TMI Blog1999 (9) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... multaneously. 3.1 The appellant moved an application for admitting additional grounds. These are annexed with the application of the appellant dated 18-8-1999 as Annexure-B. The additional grounds were admitted by the Bench vide order of the Bench dated 18-8-1999. A detailed order was passed in this regard on the application of the appellant dated 18-8-1999. However, as so many grounds were repeated and as the position was not very clear, the ld. counsel for the assessee was asked to consolidate and concise the original grounds as well as the additional grounds. 3.2 Prior to it, during the course of hearing, in application was also moved OD behalf of the assessee-appellant on 16-5-1999 for admitting fresh evidence by the Tribunal. After hearing both the parties, the documents mentioned in para 3 of the application dated 16-5-1999, were admitted in evidence and detailed order has been passed in this regard on 17-8-1999 on the application of the assessee-appellant. It is to be clarified here that the additional evidence was admitted as there was no objection in this regard by the Department. The ld. Special Counsel for the Department also stated that no document in rebuttal was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of documents filed by the Department before us, it is clear that these searches were conducted on the strength of warrant of authorisation dated 28-11-1996, which is in the name of "Verma Transport Co., Lucknow Banda Transport Co." A certified photo copy of this warrant of authorisation is available at P-3 and 4 annexed with the application dated 10-9-1999, which was produced and filed by the Department in compliance to our directions. 4.4 According to Panchnama dated 28-11-1996 of Income-tax Department, the premises of M/s. Verma Transport Co., Lucknow and Banda Transport Co., 133 /283, godown between Sugam Parivahan and Bombay General Freight Carriers, T.P. Nagar, Kanpur, were searched by the Income-tax Department on 28-11-1996. A copy of the Panchnama is available at P-54 to 58 of the Paper Book of the Department. This search commenced at 3.30 P.M. on 28-11-1996 and was concluded at 7.45 P.M. on the same day. The documents found/seized in the search are mentioned in Annexure-B (Page 58 of the Paper Book of the Department). On the strength of the warrant of authorisation mentioned above, another search was conducted on 28-11-1996 at premises of M/s. Verma Transport Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1,08,195 (c) Unreconciled stock of Supari Rs. 70,99,839 (d) Unreconciled stock of cloth Rs. 5,04,000 (e) Unspent investment in trucks Rs. 10,50,000 (f) Income of the assessee from 1-4-1996 to 28-11-1996 Rs. 38,70,219 (g) Unexplained investment in house property No. 133/225 Rs. 3,40,000 5. In this appeal, the assessee has filed various documents in the Paper Books which are contained in Volumes 1 to 6 and supplementary Paper Book, the details of which are contained in para 3 of the application dated 16-5-1999. The documents in this supplementary Paper Book are from pages 1 to 11. 6. The department has filed only one paper book which contains pages 1 to 179. The documents are listed in the index of the paper book. Some other documents in the shape of loose papers have also been filed on behalf of the department. On our directions dated 8-9-1999 and 10-9-1999 the Department has filed photo copy of warrant of authorisation which is in the case of Verma Transport Co., Lucknow-Banda Transport Co. and some papers relating to proceeding of requisition taken under section 132A of the Income- tax Act. 7. The ld. counsel for the assessee, Ld. Sr. Advocate Shri S.P. Gupt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the copy of panchnama dated 28-11-1996 (papers 197 to 200 of the Paper Book of the assessee), a copy of which is also available at pages 54 to 57 of the Paper Book of the Department. In this Panchnama, in the first column, i.e., warrant in the case of (address is noted as) "M/s Verma Transport Company and Lucknow Banda Transport Company, 133/283, Transport Nagar, Kanpur." On the basis of these documents, he contended that the entire search stands vitiated because the search was against "Verma Transport Company" and not against "Verma Roadways Co." On the basis of this contention, he further submitted that, as these documents go to indicate, the authorisation warrant for initiating the search and seizure was also not in the name of "M/s Verma Roadways" and as such the entire proceedings of search and seizure were neither legal nor valid and the entire procedure of assessment under Chapter XIVB is liable to be vitiated on this basis alone. 10.2 In this regard, he relied on the following decisions : 1. Ashoka Viniyoga Ltd. v. CIT[1968] 70 ITR 381 (Cal.). 2. Kalidas Dhanjibhai v. State of Bombay AIR 1955 SC 62 P-64. 3. CST v. Satya Narain Kirana Bhandar 1983 U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no justification to issue notice dated 8-5-1997 on the basis of such requisitioned material because this material was not available to the Assessing Officer before 7-8-1997, i.e., before the date of the issuance of notice. 10.7 The ld. Senior standing counsel for the department, Shri Bharatji Agarwal, Advocate, firstly explained that search was admittedly conducted in the premises of M/s Verma Roadways. In this regard, he specifically invited our attention to the Panchnama of Central Excise Department, dated 27-11-1996 (page 85 of the Paper Book of the Department) in which the address of the premises searched is noted as M/s Verma Roadways, 133/225, Transport Nagar. He also invited our attention to Panchnama dated 27-11-1996 relating to search conducted by the Central Excise Department at the premises of M/s Verma Roadways which is on the 1st Floor of 133 /283, Transport Nagar, Kanpur. He further invited our attention to the seizure memo relating to currency notes of Rs. 1,70,20,000 which were recovered from the office of M/s Verma Roadways situated on the 1st floor of M/s Lucknow Banda Transport Company, 133/285, Transport Nagar. Copy of this document is available at page 97 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dated 10-9-1999. Paper No. 1 is photo copy of Form No. 45C which is incomplete