TMI Blog2002 (5) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... d food products etc. 3. These appeals have been heard on day to day basis over a period of seven days. On behalf of the Department Shri V.S. Shah, the learned Commissioner of Income-tax [(DR)] appeared and supported the impugned block assessments made by the Assessing Officer. Shri K.C. Patel, the learned Counsel appeared on behalf of one of the Companies of the group viz., Western India Ceramics P. Ltd. and stated that new management has taken over the controlling interest in the Company with effect from 1-12-1997. On behalf of another group Company viz., Swiss Health Foods P. Ltd. which has gone into liquidation, none appeared despite service of notice on the liquidator who has been appointed by the Hon'ble Gujarat High Court for conducting liquidation proceedings. On behalf of the remaining five appellant companies as well as five HUFs of Vachhani Group, Shri S.N. Soparkar, the learned Counsel appeared. 4. The learned CIT (DR) filed separate paper books in connection with the afore-mentioned appeals. Shri K.C. Patel, learned Counsel filed paper books in two volumes in connection with the appeal in the case of Western India Ceramics P. Ltd. He also submitted compilation of 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 730902 1232088 1536562 895861 1994-95 2160820 2038557 3031050 2620260 3527896 1995-96 2685806 2082450 1677362 2757708 2010328 1996-97 3157642 6180366 1996276 1523194 1658727 1997-98 350000 844528 107968 456000 275938 (1-4-96 to 26-6-96) ----------------------------------------------------------------------------- 14955577 28029948 13339895 15027239 14101189 ----------------------------------------------------------------------------- Total Deposits by the Five HUF: = Rs. 8,54,53,808/ ----------------------------------------------------------------------------- 6. The statements of the brothers were recorded under section 132(4) during the course of search operations by the Authorised Officers from time to time wherein inflation of agricultural income has been admitted. Such statements are included in the various paper books filed by the learned representatives before us. For example in paper book No. II filed by Shri K.C. Patel, Advocate various such statements are included from pages 87 to 108. We may make a brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , S/Shri V. D. Vachhani and M. D. Vachhani who have put their signatures by way of affirmation thereof. Reference may further be made to the statement of Shri Krishnadas D. Vachhani recorded under section 131 by the ADI Investigation on 3-7-1996 at the Income-tax Office, Baroda. This statement is placed at pages 97 to 100 of the above paper book. The relevant extracts, being answers to question Nos. 2 and 3, read as under: Q.2 During the course of search proceedings you and your brother, Shri M.D. Vachhani have admitted to having bogus agricultural income to the tune of Rs. 3.00 crores. Please state in what assets this bogus income has been invested? Ans. I have consulted my brother, Shri Pravin Vachhani and state that the above bogus income has been invested in the form of share capital of the following companies: M/s. Western India Ceramics Ltd. - Rs. 3,00,00,000 I confirm that out of the total share capital of Western India Ceramic Ltd. Rs. 3,00,00,000 is out of bogus agricultural income. Q. 3 It is seen that you have shown agricultural income from land in Upleta and various lease lands in Chokari. Kindly give the bifurcation of the basis on which agricultural income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore you and I am also trying to find out the complete records with respect to expenses vouchers, etc. However, I clearly state that the agricultural income shown as that of five respective HUFs pertaining to Chokari, Karkhadi grams is non-genuine, I further state that at this point of time I am not in a position to bifurcate exactly the agricultural income earned from Nagvadar, Upleta and what has been earned from lease land at Chokari, Karkhadi, etc. As I have stated earlier I have shown agricultural income in the last ten years of Rs. 8,14,32,000 and approx. Rs. 30 to Rs. 40 lacs in the current Financial year which means we have approximately shown Rs. 8.5 crores in the five HUF'S. Out of the above agricultural income as I have stated earlier, the income from Chokari, Karkhadi etc. gram is not genuine and this is nearly 70 per cent of our total agricultural income which works out to Rs. 5,95,00,000. Out of the above I have already earlier admitted Rs. 3.00 crores as non-genuine agricultural income and this amount of Rs. 3.00 crores is included in the figures of Rs. 5,95,00,000 which I admit as non-genuine agricultural income." 