1. This appeal by the assesses is directed against the order under Section 158BD r/w Section 158BC passed by the Dy. CIT, Central Cir. 9, Mumbai. By way of grounds 1 to 11, the assessee has challenged the validity of the initiation of proceedings under Section 158BD as well as the validity of service of the notice under Section 158BD. By way of ground No. 12, the assessee has objected to the assessment on the ground that the assessment has been completed in violation of principles of natural justice. The assessee has also challenged the determination of undisclosed income and non-granting set off of loss determined by the previous order of the Tribunal.
2. The facts of the case are thai the assessee is a limited company at whose premises search under Section 132(1) was carried out on 2nd Aug., 1995. The AO had passed order under Section 158BC as on 30th Aug., 1976 in which undisclosed income was determined at Rs. 9,88,82,491. The assessee filed appeal before the Tribunal, which was disposed of vide IT(SS) A. No. 11/Mum/1996 by order, dt. 20th Nov., 1997. The AO gave effect to the order of the Tribunal vide his order dt. 20th March, 1998. As per this order of appeal effect, undisclosed income was determined at Rs. 10,36,62,071. Aggrieved with the order of appeal effect, the assessee again filed appeal before the Tribunal. The same was disposed of by the Tribunal vide IT(SS) A. No. 98/Mum/1998 vide order dt. 31st July, 1998. In this order, the Tribunal recorded a finding that the AO had not complied with the decision of the Tribunal while giving effect to the Tribunal's order. Thereafter, the Tribunal concluded that the net assessed loss would correctly be worked out at Rs. 3,93,19,629. In the meanwhile, notice under Section 158BD was issued on 5th March, 1998. The basis for issue of notice under Section 158BD was search operation under Section 132 in the case of Mahavir Group of Companies at Hyderabad, which was conducted on 14th Sept., 1995. The Dy. CIT Spl. Rg. 2, Hyderabad, has recorded his satisfaction note which is given at pp. 3 and 4 of the assessment order and for ready reference the same is reproduced hereunder: "As regards the transaction of sales as shown to have been made by Mahavir Combines (P) Ltd. with your assessee M/s Chhabria Marketing Ltd. during the Financial year 1994-95 it is mentioned as under : As seen from the ledger (page Nos. 69 to 73) of the Mahavir Combines (P) Ltd. amounts to Rs. 4,50,75,466. While filing the particulars for block period assessments in the Mahavir Group, the assessee vide letter, dt. 28th Jan., 1997 stated that it had made purchases to an extent of Rs. 12,56,20,619 from M/s Unique Plastics Ltd., and Rs. 9,37,328 from M/s Swetha Traders. The said purchases from Unique Plastic Ltd. and M/s Swetha Traders are bogus. M/s Unique Plastics Ltd. said to have made purchases from M/s Sreedev Krupa during the Financial year 1994-95. Enquiries were conducted regarding the existence and genuineness of M/s Sredev Krupa Traders and M/s Lakshmi Trading. The ADIT (Inv.), Murabai in his letter No. ADIT (Inv)/U-VI(I)/1996-97, dt. 20th Jan., 1997, has stated that the concerns viz. M/s Sreedev Krupa Traders and M/s Lakshmi Trading are not in existence. Mahavir group companies raised fictitious invoices in the names of bogus entities such as M/s Lakshmi Trading and M/s Sreedev Krupa Traders, etc. As seen from the above, the sale effected to M/s Chhabria Mktg. Ltd. is bogus.
Another important point is that Mr. Paresh Cheda, MD of Mahavir group companies filed a letter, dt. 28th Jan., 1997 to the CIT, AP-II, Hyderabad wherein tacitly he conceds the fact that accommodation entries have been passed in the books of Mahavir group companies involving the name of M/s Smeta Co., M/s Swetha Traders, M/s Sridev Krup Traders and M/s Lakshmi Trading, block assessment orders of M/s Mahavir Companies (P) Ltd., and M/s Unique Plastics Ltd., highlighting the implications of the stand taken by Mr. Paresh Chheda by filing such a letter before the CIT is discussed at length and copies of such block assessment have already been forwarded to you.