as page No. 2 etc. has not been filed. The deptt. is directed to file complete form immediately. Paper No. 2 in Form No. 45 which is copy of warrant of authorisation in the case of M/s Verma Transport Co., Lucknow-Banda Transport Co. and for Godown 133/225. Other paper relate to Panchnama. Vide our direction dated 8-9-1999 the deptt. was directed to produce all the warrants of authorisation relating to searches seizures in the present matter. Only one warrant of authorisation has been filed hence the ld. D.R. is directed to specifically clarify as to whether there is any other warrant or warrants of authorisations relating to the searches seizures. He should also clearly specify as to whether, there is any warrant of authorisations in the name of M/s Verma Roadways. The report of the D.R. be filed immediately and, in any case, before the next date of hearing alongwith all the relevant documents required as above." "Shri S.D. Singh, Advocate for assessee. Shri A.N. Mahajan, Standing Counsel and B. Dogra, Senior D.R. for the Deptt. In compliance to our direction dated 10-9-1999, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has also filed a copy of Panchnama dated 29-11-1996 and a copy of order under section 132(3) and a copy of order under second proviso to section 132(1) of Income-tax Act, 1961. All these documents (Pages 5 to 8, Page-9 and Pages 10 to 12 annexed with the application dated 10-9-1999 respectively, are addressed to the following: "M/s. Verma Transport Company (Roadways), 133/225, Transport Nagpur(Kanpur)." 11.4 It is significant to note that the warrant of authorisation as well as the Panchnama and other documents referred to above, are addressed to M/s Verma Transport Company and not to M/s Verma Roadways. 11.5 In the setting of this factual position, we proceed to deal with the issue before us. 12. The provisions relating to the authorisation of search etc. are contained under section 132(1) of Income-tax Act. The relevant portions of the same are extracted below : "132. (1) Where the Director General or Director or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner as may be empowered in this behalf by the Board, in consequence of information in his possession has reason to believe that -- (a) (b) (c) any person is in possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of this term clearly indicates the intention of the legislature which is that before issuing warrant of authorisation, the concerned authority has to record its 'satisfaction' and 'belief' on the basis of concrete material before it. It, therefore, requires a long drawn and well reasoned process. The reason or belief of the concerned officers can not be based on whims or caprices. 12.2 In the case of ITO v. Seth Bros. [1967] 74 ITR 836, the Hon'ble Supreme Court has observed as follows : "The Commissioner or the Director of Inspection may, after recording reasons, order a search of premises, if he has reason to believe that one or more of the conditions in section 132(1) exist. The order is in the form of an authorization in favour of a subordinate departmental officer authorising him to enter and search any building or place specified in the order, and to exercise the powers and perform the functions mentioned in section 132(1). The section does not confer any arbitrary authority upon the revenue officers. The Commissioner or the Director of Inspection must have, in consequence of information, reason to believe that the statutory conditions for the exercise of the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of 'B' or 'C' because mentioning of the name of 'A' in the authorisation warrant pre-supposes that there was information before the concerned authority issuing the warrant in respect of 'A' only and on the basis of such information that authority had reason to believe that 'A' would not produce the document or thing etc. Thus the validity of the search proceedings and seizure under section 132 of Income-tax Act has to have a clear cut nexus with the warrant of authorisation which is the main foundation rather the anchor of the entire proceedings of search and seizure. 12.5 On the basis of the above, it may further be stated that the sine-quanon of authorisation warrant is 'the person' against whom the warrant is issued. Such person has thus to be identified and specified in the warrant. The identification of such person is to be made on the basis of satisfaction of the concerned authority that there are strong reasons to believe that his or its conduct will be covered and qualified under any of the three conditions laid down in clauses (a), (b) or (c) of Section 132(1) of the Income-tax Act. 13. In the context of this legal aspect of the matter, if we examine the authorisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Paper Book of the Deptt.). (iv) Panchnama dated 28-11-1996 (Paper Nos. 54-57 of the Paper Book of the deptt.) in which the following entries made : (A) Warrant in the case of - M/s Verma Transport Co. and Lucknow Banda Transport Co., 133/283, Transport Nagar, Kanpur. (B) Warrant to Search - M/s Verma Transport Co. and M/s Lucknow Banda Transport Co.'s godown. (v) Panchnama dated 28-11-1996 (Papers 59-62 of paper book) which contains following entries : (A) Warrant in the case of --- M/s Verma Transport Co. and Lucknow Banda Transport Co., 133/283, Transport Nagar, Kanpur. (B) Warrant to Search --- M/s Verma Transport Co. and M/s Lucknow Banda Transport Co.'s godown. (vi) Panchnama dated 28-11-1996 (Papers 67-70 of the Paper Book of the deptt.) which contains following entries :(A) Warrant in the case of --- M/s Verma Transport Co. and Lucknow Banda Transport Co., 133/283, Transport Nagar, Kanpur. (B) Warrant to Search --- M/s Verma Transport Co. and Lucknow Banda Transport Co., 133/283, Transport Nagar, Kanpur. 14.2 From the documents referred to above, what follows is that there was no warrant of authorisation in the case of M/s Verma Roadways, the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warrant of authorisation other than the warrant of authorisation dated 28-11-1996, filed with the letter of the ld. D.R. dated 10-9-1999, in compliance, to the directions of the Bench dated 8-9-1999, which is in the name of M/s Verma Transport Co., Lucknow Banda Transport Co., it stands established that there was no warrant of authorisation for conducting search, as stipulated under the provisions of Section 132(1) of the Income-tax Act, 1961, in the case of the person styled as "M/s Verma Roadways" and if it is so, then, all consequential actions, such as seizure, issuance of notice under section 158BC and consequential Block assessment in the hands of M/s Verma Roadways are rendered illegal. 