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D.C.I.T,C. C-VIII, Kolkata Versus Shri Sagar Mal Nahta

2016 (5) TMI 820 - ITAT KOLKATA

Addition towards commission on accommodation entries - taxability in the hands of assessee - Held that:- No evidence has been brought on record by the revenue to prove that the transactions of 24 companies with Bhushan group of companies are accommodation entries. No material has been brought on record to prove that the said companies were actually engaged in providing accommodation entries.

No material has been found in search or survey to conclusively establish that all the 24 compa .....

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put together as assessed by the Learned AO is not matched by recovery of undisclosed assets or documents indicating undisclosed expenditure which were found during search and survey operations.

No material was found in search and survey operations which would prove that the assessee was managing or controlling the 24 companies except placing reliance on statements of certain employees of those companies which were later retracted by them.

No material has been brought on rec .....

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e being sent for getting signature from directors of respective companies of Mr.S.M.Nahata. This letter was admittedly addressed by Mr.R.K.Gupta to one of the employee of those companies which were found in the office premises of the assessee. The assessee had already demonstrated the circumstances under which the papers of those companies had come to his possession i.e in his professional capacity.

No evidences has been brought on record by the Learned AO except alleging that the mon .....

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to conclude that the transactions are accommodation entries. The valuable assets found during the search and survey such as cash and jewellery have been properly explained by the assessee and no addition has been made on that account by the Learned AO. The details of 21 bank accounts were also found in the search and survey operations which were explained at the assessment stage that all the bank accounts were duly disclosed in the regular books of accounts of account holders which has been acc .....

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Shri S.M Surana & Shri V.N Purohit, Advocates, ld.ARs ORDER Shri M. Balaganesh, AM These appeals of the revenue arise out of the consolidated order of the Learned CIT(A), Central-1, Kolkata in Appeal Nos. 117-122/CC-VIII/CIT(A)C-I/Kol/11-12 dated 18.10.2012 against the separate order of assessments framed for the Asst Years 2005-06 to 2010-11 respectively by the Learned AO u/s 153A/ 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). Since the issue involved in all the .....

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o. 16, 2, Clive Ghat Street, Kolkata - 700001. There was a search u/s 132 of the Act conducted on 3.3.2010 at the residential premises of the assessee. Parallely survey u/s 133A of the Act was also carried out at different office premises of the assessee as well as those of the companies allegedly managed and controlled by the assessee. During the course of such operations, certain valuable assets such as cash (Rs. 12,03,000/- in residence and ₹ 1,20,000/- in office) , Jewellery valued at .....

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anaged and controlled by the assessee though it was categorically denied by the assessee during the assessment proceedings itself. The assessee explained that he is a qualified chartered accountant and that his association with the said companies was only in his professional capacity. The assessee also submitted that he had no interest in them. The Learned AO issued show cause notice dated 30.11.2011 to the assessee posing different questions in connection with transactions of M/s Bhushan Power .....

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Steel Ltd., M/s. Marsh Steel Trading Ltd. and M/s. Jasmine Steel Ltd. On the perusal of source of fund of these companies, it was found that they have received their funds mostly from the introduction of Share Capital from companies documents of whose were found from your residence and offices. Even the documents seized / impounded from your residence / offices corroborates these findings that accommodation entries were provided by above mentioned 31 companies to four companies of Bhushan Group .....

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0,000/-. These pages show how much amount received by your companies, amount for which accommodation entries provided and balance amount to be received. The mentioning of "Total SMN A/c status" on top of these pages clearly establishes your personal involvement otherwise there is no reason why reconciliation of accounts between companies includes your name. (xxxviii) Pages 12 to 19 of document SMN-1 seized from your residence have list of shareholders of different companies. The shareh .....

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were not only aware of such transactions but also involved with them. (xi) Page No. 68 of document. PMCM/17 impounded from your office at 8, Canning Street, 3rd floor, Room No. 305, Kolkata-1, is a letter dated 10/02/2010 from Mr. R.K.Gupta, Vice President and Company Secretary of M/s. Bhushan Power & Steel Ltd. In this letter Mr. Gupta has written to one Mr. Alkesh Sharma of Kolkata office of his company that they were sending documents like Memorandum of sale of shares, delivery of share .....

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ies sent to you vide this office letter dated 30-11-2011. When a senior officer of the Rank of Vice President and Company Secretary of M/s. Bhushan Power & Steel Ltd. clearly and categorically mentioning the transferor companies as of Mr. S.M.Nahata, it leaves no doubt that you are directly managing and controlling the affairs of these 31 companies. A Photocopy of the letter and its annexure are enclosed herewith. Pages 74 to 76 of impounded document PMCM/17 are letters from Mr. Tarkeshwar S .....