In view of the facts as mentioned above, I am satisfied that it is a fit case (i.e. Chhabria Mktg. Ltd.) for initiating the proceedings under Section 158BD of the IT Act, 1961 and therefore, the proceedings under this section please be initiated by you." The AO completed the assessment under Section 158BD r/w Section 158BC determining undisclosed income of Rs. 9,13,17,953. The undisclosed income was determined by disallowing sales promotion expenses at Rs. 7,94,06,916 and by adding 15 per cent thereon, i.e., Rs. 1,19,11,037 being commission for getting bogus bills for sales promotion expenses.
The assessee, aggrieved with the order under Section 158BD r/w Section 158BC, is in appeal before us.
3. The learned counsel for the assessee argued at length. For the sake brevity, the same is summarized below : (a) There was no basis or material for the satisfaction which was necessary for initiating proceedings under Section 158BD. The assessee made purchases of items of sales promotion from M/s Mahavir Combines (P) Ltd. (hereinafter will be referred to as "MCPL") and M/s Unique Plastic Ltd. (hereinafter will be referred to as."UPL").
MCPL and UPL made purchases from M/s Swetha Traders and M/s Sreedev Krupa Traders. Perhaps, some enquiry was conducted by the Revenue in the case of M/s Sreedev Krupa Traders and M/s Lakshmi Trading through ADI, Mumbai. According to the ADI, Mumbai, these two concerns were not found to be in existence. Therefore, the AO, who was assessing MCPL and UPL, drew an inference that the purchases made by MCPL and UPL were bogus. He further drew an inference that the sales of MCPL and UPL to the assessee were also bogus and, therefore, he recorded a satisfaction note for initiation of proceedings under s, 158BD in the case of the assessee. This inference drawn by the AO of MCPL and UPL is neither legally tenable nor valid. He stated that the purchases by the assessee were made during financial year 1994-95, while the enquiries were conducted in the year 1997, i.e., after more than two years. If after lapse of two years these firms could not be found, it cannot be concluded that these firms were not in existence at the relevant time also, MCPL and UPL are having their own manufacturing. Therefore, merely because genuineness of some purchases by them is doubted, no inference can be drawn that the sales by MCPL and UPL to the assessee are also bogus. He pointed out that in the search at the premises of MCPL, stock of Rs. 55 lakhs was found, while at the premises of UPL, stock of Rs. 1.87 crores was found. Had the inference by the AO that these concerns, i.e., MCPL and UPL, are engaged only in Havala transactions, i.e., getting bogus bills for purchasing and issuing bogus bills for sales, been true, there would have been no stock in hand with these two concerns. During the course of search at MCPL and UPL, statement of their director was recorded. In such statement the director never stated that sales to the assessee were bogus. The AO in para 3 of his satisfaction note has referred that Mr. Paresh Chheda, MD of Mahavir Group companies, filed a letter, dt. 28th Jan., 1997 to the CIT, AP-II. Hyderabad, in which he tacitly conceded these facts. He pointed out that this letter is discussed by the AO himself in para 29 of his order and there is no mention that any sale by them to the assessee is bogus.
He, therefore, stated that there was no material at all, on the basis of which the AO could have found satisfaction of undisclosed income in the hands of the assessee. In the absence of any such material, the issuance of notice under Section 158BD was bad in law.
He further noticed that the satisfaction cannot be founded on inferential facts. In support of his contention, he relied upon the following decisions : (2) Suman Dhanji v. Asstt. CIT (2000) 68 TTJ (Pune) 273 : (2000) 72 ITD 132 (Pune); (b) Purchases from MCPL and UPL were already considered in block assessment. In this respect, he referred to various pages of his paper book, i.e., page Nos. 45 to 47, 129, 213, and 214, wherein these details were furnished during the proceedings under Section 158BC These purchases were also considered in the regular assessment for the asst. yr. 1995-96. To support this contention, he referred to various pages of his paper book, namely, page Nos. 89, 94, 97, 98, 103, 109 etc. He stated that the regular assessment under Section 143(3) was completed on 30th March, 1998, i.e., after the initiation of Section 158BD proceedings. Even in this regular assessment, the genuineness of purchases from MCPL and UPL was not doubted. He stated that Section 158BD proceedings cannot be taken on the basis of information which was already available with the AO. In support of this contention, he relied upon the decision of Tribunal, Hyderabad Bench, in the case of Essem Intra-Port Services (P) Ltd. v. Asstt. -CIT (2000) 68 TTJ (Hyd) 103: (2000 72 ITD 228 (Hyd).
