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Katpadi Trading P. Ltd. Versus Assistant Commissioner of Income-Tax

Validity of the proceedings initiated under section 158BD - Held that:- Assessing Officer of the UIC group was to record the satisfaction before initiating the proceeding under section 115BD of the Act. But, in the instant case, the Assessing Officer having the jurisdiction over the assessee has recorded the satisfaction which is incorrect as per law. Taking the consistent views in the decisions of the hon'ble Supreme Court in the case of Manish Maheshwari (2007 (2) TMI 148 - SUPREME COURT OF IN .....

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peal by the assessee is against the order of the Commissioner of Income-tax (Appeals), Central- III, Kolkata, dated March 25, 2013. Block assessment was framed by the Assistant Commissioner of Income-tax, CC-XXIV, Kolkata, under section 158BD/144 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), vide his order dated November 30, 2006, for the block period from April 1, 1996, to May 7, 2002. Grounds raised by assessee are as under : "1. The orders passed by the lo .....

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premises of the UIC group, no incriminating materials against the appellant- company had been found. 3.(a) On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the addition of the sum of ₹ 14,75,000 under section 68 of the Act by considering the receipt of the said amount as unexplained in spite of there being ample evidences about the genuineness of the said receipt of money by the appellant. 3.(b) On the facts and in the c .....

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earing on behalf of the Revenue. 2. First we take up the assessee's ground No. 2 regarding the validity of the proceedings initiated under section 158BD of the Act on the ground that there was no incriminating material found at the time of search. 2.1 Before carving out the specific issue of the appeal let us understand in brief the history of the case. There was a search and seizure operation in the corporate office of the UIC group of companies on dated May 7, 2002. During the search share .....

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nder : S. No. Name of the person A/c No. Bank name Amount (Rs.) 1. Shri Rajendra Kumar Surana 4886 Federal Bank Burra Bazar Branch-Kolkata 5,00,000 2. Shri Sunil Kr. Jain 4914 Federal Bank Burra Bazar Branch-Kolkata nil 3. Surendra Kr. Hirawat 4933 Federal Bank Burra Bazar Branch-Kolkata 2,00,000 4. Shri Shankar Lal Godh 4934 Federal Bank Burra Bazar Branch-Kolkata 7,75,000 Total 14,75,000 The aforesaid four persons deposited substantial cash in their respective bank accounts and subsequently tr .....

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ter these persons could not be traced in spite summons issued under section 131 of the Act and the summons were also not served at the given addresses. Accordingly, the Assessing Officer could not verify identity, genuineness and creditworthiness of the parties in relation to the aforesaid shares transaction, so he initiated proceedings under section 158BD against the assessee after recording the satisfaction note which is reproduced below : "A search and seizure operation was conducted in .....

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e of the share capital contributed by these outside companies, it was gathered that a part of the funds of the following shareholding companies had come from four bank accounts, i.e., Account Nos. 4886, 4914, 4934 and 4933 maintained with Federal Bank of India, Burra Bazar Branch, Kolkata and standing in the name of Shri Rajendra Kumar Surana, Shri Sunil Kumar Jain, Shri Shankarlal Godh and Shri Surendra Kumar Hirawat and Shri Shankarlal Godh, respectively. Apart from the abovementioned companie .....

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31 of the Income-tax Act, 1961, could not be served in their given addresses. It establishes that fictitious bank accounts were opened in the name of those four persons. It was further observed that bank accounts were introduced by Shri Sandip Kumar Singhi. Since the cash from these four accounts had travelled to the above named companies of Shri Rajesh Kumar Jajodia and Shri Sandip Kumar Singhi, I have strong reasons to believe that the above named companies controlled by Shri Rajesh Kumar Jajo .....

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including undisclosed income for the block period from April 1, 1996, to May 7, 2002. In response to the notice the assessee challenged that there was no undisclosed income and requested the Department to provide the copies of books of account, other documents and detailed information on the basis of which notice under section 158BD of the Act has been issued. Accordingly, the Assessing Officer communicated the reasons for initiating proceedings under section 158BD of the Act to the assessee, v .....

