TMI Blog2011 (2) TMI 1416X X X X Extracts X X X X X X X X Extracts X X X X ..... oof. There is no conclusive presumption. In the present case, the assessee as well as the assessee's son and also assessee's brother Shri S.K. Agarwal categorically stated in every stage of examination and statement recorded under s. 132(1) or 132 that the seized material A/GAR/05 did not at all belong to them. In spite of this the AO proceeded to conclude that these seized materials conclusively belonged to the assessee. Leave alone the issue relating to authorship of the document seized and the findings of the GEQD, the Department should find out and establish the nexus of these seized materials to the assessee's business while concluding block assessment. In the present case the assessee is having grievance for not providing the opportunity of cross-examining the parties whose statements were relied on by the AO while completing the assessment. The circumstances surrounding the case are not strong enough to justify the rejection of assessee's plea asking the opportunity of cross-examination. In view of this, we set aside the block assessment order and remand back the matter to the file of the AO. The AO is directed to give an opportunity of cross-examina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal on the same issue, as the AO failed to carry out the directions of Tribunal, Hyderabad, in their order in IT(SS)A No. 151/Hyd/2005 dt. 28th Feb., 2006, to allow the assessee to examine or cross-examine certain persons, whose statements may be relevant for the purpose of determining the issue. 6. The addition of ₹ 2,55,50,000 made by the AO, purely on the basis of unidentified diary without bringing on record any evidence by any corroborative material is not only erroneous in law but is highly unjustified. Such an unidentified seized document, found in cellar, alone is not sufficient to draw definite conclusion that it belongs to the assessee and its contents are true. 7. Natural justice demands that the AO should have made comprehensive enquiries before making a huge addition of ₹ 2,55,50,000 which he failed to do so. The AO himself admitted that no enquiries were made vide his letter dt. 25th Oct., 2007. Therefore, the addition of ₹ 2,55,50,000 is not only baseless but is against the principles of natural justice and is erroneous in law. 8. The observation of CIT(A) in para 3.4 at p. 7 that the submissions of the assessee does not highlight h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). The CIT(A) vide order dt. 2nd Sept., 2005 (issued on 28th Sept., 2005) confirmed the order of the AO. Against this the assessee came in appeal before this Tribunal. The Tribunal on first round vide its order dt. 28th Feb., 2006 set aside the issue to the file of AO with the following directions : 9. We have heard both the parties and perused the record. There is no doubt that presumption under s. 132(4A) applies to a document found during a search and seizure operation from the premises of the party. However, such presumption is a rebuttable presumption. If the assessee wants to rebut this presumption by examining or cross-examining certain persons, whose statements may be relevant for the purpose of determining the issue, we do not find any reason as to why an opportunity for the same should not be allowed to the assessee. However, the affidavits filed by the assessee along with the appeal papers cannot be considered as part of record of the Tribunal in the absence of an application under r. 29 of the Income-tax Appellate Rules, 1963 and, therefore we do not express any opinion on the same. The Department has also not shown that enquiries made by the AO with reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any matter was referred to the handwriting expert. In the absence of any material in that behalf, we may not be able to say anything about any reference to the handwriting expert. In the circumstances, in our opinion, there is no violation of principles of natural justice. No arguments were advanced by either side on merits. Therefore we are not inclined to go into the merits of the addition. 7. Against this, the assessee moved a miscellaneous application before this Tribunal, Misc. Appln. No. 173/Hyd/2008. The Tribunal dismissed the miscellaneous application filed by the assessee vide its order dt. 26th Dec., 2008 stating as follows : 5. Rival contentions were considered in the light of the material available on record. When the appeal was argued by the assessee, the only grievance is with regard to non-compliance of the directions contained in the order of this Tribunal dt. 28th Feb., 2006 in IT(SS)A No. 151/Hyd/2005. This Tribunal found that the AO examined Inspector of Income-tax and another official, and the statements recorded from them were reproduced in the assessment order. The assessee was also given opportunity to cross-examine those officials. As for the refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w taken by this Tribunal, but on that count, it cannot be said that the order of the Tribunal suffers from any mistake, much less a prima facie one, in terms of s. 254(2) of the Act. 7. In view of the above discussion, therefore the application of the assessee is devoid of merit. It is accordingly rejected. 