TMI Blog2022 (7) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which as per the AO himself ,does not belong to the assessee at all. As on the date of recording reasons for escapement of income i.e. on 4.10.2006, the assessment order passed, which was reopened under section 148 of the Act ,dated 30.3.2004 had categorically held that the assessee had not carried on the share trading business. Therefore, this very order passed u/s 143(3) wherein the assessee was held to have not carried out any share trading transactions, could not possibly have been reopened u/s 147 on account of escapement of income relating to this very share trading business only. Assumption of jurisdiction to frame reassessment u/s 147 is clearly invalid. Re-assessment framed, therefore, u/s 147 of the Act is set aside. The appeal of the assessee is allowed on this count. Validity of assessment order passed u/s 158BD - satisfaction note recorded by the AO of the assessee on various grounds - HELD THAT:- The information against the assessee not emanating from search conducted on any person, the proceedings u/s 158BD to assess undisclosed income of the assessee for the block period could not have been conducted as per law. The order passed therefore u/s 158BD of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for short). 2. It was a common ground that the issue involved in the appeals relating to both the assessees was inter-linked. It was pointed out that in the case of Shri Mukesh Rasiklal Shah ( MRS for short) losses claimed by him on account of an alleged proprietary concern of his,by indulging in share trading transaction, was disallowed by the Revenue on the ground that the same was benami of one Shri Sureshbhai Gadecha ( SG for short),the other assessee before us, and accordingly this business of share trading was assessed in the hands of SG . In the case of MRS initially regular assessment was framed under section 143(3) of the Act denying benefit of losses and order for the Asst.Year 2001-02, 2002-03 and 2003-04 was accordingly passed, which denial of claim of loss was upheld by the Ld. CIT(A) against which the assessee has come up before us in ITA No.736/Ahd/2005, ITA No. 3487 and ITA No. 3488/Ahd/2007 pertaining to Asst.Year 2001-02, 2002-03 and 2003-04 respectively. 3. Further in the case of MRS , for Asst.Year 2001-02 ,reassessment was made under section 147 of the Act vide order dated 31.12.2007 which was further rectified by the AO vide order passed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g loss in business of share trading transactions from a proprietary concern, M/s.Dindayal Associates ( DA for short). During assessment proceedings, the assessee, MRS , denied being proprietor of this concern, stating that he was working as salaried employee only and all these transactions were being undertaken by his employer, SG in his name. The AO made verification of the share transactions conducted in the said proprietorship concern ,from the parties who had conducted such business, as was reflected in the books of DA , i.e. K.K. Investments, H.Nyalchand Financial Services Ltd. and Poojan Securities Pvt.Ltd. These parties also stated the transactions being undertaken through SG for the business to be carried out with the concern, DA . Based on all the facts of the case as revealed in the investigation, the AO held that the claim of loss in the name of DA , which was not actually carried on as the business of the assessee, was not the loss of the assessee and therefore, the loss claimed was assessed at NIL. 9. The assessee carried the matter in appeal before the ld.CIT(A) wherein he challenged the disallowance of loss and claimed on the contrary that the business wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions on the nature of the business carried on and on three separate occasions being 20TH Aug., 2001, 3rd Sept.,, 2003 8th Oct., 2003 he had clearly stated in his statement recorded under oath, that he was not carrying on any such business of dealing in shares and that he was totally unaware of the conduct of any such business. He had also clearly stated that he had merely signed the return of income or on bank transactions at the behest of his employer Shri Sureshbhai Gadecha from whom he was in respect of salary of less than Rs.5000/- p.m. It can therefore, not be said that from the date of filing of return i.e. 14th August, 2001 and upto the 3rd statement recorded on 8th October,2003 that the appellant was not given adequate opportunity to make submissions in support of his return of income and admitted to be signed by him. After making such categorical denial of conduct of business from the date of being first administered oath before recording of statement on 20th Oct., 2003, the appellant cannot claim that the AO has not given adequate opportunity to make submissions in support of the return of income filed. In fact the letters submitted dtd.18th Feb.2004. 2nd March,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant and his C.A. to make the issue as one of the lack of adequate opportunity is found to be not at all justified. A simple reading of the assessment proceedings, and submissions made in these appeal proceedings shows that this is but an attempt to side track the crux of the issue which is that appellant is a man of no means and he does not have knowledge or the capacity to carry on the alleged business of M/s.Dindayal Associates. The appellant s own personal bank account as per letter dtd.5/3/04 was S.B.A/c.No.3196 with Manek Chowk Co.op.Bank, Ghatlodia, Ahmedabad, which had a very few transactions and after 31.3.99, he claimed to have not prepared any personal profit loss account and balance sheet because there were no transactions in individual capacity which crossed the minimum taxable limit. Further the appellant s claim that he was not crossed the minimum taxable limit. Further, the appellant's claim that he was not given opportunity to cross examine Shri K.K.Kabra, Dhiren H.Vora Shri Kunal