11. With regard to the lease of land by Vachhani Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953936 2201798 1991-92 3268632 2976818 1992-93 15201298 3820131 1993-94 2254473 4885537 1994-95 6280183 7098400 1995-96 2962513 7551141 1996-97 5355304 9160901 ----------------------------------------------------------------- Rs.44188712 Rs.38530702 ----------------------------------------------------------------- 12. From the aforesaid chart it would be clear that out of the total agricultural income shown by Vachhani family at Rs. 8,27,19,414 for ten assessment years in the block period [which does not include the further agricultural income shown by Five HUFs in the remaining period 1-4-1996 to 26-6-1996 (Rs. 8,54,53,808 - Rs. 8,27,19,414 = Rs. 27,34,394) agricultural income from Padra Taluka shown at Rs. 3,85,30,702 is entirely fictitious and out of the balance Rs. 4,41,88,712, this income has been shown from the own land of Vachhani family at Upleta as well as alleged leased land at Upleta. Now, so far as Upleta is concerned, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs have been produced. Further, the assessee-HUFs also could not produce any books of account for the remaining assessment years covered under the Block Period despite specific opportunities allowed in this behalf. The Assessing Officer has also perused 7/12 records in respect of own lands of the family and noticed that the records indicate the cultivation of cotton, ground-nut and castor only whereas the assessee claims that the family has also been cultivating wheat, Teel etc. The Assessing Officer has worked out the average agricultural income of each of the assessee-HUFs over seven assessment years i.e. assessment years 1980-81 to 1986-87 and the same is considered to be the net agricultural income for the Financial Year 1985-86. On the basis of Index rates of wholesale price of agricultural products published by the Government of India and proceeding on the basis that the Index for the Financial Year 1985-86 is 129.1, the Assessing Officer has proceeded to work out the agricultural income of the assessee from own land at Upleta and work out the inflation of agricultural income in respect of each HUF over the block period as under. The Assessing Officer treated the inflation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .14 4,45,24,884 2. Swiss Health Foods Pvt. Ltd. 7.62 54,59,923 3. Vimal Proteins Pvt. Ltd. 23.45 1,68,02,518 4. Gibraltem Glass and Ceramics 4.30 30,81,058 Pvt. Ltd. 5. Swiss Pack Pvt. Ltd. 0.58 4,15,588 6. Swiss Chocolates P. Ltd. 1.65 11,82,266 7. Sweety Confectionery P. Ltd. 0.26 11,86,296 ------- ------------ 100.00 7,16,52,533 --------------------------------------------------------------------------------- 16. The main dispute arising from the present batch of appeals on which detailed submissions have been made by the learned CIT (DR) as well as the learned Counsel appearing on behalf of the assessees, centers around the quantum of additions on account of inflation of agricultural income and whether such amount is-to be included in the Block Assessments of the Companies or the Five HUFs of the Group. Shri V. S. Shah, Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Assessing Officer is at a rational basis and is liable to be upheld. 21. After careful consideration of the facts and circumstances of the case, we are inclined to uphold the estimate of agricultural income of the entire Vachhani family during the block period at Rs. 1,38,10,275 made by the Assessing Officer and uphold the addition on account of inflation worked out at Rs. 7,16,52,533. It is significant to note that Vachhani family has taken resort to explain the cash deposits in the bank accounts during the block period by making false and fabricated claim that it has taken on lease lands in Chokari and Karkhadi villages in Padra Taluka as well as in Upleta. When confronted with the statements of the concerned land holders, the family retracted its claim and admitted that the agricultural income has been earned only from the own lands of the family in Upleta. However, despite specific opportunities allowed by the Assessing Officer, no evidence whatsoever with regard to the agricultural activities carried out by the assessees as well as details of sale bills of the agricultural products and particulars of agricultural expenses like cost of inputs etc. have been produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been taken on lease. With regard to the balance income from Upleta it also includes non-genuine claim of leased lands. If 20 per cent of income is taken as genuine as stated by Vachhani Brothers and this is applied to Upleta income claims at Rs. 4.5 crores nearly, the amount of genuine agricultural income would be much less than the figure adopted by the Assessing Officer at Rs. 1.38 crores. We feel that the Assessing Officer has been very fair and lenient in the matter of estimating the agricultural income and therefore no further relief in the matter of quantum of inflation of agricultural income is called for. The contentions of the learned Counsel for the assessee on this score are therefore rejected. 22. The second facet of the controversy is regarding the assessability of aforesaid income in the hands of five HUFs or seven companies of Vachhani group. 23. The case of the Revenue before us is that the cash deposits on various dates appear in the bank accounts of five HUFs of Vachhani group and therefore section 69 expressly saddles these assessee-HUFs with the onus to establish the source and nature of the deposits. According to the Revenue, the assessee-HUFs have clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly admit the above position. Even before this Hon'ble Tribunal, at the time of filing these appeals, no such dispute has been raised. Except for the oral arguments raised on behalf of the one Company (WICL), no attempt is made to dispute this position. 