7.1 Thereafter, the assessee not satisfied with the above order, filed one more miscellaneous application in Misc. Appln. No. 122/Hyd/2010. The Tribunal vide its order dt. 29th Oct., 2010 recalled the order of the Tribunal dt. 7th Nov., 2008 by holding as follows : 4. We have considered the rival submissions on either side and have also perused the material available on record. From the very beginning, the assessee claimed that the material found during the course of search operation does not relate to the assessee and it was not written either in the hand of the assessee or any of his family members. Admittedly a reference was made to the handwriting expert to find out the truth of the claim of the assessee that the material found at the time of search does not relate to him. In fact, the AO received the report of the handwriting expert. However, the AO failed to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound by the opinion expressed by the handwriting expert. However, the authorities are bound to consider the same and record their findings/reasons for accepting or not accepting the same. Non-consideration of the report of the handwriting expert though it was available before the AO, would go to the root of the matter. 6. Furthermore, it is well-settled position of law that all judicial/quasi judicial/executive authorities have inherent power to recall an order passed by them, in case the order was found to have been obtained by suppression of any material fact/misrepresentation/fraud. In this case, even though the Department could have brought to the notice of the Bench of this Tribunal during the course of hearing of the appeal, about the report of the handwriting expert, it failed to do so. However, the report of handwriting expert came to light, when the AO himself admits in the order passed under s. 154 of the Act. In our opinion, this failure on the part of the Department to bring to the notice of the Bench about the existence of the report of the handwriting expert, goes to the root of the matter. Therefore, as held by the apex Court in the case of Honda Siel Power Produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the house. The AO made the addition solely on the basis of one unidentified note book, which suddenly sprang up from unknown place and found and seized in the cellar of house long after the commencement of the search when the assessee was not in city. Mr. Sunil Kumar Agarwal replied stating that the note book does not belong to them and he did not know in whose handwriting it was written and that the book was neither recovered in his presence nor in the presence of his family members and he did not know the contents of the book. No pronotes or receipts were found by the search party in any premises. The parties who were examined by the DDI also denied having indulged in any moneylending transactions with the assessee. Some hand loans were given by account payee cheques were recorded in the regular books of account. Simply because, the names of some persons viz., Raj Kumar, Jai Prakash and Mohan Bhai were included in the cash flow statement and such names were found in 'alleged diary' it cannot be held that the diary belongs to the assessee. The assessee categorically denied that he had any dealings with the persons whose names are noted in the note book seized in cellar. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. The assessee affirmed that the diary does not belong to him. The so-called diary looks absolutely new, therefore it is of 2003 origin. The entries for earlier years contained therein are of fabrication and it does not belong to the assessee. The signatures of the witnesses are also not genuinely made because one witness viz., Rajender Kumar Gupta signed for himself and also impersonated his father Shri Amarnath by signing father's name. To cover-up this wrongful Act, the officer of the search party called the taxi driver at 3.30 a.m. and made him sign as a third witness. Another peculiar feature of the pocket note book is that the same name appears at different pages with different transactions. 9.3 According to learned Authorised Representative the diary A/GAR/2005 contains only incoherent entries which would not be written by any businessman. The diary alleged by the Department to belong to the assessee contains loans for more than 2 crores. If it is such an important personal record, it should be in the personal custody of the assessee constantly but would never be thrown in a corner near the compound wall at 2 p.m. This itself is a proof that it does not belong to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments are found. The use of the words 'to such person' in the said section means the person in whose possession the books of accounts or document are found. Clause (ii) of s. 132(4A) provides that the contents of such books of accounts or documents are true. This presumption can be applied only against the person in whose possession the books of accounts or the documents are found. Therefore, had Mr. Gyan Kumar Agarwal present at the time of search and the above two diaries, along with any promissory notes or receipts, were found in his bedroom or almirah, the AO may presume that these diaries found in assessee's possession were correct. However, while utilizing these diaries in the case of any other person (the person present before search party other than Mr. Gyan Kumar Agarwal) there cannot be any presumption about the correctness of such diaries. Therefore the presumption under s. 132(4A) is applicable only against the person in whose possession these diaries were found and not against any other person. The diary does not bear the name of the assessee or any other member of his family. The diaries were not in the handwriting of any family member nor any employee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with law. Pursuant to the directions of the Tribunal, which is binding on the AO, the AO vide his letter dt. 22nd June, 2006, allowed an opportunity to present the case on 3rd July, 2006 for completion of set aside assessment. 