17. While taking the above view, we are fully supported by the decision of I.T.A.T., Bangalore Bench, in the case of Microland Ltd. v. Asstt. CIT[1998] 67 ITD 446. In that case, the warrant of authorisation was not in the case of assessee company, viz., Microland Ltd.'s case . The Panchnamas were all in the name of Shri Pradeep Kar, C.M.D., M/s Microland. In this factual situation, the assessee insisted for production of search warrant. On the direction of the Tribunal, a photo copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment have to be declared bad in law and void ab initio on these grounds and the same are liable to be quashed. The submissions raised on behalf of the assessee-appellant, relating to ground Nos. 1 5, therefore, are accepted and those of the revenue are not accepted. Ground Nos. 1 5 are, therefore, allowed in favour of the assessee. Ground Nos. 2, 3 and 4 22. Through these grounds, the assessee has challenged the validity of the notice under section 158BC dated 8-5-1997. 22.1 The first submission of the ld. counsel for the assessee, as contained in ground No. 2, is that the issuance of a valid notice is a pre-condition for making assessment under section 158BC, as notice under section 158BC is statutory and mandatory and jurisdictional. The assessee has challenged the validity of the notice on the ground that it does not specify the status of the assessee. The next challenge of the assessee as contained in ground No. 4 is that the notice is invalid inasmuch as it required the assessee to file return for the period which could not have been legally included in it. 22.2 On these objections relating to the notice, the ld. counsel for the assessee has invited our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him, in the present case, the last of the authorisation was made on 28-11-1996 and, therefore, the block period cannot be extended beyond 28-11-1996. 23.1 In this regard the main contention of the ld. counsel for the assessee was that the notice under section 158BC is a jurisdictional notice inasmuch as the assessing authority can assume jurisdiction only on the basis of notice and hence the notice is mandatory. He further elaborated his argument by saying that the notice to be a valid notice has to contain all the material details and necessary information. 23.2 In support of his submissions, ld. counsel for the assessee relied on the following decisions : (i) CIT v. K. Adinarayana Murthy [1967] 65 ITR 607 (SC) (ii) Ashok Viniyoga Ltd.'s case (iii) Kalidas Dhanjibhai's case (iv) Nyal Chand Maluk Chand Dagli v. CIT [1966] 62 ITR 102 (Guj.) (v) Satya Narain Kirana Bhandar's case (vi) CIT v. Bibhuti Bhushan Mallick [1987] 165 ITR 107/[1986] 26 Taxman 211 (vii) Bhagwan Devi Saraogi v. ITO[1979] 118 ITR 906 (Cal.) (viii) Madan Lal Agarwal v. CIT 1982 UPTC 1069 (ix) Victor Cables Corpn. v. State of U.P. 1982 ATJ 61 (x) P.N. Sasi Kumar v. CIT [1988] 170 ITR 80/[ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch nor the notice relates to the requisitioned material under section 132A of the Act relating to that firm. 25.1 Ld. Senior Standing counsel, Shri Bharatji Agarwal, on the other hand, submitted that notice under section 158BC was not a jurisdictional notice but only a procedural notice. He has pointed out that the notice was addressed to none else but to M/s Verma Roadways, the assessee, and was served on the assessee firm on 16-5-1997. He further pointed out that after the service of notice on that very date, a request was made on behalf of the assessee for supply of the form No. 2B and further request for time to file the return was also made on the same date. According to him, the assessee went on making several requests which were on 16-5-1997, 29-5-97,13-6-97,8-8-97 and so on. Thus the notice was validly served upon the assessee. Its contents were known to it and no objection regarding the validity of the notice was ever raised by the assessee before the Assessing Officer during the assessment proceedings or before. He has further pointed out that in the present case there was search in the premises of the assessee by the Central Excise Department and the documents relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee repeated that the notice under section 158BC is not merely procedural, rather it is jurisdictional. According to him, it is not an empty formality and, therefore, content-wise, it has to be a substantive notice and should, therefore, communicate to the addressee in clear terms, the subject matter to which it relates and the direction which the assessee has to comply with. There is total absence of the necessary material in the notice, without which the assessee could not comply the directions to file the return. He further pointed out that notice does not disclose the quantum and character of undisclosed income nor does it disclose the valid block period nor the basis of proceedings, i.e., the search or requisition. In the submission of the ld. counsel for the assessee, the infirmities existing in the notice under section 158BC are not curable by provisions of section 292B because section 292B does not cover such infirmities. Relying on the decision of Shri P.N. Sasi Kumar's case, he said that such a fundamental infirmity cannot be called a "technical objection or a mere irregularity" and such valid infirmity cannot be cured or obliterated by relying on section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search and search under section 132(1) of Income-tax Act in the case of the assessee, i.e., M/s Verma Roadways, there was no occasion or justification for issuing any notice under section 158BC on the basis of such search, deserves to be accepted. 