TMI Blog2017 (12) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case, it is clear that assessee-company did not earn any undisclosed income on account of the speculation losses in block assessment under Chapter-XIVB of the I.T. Act, 1961. Therefore, the A.O. was not justified in making the additions. As regards addition on account of difference in valuation as reported by the assessee-company and computed by the Valuation Officer, it is clear that no incriminating material or evidence was found during the course of search so as to indicate any unaccounted investment in the property. The reference to the DVO was made after the search which could not be construed as incriminating material or document found during the course of search. Therefore, such addition also could not be made in the block assessment. The addition of ₹ 65,609 is accordingly, deleted. - IT (SS) A. No. 325/Del./1997 - - - Dated:- 7-12-2017 - Shri Bhavnesh Saini, Judicial Member And Shri L. P. Sahu, Accountant Member For Assessee : Shri Salil Aggarwal, Advocate Shri Ravi Pratap Mall, Advocate For Revenue : Ms. Rachna Singh, CIR-D.R. ORDER Per Bhavnesh Saini, J. M. The first appeal by the assessee has been direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame broker M/s. Rahul and Company, Calcutta. Subsequently, enquiry showed that the transaction done through ANZ Grindlays Bank was executed by the Bank through the same broker M/s. Rahul and Company. 2.2. On perusal of the accounts of the assessee-company, for different years shows that the investment made in the shares of HDC are primarily out of loans and advances by HDC itself. The interest payment to Banks/financial institutions/HDC are substantially high on account of huge borrows. The main source of income of the assessee-company is dividend income on shares of HDC and profit in dealing of shares and securities. The A.O. reproduced chart at page-3 of the assessment order which would show how the excess of the interest payment to HDC and others are adjusted against near equivalent arranged profits, over and above the dividend and other source of income which is also reproduced as under : F.Y. Dividend Income Profits in dealing in shares and securities Total Interest Payment 90-91 9,85,708 38,23, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to book entries from the market for necessary adjustments. Also, Mr. Lodha declined the opportunity to cross-examine Sh. Shishir Kejriwal and Sh. Dinesh Kr. Singhania, who under oath admitted of having arranged a speculation profit in various group investment companies depending upon the requirement, communicated by Sh. Lodha. B. Though Mr. R.P. Mody and his son Sh. Vikram Aditya Mody are neither the directors nor shareholders of the concerned investment company, one of which is Promain Limited, they are, however, the authorised signatories to investment in these companies and the authorised signatories in the bank accounts are not the directors or secretaries of the concerned companies but Sh. A. M. Lodha who is the key person arranging the profits in collusion with the share brokers and determining the quantum of profits required for necessary adjustments. Sh. R. P. Mody and Sh. V. A. Mody though denied the ploughing of undisclosed income in the group investment, companies in the garb of a speculation profits, however, both declined the opportunity to cross examine Sh. Shi Shishir Kejriwal and Sh. Dinesh Kumar Singhania. This confirms the admission made by these share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reflected in the books of Canfina towards purchase of units of UTI-64 Scheme. The purchase on 10.4.92 was reversed on 16.4.92 and a sum of ₹ 15,05,58,000/- received by Canfina. by way of two separate cheques - 15 crore from ANZ Grindlays Bank as directed by Rahul and Company to ANZ Grindlays Bank and ₹ 5,58,000/- from the account of Rahul and Company with American Express Bank. The entire transaction was on account of units of UTI-64 and not the relevant cantriples. While Rahul and Company claim that the relevant UTT units were physically delivered to Canfina for ready forward deals, Canfina has denied having physically received UTT units or its delivery to Rahul and company. (v) In the deal notes, the Standard Chartered Bank, Bombay showed the purchase of relevant. Cantriples by Canara Bank and not. Rahul and Company. (vi) The Standard Chartered Bank has shown the purchase of relevant Cantriples from Citi Bank on 10.4.92, an hour before the sale to Canara Bank is shown in the deal notes. The relevant, certificate No. 389759 was part, of an original certificate No.102233 of 5 crores cantriples held, by Citi Bank which allegedly on a request made by Citi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, the assessee- company was asked to furnish enough evidence so as to prove the genuineness of the transaction. The statement of Shri V.C. Mehta, Company Secretary of the assessee-company was also recorded and the gist of his statement is reproduced in the assessment order in which he has explained that the company does not have any relation with M/s. HDC Limited except that it is a share holder of HDC Limited and have no business transactions with them. The A.O. also noted that it has been admitted by Shri V.C. Mehta in his statement recorded under section 131 of the Act that the decisions for investment on behalf of this company are taken by the persons in Calcutta who have close links with all the Mody group of Companies, one of them is Mr. R.P. Mody, Chairman, M/s. Hindustan Development Corporation, who is also an authorised signatory of the assessee-company. 