Thakkar is found to be yet another attempt to side track the issue of his categorical denial of having conducted any such business in the name and style of M/s.Dindayal Associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs. He thereafter drew our attention to page no.19 of the PB being balance sheet of DA pointing out that none of the deposits was found to be belonged to SG . He therefore contended that there was no basis for the authorities below to have come to the finding that business of share trading was carried on by the alleged benami SG and not the assessee. He further contended that finding that the business was not actually that of the assessee but of the SG , the Revenue ought to have made protective addition in the hands of the assessee, which was not done. He therefore contended that the finding of the Revenue authorities that no share trading business was being carried on by the assessee in the proprietorship firm, DA was not in accordance with facts and circumstances of the case and the denial of claim of loss, therefore of Rs.4,13,11,931/- was also not correct. The ld.counsel for the assessee relied on the following case laws in support of his contentions: i) Manoharlal v. Income-tax Officer, 37 ITD 96 (Jp) ii) Prakash Narain vs.Commissioner of Income-tax And Wealth-tax, 6 Taxman 159 (ALL) iii) CIT Vs. Shakti Industries, 217 taxmann 77 12. Alternatively, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. It is highly improbable that a man of such meager means would have been trusted for being financed by outsiders to such a huge amount of Rs.6.61 Crs. Further, inquiry by the AO from the three major parties with whom share trading transaction was carried on, also corroborated the statement of the assessee that the business actually belonged to SG ; all the three parties claimed that it was SG with whom they had interacted. This fact nails the case against the assessee completely, and we are in complete agreement with the ld.CIT(A) therefore that business carried on in DA of share trading transaction, did not relate to the assessee, as per his own admission, corroborated with the statement of three brokers with whom he had worked, and also set out from the financial status of the assessee as reflected from the meager volume of transactions in his personal bank account. 17. The argument of the ld.counsel for the assessee that his books of accounts were duly audited, and all depositors were duly verified during assessment proceedings, we find that this contention is neither here nor there and in fact does not in any way support the case of the assessee. As we have noted ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 20. As for the Ld.Counsel for the assesses alternate contention that direction be given for allowing losses of DA in the hands of SG , we find that the business in DA has been assessed in the hands of SG in proceedings u/s 158BD of the Act for the impugned year and against the order of the Ld.CIT(A) in the said year, both the assessee and Revenue are in appeal before us in IT(SS) No.113 118/A/2007.No interference therefore is called for on this account. 21. The case laws relied upon by the Ld.Counsel for the assessee are all distinguishable on facts and our decision disallowing losses are based entirely on the facts before us clearly leading to the inescapable finding that the assessee had not carried on any business but in fact it was the benami of SG 22. In view of the above, we uphold the order of the ld.CIT(A) that the business of share trading transactions carried on in the proprietorship concern, DA was not that of the assessee, but of SG and denial of claim of business loss to the tune of Rs.4,13,11,931/- is accordingly upheld. Ground No.1 raised by the assessee is dismissed. The appeal of the assessee is dismissed. 23. Since issue, facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins to certain share transaction of Zenith Info. As per the AO the assessee has allegedly claimed bogus loans to the tune of Rs.16,30,530/-. In point No.3, the escapement of income noted by the AO is in relation to stock of shares worth Rs.47,08,769/- not having been recorded in the profit loss account. 27. The entire income believed by the AO to have escaped assessment pertained to the share trading business carried on by the assessee in its proprietary concern, DA . Interestingly, in the order passed under section 143(3) for the impugned year on 30.3.2004 the AO had found the share trading business as not being carried out by the assessee at all, and the entire claim of loss in the same, amounting to Rs.4 crores was denied by the AO in the assessment order. Having so found, we fail to understand how the AO could now attribute escapement of income of the assessee on account of this same share trading business, which as per the AO himself ,does not belong to the assessee at all. As on the date of recording reasons for escapement of income i.e. on 4.10.2006, the assessment order passed, which was reopened under section 148 of the Act ,dated 30.3.2004 had categorically held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO noted, on verification of bank account in the name of DA that on two dates i.e. on 19.1.2001 and 24.1.2001 amount of Rs.5.00 lakhs and Rs.1crores had been respectively withdrawn for self. Noting that these were benami accounts of the assessee and he was direct beneficiary of the cash withdrawn, these amounts were added to the income of the assessee, as its undisclosed income. Thus, the undisclosed income of the assessee was for the block period, was assessed at Rs.1,05,00,000/- as opposed to NIL returned by the assessee. 30. Before the ld.CIT(A), the assessee had raised legal grounds challenging the validity of the order passed under section 158BD of the Act,as also grounds on the merits of the case.The Ld.CIT(A) dismissed the legal grounds while on merits he allowed the same. Aggrieved by the order of the CIT(A), both the assessee and the Revenue have come up before us. 31. We shall first take up the appeal of assessee in IT(SS)A.No.113/Ahd/2007. 