32. The other aspect of the matter is that a search was conducted in the premises of M/s Verma Roadways by the officers of Central Excise Department. The officers of the Central Excise Department seized documents, books and other materials including cash of Rs. 1,70,20,000 from the premises of M/s Verma Roadways. The department of Income-Tax requisitioned this material vide requisition letter dated 11- 12-1996. However, it is not known as to where this document remained. The proceedings of requisition took place on 7-8-1997 as is evident from paper No. 103 of the paper book of the department. Thus before this date, the question of taking delivery of possession by the Income Tax Department of the documents relating to search and seizure made by the Central Excise Department does not arise. The inventory of account books etc. contained in Annex A (pages 104-112) also goes to show that these documents were received by the Income Tax Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issuance of a valid notice. If the notice issued by him is invalid for any reasons, the entire proceedings taken by him would be void for want of jurisdiction." 35.3 In the case of P.N. Sasi Kumar, the Hon'ble Kerala High Court, in relation to notice under section 148 of Income-tax Act held that issue of a valid notice under section 148 is a condition precedent to the validity of assessment order to be passed under section 147 of the Act. The Hon'ble Court further observed as follows : " . . . It is settled law that the issue of a notice under section 148 of the Income-tax Act is a condition precedent or a matter of jurisdiction to the validity of any reassessment order to be passed under section 147 of the Act. It is also settled law that if no such notice is issued or if the notice issued is invalid or not in accordance with the law or is not served on the proper person in accordance with the law, the assessment would be illegal and without jurisdiction. The notice should specify the correct assessment year and should be issued to the particular assessee. Under section 2(31), "person' includes an individual or a Hindu undivided family or company, firm, an association of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment or has been under assessed and in respect of which the assessee is required to file a return of his total income and total world income during the previous year. This condition must be clearly satisfied if the notice is to be a valid notice." 35.8 In the case of CIT v. Bibhuti Bhushan Mallick [1977] 107 ITR 164, the Hon'ble Calcutta High Court upheld the view of the Tribunal which held that the notice was illegal as it did not correctly mention the name of the assessee. On this basis, the proceeding of reassessment under section 147 were held to be invalid. 35.9 In the case of Satya Narain Kirana Bhandar, the Hon'ble Allahabad High Court upholding the view of the Tribunal, held that notice under section 21 of the U.P. Sales Tax Act for reassessment was defective as it did not indicate that the assessing authority had reasons to believe that either a part of the turnover bad escaped assessment to tax or had been taxed at a lower rate or a particular exemption claim had been wrongly allowed. 35.10 In the case of Prakash Spun Pipe v. ITO Ward-A, the I.T.A.T. Bench 'A' Allahabad vide its order dated 13-2-98 has held that the defects or omissions in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndly because such a notice could not be issued on the basis of requisition under section 132A at there existed no requisitioned material before the issuance of the notice; thirdly, because the notice does not specify the status of the assessee; fourthly, because it does not indicate the material particulars and necessary information i.e. as to whether it has been issued on the basis of 'search' or 'Requisition' or both, which was necessary to be shown in the notice in the special circumstances relating to this case, and lastly, because it wrongly mentions the block period. It is to be mentioned here that the notice is for the block period of 1-4-86 to 28-12-96, while the assessment has been made for the block period of 1-4-94 to 28-11-96. 39.2 We further hold that since for assumption of the jurisdiction to proceed for making of the assessment for block period, service of a valid notice in terms of section 158BC is a prerequisite and a mandatory condition, and since the notice in the present case is found to be void and defective on the grounds mentioned above, the assessment framed under such conditions is bad in law and void ab initio. We, therefore, hold accordingly. 40. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proval cannot be read in evidence because it has not been communicated to the assessee. (f) The assessment order cannot be supplemented or supported by a matter which is not contained in the assessment order of which has not been communicated. 42.2 In support of his contention and above mentioned objections, the ld. counsel relied on the following decisions : 1. C.B. Gautam v. Union of India [1993] 199 ITR 530/[1992] 65 Taxman 440(SC). 2. S.L. Kapoor v. Jagmohan [1980] IV SCC 379. 3. 1984 ALJ 1031. 4. CIT v. Janta Furniture Mart [1973] 31 STC 392 (All.) 5. CIT v. Oriental Rubber Works [1984] 145 ITR 477/[1983] 15 Taxman 51 (SC) 6. 1994 UPTC 1161 7. Kirtilal Kalidas Co. v. Dy. CIT [1998] 67 ITD 573 (Mad.). 43. The ld. Senior Standing Counsel, Shri Bharatji Agarwal, in reply to the objections of the assessee on the point of approval submitted that the provisions of section 158BC are procedural and, therefore, there was no necessity to give any opportunity of being heard to the assessee before granting of approval. He also contended that there was no provision for such an opportunity in the relevant statutory provisions. Referring to the judgment of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court, we consider it proper to deal with these pleas on the basis of the availability of material and the arguments of the ld. counsel for the parties. Hence, we are proceeding to decide these pleas. 