2.5. The A.O. further noted that it has been established that assessee-company have received the undisclosed profit of HDC group in the garb of arranged speculation profit, the speculation loss that it had shown in A.Ys. 1993-94 and 1994- 95 against the speculation profit, which has also been received through the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the Mc. Dowells case, all intervening steps need not be viewed in isolation. Each transaction is closely interlinked and purported to serve one objective - to avoid the incidence of tax on the assessee company. The by product of all these devices adopted by the assessee company is also to serve as a conduit for recycling the undisclosed profit of the flagship company in an apparent legal garb. I am therefore, of the view that the speculation loss suffered/brought by the company in F. Y. 1992-93 and 1993-94 from M/s Rahul and Company, the share broker is nothing but a sham transaction and it is therefore, disallowed. The assessee company deliberately failed to disclose profits of ₹ 1,11,00,000/- in F. Y. 1992-93 and ₹ 83,18,750/- in 1993-94 by artificially deflating the profit as discussed above. This amount of ₹ 1,11,00,000/- and ₹ 83,18,750/- totaling ₹ 1,94,18,750/- are added as the undisclosed income of the assessee company for the block period. 2.6. The A.O. further noted that assessee-company along with other 07 co-owners owns property No.6, Amrita Shergill Marg, New Delhi. The assessee-company has 1/8th share in this proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the paper book, entries do not pertain to the assessee-company. Therefore, no addition could be made against the assessee- company. It was also held that undisclosed income as determined by the A.O. for A.Ys. 1993-94 and 1994-95 is based on post-search enquiry and not on the basis of the material found during the course of search or evidence related there to. Therefore, addition on merit was also deleted. As regards the addition made on account of difference in the valuation of investment in property, the addition was deleted because it was not based on any material. The appeal of assessee-company was accordingly, allowed. 3. The Revenue preferred appeal against the order of the Tribunal dated 23rd June, 2006 before Hon ble Delhi High Court in ITA.No.308 of 2007 which was decided vide judgment dated 30th April, 2012. The Revenue Department produced the warrant of authorisation before Hon ble High Court which was in the name of the assessee-company. Therefore, finding of the Tribunal was found contrary to the original warrant. Therefore, this issue were decided against the assessee-company. As regards the second question regarding addition deleted on merit, the order of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders (P) Ltd., 287 ITR 287 (Del.) (iv) CIT vs. Vishal Aggarwal 283 ITR 326 (Del.) (v) CIT vs. Bluechip Construction Co. (P.) Ltd., 213 CTR 530 (Del.). (vi) CIT vs. V.B. Aggaarwal 296 ITR 750 (Del.) 4.1. The Learned Counsel for the Assessee further submitted that the documents found during the course of search were admittedly found from the premises of HDC, copies of which, are filed at pages 215 to 222 of the PB and submitted that these documents were never confronted to the assessee- company. None of these documents could establish that either it pertain to the assessee-company or were made the basis for making disallowance as no disallowance were made on the basis of these documents. The subject matter of disallowance of loss arising in A.Ys. 1993-94 and 1994-95 for an aggregate sum of ₹ 1,94,18,750 were disclosed in the books of account for the relevant assessment years and were accepted in the order of assessments framed under section 143(3) on 25.01.1995 and 28.11.1995 which assessments were framed much prior to the date of search i.e., 21.11.1996 and hence, could not be regarded by any stretch of imagination as undisclosed income within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never confronted to the assessee-company. Therefore, the same cannot be read in evidence against the assessee-company and relied upon the decision of the Hon ble Supreme Court in the case of Kishanchand Chellaram 125 ITR 713 (SC). He has further submitted that both these persons retracted from their statements by filing affidavits before ADIT. Copies of the same are also filed in the paper book. The statements of Shri V.C. Mehta was recorded on 26.11.1997 after search which was not recorded under section 132(4) of the I.T. Act. He has relied upon the decision of the Hon ble Delhi High Court in the case of CIT vs. Harjeet Agarwal 241 Taxman 199 (Del.) (HC) wherein it has been held that statements recorded during search and seizure operation are not evidence found as a result of search. However, it