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i Ltd., M/s. Vision Steel Ltd. and M/s. Arromatic Steel Pvt. Ltd., numbers of shares held by them and date of allotment. These companies belongs to Bhushan Group and the shareholders are companies controlled by you. It has been mentioned on these documents that the shares hold by your companies would be purchased by Mr. Sanjay Singal, Mrs. Aarti Singal and M/s. Sanjay Singal (HUF) @ of ₹ 10/-. As you are aware that Mr. Sanjay Singal is a Director of M/s. Bhushan Power & Steel Ltd. (xli .....

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ties Pvt. Ltd., M/s. Mani Marketing & Holding Pvt. Ltd.; M/s. Multiplier Enterprise Pvt. Ltd. and M/s. Piyush Mercantile Pvt. Ltd. In his replies to question nos. 5 & 7 of that statement, he has stated that Mr. S.M. Nahata was key man of their group of companies and accounts of those companies were prepared at your instruction only. In replies to question nos. 10 & 12, he reiterated that only you would be able to explain the transactions entered into by the companies in which Mr. Bej .....

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ot; provided by these companies to the companies of Bhushan Group. A copy of this statement is enclosed with this letter. (xlv) Statement of Ujjwal Das was recorded during survey U/s. 133A on 03- 03-2010 at your office 863, Marshall House, 33/1, N.S.Road. In his statement, he has stated that he was working as peon of Mr. S.M. Nahata and he used to receive letters and correspondences of various companies. He stated that the office belongs to you. When he was asked to explain the existence of Asce .....

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Finance Ltd; M/s. Panchmukhi Properties Ltd. and other companies. He stated that M/s. Mahavir Finance Ltd., M/s. Panchmukhi Properties Ltd, M/s. Gemco Engineering Industries Ltd., M/s. Cemfil Enterprises Ltd were operating from that premise. He also stated that Mr. S.M Nahata is the main person for all these companies. A copy of this statement is enclosed with this letter. (xlvii) During survey U/s.133A at 2, Clive Ghat Street,Kolkata- 700001 on 03- 03-2010, statement of Mr. Baldeo Singh was rec .....

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during the survey at premise stated by Mr. Barik and all of them are directors in one or another companies managed and controlled by you. A copy of this statement is enclosed with this letter. (xiii) A survey was also conducted at 407, 4th Floor, Gupta Chembers, Gali No.-9, Gurudwara Road, 2459/10, Beadonpura, Karolbagh, New Delhi, on 03-03-2010. Some of companies managed and controlled by Viz. M/s. Elar Securities Ltd., M/s. Jahangirabad Finance Co. Pvt. Ltd., M/s. Tapasya Finvest Pvt. Ltd. and .....

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ocuments seized / impounded during search at your residence and survey at your business premises and statements of your employees and other persons during survey, it is established beyond doubt that you are managing and controlling affairs of 31 companies list of which were intimated to you vide this office letter dated 30-11-2011. The documents mentioned above clearly established that the companies had their offices at the premise owned by you and your family members. It is also established fro .....

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ugh numerous self owned and self managed companies, before finally landing in the destination companies. For this purpose, commission, as prevalent in market, is charged by the person managing the affairs of the companies through which the entries are routed. These facts are established from the statements of Mr. Sandip Bej and Mr. Radha Kant Tiwari and various documents seized/impounded. In view of the above, you are hereby show-caused to explain why commission on the accommodation entries prov .....

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st your group companies, submit a chart showing such cross holding. 3.1. The assessee replied to the said show cause notice which is reproduced as under:- That I am a Chartered Accountant and my job involves audit of books of accounts, rendering consultation regarding financial and legal matters, restructuring of business and other similar professional assignments in connection with my carrying on of Chartered Accountancy practice. Admittedly, in connection with the search conducted in M/s. Bhus .....

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s in relation to investments made by them by way of share application as also structuring/restructuring of their assets/capital base. Such services in no way hings upon any activity which may amount to Jama Kharchi / accommodation entries as alleged by you in your impugned notice. Undersigned therefore is totally perplexed at the several allegations made by you in your impugned notice. May I say and submit that in course of search, the authorized officers and inspectors have undertaken very high .....

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ot been challenged till this date by the Department nor have you allowed me cross-examination of these persons in relations to their statements, the reliance placed by you on such statements are not correct. I deny any of the persons, whose statements have been put in your notice, are employees of the undersigned or render any service to the undersigned. Under such circumstances, it is my humble prayer, not to enter into the field of surmise and conjecture and subject me to undue tax liability w .....