46.1 In the case of Microland Ltd., the ITAT, Bangalore Bench, while explaining the object behind the section 158BG, has held that the provision for according approval to the assessment orders, to be passed in cases of search and seizure, were introduced mostly for purposes of allowing the Commissioner to monitor the search and seizure cases in a legal manner. According to the Tribunal, but for this provision, any interference on the part of the Commissioner, even to oversee how the search and seizure assessments are progressing might have been considered as illegal and invalid. Elaborating the limited functions of the Commissioner, while approving the assessment order, the Tribunal held that since the approval itself does not create any civil liability of great consequence and is merely of administrative nature, no effective harm was to be caused to the assessee on account of such approval and therefore not granting opportunity of being heard to the assessee, did not constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priety, validity/legality of the block assessment order and the Tribunal vide its appellate order confirms, cancels, quashes, modifies or sets aside the block assessment order in so far as the same is found to be or not to be in accordance with the said standards of scrutiny. Considering the scheme of Chapter XIV-B together with the fact of there being a fixed period of limitation for completing the assessment of the block and the block period being spread-over a span of 10 years, and the case being a special one involving search and seizure, the approval being not of any decisive consequence as discussed above, and the statute, though specifically providing for the previous approval along with other detailed procedure, not containing any provision for the giving of opportunity of hearing to the assessee prior to grant of approval, we are of the considered opinion that in the matter of block assessment under Chapter XIV-B, the giving of opportunity of hearing to the assessee prior to according approval under section 158BG by the Commissioner is not essentially needed. This is so also because such an opportunity may, not unoften, involve lengthy hearings and time absorbing as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant case laws, we are of the view that the intention of the legislature while enacting the provisions of 158BG appears to be that the block assessment in search cases of undisclosed income entailing serious consequences should be thoroughly gone through before the assessment is made. That is the object for entrusting a job of approval to a superior and very responsible officer of the rank of Commissioner or Director so that he, with his ability, experience and maturity of understanding, can scrutinize the documents, can appreciate its factual and legal aspects and can properly supervise the entire progress of assessment. Thus, the concerned authority, while granting approval, is expected to examine the entire material before approving the assessment order. It is also a settled law that whenever any statutory obligation is cast on any authority, such authority is legally required to discharge the obligation not mechanically nor formally but by application of mind. 47.2 So far as the approval in the present case is concerned, a copy of the same is available at page 169 of Paper Book of the department. The relevant part is reproduced as under : "Office of the Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round Nos. 6, 7 and 8 are decided as above. 49. Ground No. 9 : This ground reads as under : "9. Because the impugned proceedings/assessment order are against the provisions of section 158BB and Chapter XIV-B of the Act." The assessee has challenged the validity of the assessment order on the ground that the determination of undisclosed income for the block period has not been made yearwise as is required by section 158BB. Referring in detail the provisions of section 158BB of the Income-tax Act, ld. counsel submitted that the computation of undisclosed income of the block period has to be in the manner and method prescribed under section 158BB. According to him, the Assessing Officer has committed a mistake by making computation for the entire block period without making computation of income of each previous year. He also referred to the provisions of section 158BC which provide that the manner of computation shall be as laid down under section 158BB. In this regard he submitted that the assessee is an old assessee since 1994 and returns for the earlier two assessment years had already been filed on its behalf and, therefore, effect was to be given to those assessments. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by the aggregate of the total income or increased by the aggregate of losses, of the said previous years. The aforesaid total income/losses of the previous years shall be determined in case assessments having already been concluded on the basis of such assessments as provided in clause (a). The said determination shall be made, where returns of income have been filed but assessments have not been made till the date of search, on the basis of income disclosed in such returns, as provided in clause (b). Where the due date for filing of return of income has expired but no return has been filed, the said total income/loss shall be determined at nil as provided in clause (c). Similarly, the effect shall be given to the provisions of clauses (a) to (f). As such, for computing the undisclosed income of the block period the total income of the previous years falling within the block period shall have to be computed as required by section 158BB(1), though this computation, in accordance with Chapter will be on the basis of evidence found as a result of search and such other materials or information as available with the Assessing Officer. Thus for the purpose of computing undisclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yearwise, the impugned assessment order deserves to be set aside. This ground is, therefore, allowed in favour of the assessee. Consequently the assessment is set aside. However, on this aspect, we will like to restore the matter to the Assessing Officer for making a fresh assessment in accordance with the provisions of section 158BB(1) as is referred to above and in accordance with the rules. 