(c) That satisfaction under Section 158BC was not recorded during the course of any proceedings under Section 158BC Even in the case of MCPL and UPL, proceedings were taken under Section 158BD and the AO initiated further Section 158BD proceedings in the case of assessee. He contended that no Section 158BD proceedings can be initiated out of the proceedings under Section 158BD. Section 158BD proceedings can be initiated only out of proceedings under Section 158BC : (d) That satisfaction under Section 158BD was recorded much after the termination of proceedings under Section 158BD in the case of MCPL and UPL. He pointed out that assessment under Section 158BD in the case of MCPL and UPL was completed on 28th Feb., 1997. The satisfaction for initiation of Section 158BD proceedings in the case of the assessee was recorded on 2nd March, 1998, i.e., after more than one year of the completion of proceedings under Section 158BD in the case of MCPL and UPL. He claimed that the AO is seized of the matter only during the continuation of assessment proceedings in the case of MCPL and UPL. Once the assessment proceedings were over, he had neither any jurisdiction nor occasion to record any satisfaction for initiation of proceedings under Section 158BD in the case of the assessee.
(e) That notice under Section 158BD was not served in accordance with law. He contended that as per Section 282(2)(b), notice is to be addressed and served on principal officer of the company. In this case, the notice under Section 158BD was not addressed to the principal officer of the company. He also stated that the notice was silent about the person and the status against whom the proceedings under Section 158BD were being initiated. The block period mentioned in the notice was also incorrect. Therefore, the notice was not served in accordance with law as provided in Section 282(2)(b) of the IT Act.
(f) That Section 158BD requires the handing over of the original record to the AO having jurisdiction over the assessee in whose case Section 158BD proceedings are being taken. However, in this case, no original record was handed over to the AO of the assessee but only photostat copies were supplied.
(g) That the assessment has been completed in violation of natural justice because the AO recorded the statements of various parties behind the back of the assessee. The assessee was not given any opportunity to cross-examine those parties. Therefore, the assessment was in violation of natural justice and was a nullity. In support of this contention, he relied upon the following decisions : He further stated that the sales promotion expenses were properly incurred for the purposes of business and the Revenue has examined it twice, once during the proceedings under Section 158BC and also in regular assessment. The addition is made only on the basis of presumptions, surmises and conjectures. The same is liable to be deleted.
(h) That there is no evidence of any commission of Rs. 1,19,11,037 paid by the assessee. The purchases of items for sales promotion by the assessee were genuine and there is no question of any expenses on commission thereof. This addition is also based upon presumptions and surmises only. The same is to be deleted.
(i) He further stated that the AO has not deducted the loss already determined in the block assessment of the assessee at Rs. 3,93,19,629.