2. Once it is found that the income is earned by the Companies, the same must be taxed in the hands of the Companies. Income is to be taxed on its accrual in the hands of the person earning the same. Destination of income or its application cannot determine taxability. 227 ITR 172 at page 186 and 222 ITR 456 at page 468 (SC) 3. Even on the principle of diversion of income at source by an over riding title, the income can not be taxed in the hands of the Directors because there was no overriding title to deny the income to the Company in preference to the Directors. 190 CIT 1 (SC) and 222 ITR 456 at Pp. 469-71 (SC) 4. The question of the "lifting of the corporate veil" cannot arise in the present case at all. The whole concept of the "lifting of the corporate veil" presupposes that the person behind the "veil" has earned the income for his own benefit and the ostensible owner is not the real owner. This concept i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate mantle and discover the true state-of-affairs. He cited series of judgments of Hon'ble Supreme Court and various High Courts in support of his contentions that the corporate veil should be penetrated to ascertain the true nature of the transactions. Various decisions cited by Shri Patel in respect of doctrine of lifting of corporate veil are as under: (1) CIT v. Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC) (2) Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC) (3) Tata Engg. Locomotive Co. Ltd. v. State of Bihar AIR 1965 SC 40 (4) State of UP v. Renusagar Power Co. AIR 1988 SC 1737 (5) Workmen, Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77 (SC) (6) DDA v. Skipper Construction Co. (P.) Ltd. [1997] 89 Comp. Cas. 362(SC) (7) Jawahar Mills Ltd. v. Official Receiver, Sha Mulchand Co. Ltd. [1949] 19 Comp. Cas. 138 (Mad.) (8) Shri Ambica Mills Ltd., Inre [1986] 59 Comp. Cas. 368 (Guj.) (9) CIT v. L.N. Dalmia [1994] 207 ITR 89 (Cal.) (10) Dindas Shankar Thange v. State of Maharashtra [1998] 17 SCL 194 (Bom.) (11)PNB Finance Ltd v. Shital Prasad Jain [1983] 54 Comp.Cas. 66(Delhi) (12) Jyoti Ltd. v. Kanwaljit Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h proposition to include the funds of the HUFs in the income of the Companies would be contrary to all provisions of taxing statutes as well as the theory of real income endorsed and approved by the Hon'ble Supreme Court in various decisions. 28. The learned Counsel further argued that insofar as the assessee-company, namely, WICPL is concerned, no evidence has been brought on record to support and substantiate any addition on the ground of under invoicing of sales or inflation of expenses as alleged by the erstwhile Directors of the Company. Shri Patel added that the accounts of the Company are subject to audit and statements recorded by Revenue authorities at the back of the assessee-company regarding charging of on money or inflation of expenses have not been confronted to the assessee and such evidence therefore cannot be utilised for drawing any adverse conclusion against the, assessee-company. Concluding his arguments, the learned Counsel stated that he supports the case of the Revenue for deleting the protective additions in the cases of group Companies. 29. Shri V. S. Shah, learned CIT (DR) reiterated the Department's case and argued that since the HUFs have not dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup. In the cases of Companies, block returns have been filed and that too after completion of the block assessments showing nil figure in respect of undisclosed income. These returns are signed by Vachhani Brothers who are Directors of the Companies and also are kartas of their respective HUFs. Further while filing the appeals by the group companies before the Tribunal, specific grounds have been taken against the protective additions made by the Assessing Officer on the ground of under-invoicing of sales, inflation of expenses and over-billing of capital expenses. The grounds in the cases of group Companies being ground Nos. 2 and 3 in each appeal are identically worded (excepting that the quantum of addition is different). In the case of Swiss Chocolate P. Ltd IT (SS) Appeal No. 42 (Ahd) of 1997 in ground Nos. 2 and 3 read as under: "2. The Learned Assessing Officer has erred in not properly appreciating the various detailed submissions made before him and consequently order in holding that the appellant has indulged into: (a) Under-invoicing of sales, (b) Inflation of expenses, and (c) Over-billing of capital expenses. In any case the estimate of alleged unexplained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri K.C. Patel, representing Western India Ceramics P. Ltd. very strongly opposed the plea and argued that it was too late in the day for making such offer on behalf of the group Companies when Western India Ceramics P. Ltd., once considered the flagship of Vachhani group, has changed hands and taken