9.7 He submitted that the assessee filed his reply on 28th June, 2006 before the AO, wherein he requested the AO to afford an opportunity : (a) To examine the search party officials; (b) To supply a copy of the enquiry made by the AO in respect of three persons mentioned in the assessment order viz. Rajkumar Marwah, Jaiprakash Agarwal and D. Mohan Gupta. (c) Enquiry made by the AO in regard to handwriting in the alleged note book; (d) To examine the persons viz. Jitender, Mr. Rajkumar, Mr. Jaiprakash and Mr. Mohan Gupta who filed their affidavits before the AO. 9.8 Therefore, it is binding on the AO to follow the directions given by the Tribunal and only after making such further enquiries, as may be necessary and only thereafter, the AO should have proceeded to make fresh assessment as directed by Tribunal. 9.9. During the set aside assessment proceedings, the AO expressed his inability to produce the 21 persons named in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect in drawing adverse inference against the assessee and for making the impugned addition. Action of the AO violated the principles of natural justice. Upon hearing from the Addl. CIT, the AO should not have reinstated his earlier order on the very same material by ignoring the direction given by the Hon'ble Tribunal. He requested the Tribunal to give finding and adjudicate on this issue. But unfortunately GEQD report which should in fact become the basis of assessment has been totally ignored defeating the very purpose for which it was referred to for completion of set aside assessment. Fairness requires that the Revenue should have respected its own file note as has been held by Hon'ble Madras High Court in the case of CIT vs. Surana Metals Steels (I) Ltd. (2008) 300 ITR 324(Mad). While passing the assessment order in the course of the second round of assessment proceedings the AO allowed examining only the search officials but not the other three issues contended by the assessee, which was against natural justice and against the directions of this Hon'ble Tribunal. 10.1 The AO allowed the assessee to cross-examine Shri G. Krishna Rao the then Income-tax Inspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2007 requested the AO to afford an opportunity to examine the three Panchas whose names and addresses were furnished in the Panchanama on 21st Jan., 2003 and reminder on 10th Dec., 2007. The Panchas were S/Shri Amarnath (father), Rajender Kumar Gupta (son), Syed Jaffar (driver of Qualis engaged by the search party). All the parties signed the alleged seized note book. All the three persons were never present when the search party found and picked up this alleged note book. How can the three Panchas become witnesses for finding and picking up the alleged book which leads to show that it was not at all proved the exact place from where the note book was found ? 10.4 He submitted that in the Panchanama and on the said note book Rajendra Kumar has not only signed but Mr. Rajendra Kumar Gupta has also signed as Amarnath impersonating his father's name who was not at all there at that time. The younger brother of the assessee noticed this therefore the Department thought it is better to get some other person as witness and called one of the drivers of the Department viz. Syed Jaffar and took his signature on the Panchnama. Out of the above four issues, three were ignored as it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO failed to consider the same in assessment proceedings. 10.6 He submitted that the decision of the Tribunal should be read as a whole and it is not permissible to accept part of the directions and ignore the rest of the directions and placed reliance on the judgment in the case of Glass Lines Equipments Co. Ltd. vs. CIT (2001) 170 CTR (Guj) 470: (2002) 253 ITR 454(Guj). As the Department has referred the matter to the GEQD, ignoring the three requirements of the assessee, as was agreed to by both the parties, such a report is binding on both the parties. The Department cannot blow hot and cold. Actually the suggestion came from the Department to refer the matter to the GEQD to avoid protracted litigation and to resolve the issue. Therefore, either the Department should stick to the other three requirements of the assessee when the report of GEQD is not taken for consideration take the entire three requirements of the assessee into account or ignore the three requirements by accepting the report of GEQD. 10.7 He submitted that as has been held by the Hon'ble Rajasthan High Court in the case of CIT vs. S.C. Sethi (2007) 295 ITR 351(Raj) that the AO has not really made ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relied on the order of the lower authorities. 13. We have heard both the parties and perused the materials available on record. The main grievance of the assessee in this appeal is with regard to sustaining of addition at ₹ 2,55,50,000 which is on the basis of seized materials noted as A/GAR/5. According to the AO these documents contains detail of moneylending business of the assessee as follows : Analysis of entries in the diary Date Name Receipt Payment Day balance 12-1-2000 Rajuseth - 35 lakhs -35 lakhs 16-1-2000 Rajkumar 0 10 lakhs -45 lakhs 15-3-2000 Shyambai 0 5 lakhs -50 lakhs 25-3-2000 Rajuseth 4 lakhs 0 -46 lakhs 30-3-2000 Arvindbai 0 8 lakhs -54 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs 0 107.5 lakhs 10-6-2001 Ombai 0 10 lakhs -117.5 lakhs 10-6-2001 Arvindbai 3 lakhs 0 -114.5 lakhs 15-6-2001 Shyam 0 5 lakhs -119.5 lakhs 1-7-2001 Shyam 0 2 lakhs -121.5 lakhs 10-7-2001 Pradeep 5 lakhs 0 -116.5 lakhs 15-7-2001 Rajkumar 0 5 lakhs -121.5 lakhs 20-7-2001 Gopalbai 0 10 lakhs -131.5 lakhs 10-8-2001 Naresh 5 lakhs 0 -126.5 lakhs 18-8-2001 Shyambai 0 10 lakhs 136.5 lakhs 10-10-2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 5 lakhs -192.5 lakhs 15-3-2002 Mohanbai 0 10 lakhs -202.5 30-3-2002 Ombai 2 lakhs 0 -200.5 25-4-2002 Ashok 0 5 lakhs -205.5 27-4-2002 Bhagwandas 0 7 lakhs -212.5 6-5-2002 Naresh 0 5 lakhs -217.5 8-5-2002 Mahesh 0 10 lakhs -227.5 23-5-2002 Pradeep Rajuseth 0 5 lakhs -232.5 15-6-2002 Ramesh 1 lakh 0 -231.5 16-6-2002 Shyam 0 8 lakhs -239.5 20-6-2002 Maheshji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gupta, cousin of Shri Gyan Kumar under s. 