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as not earned by me. 3.2. The Learned AO did not accept the explanation submitted by the assessee. He held that the materials found in the course of search and survey operations clearly established that the assessee has managed and controlled the said 31 companies which were engaged in providing accommodation entries. The Learned AO also believed that the retraction made by the employees was only an after thought as the revenue authorities can pressurize no person to sign a statement. The Learne .....

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ompanies for providing accommodation entry has earned commission @ 0.55%. From the data available from the ROC site, the Learned AO determined assessment year wise the amount of accommodation entries provided by the said companies , and then, estimated the receipt of commission by applying the rate of 0.55% and brought the same to tax as under:- Sl. No. Assessment Year(s) Amount of accommodation entry (Rs.) Income on account of accommodation entry @0.55% (Rs.) 1. 2005-06 22,60,59,585/- 12,43,328 .....

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ldeo Singh and issued show cause to the assessee. Based on the same, additions have been made each year on account of commission alleged to have been earned by the assessee from accommodation entries. It was argued that the finding of the Learned AO was based on mere suspicion, surmises and conjectures divested of any evidence as the Learned AO has not been able to bring on record any such evidence to show that the assessee was either involved in such transaction or received any commission on su .....

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s a consultant nor there is any proof / evidence of receipt of any commission on the so called accommodation entries. Factually it was submitted that none of the companies were controlled by the assessee under the Companies Act, 1956 and explained that only when a person either on his own account or through his associates hold more than 51% Equity Capital of such company, then only he can be said to be having controlling interest. It was explained that assessee had made it very clear in his repl .....

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tion entries nor these companies stated anywhere that contribution of capital by the above companies with Bhushan group companies was an accommodation entry. It was further stated that the statements given by Radha Kant Tiwari and Sandip Kumar Bej, having been duly retracted by them by filing affidavit, have been wrongly used against the assessee. It was argued that those employees were not employed by the assessee and rather they were employees of those companies who had also retracted their st .....

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that it had to be established that accommodation entries were actually provided by the companies ; that commission income was received on such accommodation entries ; and that the commission income so received was not earned by the companies responsible for providing the accommodation entries but by the assessee and consequently taxable in the hands of the assessee. It was further argued that the Learned AO had only referred to prevalent market practice to conclude that commission @ 0.55% was re .....

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actions with M/s Bhushan Power & Steel Ltd group of cases were answered by the assessee. He further argued that the reply of the assessee to the show cause notice containing specific queries were very vague and general in nature without assailing the specific documents. He argued that the employees from whom statements were recorded by the survey team were employees of the assessee and they are name lenders and were acting at the behest of the assessee s instructions. He argued that though t .....

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uth. It is well known that no one will tell a lie especially harming one s own interest unless such a statement is true. He argued that the Learned CIT(A) had held that materials in survey do not conclusively establish that 31 companies were dummy and managed by assessee and no linkage was proved by the Learned AO and even assuming that assessee has managed the said companies, no proof for deriving commission income was brought on record by the Learned AO. In this regard, he placed reliance on p .....

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applicability of presumption u/s 132(4A) to assessment proceedings. He further argued that in page 7 of the assessment order vide question xvi) of show cause notice issued to assessee , the Learned AO had brought to the notice of the assessee of one letter dated 10.2.2010 addressed by one Mr.R.K.Gupta, Vice President & Company Secretary of M/s Bhushan Power & Steel Ltd vide document PMCM/17 impounded during survey. Based on this, it was argued that how does a person by name Mr.R.K.Gupta .....

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tion entries which was heavily relied upon by the Learned AO. It was argued that the Learned AO states that it was gathered that the prevalent market rates of commission varies from 0.25% to 0.55% of the transactions which does not in any way flow from any of the seized documents found during the search or survey. He stated that no addition could be made without any reference to any seized material. In support of this, he placed reliance on the decision of the Hon ble Bombay High Court in the ca .....

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uine company in existence vide his order in Appeal No. 455/CC-VIII/CIT(A)C-I/12-13 dated 18.2.2014. It was further argued that the assessee never made any confession or admission at any stage as could be evident from the replies filed by the assessee clearly demonstrating the circumstances under which the details of those companies were found in his premises. Hence the decision relied upon by the Learned DR in this regard is not at all relevant. He also argued by placing reliance on pages 54 and .....