over by Patel Management and the other Company viz., Swiss Foods P. Ltd. has gone into liquidation. Shri Patel further added, invisibly agitated tone that after fleecing two main Companies of the group and selling off its shareholdings in one Company and pushing the other into the lap of liquidation, Vachhani group are not entitled to cast off the resultant tax liability, by making such illusory concessions which are neither genuine nor sincere. We see merit in the arguments of Shri Patel that mere statements of erstwhile directors of the Companies would not enable the Vachhani HUFs from transferring the tax liabilities of the HUFs to the Companies of the group. In our opinion, the assessee HUFs have failed to discharge the onus under section 69 of the Act. The Assessing Officer in our opinion is fully justified in holding that no evidence has been furnished during the assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... says "the concept of piercing the veil, in the United States is much more developed than in the U.K. The motto, which was laid down by Sunburn J. and cited since then as the law, is that when the notion of legal entity is used to defeat public convenience, justify wrong, protection fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions". (1990) 53 Modern Law Review 358 Indeed, as for back as 1912, another American Professor, L Maurice Wormser, examined the American decisions on the subject in a brilliantly written article piercing the Veil of Corporate Entity and summarised their central holding in the following words: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons". The various decisions of the Hon'ble Apex Court as well as High Courts cited by Shri K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act. Lord Denning, M.R. made the following observations in that connection at page 1013: "He controlled their every movement. Each danced to his bidding. He pulled the strings. No one else got within reach of them. Transformed into legal language, they were his agents to do as he commanded. He was the principal behind them. I am of the opinion that the court should pull aside the corporate veil and treat these concerns as being his creatures - for whose doings he should be, and is, responsible." Applying the principles enunciated in the aforesaid decisions in the context of the facts and circumstances of the instant case, the inference is irresistible that Vachhani Brothers who were Kartas of the HUFs were really the directing mind and will of the Companies, the very ego and centre of these Companies of the group. The Companies were being used as mere puppets bound hand and foot to the Directors who were Kartas of the HUFs interested in getting their family arrangement and family interest promoted and nurtured by their actions. It is in the light of these facts that the income earned by Vachhani HUFs through their association with the Companies has to be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Counsel has next challenged the application of the doctrine of lifting of corporate veil and argued that the lifting of veil is in respect of entity and not the transaction and further that since the genuineness of the corporate entity is not doubted, there is no occasion for applying the doctrine. The arguments of the learned Counsel are without merit. The true essence of doctrine of piercing corporate veil is to ascertain the reality and substance of the transaction. The substance of the transaction may be covered by the persons of corporate entity or by the arrangement entered into for concealing true form of the transaction. In the various decisions cited above, the principle has been applied even when the genuineness of corporate entity by itself is not in dispute. In Sri Meenakshi Mills Ltd.'s case the Hon'ble Supreme Court held that corporate entity has to be disregarded for ascertaining the true nature of the transaction. The genuineness of the corporate entity itself was not in question before the Hon'ble Supreme Court. Similarly in the case of Renusagar Power Co. cited above the genuineness of the subsidiary company was not in dispute, and the corporate veil was howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is lifted, the very applicability of section 88 of the Indian Trust Act becomes redundant. The gains arising to the Directors under such circumstances would not be governed by section 88 of the Indian Trust Act. The contentions of the learned Counsel therefore are rejected. 