53. Ground Nos. 10, 11, 13, 14, 15, 16 and 17 -- This set of grounds relates to the addition made on account of currency notes seized from the premises of the assessee during the searches conducted by the Central Excise Department and the Income-tax Department, while ground No. 17 specifically challenges the addition of Rs. 1,24,46,944.62, ground No. 13 is directed against the rejection of the explanation of the assessee with regard to the sum of Rs. 40,04,000. In Ground Nos. 14, 15 and 16, the assessee has challenged the findings of the Assessing Authority to the effect that the amount of Rs. 65,59,302 does not belong to Late Rameshwar Dayal Shiksha Samiti (registered). Ground Nos. 10 and 11, which are general in nature also challenge the findings of the Assessing Authority with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e into the matter. On 4-9-1997, a letter was written to the Branch Manager of the Bank to confirm the withdrawals of Rs. 40 lakhs from the account of assessee firm on 26-11-1996. The bank was also asked to give the denominations in which the cash was handed over to the assessee. Vide reply dated 5-9-1997, the bank confirmed that a sum of Rs. 39 lakhs was shown to be paid to Shri Ramesh Kumar Verma on 26-11-1996, but on the next day i.e., on 27-11-1996, the entries in the books of the bank were made. It was also informed that the details of denominations of the currency notes of the amount paid to Shri Ramesh Kumar Verma were not mentioned in the bank records. On this information, further investigation was conducted by the Assessing Officer. 54.3 (iii) The investigation revealed that at about 4 P.M. on 26-11-1996 after the closure of banking hours, three account paying slips were received for depositing a total sum of Rs. 4,04,000 in the account of one Smt. Jai Rani Verma in her account No. 5576. It was also revealed that a cheque No. 0448202 dated 26-11-1996 for withdrawing the amount of Rs. 39 lakhs from the account No. 822 was also presented in the bank at the same time. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it was with the connivance of the bank officials that the assessee succeeded in obtaining some book entries for establishing the claim that a sum of Rs. 39 lakhs was actually withdrawn from the bank on 26-11-1996. In the opinion of the Assessing Officer, this was the gameplan of the assessee and, thus, rejecting the version of the assessee, he treated the entire sum of Rs. 39 lakhs as undisclosed income of the assessee. 55. The learned counsel for the assessee has assailed the findings of the Assessing Officer on various grounds. His main objection was that in the presence documentary evidence in support thereof, the Assessing Officer was not justified in coming to the conclusion that the entire transactions were fake and were manipulated by the assessee with the connivance of the bank officials. The learned Senior Advocate, Shri Gupta, vehemently contended that the Assessing Officer conducted the entire investigation behind the back of the assessee. He pointed out that the assessee was not confronted with the affidavit of Smt. Jai Rani Verma, statement of Shri Shiv Narain Lal Srivastava, Cashier and that of Shri R.S. Saroj, the Manager of the bank. He further pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a scrutiny of the bank record was made. According to him, it was for the assessee to establish the fact that out of the amount seized by the Central Excise Department a sum of Rs. 40 lakhs belonged to M/s. Verma Roadways which was withdrawn from the bank on 26-11-1996. Thus, whatever enquiry was made it was in consonance with the stand taken by the assessee and proper inference could be drawn only after making an enquiry. Shri Agrawal pointed out that various anomalies in the bank account and more particularly the anomaly relating to the entry made on 27-11-1996, which is shown by "A-1", were recorded by the Assessing Officer after showing the same to the Cashier and to the Bank Manager and after pointing out the position of bank documents to them. Shri Agrawal emphatically argued that the whole transaction established a deep conspiracy and connivance of the bank officials with the assessee. According to him, in view of the circumstances pointed out by the Assessing Officer, there remains no scope to challenge his finding. The learned Counsel, specifically submitted following points in this regard : (a) In fact, no cash was deposited in the account of Smt. Jai Rani Verma as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, the Assessing Officer has flouted the settled principles of natural justice, which is bound to vitiate the findings recorded by him. 57.2 (i) In the case of Kishinchand Chellaram the facts were similar. The Income-tax Officer had gathered information that the assessee has, by two telegraphic transfers remitted the amount from Madras to Bombay through a bank. The Income-tax Officer wrote two letters to the Manager of the Bank for making enquiries about the remittances. These letters were not disclosed to the assessee. The reply of the Manager confirming the remittances was also not disclosed to the assessee. Relying upon the two letters of the Income-tax Officer written to the bank, the Tribunal held that a sum of Rs. 1,07,350 was undisclosed income of the assessee. On a reference, the Hon'ble High Court upheld the view of the Tribunal. On appeal, reversing the decision of the Hon'ble High Court, the Hon'ble Supreme Court held that the two letters did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs. 1,07,350 was remitted by the assessee from Madras and if these two letters were elimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a particular specified procedure to be followed. It may be that in a given case, the rule of audi alteram partem may impart a requirement that witnesses whose statements are sought to be relied upon by the authority holding the inquiry should be permitted to be cross-examined by the party affected while in some other case, it may not. The procedure required to be adopted for giving an opportunity to a person to be heard must necessarily depend on facts and circumstances of each case." 57.4 (iii) In the case of Premier Motors (P.) Ltd. v. CST, 1970 U.P.T.C. 203, the Hon'ble Allahabad High Court has held as under : "It is true that the Evidence Act, as such does not apply to the proceedings under the U.P. Sales Tax Act and it is also true that the Assessing Authority may use certain materials, which, strictly speaking, may not be admissible evidence in a Court of Law. But that does not mean that any material or information, gathered by the Assessing Authority as a