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vs Emerald Commercial Ltd & Anr reported in (2002) 250 ITR 539 (Cal) . He further argued that no addition was made by the Learned AO for the various figures mentioned in page 6 question no. xiii) of the assessment order involving the transactions of alleged accommodation entries. He argued that the Learned AO had admitted that the figures mentioned in page 6 of his assessment order pertain to those companies which were not doubted by him. Having done so, how can he add the commission income .....

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Pvt Ltd in ITA Nos. 308-309 /Kol of 2011 dated 7.3.2012. c) Decision of Co-ordinate Bench of Delhi tribunal in the case of DCIT vs Winsome Finance Pvt Ltd in ITA Nos. 6457 & 6458/Del/2013 dated 30.9.2015. d) Decision of Co-ordinate Bench of Delhi tribunal in the case of Supreme Polypropolene P Ltd vs ITO in ITA No. 4622/Del/2009 dated 28.2.2010. e) Decision of Hon ble Punjab & Haryana High Court in the case of CIT vs Faqir Chand Chaman Lal reported in (2003) 262 ITR 295 (P&H). 7. We .....

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ere duly disclosed in the regular books of accounts of account holders which has been accepted by the Learned AO. 7.1. We find that the assessee had submitted at every stage that he was acting as consultant looking after accounts, finance, audit, income tax of all those companies and received fees from the 31 companies including that of Bhushan group of companies on a monthly basis. We find that the Learned CIT(A) had recorded that the assessee was also rendering various services to those compan .....

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a Kant Tiwari, Mr Ujjwal das and Mr Baldeo Singh. We agree with the arguments of the Learned AR that when the assessee was acting as a consultant of those companies, those people must have come in contact of the assessee on day to day basis and accordingly those employees could have framed an opinion that the assessee is the defacto management of those companies. In any case the opinion formed by those employees is not in the domain or control of the assessee. We hold that this aspect alone does .....

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various arguments of the Learned DR together with the relevant case laws on this aspect need not be adjudicated at all as admittedly no action was taken by the revenue on the said employees who had retracted from their statements. 7.2. We find that the Learned AO had relied on the details available on ROC site and concluded that the transactions of these companies are in the nature of accommodation entries. It is quite strange to accept the version of the Learned AO that the website of ROC cont .....

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by way of documentary proof to show that assessee was in any way involved with these companies financially except acting as a consultant for the companies in consideration of which , professional fees were received by the assessee. 7.3. With regard to the decision relied upon by the Learned DR on the Hon ble Chattisgarh High Court in the case of CIT vs D.R.Bansal & Ors reported in 327 ITR 44, we find that though the presumption u/s 132(4A) of the Act is applicable to assessment proceedings, .....

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ents of those companies were found in his premises. Hence the argument of the Learned DR that no reply was filed by the assessee as to how these documents were found in his premises does not hold water as it is contrary to the evidences available on record. 7.4. We find that the Learned AR had placed on record a copy of the Learned CITA order passed in one of the 24 companies listed in the assessment order by the Learned AO i.e M/s Ascent Vyapaar Pvt Ltd wherein, the Learned CITA had given a cat .....

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it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. (ii) Paul Mathews & Sons vs CIT reported in (2003) 263 ITR 101 (Ker) The evidentiary value of statement recorded u/s 132(4) is very high since examination is on oath. Statement during survey has no evidentiary value. It was held that statement during survey does not give the same status of evidence . Section 132(2) specifically states that such statement can be used as evid .....

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s for making any addition in the assessment. The word may used in section 133A(3)(iii) makes it clear that the material collected and statement recorded during the survey u/s 133A are not conclusive piece of evidences by itself. The aforesaid decision was affirmed by the Honourable Supreme Court in CIT , Salem vs S.Khader Khan in Civil Appeal No. 13224 of 2008 & 6747 of 2012 dated 20.9.2012, wherein their Lordships of Supreme Court held as under:- Heard Counsel on both the sides. Leave grant .....

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on was conducted at residences, office premises and bank lockers on number of individuals and group companies within Surana Group of cases-Assessee was one of persons searched-Assessee in response to notice u/s 153A disclosed return of income at ₹ 3,05,880/- for relevant AY 2003-04-Separate search and seizure operation was conducted on residence, office and business premises of ''X'' who was CA and his statement was recorded-AO added all share application money and loans as .....

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made by AO-CIT(A) held that those assessment years completed assessment could not be abated in term of provision of section 153A(1)-Held, assessee had obtained loans/share money/premium in all assessment years which were under appeal-Fact that loan confirmations were on record along with bank statements in support of fact that transactions of loan were by cheques-Assessee had collected statement of audited accounts of those limited companies, from where Assessee had obtained loans, same were wit .....