42. Shri Soparkar has next argued that when a Director takes away unauthorisedly the funds of the company, the said funds are liable to be returned back to the company and can not be taxed in the hands of the Director. The proposition advanced by the learned Counsel however is not applicable in the facts of the present case. There is not even a whisper of allegation by the Companies of the group or by any party whatsoever that the funds of the companies have been taken away by the HUFs in an unauthorized manner. If at all, the statements of the Directors are to be accepted for explaining the cash deposits in bank accounts of the HUFS, the facts are undisputed that the possession and ownership of the funds are unquestionably with the HUFs. Whatever has been taken away by the Directors is under a common collective arrangement entered into by the Directors on the Board of Management of the Company who also contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . G. Venkataraman [1978] 111 ITR 444 (Mad.) and M.M. Mehta v. CIT [1979] 117 ITR 362 (Cal.) have also been gone through by us and in our opinion do not advance the case of the HUFs. 43. At this stage, we may point out that the deposits in the HUFs accounts have been utilised for making loans to Directors in their individual capacity as well as other members who have further invested by way of acquisitions of share capital as well as deposits in the group Companies. This share capital as well as deposits appearing in the names of family members have continued unchanged without any modification regarding ownership of such moneys as reflected in the books of account of the Companies. During the course of hearing the Bench put a specific question to Shri Soparkar that if the funds invested by the Directors and family members with the Companies are out of concealed income of the Companies and belong to the Companies, why necessary entries changing the ownership of such funds have not been made in the books of the Companies in consonance with the sworn testimony of the Directors. The specific query of the Bench did not elicit any response from the learned Counsel. On further repetition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses indulged by the Directors, the facts of the case indicate that such income has been earned by Vachhani Family by virtue of their exclusive control and management of the group Companies and these corporate entities have been utilised under a well conceived arrangement to siphon of the funds for the benefit of the Vachhani family. Therefore on this basis also the income is liable to be assessed in the hands of the HUFs on substantive basis as done by the Assessing Officer. We therefore uphold the substantive additions in the hands of the five HUFs and delete the protective additions in the hands of seven Companies. 45. The next common issue in the cases of the Companies of the group involved in the present batch of appeals relates to claim of deductions under Chapter VIA of the Act like deductions under section 80HH/80-I etc. in relation to undisclosed income. The learned Counsel placed reliance on the decision of the Ahmedabad Bench of the Tribunal in the case of Electrotherm India Ltd, in IT (SS) Appeal No. 38 (Ahd) of 1997 dated 29-12-1998 a copy of the Tribunal's decision has been placed on record. The learned Counsel further pointed out that the Hon'ble Gujarat High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of search. The discrepancy observed by the Assessing Officer comprised of the following items: (i) Finished Goods Rs. 87,255 (ii) Raw Material Rs. 11,664 The assessee explained that the difference was minor and no addition is called for. The Assessing Officer, however, rejected the explanation and adopted the difference of Rs. 98,919 as undisclosed income of the assessee. Thus the Assessing Officer made an aggregate addition of Rs. 1,11,16,543 being sum of aforesaid two figures [Rs. 1,10,17,624 + Rs. 98,919]. 2.1 Shri K.C. Patel, learned Counsel for the assessee-company strongly urged that there were no discrepancies in the closing stock and the addition made by the Assessing Officer is totally unjustified. The learned Counsel referred to written submissions made by the assessee dated 23-6-1997 during the course of assessment proceedings which are placed in the paper book-I at pages 45 to 53. With regard to the discrepancies pointed out by the Assessing Officer as on 31-3-1996 the learned Counsel invited our attention to copy of Provisional Stocks Statement submitted by the assessee to the bank as on 26-3-96 which is placed at page 269 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the comparison of stocks as on 31-3-1996 with the Provisional Bank Statement dated 25-3-1996, we are inclined to concur with the learned Counsel that no discrepancies in respect of quantities of raw materials as well as finished goods have been brought out by comparing the closing stock inventory as per books with the Provisional Bank Statement. The very fact that the bank statement has been furnished as on 25-3-1996 and the statement is treated as a Provisional Stock Statement, would detract from the merit of any comparison with the figures in the books as on 31-3-1996. In our opinion, it is very important that the business premises of the assessee have been subjected to search operations. If there is any excess stock as on 31-3-1996, no such stock over and above the book figures appears to have come to light during the search operations conducted by the Income-tax authorities. This by itself demolished the Revenue's case for making the impugned addition on the basis of comparison with the Provisional Bank Statement. For the aforesaid reasons, we are inclined to delete the impugned addition. We may point out that even though the Assessing Officer has worked out the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,000 04. Ramnildar Vallabhdas 18,000 05. Manubhai Ghulabhai 19,500 06. Sureshkumar Kanjibhai 17,000 07. Hasmukhabhai Gulabhai 19,500 08. Vinubhai Vithalbhai 18,500 09. Girdharilal Jamnadas 45,800 10. Jagdish Parshottam Devada 19,000 11. Girishbhai Babubhai 19,500 12. Jayantilal Gangadas 15,000 13. Ramesh Kanjibhai 18,000 14. Mrs. Hinaben A Makadia 15,500 15. Krushnadas Vallabhdas 31,000 16. Hiteshkumar M. Vachhani 6,500 17. Vallabhbhai Gordhanbhai 10,000 18. Harilal Jamnadas 19,000 19. Amrutlal Jamnadas 18,000 20. Dinesh Savjibhai 19,000 21. Valjibhai Arjunbhai 48,900 22. Mansukhbhai Mendapara 18,500 23. Maganbhai Ravjibhai 19,500 24. Chhaganbhai Devraj 17,10,000 25. Sureshkumar M. Dhavbhai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been treated as undisclosed income for the block period. 