28. The assessee has challenged validity of assessment order passed under section 158BD of the Act raising the following grounds: Initiation of 158BD proceedings and passing the order u/s.158BD r.w.s. 158BC r.w.s. 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Reliance was placed on the decision of Hon ble Apex Court in the case of Manish Maheshwari Vs. ACIT, 289 ITR 341 (SC) for the prescribed procedure of recording satisfaction in such cases in block assessment proceedings, more particularly, where the assessment of third person, not subjected to search action, was to be initiated and conducted under section 158BD of the Act; (ii) that the satisfaction of the AO of the assessee was recorded subsequent to the issuance of notice under section 158BD of the Act to the assessee. In this regard, he pointed out that while notice under section 158BD of the Act was issued to the assessee on 24.11.2003, in the satisfaction note placed before us at page no.174, the AO recorded the fact of assessment order for Asst.Year 2001- 02 passed in the case of MRS holding that share trading transaction in the proprietory concern, DA belonged to the assessee, SG which was dated 30.3.2004.That thus, while notice under section 158BD was issued on 24.11.2003 the satisfaction note by the AO of the assessee was recorded subsequent to 30.3.2004; (iii) that the satisfaction note recorded that information during the assessment proceedings under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were validly initiated on the basis of material indicating undisclosed income in the hands of the Appellant. The Appellant was given repeated opportunities to make his submissions regarding the nature of the business carried on by him. The A.O. has made the assessment based on the statements of four persons as well as information collected from Classic Co-operative Bank, in which Appellant was working as Chairman having full control over all the transactions of the Bank. The copies of the statements recorded were given the Appellant on 05.11.2003 after confronting the statements of all four persons and recording his statement in the Office of the A.O. and once again twice on 28.11.2003 for rebuttal. Hence, there was no requirement to cross examine the persons as statements as well as material likely to be used by the AO against the Appellant was already provided well in advance. On perusal of records, it has been noticed that the Appellant had appeared before AO only on 21.11.2005 and requested for cross examination of witnesses on 24.11.2005. Thereafter, summons were issued by the Assessing Officer. In response to summons, only Shri Dhiren Vora of H.Nyalchand Financial Services Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 158BD are as under: 158BD. Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly. 38. As is evident from a literal reading of the section , it provides for assessment of undisclosed income for block period as prescribed in cases where search action is undertaken, u/s 158BC of the Act, in certain cases where no search is conducted . The circumstance warranting framing of such assessment is incriminating material relating to them being found in search conducted on other persons. Having said so, we note from the satisfaction note of the AO of the AO of the assessee for initiating proceedings u/s 158BD of the Act in the present case, that he n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of the AO surely not through search conducted on MRS , but only in the course of regular assessment framed on him under section 143(3) of the Act. Even as per the satisfaction note also, it has been noted that in the assessment framed in the case of MRS it has been found that proprietorship concern is benami of SG . There is no order passed in search assessment under section 158BC of the Act in the case of MRS . On the contrary, order u/s 158BD of the Act is passed in the case of MRS and as per the AO s satisfaction note, the information was derived in the course of assessment proceedings u/s 158BD of the Act in the case of MRS . Therefore, clearly there was no search conducted on MRS or on his alleged proprietorship concern, DA . Information against the assessee clearly does not emanate from search proceedings. Ld.DR was unable to controvert any of the above. He was unable to produce any documents before us to controvert the fact that information recorded in the satisfaction note of the AO emanated during assessment proceedings conducted on MRS . Nor was he able to demonstrate that the present proceedings were initiated on the basis of any incriminating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions of Ld. Counsels as well as gone through the records. On the basis of photocopies of the Bank statements showing that entry of Rs. 5,00,000/- dated 19.01.2001 mentioned as 'Yourself in . Bank Account No.2252 was a transfer entry for placing Fixed Deposit with The Classic Co-operative Bank Ltd. in the name of M/s Dindayal Associates. Similarly, entry of Rs. 1,00,00,000/- dated 24.01.2001 mentioned as 'Yourself in Bank Account No.FO-140 was a transfer entry for placing Fixed Deposit with The Classic Cooperative Bank Ltd. in the name of M/s Dindayal Associates. Hence, the Appellant had not withdrawn these two amounts from the Bank Account for himself. The Assessing Officer has not given comments in this regard. Keeping in view of above facts end circumstances of the case, the addition of Rs.1,05,00,000/- is hereby deleted. Therefore, the second ground of appeal is allowed. 47. The ld.DR was unable to controvert the factual finding of the ld.CIT(A) though he heavily relied on the order of the AO at para-4 of the assessment order. It reads as under: 4. Unaccounted income: On verification of bank account No.FO 140 and CD 2252 I the name of Dindayal Associate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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