result of a private enquiry, can be used against an assessee without disclosing to him the material and without affording him an adequate opportunity to rebut the same. The question that would be as to whether in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context, we want to observe that the main person involved in the entire transaction was the bank manager, Shri R.S. Saroj. His statement should have been recorded by the Assessing Officer himself and an opportunity should have been given to the assessee to cross-examine him. Similar course should have been adopted for examining the Cashier. We would have summoned these two witnesses, but for the time constraint, we are not doing so. We, therefore, direct the Assessing Officer to summon these two witnesses and also others and examine them in accordance with the relevant banking rules and Procedure relating to deposits and withdrawals of huge amounts. While doing so, the assessee shall be given full opportunity of cross-examining them and confronting them. Only after this is done and after proper enquiry is made, according to rules, the finding shall be recorded by the Assessing Officer. To this extent, we set aside the finding of the Assessing Officer and restore the matter back to him for fresh adjudication in the light of the observations made above. 60. B. Cash of Rs. 65,59,302 which according to the assessee belonged to Late Rameshwar Dayal Shiksha Samiti --- Reverting to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety were not answered. Hence, a show cause notice was issued to the assessee on 9-10-1997 referring to the notices dated 8-9-1997 and 19-9-1997 and reminding the assessee that the queries relating to cash remain uncomplied with. The assessee was given last opportunity and 14-10-1997 was fixed for compliance but still on 14-10-1997, the assessee filed reply regarding other points, but chose not to divulge any information regarding the society. Yet another notice was issued on 21-10-1997 and the assessee was asked to prove the genuineness, the identity and credit or worthiness of the donors relating to the society. This time the date of compliance was fixed on 3-11-1997. It was only before this date i.e., on 23-10-1997, the information regarding the society was furnished. 62. In this background, and particularly referring to the statements of Shri Rakesh Kumar Verma and Shri Jagdamba Prasad Verma, the Assessing Officer concluded that the entire story of the assessee that Rs. 65,59,302 belonged to the Late Rameshwar Dayal Shiksha Samiti was an afterthought. The detailed grounds for arriving at this conclusion are recorded at pages 15, 16, 17 and 18 of the assessment order, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fag end. According to him, had there been genuine donors, they could have come forward to claim the amount or to lodge a claim on behalf of the society before the Central Excise Authorities or before the Income-tax Authorities. Referring to the bye-laws of the society and more particularly its clauses 9 and 11, he pointed out that the amount of the society was to be deposited in a nationalised bank and was not to be kept at the residence or in the office of the Manager or any other office bearer. Accordingly to him, if the members of the society lost faith in Shri Jagdamba Prasad as was the story of Shri K. G. Shastri then there was all the more reason for them to lodge the protest against Shri Verma in the court about the mismanagement of money of the society. Shri Agrawal also pointed out that the assessee was repeatedly directed to produce the donors but it failed to do so, which only proves that the donors were not genuine. He further pointed out that it is unbelievable that such a huge sum could be collected within such a short period by the society. Shri Agarwal also raised the following points for suspecting and rejecting the story of the assessee : (i) A society is expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge narrated in para 17 of the application is also not reliable. It is surprising that before 5-11-1997 neither the assessee nor the society placed the details before the Assessing Officer. The reasons for not doing so, speak volumes against the conduct of the assessee, raising every doubt against it and such doubtful conduct cannot be overlooked. The assessee was repeatedly directed by the Assessing Officer to produce the documents relating to the society and also the donors. There is no explanation on the part of the assessee for not producing the donors. If Shri Jagdamba Prasad Verma was a founder member and a key person, then it would not have been difficult for him to produce the persons from whom large sums were collected. It is not the case of the assessee that the donors were not traceable or that they refused to come. No application was moved by the assessee or Shri Jagdamba Prasad Verma for summoning the donors before the Assessing Officer. It was only on 23-10-1997 that a request was made to summon Shri Krishna Gopal Shastri. This request was turned down by the Assessing Officer on the ground that it was primarily the burden of the assessee to prove the genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for compliance was fixed on 14-10-1997. On this date, the assessee took the stand copies of cash books of 8 branches were still awaited and, therefore, it was not possible to furnish the explanation in respect of cash relating to the branches. The Assessing Officer, rejecting the claim of the assessee, held that the entire amount of Rs. 78,75,878 was undisclosed income of the assessee. Likewise, the excess cash of Rs. 1,08,195 which was not entered in the Panchnama of the Central Excise was also treated to be undisclosed income of the assessee. 