. AR of the assessee, therefore, pleaded that initiation of proceedings under section 158-BD are misconceived, erroneous and un-sustainable in law and, therefore, the whole assessment ought to be directed to be quashed. On the other hand, the ld. [CIT] - DR submitted that reasons have been recorded by the assessing officer before initiation of proceedings under section 158-BD. The difference in dates is a corrective mistake. Further he submitted that transfer of document was not required as the assessing officer was the same in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt that the point relating to reassessment proceedings went to root of the jurisdiction and was pure question of law. Hon'ble High Court held that the Tribunal's view was clearly erroneous that the matter became final when the Tribunal passed the earlier remand order so that the point of jurisdiction finally got settled, which could not be agitated unless the assessee had come in the reference to the Hon'ble High Court at that stage. Tribunal's view was also incorrect that in restoring the case to the file of the Income Tax Officer by the earlier order the only point left open was in respect of addition on merits and that the legal or jurisdiction aspect whether reassessment proceedings were legally initiated was not kept open. Even the Tribunal's view was erroneous that even though this point went to the root of jurisdiction and was pure question of law, merely because the point was initially raised and not pressed, when the matter was taken up before the AAC, it could be waived and it could not be reagitated. 18. In view of decision of Hon'ble Gujarat High Court it is clear that jurisdiction point being a pure question of law can be agitated in the remand proceedings as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed at any stage i.e. during the course of assessment proceedings in case of searched person or before initiation of proceedings under section 158BC of searched person or after completion of assessment in the case of searched person. Therefore, completion of assessment under section 158BC in the case of searched person is not condition precedent for recording of the satisfaction under section 158BD of the Act. In view of the above discussion, we are of the considered opinion that the ground taken by the assessee that since no assessment under section 158BC has been made in the case of searched person and, therefore, proceedings initiated under section 158BD of the Act are void ab initio, is not the correct position of law. Hence, this contention raised by the assessee, is dismissed. 20. The next contention of the assessee is that satisfaction note has not been recorded before issue of notice u/s 158BD of the Act. He has based his contention on over writings made in hand on notice dated 16/11/2003 u/s 158BD. The satisfaction note is dated 16/09/2004 whereas on top of notice u/s 158BD, the typed date is 16/11/2003 and there is over writing on date on the bottom. As per assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons, making a satisfaction note based on material found from the premises of different persons, which was conveyed by the authorized officer to the assessing officer, preparation of combined satisfaction note will not be detrimental to the interest of the Revenue. At the best it could be treated as an irregularity and not illegality. What is to be seen is whether before issue of notice u/d 158BD satisfaction should be recorded by the assessing officer which has been done in the case of the assessee. Therefore, assessment cannot be annulled on the basis of combined satisfaction note, recorded by the same assessing officer, having jurisdiction on all the searched persons including the assessee under appeal. 22. In view of the above, we are of the considered opinion that the ld. CIT (Appeals) was justified in rejecting the claim of the assessee that proceedings initiated under section 158BD read with section 158BC were bad in law. 23.1 The next issue for consideration relates to confirming the addition of Rs.3,82,66,276/- on account of undisclosed expenditure and confirming the addition of Rs.1,00,00,000/- on account of suppression of receipts and inflation of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce due and date. For majority of the items, there is no narration. Annexure-19 contains also the details of payment, date of payment, balance amount and date and narration. Annexure-19 is in respect of year 1997-98. Annexures 20, 22, 24 contains the details of the payments and balance due. The assessing officer on the basis of amounts recorded on the loose sheets, ledger and cash book totaled up to Rs.5,98,44,202 detailed as below:- "1. Annexures A-1 to A-4 seized from Shri Baldev Singh Rs.6,56,305/-; 2. Annexures A-1 to A-4 seized from premises of Jeet Construction Co. Rs.2,14,68,030/-; 3. Annexures B-1, B-2, B-5 & B-6 seized from Jeet Construction Co. Rs.2,10,37,869/-; and 4. Annexures 16, 17, 19, 20, 22, 23, 24 seized from Shri Baljeet Singh bakshi Rs.1,01,00,086/-; Total: Rs.5,98,44,202/-" 24. The assessing officer on the basis of above asked the assessee to produce complete books of accounts with complete bills and vouchers in order to ascertain the nature and purpose of the expenses and also to enquire about the source of payments. It was explained by the assessee that this aspect had already been considered in the original block assessment proceedings and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no evidence whatsoever to show that such transactions were already disclosed. The AO, therefore, out of Rs.5,98,44,202/- deducted the amount of Rs.2,15,77,726/- and added the balance amount of Rs.3,82,66,276/-. 25. The assessing officer further noted that from the premises of Shri Baljeet Singh Bakshi, a bunch of loose papers [annexure 1 - page Nos. 65 to 67] relating to M/s. Jeet Construction Co. was seized. These papers are an account of Lakhotia, Ghanta Ghar and Pearey Lal Hospital. On page 67 total amounts worked out is at Rs.5,45,138/-. In its commission at the rate of 25 per cent, Rs.3 lakhs and profit of Rs.3,60,000/- are added totaling to Rs.12,05,138/- and deducting the Income tax and Sales tax of Rs.5,000/- the balance figure is Rs.12,00,138/-. The entries relate to the period from December, 1998 to January, 1999. The value of contract was about Rs. 12 lakhs and profit of Rs.3,60,000/- and commission of Rs.3 lakhs. This commission as per details given in the documents are illegal payments. Illegal business payment are not allowable as deduction. The AO on the basis of entries recorded in the paper observed that profit of assessee in the particular contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osen not to give any explanation as to how these receipts had been accounted for and as per provisions of section 158BB(3) the burden was on the assessee to prove that any undisclosed income had already been disclosed in the return of income and that onus had not been discharged by the assessee. Therefore, the AO concluded that the amount of Rs.3,54,67,771/- would not have been recorded for the purpose of paying the taxes. However, she made addition of Rs. 1,00,00,000/-. According to her adoption of Rs.1,00,00,000/- for the block period 1997-98 to 2002-03 was an estimation of reasonable unaccounted income. 