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O was empowered to reopen those proceedings and re-assess total income, taking note of undisclosed income, if any, unearthed during search-AO had been entrusted with duty of bringing to tax total income of Assessee whose case was covered by section 153A, by even making reassessments without any fetters-Assessee obtained search or requisition u/s 132A as case might be-There was no incriminating material found during course of search in present case for those assessment years, except statement of .....

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the course of search some notings had been found indicating a higher consideration. Mr. R's Statement was also taken. In a sworn statement on 8th December, 1998 he admitted that he received ₹ 34.85 Lakhs. In another sworn statement on 11th Dec, 1998, R stated that he received ₹ 34.85 Lakhs. Subsequently in an affidavit given. on 8th Jan, 1999 he mentioned the sale consideration at ₹ 4.10 lakh. The CIT noted that due to conflicting nature of statements given by sellers, his .....

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(Del) assessee purchased a ticket of Calcutta Stock Exchange for ₹ 50,000/-. The AO took the value of ticket at ₹ 11.5 lakh on the basis of the prevailing market price and added ₹ 11 lakh as unexplained investment. The Delhi High Court deleted the addition on the ground that AO arrived at conclusion primarily on imaginative basis and conjectures rather than on the basis of any record or books of account and hence deleted the addition. (vii) Omega Estates vs ITO reported in 106 .....

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rted in 263 ITR (AT) 75 (Delhi ITAT) a search was conducted at the premises of one Mr. A and the agreement between the assessee and Mr. A was found pertaining to sale of 9.16 acres of land, the consideration mentioned in the agreement was ₹ 7.07 Crore as against the consideration of ₹ 23.5 Lakhs declared by the assessee. The AO added the difference of .6.83 Crore U / s. 69B. The Court held that the provisions of the Indian Evidence Act are not strictly applicable to the proceedings u .....

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o be allowed an opportunity of cross examination. The Delhi IT AT Bench said that the entire addition was based on the document found but there was no evidence to support Revenue's case that a huge figure over and above the figure booked in the records and accounts changed hands between the parties and thus no addition could be made. The above case clearly establish that merely on account of suspicion and conjectures without any evidence or proof that the assessee actually and or even notion .....

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ssigning the following reasons: "After considering the abovementioned submissions of learned counsel for both the parties, we are of the view that the Assessing Officer, while making the addition was not sure regarding the amount invested by the assessee in pawning business On the one hand, he calculated the amount of interest at ₹ 3,40,000 per annum and, on the other hand, the addition has been estimated at ₹ 2,00,000 per annum In other words, the entire exercise done by the As .....

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that as regards the other years also, no addition is called for because there is no material on record for the basis on which it could be said that the-Assessing Officer was justified, in his action It is well settled that the provisions relating to search and seizure are intended to unearth the hidden or undisclosed income or property and bring it to taxation net It is also not in dispute that the objective of Chapter XIV-B is to get hold of evidence having bearing on the tax liability of a pe .....

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t the assessee, in fact, earned the income by way of interest amounting to ₹ 2 lakhs each year from the assessment years 1986-87 to 1995-96 and ₹ 1 lakh in the assessment year 1996-97 In instant case, it is not in dispute that the closed income was worked out by the Assessing Officer on an estimated basis but in a block assessment generally estimated additions cannot be justified In that view of the matter, we are of the view that the Assessing Officer was not justified in making the .....

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any reference as the same are otherwise covered in the aforesaid cases relied herein. 7.6. To sum up , we find that - (i) No evidence has been brought on record by the revenue to prove that the transactions of 24 companies with Bhushan group of companies are accommodation entries. No material has been brought on record to prove that the said companies were actually engaged in providing accommodation entries. (ii) No material has been found in search or survey to conclusively establish that all t .....

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ll the asst years put together as assessed by the Learned AO is not matched by recovery of undisclosed assets or documents indicating undisclosed expenditure which were found during search and survey operations. (iv) No material was found in search and survey operations which would prove that the assessee was managing or controlling the 24 companies except placing reliance on statements of certain employees of those companies which were later retracted by them. (v) No material has been brought o .....

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are being sent for getting signature from directors of respective companies of Mr.S.M.Nahata. This letter was admittedly addressed by Mr.R.K.Gupta to one of the employee of those companies which were found in the office premises of the assessee. The assessee had already demonstrated the circumstances under which the papers of those companies had come to his possession i.e in his professional capacity. (vii) No evidences has been brought on record by the Learned AO except alleging that the money .....

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