69. Before us, the learned counsel for the assessee submitted that the position of the cash has been shown by the assessee in the balance sheet filed on 11-11-1997. Referring to pages 137 to 150 of its paper book (Vol. II), the learned counsel for the assessee submitted that cash in hand at Rs. 1,19,55,425 was available with the assessee as is clear from page 146 of the paper book. Relying on this paper, the learned counsel further submitted that the position of the cash branchwise has been specified in this paper. He also invited our attention to the profit and loss account for the period ending on 26-11-1996 (paper No. 138) according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exure Items Bags Weight (Kg.) ---------------------------------------------------------------------------------------------------------------------------------------------------- 133/225, T.P. Nagar, 'S'Panchnama Supari 3684 248000 Kanpur dated 29-11-1996 133/225, 'S' " 526 39450 Godown 133/283 'S' " 121 9075 ----------- -------------- 4331 296525 ------------ -------------- (ii) The Assessing Officer gave notice to the assessee on 8-9-1997 to reconcile the position from bilties as per Annexures 'C', 'D', 'G', 'N' and 'S' vide Panchnama dated 29-11-1996 drawn at premises No. 133/325, Transport Nagar. Vide reply dated 10-9-1997, the assessee stated that the details are not available. The proceedings were adjourned to 16-9-1997 at the request of the assessee. On 16-9-1997, Shri M.D. Keshwani, C.A. appeared on behalf of the assessee and filed partial reply in response to notice dated 8-9-1997. On 19-9-1997, again a notice was given to the assessee to reconcile the position of stock of Supari as per Annexure 'S' of Panchnama dated 28-11-1996 drawn at Godown 133/174-A, Transport Nagar and also as per Annexure 'C' of Panchnama dated 28-11-1996 drawn at 133/283, Tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s behalf. The learned Counsel also submitted that the method adopted by the Assessing Officer was totally defective. According to him, it had been explained to the Assessing Officer that one to one identification was not possible by tallying the 'Marka' on the bags because the bags are loaded and unloaded at different places and "Markas" are also changed in the transit. It was also pointed out that no effort was made to actually, and physically verify the correctness either of the 'Markas' noted by the Excise Authorities or by the Income-tax Department. The learned Counsel also argued that in the trade of Supari, the material is purchased and sold at different stages and during this process, the consignment changes hands. According to him, no addition should be made in the hands of the assessee under this head in the face of the documents, list of consignors and consignees of such stock and other details. He also relied on the following decisions in support of his contention : 1. 1995 U.P.T.C. 699, 2. 1996 S.T.D. 61, 3. 1994 U.P.T.C. 1053 4. 1994 U.P.T.C. 1086, 5. 1995 S.T.D. 233. 78. On behalf of the Revenue, Shri Bharatji Agrawal, Chief Standing Counsel of the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the stock of supari. Stock of Cloth 80. During the course of search conducted in the premises of the assessee, stock of cloth was also found. The details of this stock are given by the Assessing Officer at page 29 of the assessment order, which are as follows : ---------------------------------------------------------------------------------------------------------------------------------------------------- Item Annex No. of bails ---------------------------------------------------------------------------------------------------------------------------------------------------- Cotton cloth 133/225 'E' 222 T.P. Nagar, Kanpur. -do- 'D' 103 Saree 'E' 216 +96+25 -do- 'C' 46 Suiting Shirting 'E' 141 Chadar 'C' 59 80.1 The assessee was required to explain and reconcile the stock, which related to cotton cloth, Sarees, Suiting, Shirtings, Chadar etc. Vide its reply dated 29-9-1997 Annexures R-9 and R-10, the assessee gave details of cloth found during the course of search. The Assessing Officer examined the version of the assessee and noticed that in large number of cases, there was no G.R. Nos. available to tally the stock recorded in Panchnama. A list of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has drawn the inference of payment of 40 per cent out of books without any material. The learned Chief Standing Counsel for the Department has relied on the order of the Assessing Officer. 87. We have carefully considered the order of the Assessing Officer. No mention has been made of any exemplar, proof/ evidence. The Assessing Officer has not cited the value of any other property in the area in which the property is purchased by the assessee, is situated. 88. The addition thus has been made purely on the basis of surmises and guess work, which cannot be sustained. The Assessing Officer has not examined any person for coming to the conclusion that 40 per cent of the sale price was paid outside the books. In absence of any material such a finding cannot be upheld. We, therefore, delete this addition. This ground is allowed in favour of the assessee. Ground No. 25 89. The assessee has challenged the addition of Rs. 10.5 lakhs made on account of unexplained investment in trucks. The Assessing Officer compared the returns filed by the assessee for the assessment years 1995-96 and 1996-97. He found that in the Schedule of fixed assets as on 31-3-1995, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso attached with the return. The Assessing Officer required the assessee to produce the books of account on the basis of which Profit and Loss Account was prepared by it. The assessee failed to do so. A last opportunity was also given to the assessee. Details and the documents were not produced. The assessee also did not file return in Form 2B for the block period. The Assessing Officer, therefore, treated the return filed by the assessee only as information and not a return filed under section 139(1) nor one filed in compliance to notice under section 158BC. He, therefore, proceeded to compute the income of the assessee in the following manner : (i) Taking the total receipt at Rs. 3,83,89,940 as disclosed by the assessee in its return, he worked out the profit at the rate of 5 percent of the booking freight, and took it as undisclosed income. This was done on the basis that in the case of Lucknow Banda Transport Co. for the assessment year 1997-98, the net income was shown at the rate of 3.44 per cent of the booking freight receipts. On this basis, an addition of Rs. 19,19,497 was made. (ii) The assessee had shown interest income on loans and advances at Rs. 3,38,136 and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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