132. During the course of search and seizure, certain documents were found and the seized documents contain credit card and bank documents which indicate the name of Shri Divesh Kumar Agarwal, s/o Shri Gyan Kumar Agarwal and the statement recorded from Divesh Kumar Agarwal under s. 131 reads as follows : Q.8 : I am showing you Annex. A/PG/7 in which the papers are numbered 1 to 24 seized from residence of P.C. Agarwal, 8-2-681, Road No. 12, Banjara Hills, Hyderabad on 21st Jan., 2003. At this premises, simultaneous search and seizure operations were carried on along with your residential premises, which is just by the side of your premises. Are you aware that search and seizure operations took place in the premises of P.C. Agarwal on 21st Jan., 2003 simultaneously along with search and seizure operations in your residential premises ? Ans. On that day at 11 a.m. only, I came to know that search and seizure operations are being conducted in the residential premises of P.C. Agarwal, because I was busy with the income-tax officials who were, carrying on search and seizure operations in my premises. As far as the papers containing Ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its order dt. 28th Feb., 2006 has given an opportunity to the assessee to cross-examine the parties. Accordingly, the assessee cross-examined one of the Inspectors of the Department viz., Shri G. Krishna Rao and the details are as follows : Q. Soon after commencement of the search at 8.20 a.m. did any official of search party take rounds of the premises including the cellar, if so what was the time ? Ans. After entering the premises, all the family members were called to the main hall of the entry floor and the door of the stair case which leads to the cellar was locked by confirming that there was no one present in the cellar. Children who were sleeping in upper floor bedrooms were also called to the main hall and we have locked all the independent bedrooms at around 9 a.m. and all the keys were kept with the search team. The bed rooms of the upper floors and the cellar were locked from outside without making any rounds into them. After completion of the physical search of all the living rooms of the main members of the family, the other places which were locked were searched one by one in the presence of one of the family members. 1. Did you find any partition walls in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's counsel regarding the planting of seized documents by his business rivals since there is no concrete evidence to suggest the placing of the seized material by third party. It is also fact that assessee has not at all taken any step as per law against the issue relating to planting of documents. Further, the contention of the assessee's counsel is that the Department has not given an opportunity to cross-examine the witnesses. The assessee is also having grievance regarding not considering the representation filed by the assessee on various occasions. 18. But the issue before us now remains is that whether the seized material A/GAR/05 can be the basis for addition of ₹ 2,55,50,000. As seen from the above seized materials, these are just handwritten loose documents. The Department got verified the handwriting of the seized material A/GAR/05 from the Government Examiner of Questioned Documents, Directorate of Forensic Science, Government of India who had given report that on comparison of the questioned documents and specimen writings of the assessee and his family members the authorship of the questioned document does not tally with the seized material A/GAR/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, the assessee as well as the assessee's son and also assessee's brother Shri S.K. Agarwal categorically stated in every stage of examination and statement recorded under s. 132(1) or 132 that the seized material A/GAR/05 did not at all belong to them. In spite of this the AO proceeded to conclude that these seized materials conclusively belonged to the assessee. Leave alone the issue relating to authorship of the document seized and the findings of the GEQD, the Department should find out and establish the nexus of these seized materials to the assessee's business while concluding block assessment. The AO shall be specific about the nature of nexus of the seized material to the business of the assessee. The allegation of the Department is that the seized material reflected moneylending business of the assessee. But they are not able to unearth any background with regard to the moneylending business like loan agreement, promissory notes, security details, bank account receipts vouchers or any other corroborative evidence. Without any of these, the Department has taken a view that the assessee is carrying on the moneylending business. More so, there are so many nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be supported/corroborated by other evidence and also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names are there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross-examine the parties. In the present case, undoubtedly no statement from the parties whose names were found in the note book/loose slips has been recorded and as such there is no question of cross-examination of them and entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible. The evidence on record is not sufficient to support the Revenue's case that huge moneylending business has been carried on by the assessee outside the business of the assessee. This is the block assessment and we are concerned only with the undisclosed income and we have to consider only material and evidence detected as a result of search. It means that if an examination of the material already on record before search or if as a result of some ext ..... X X X X Extracts X X X X X X X X Extracts X X X X
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