was held that statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during the course of search, the same could certainly be used as evidence in any proceedings under the Act as expressly mandated by virtue of the Explanation to Section 132(4) of the I.T. Act, 1961. However, such statement on a standalone basis wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, Share Broker, involved in security scam. No evidence has been brought as to how the assessee-company has genuinely suffered losses. The A.O. confronted all the material to the assessee-company at assessment stage. The assessee- company however, did not produce any material to explain the seized material. The Ld. D.R. relied upon Section 114 of the Evidence Act. The Ld. D.R. submitted that onus was upon the assessee-company to prove the genuine losses suffered by it. However, nothing has been done by the assessee-company. Therefore, onus have not been discharged by the assessee- company. Therefore, addition is correctly made. The Ld. D.R. filed written submissions also highlighting the facts noted by the A.O. in the assessment order. The Ld. D.R. relied upon the decisions of the Hon ble Supreme Court in the case of H.H. Laxmi Bai vs. CWT 206 ITR 688 on the proposition that tax statute has to be strictly construed. There is no equity in the taxing provisions, the decision of Delhi High Court in the case of Bhagirath Aggarwal (2013) 351 ITR 143 (Del.) in which it was held that an addition in assessee s income relying on statements recorded during search operation cannot be deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or property which has not been or would not have been disclosed for the purpose of this Act. (iii) or any expenses, deduction or allowance claimed under this head, which is found to be false. Section 158BB(1) provides for computation of undisclosed income of the block period and is reproduced as under: (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,- (a) where assessments u/s 143 or sec. 144 or sec. 147 have been concluded [prior to the date of commencement of the search or the date of requisition], on the basis of such assessments; (b) where returns of income have been filed u/s 139 [or in response to a notice issued under sub- section (1) of sec. 142 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called [to any partner not being a working partner]; Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement;] (c) assessment under section 143 includes determination of income under sub-section (1) or sub-section (1B) of sec. 143. (2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to financial year in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition. (3) The burden of proving to the satisfaction of the AO that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or the requisition, as the case may be, shall be on the assessee. (4) For the purpose of assessment under this Chapter, losses brought forward fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Bombay High Court in the case of CIT vs. Vinod Danchand Ghodawat, 247 ITR 448 (Bom.) observed : .where the value of the gold and silver articles and jewellery had been disclosed in the assessee s wealth- tax return which was accepted by the department. Held, that Chapter XIV-B of the IT Act, 1961 had no application to the facts of the case and the addition made by the department on the ground of undisclosed income was erroneous. 6.4. The Hon ble Calcutta High Court in the case of Bhagwati Pd. Kedia CIT, 248 ITR 562 (Cal.) observed The explanation to sec. 158BA of the IT Act, 1961 makes it clear that the Legislature thought it fit to make a distinction between the block assessment and the regular assessment. In the case of regular assessment, the AO is free to examine the veracity of the return as well as the claims made by the assessee, whereas the undisclosed income is taxed by way of block assessment as a result of search and seizure. The logic behind the two different modes of assessment is that concealment of income and claiming deduction or exemption in respect of a disclosed income cannot be treated at par. The former is an offence which goe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch B held as under : Sec. 158BA of the IT Act, 1961 - Search and seizure - Block period 1.4.1985 to 16.11.1995 - whether within pale of Chapter XIVB assessment could be made only in respect of undisclosed income and such undisclosed income must come as a result of search - Held, yes - Whether sec. 158BA does not provide a license to revenue for making roving enquiries connected with completed assessment and is beyond power of AO to review assessments completed unless some direct evidence comes to knowledge of department as a result of search which indicates clearly factum of undisclosed income - Held, yes - Whether scheme of Chapter XIVB gives power to revenue to draw presumption in regard to undisclosed income - Held, no - Assessee claimed 1 to 1.5 per cent out of total sales as sales promotion expenses - During search proceedings a book called gift register was seized from assessee s business premises - Gift register related to sale promotion expenses - In earlier assessment proceedings