3.5 Shri K.C. Patel, learned Counsel assailing the impugned addition argued that the deposits and loans appearing in the books of accounts are genuine and the Assessing Officer has even levied penalty under section 271D for assessment year 1993-94 treating the loans as genuine, The learned Counsel referred to pages 54 to 59 of the paper book Volume I filed by him which contains penalty order under section 27 ID passed by the Assessing Officer. The said penalty order has however been cancelled by the CIT(A), Baroda vide order dated 22-6-1998, appearing at pages 60 to 63 of the paper book. The learned Counsel contended that while deleting the impugned penalty, the learned CIT(A) has held that genuine borrowings have been made by the assessee-company for meeting urgencies of business and further that these loans have been accepted as genuine by the Assessing Officer. According to the learned Counsel, once the loans have been held to be genuine and accepted in cash under exceptional circumstances, as held by the CIT(A), there is no justification for the Assessing Officer to treat these loans as non-genuine while passing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd spirit of the block assessment scheme as enacted by the Legislature in Chapter XVIB of the Act. Under section 158BB of the Act, for computing the undisclosed income of the block period, the Assessing Officer has to compute the total income of the relevant previous year on the basis of evidence found as a result of search and such other material or information as are available with the Assessing Officer. The evidence found as a result of search would be evidence that has been gathered by Authorised Officer under sections 132 and 132A of the Act. This would also include the statements recorded by the Authorised Officer during the course of search and seizure under section 132(4). The evidence so gathered by the authorised Officer under section 132 along with other material seized, marked or inventorised would be available before the Assessing Officer when he exercises his powers to assess the undisclosed income under Chapter XIVB of the Act. In the instant case, the statements recorded by the Authorised Officer as well as the evidence found during the search operations pertain to non-genuineness of the loan as per Annexure A of the Panchnama dated 29-6-96 which have been detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and accepted by the Assessing Officer would also have to be considered and evaluated by the Assessing Officer. We feel that the Assessing Officer should have allowed proper opportunity to the assessee to prove genuineness of the loans in question and to rebut and refute the evidence brought on record during the search proceedings. It appears to us that proper opportunity in this behalf has not been allowed by the Assessing Officer. We would therefore remit the issue concerning the genuineness of loans as per Annexure A-1 of the Panchnama, to the file of the Assessing Officer for fresh adjudication after allowing opportunity to the assessee. We may clarify that the Assessing Officer would confine himself to the transactions as reflected in the seized documents contained in Annexure A-1 of the Panchnama dated 29-6-1996. The issue is therefore, set aside for fresh adjudication. 3.9 The appeal of the assessee-company is thus partly allowed. Vimal Proteins Pvt. Ltd, Baroda IT (SS) Appeal No. 142/AHD/97: 1. The first dispute is against the protective addition of Rs. 1,68,02,518 on account of under-invoicing as well as inflation of expenses. We have already discussed the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mall magnitude of the discrepancy as well as explanation furnished by the Production Manager at the time of search operations, which appeared to have been ignored by the Assessing Officer, we delete the impugned addition of Rs. 28,643. 