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ccounts, i.e., account Nos. 4886, 4914, 4933 and 4934 maintained with Federal Bank of India, Burra Bazar Branch, Kolkata and standing in the name of Shri Rajendra Kumar Surana, Shri Sunil Kr. Jain, Surendra Kr. Hirawat and Shri Shankarlal Godh respectively. 2. On further inquiry it was revealed that the aforesaid four persons deposited substantial cash in their respective bank accounts and these four persons were not traceable. Summons under section131 of the Income-tax Act, 1961, could not be s .....

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er section 158BD were initiated". Besides the above the Assessing Officer also observed that on the day of the search and seizure operation conducted under section 132 on May 7, 2002, at the office premises of M/s. UIC Wires Ltd., 227 AJC Bose Road, Anandlok (1st Floor), Kolkata, 2 lakhs share certificates bearing distinctive numbers 490301 to 690300 allotted to the assessee-company on August 12, 2000, with a face value of ₹ 10 amounting to a total value of ₹ 20 lakhs, were foun .....

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pective account just prior to one or two day before transfer. 2.2 As the aforesaid four persons were not traceable, so the genuineness of the transactions remained doubtful. Accordingly, the Assessing Officer issued notice to the assessee to justify the source of the above cash in the account of abovesaid four persons. In compliance with the notice the assessee submitted that the investment by the company in the UIC group was made in the years 1999 and 2000 and the same was sold to the afore sai .....

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4 maintained in Federal Bank, Burra Bazar branch for the relevant period. 7. Investment made in the UIC groups either directly or through Rajesh Jajodia group companies. 8. Nature of transactions with date, party names and amount specifically to be mentioned. The Assessing Officer also issued notice under section 131 of the Act for the personal appearance of the director. However, the above required details were not furnished but the director of the company Mr. Sandip Kumar Singhee appeared on d .....

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against sale of shares which are accounted for in our books of account. Money received from these four persons have been invested in buying the shares of the Rajesh Jajodia group companies and the UIC group companies. 6. Name the companies where your companies have made investment ? A. We have made investment in various companies including Rajesh Jajodia (Nos. 1-7) and the UIC group (Nos. B-11). 1. Target Merchandise (P.) Ltd. 2. Sigma Dealcom (P.) Ltd. 3. Sunshine Consultancy 4. Neelgiri Comme .....

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rolled by Mr. Rajesh Jajodia and Mr. Rajiv Jajodia ? A. Our role was that of an investor. 12. Is it true that money received as investment in your companies from the aforesaid four persons was invested partly in the companies controlled and managed by Rajesh Jajodia and partly as direct investment in the UIC group of companies ? A. Yes, it was invested partly in the companies controlled and managed by Rajesh Jajodia and partly as direct investment in the UIC group of companies. 13. Did the compa .....

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uot;(2) What are your source of income ? Surender Kr. Hirawat : My source of income is doing small job works and share dealings. My office was at 29A, Rabindar Sarani, 4th floor Room No. 10 and shifted to 91, N. S. Road, Kolkata-1. Rajendra Kr. Surana : My source of income are dealing in shares and commission on arranging finance. My source of income is not established. Shankar Lal Godh : My source of income is dealing in shares and securities. Sunil Kr. Jain : My source of income is dealing in .....

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Burra Bazar, Kolkata. (4) Sources of deposits in bank accounts ? Same answer for all : Sources of deposits in my S. B. account No. at Federal Bank, Burra Bazar branch is the cash received from various persons, viz., Mohan Lal Agarwal and Mahendar Jajodia through Mr. Sandip Singhi with a direction to issue cheques in favour of companies managed by Sandip and Rajesh : I am a person having very low income. (5) How can you justify the source as given in reply to question No.4 ? Same, answer for all .....