covering block period in question, such expenses were disclosed and disallowances were made - Neither any incriminating material revealing undisclosed income came to light nor enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. vs. DCIT, 277 ITR (AT) 190 held : The assessee explained that it was an estate agent and the amount received by the assessee was an advance received towards purchase of certain properties. Assuming it was a loan received by the assessee, it was not in dispute that the assessee had filed its regular return of income for the AY 1994-95 disclosing the amount in the balance-sheet. If it was a loan, the amount thereof could have been added to the total income u/s 68 only if it was held to be a non- genuine loan. The genuineness could have been gone into only in the course of regular assessment when the assessee had duly disclosed the amount in its balance-sheet. The assessee had discharged its part of the obligation by disclosing the amount in the balance-sheet and by filing the return. It was not the assessee s fault that no assessment was made. It was of no consequence under which head the amount was disclosed in the balance-sheet. If it was an advance from a customer for purchase of property, it could not be treated as income because it was merely an advance towards purchase of property and in no way the income of the assessee. When the amount stood duly disclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the addition cannot be made on the basis of the Departmental Valuation Report obtained subsequent to order of regular assessment. The Tribunal finding no evidence during search to establish assessee spent more in renovating of residential house then recorded in the books of account. The addition deleted, justified. 7. The A.O. considered the issue of speculation losses in detail in the assessment order and observed that subsequent to the search enquiries, it was found that assessee being Investment Company is closely linked with the Mody group of Companies and has been facilitating the ploughing back of undisclosed income of the flagship Company of Mody group of Companies namely HDC in the garb of speculation profit through an arranged speculative share transactions routed through a reliable Stock Broker of the flagship Company. The A.O. ultimately after considering the modus operandi and on perusal of the material on record, came to the finding that speculation losses suffered by the assessee-company in A.Ys. 1993-94 and 1994-95 from M/s. Rahul and Company, Share Broker is nothing but a sham transaction. Therefore, total speculation losses in both the years in a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 and 1994-95 whereas the seized paper pertain to the year 1996, there is no question of considering it to be sham transaction in prior A.Ys. 1993-94 and 1994-95. These seized paper are not found from possession of assessee- company. The A.O. merely inferred from the documents that since Group Companies were indulged in syphoning the profits, therefore, assessee-company might have also indulged in taking the speculation losses. The assessee-company explained that HDC is not a flagship Company because assessee-company is merely a share holder. Shri V.C. Mehta also in his statement explained that assessee-company has no relation with M/s. HDC Limited except that it is a shareholder of M/s. HDC Limited. Therefore, on mere presumption such an addition could not be made in the block period. It may also be noted that the A.O. heavily relied upon the statements of Shri Shishir Kejriwal, Shri Dinesh Kumar Singhania and Shri V.C. Mehta which have not been recorded in search proceedings under section 132(4) of the I.T. Act. These statements have been recorded either under section 131 of the I.T. Act or under section 133A of the I.T. Act i.e., after post-search at assessment stage or in surv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order would not be used for making an addition because the same are not relatable to any evidence found during the course of search. Learned Counsel for the Assessee, therefore, rightly relied upon the decision of the Hon ble Delhi High Court in the case of Harjeev Aggarwal (supra). It may also be noted here that nothing is brought on record, whether the A.O. at the assessment stage has allowed cross-examination to such statements on behalf of the assessee-company. Therefore, such statements have otherwise been cannot be read in evidence against the assessee- company. It is also brought on record that ultimately the persons who made the statements after the search have retracted from their statements by filing affidavits and their statements have been recorded thereafter. But A.O. did not discuss anything on this aspect in the assessment order. Therefore, on totality of the facts and circumstances of the case would clearly reveal that there were nothing on record to disallow the speculation losses suffered by assessee-company in block assessment because it was accepted by the Revenue Department in scrutiny assessments prior to the date of search. The decisions relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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