3. The next dispute is against the addition of Rs. 18,43,751 on account of unexplained loans and deposits appearing in the books of the company. The Assessing Officer has made the impugned addition on the sole basis that genuineness of the deposits have not been proved during the course of block assessment proceedings. A similar issue has been adjudicated by us above in the case of Western India Ceramics P. Ltd. above and we have held, relying upon the decision of Gujarat High Court in the case of NR. Paper Board Ltd., that block assessment covers only matters and issues arising on the basis of materials and evidence found during the course of search and any other material available with the Assessing Officer while making the assessment. In the instant case the issue regarding the genuineness of the deposits appearing in the books of the assessee-company in various assessment years would, in the absence of any material or evidence found during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer while making the impugned addition has totally ignored the statement of Shri Bhawanji Khimjibhai Lalani, Production Manager recorded during the course of search operations at the premises of the assessee on 26-6-96. Copy of the statement is placed at pages 15 to 19 of the Departmental paper book. In this statement Shri Lalani has explained the discrepancy in various items of stock found during the search operations and with regard to certain items he has stated that clarification can be given after verification of the record. Shri Soparkar extensively referred to the statement and observed that the Assessing Officer has totally ignored the deposition of the Production Manager. Shri Soparkar further stated that the Assessing Officer has given two show-cause notices during the course of block assessment proceedings and one show-cause notice dated 17-2-1997 is placed on page 1 of the assessee's paper book and second show cause notice dated 29-4-1997 is placed on pages 22 and 23 of the paper book. In both these notices, the Assessing Officer has not referred to the alleged stock discrepancy. Shri V.S. Shah, the learned CIT (DR) was unable to controvert the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 91,831 has been treated as undisclosed income by the Assessing Officer. 2.1 Shri Soparkar, invited our attention to the assessee's letter dated 7-8-1996 addressed to the ADI (Inv), placed at page 26 of the Departmental paper book filed by the CIT(DR) wherein explanation with regard to the stock discrepancy has been given which reads as under: "the difference in quantity physically taken by the search party on 26-6-1996 as compared to the stock record was found in respect of the following items: Item of Inventory Qty. as per Qty. found Difference Excise record Physically Printing Ink 1508 - 500 3025 1516 - 500 BOPP Poly 1783 - 770 1622 - 430 161- 340 L.D.P.E. 4480 3744 - 360 705 - 640 In this regard we have to submit that the printing ink before using is to be mixed with Ethyle Acetate and tolune. Only this mixture can be used for actual printing. The Company had kept this mixture or this mix ready for use which was physically verified by the department and found to be 302 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned addition. 5. The next dispute is against the addition of Rs. 5,504 on account of unexplained cash found during the course of search operations. The Assessing Officer has dealt with the issue vide para-2 of the assessment order. From the statement of Shri Mahendra J. Patel, Manager of the assessee-company recorded on 26-6-96 it appears that the cash balance in the cash book had been drawn upto 8-6-96 and closing cash balance as on 8-6-96 was reflected at Rs. 1,23,740. On the basis of subsequent cash transaction as stated by the Manager, the cash balance as per books works out to much in excess of cash found by the Authorised Officer. In our view, cash found cannot be treated as unexplained. The addition is therefore deleted. 6. The next dispute is against the addition of Rs. 8,34,548 on account of difference in cash book and ledger. The Assessing Officer has dealt with the issue vide para-5 of the assessment order. The Assessing Officer observed that during the search operations two sets of cash book and ledger belonging to the assessee-company were found pertaining to Financial Year 1995-96. These books have been seized and appear at Serial Nos. B-11 to B-14 of the An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponding protective additions made in the cases of Group Companies may be deleted. For the reasons discussed hereinbefore, we delete the protective addition of Rs. 54,59,923. 3. The next dispute is against the addition of Rs. 1,88,000 on account of unexplained deposits appearing in the books of account during the block period. The facts and issue involved are similar as in the case of Vimal Proteins P. Ltd. in IT(SS) Appeal No. 142/Ahd/1997 discussed above. Respectfully following the decision of the Hon'ble Gujarat High Court in the case of NR. Paper Board Ltd. and in the light of identical facts and circumstances as above, we delete the addition of Rs. 1,88,000. 4. The next dispute is against the addition of Rs. 5,00,000 on account of unexplained share application money. The Assessing Officer has dealt with the issue vide para-3 of the assessment order. During the course of search operations no evidence whatsoever has been found or seized by the Authorised Officer, concerning the genuineness of the share application money. For the reasons discussed above and respectfully following the decision of the Hon'ble Gujarat High Court in the case of N. R. Paper Board Ltd., we delet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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