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is not my money and I am speaking the truth. It can be assessed by my financial status. (8) Why cash deposits should not be treated as unexplained and appropriate action is taken under the Income-tax Act, 1961, to assess the escaped income ? Same answer for all : As stated earlier this is not my money and it is true." However, after deposition, the aforesaid four persons were not traceable in spite of the summons issued under section 131 of the Act. The Assessing Officer, after considering .....

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f UIC and for which it must be getting some form of commission. Therefore, the amounts in question should be rather taxed on protective basis in the hands of the assessee-company and on substantive basis in the hands of the UIC group. Hence, this amount is taxed on a protective basis in the hands of the assessee-company. 3. Aggrieved the assessee preferred an appeal to the learned Commissioner of Income-tax (Appeals) where it was submitted as under : The investments of the assessee was sold to t .....

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allenged the validity of the proceedings initiated under section 158BD of the Act on the ground that no incriminating material was found by the assessee during search against the assessee. The assessee paid tax on capital gain on the sale of investment in the shares of the UIC group of companies. The Assessing Officer has put reliance on the statement given by the four persons but these statements have never been made available to the assessee for cross-examination. It is submitted that in the a .....

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rged to Income-tax as the income of the assessee of that previous year. But, in the instant case, it is an accepted position that the above amount has been received by the assessee-company through account payee cheque against sale of investment and all the disclosure were made in the Income-tax return. 4.1 As per the provisions of section 158BD of the Act the materials found during search should have been handed over to the Assessing Officer having jurisdiction over such other person to initiate .....

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ellant has failed to establish the creditworthiness of the creditors in respect of the amount of ₹ 14,75,000 found credited in its books of account during the block-period under appeal and had also failed to prove the genuineness of the impugned transactions. Therefore, it is held that the Assessing Officer had rightly treated the amount of ₹ 14,75,000 to be the appellant's unexplained income of the block period under appeal. Hence, the addition of that amount is confirmed. As re .....

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em but those persons were not traceable, therefore, the Assessing Officer required the appellant to produce those four persons before him but the appellant failed to do so. Under the circumstances it was not possible for the Assessing Officer to provide cross-examination of those persons to the appellant. Further, the Assessing Officer has reported in the remand report that he had supplied copies of the depositions of those persons to the appellant. Hence, this objection of the appellant is dism .....

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unted for in the books of account and offered to tax. The proceeding under section 158BD does not apply as the assessee has no undisclosed income. The Assessing Officer has made the addition on the basis of the statements recorded under section 132 of the Act of the aforesaid four persons were not made available for the purpose of cross-examination. On the other hand, the learned Departmental representative vehemently supported the orders of the lower authorities. 6. From the aforesaid discussio .....

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tax. The assessee before us has challenged the validity of the proceedings under section 158BD of the Act on the ground that in the instant case the satisfaction was to be recorded by the Assessing Officer of the UIC group where the search was conducted but in the case in hand the satisfaction has been recorded by the Assessing Officer having jurisdiction over the assessee. In our considered view, we find a lot of force in the argument made by the learned authorised representative before us wit .....

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he block period from April 1, 1995, to December 19 2001, as bad in law since no satisfaction was recorded by the Assessing Officer having jurisdiction over the non-searched person. It is to be noted that in the case of Lalitkumar M. Patel (in Tax Appeal No. 192 of 2012, dated May 6, 2013), as also in the case of the present asses see-respondent, common reasons were recorded by the Assessing Officer for issuance of notice under section 158BD of the Act. In the case of Lalitkumar Patel, when the m .....

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been requisitioned under section 132A, the Assessing Officer of the searched person needs to record his satisfaction that undisclosed income belongs to the person other than the person with respect to whom search was carried out under section 132 of the Act. He is also required to hand over the books of account or other documents or assets seized to the Assessing Officer having jurisdiction over such non-searched person and, thereafter, the Assessing Officer who has jurisdiction would proceed u .....

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e said provision would apply in the case of any person in respect of whom search has been carried out under section 132A or documents or assets have been requisitioned under section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of section158BC, in respect of any other person, the conditions precedent where for are : (i) satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with r .....

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