28.1 Before the ld. CIT (Appeals) it was submitted that inference drawn by the AO was misconceived and incorrect since the assessee had offered valid and plausible explanation both in original as well as in set aside proceedings. All the seized material which had been made basis for addition in the impugned assessment had already been considered. The AO had examined the nature of entries in the course of original assessment proceedings. Therefore, the additions made by the AO are totally untenable and unsustainable. The details and the year-wise break-up of the total expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee's case there was no positive material to establish that the impugned expenses which were deductible as business expenses have been incurred outside the books of accounts of undisclosed income. The assessee, therefore, requested to delete the addition. 28.2 As regards the addition of Rs. One crore, the ld. AR of the assessee submitted that the AO has alleged that the assessee has received an amount of Rs.3,54,67,771/-. The ld. AR of the assessee submitted that the reasons given are totally arbitrary, presumptive and flimsy without any supportive material. The entries recorded in the seized books of accounts which are regular books of accounts of the assessee do not fall in the ambit and scope of undisclosed income. There is no rationale or logic to treat out of total receipts of Rs.3,54,67,771/- an amount of Rs. One crore as undisclosed income and part thereof to the extent of Rs.2,54,67,771/- as disclosed income. Reference to seized annexure A-21 and A-18 do not themselves establish in the absence of any corroborative evidence that they constitute undisclosed income of the assessee for the block period. There was no material whatsoever to support AO's inference a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as defined under section 158-B(b) of the Act read with section 158-BB(1) of the Act. The ld. AR of the assessee has further submitted that the cash book, ledger and other seized material contain the details of expenditure already accounted for in the profit and loss account. Therefore, no addition can be made to the extent of the expenditure or lower than the expenditure recorded in the books of accounts. There are many expenses recorded on the loose papers where dates are not given and, therefore no addition could be made in the block period. Further the assessing officer had not made addition year-wise without allocating the undisclosed income to respective years. The assessee has given explanation to the entries recorded in annexures. Therefore, addition has been made by the AO and confirmed by the ld. CIT (A) without co-relating to the expenditure to the books of accounts by stating that the expenses were not recorded in the books of accounts. On the other hand, the ld. Sr. DR supported the order of the ld. CIT (Appeals) and the assessing officer on the issue. 31. We have heard both the parties and gone through the material available on record. In the original as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (a) to (f). Therefore, where income has been already assessed or return of income has been filed that income cannot be taken as undisclosed income. We have also gone through the contents of annexures. In respect of annexures A-1 to A-4 seized from Shri Baldev Singh, the partner totaling to Rs.6,56,305/- no dates have been mentioned. Therefore, it is difficult to co-relate the expenses of Rs.6,56,305/- to the block period. The assessing officer has reduced the total expenses determined at Rs.5,98,44,202/- by an amount of Rs.2,15,77,726/- as they are recorded in cash book. The assessing officer on the basis of bunch of loose papers of Annexure 19 found from the premises of Shri Baljeet Singh Bakshi, has worked out profit of 55 per cent and has concluded that the profit was very high. The assessee is engaged in construction work with the Municipal Corporation, Meerut. We have gone through the letter written by M/s. Jeet Construction Company to Nagar Nigam, Meerut that an amount of Rs.50 lakhs was due from the Nagar Nigam and other work of Rs.60 lakhs was under progress. The assessee made a request for payment of Rs.10 lakhs. The assessee had been admitting income from contract bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessing officer had worked out undisclosed receipts of Rs. 3,54,67,771/- and unaccounted expenditure of Rs. 3,78,66,276/- In this situation also net result is loss. Hence no addition can be made. The assessee in the course of original assessment proceedings as well as in the course of remand assessment proceedings had explained the entries recorded in various annexures. The assessing officer preferred to reject the explanation and had arrived at findings that the assessee was earning as high as 55 per cent, which in our considered opinion, cannot be in the case of a civil contractor. The assessing officer has taken the various figures by way of cash receipts or receipts from various persons including Nagar Nigam and the balance shown as outstanding as income of the assessee. The totaling of the entries recorded in various papers which the earlier assessing officer in the original assessment proceedings had found that there was no clinching evidence of undisclosed income. The ld. CIT (Appeals) also endorsed the view. Therefore, making addition of unverified figures, which according to the assessee, relates to the business of the assessee, is not justified. No evidence during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material to support that the impugned items relate to period after 1/4/1999. The ld. AR of the assessee further submitted that addition has been made on the basis of narrations recorded as commission in some of assessee's documents. Hon'ble ITAT has set aside the issue to be decided by the AO in the light of its directions to see whether income in question was earned before or after the expenditure was incurred. If it was earned before incurring the expenditure, there was no question of undisclosed income. On the other hand, if it was earned thereafter then set off was to be given to the assessee. The AO had not given any finding in terms of directions of the ITAT as to whether the expenditure has been incurred prior to earning of income or after earning of the income. The ld. AR of the assessee further submitted that expenses were not incurred at one go at single point of time, but has been incurred in small sums from time to time throughout the block period covering more than six years out of funds available with the assessee in the form of partners' capital from the very beginning and contract payment receipts periodically time to time for the entire block period of six years as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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