4. The learned Senior Departmental Representative also argued at length. His arguments are summarized as follows : (a) He stated that the learned counsel for the assessee has argued service of notice upon the assessee to be invalid being not in accordance with Section 282 of the IT Act. He pointed out that Section 282 of the IT Act starts with the heading "Service of notice generally". Further, in Section 282(1), the words used are "any such notice may be addressed." He stated that considering the use of word "generally" in the heading as well as "may" in the section itself denote that the method of service provided under Section 282 is optional and not mandatory. He further stated that in this case there was no confusion in identifying the assessee whose name was clearly stated in the notice. The assessee is a public limited company. Notice was served at the office of the company. The assessee received the notice and has complied with the same. The assessee also participated in the assessment proceedings. Therefore, at this stage, the assessee cannot challenge the validity of the notice on the simple ground that it was not addressed to the person as prescribed in Section 282(2) of the IT Act. He further stated that not addressing the notice to the principal officer of the company may at the most be a clerical or technical error, for which the notice cannot be said to be invalid or void. In support of this contention, he relied upon the provisions of Section 292B. He claimed that Section 292B has been inserted on the statute book w.e.f. 1st Oct., 1975 to take care of such technical errors or mistakes. This section specifically provides that no notice, summons or other proceedings shall be deemed to be invalid merely by reason of any mistake, defect or omission of such notice or summons when such notice is in conformity or according to the intent and purpose of the same. He contended that considering the facts of the case, Section 292B would be squarely applicable, and even if there is any omission or defect in the notice as alleged by the learned counsel for the assessee, the notice cannot be said to be invalid in view of Section 292B. (b) That satisfaction required for issue of notice under Section 158BD is only a prima facie satisfaction of undisclosed income belonging to the person other than whose premises were searched. The Department is not required to prove conclusively with regard to undisclosed income for issuance of notice under Section 158BD. The only thing required is the prima facie satisfaction of the AO which was clearly established in this case by the satisfaction recorded by the Dy. CIT Hyderabad, who made the assessment of MCPL and UPL. The AO while making the assessment of MCPL found evidence that MCPL purchases the goods from non-existent parties. Thus, the purchases by MCPL were bogus, When there is no purchase by MCPL, obviously, the sale of goods by MCPL to the assessee is also bogus. Therefore, the AO had sufficient material to come to a prima facie conclusion that the purchases by the assessee were bogus. This prima facie satisfaction was sufficient to issue notice under Section 158BD. He also stated that the facts of various decisions of the Tribunal relied upon by the assessee's learned counsel are altogether different. In those cases, no satisfaction at all was recorded before issue of notice under Section 158BD. But, in the case under consideration, there was enough material and a proper satisfaction, note was duly recorded by the Dy. CIT, Hyderabad. He also relied upon the decision of Hon'ble Kerala High Court in the case of T.S. Sujatha v. Union of India (1998) 238 JTR 599 (Ker). He stated that in this case Their Lordships of Kerala High Court have sustained the validity of notice under Section 158BD issued by the AO. He further submitted that though there is no infirmity in the notice issued by the AO and there is no irregularity, however, even if the Tribunal is of the opinion that there is any error in the proceedings, the Tribunal has the jurisdiction as well as the duty to correct all errors in the proceedings and issue necessary and appropriate direction to the AO. In support of this contention, he relied upon the decision of Hon'ble Supreme Court in the case of Kapurchand Shtimal v. CIT (1981) 131 ITR 451 (SC). He also relied upon the decision of Hon'ble Bombay High Court in the case of CIT v. Mrs.
Ratanbai N.K. Dubhash (1998) 230 ITR 495 (Bom).
(c) That initiation of proceedings under Section 158BD is permissible irrespective of the fact that proceedings under Section 158BC had already taken place in the case of the same assessee. He also stated that Section 158BD proceedings can be taken during the course of Section 158BD proceedings of other assessees. The only requirement is that there should be material justifying the initiation of proceedings under Section 158BD The AO came to know about the bogus purchase by MCPL only during the course of assessment proceedings of MCPL. This was a fresh fact which was not available either during the proceedings under Section 158BC against the assessee or during regular assessment proceedings for asst. yr.
1995-96 in the case of the assessee.
(d) That there is no time-limit for issuance of notice under Section 158BD. The learned counsel for the assessee has relied upon the decision of Hon'ble Gujarat High Court in the case of Khandubhai Vasanji Desai and Ors. v. Dy. CIT (1998) 236 ITR 73 (Guj). In that case also, the Hon'ble Gujarat High Court was of the opinion that notice under Section 158BD was to be issued within reasonable time and without undue delay. In the present case, the Dy. CIT, Hyderabad, recorded the satisfaction note on 2nd March, 1998. The AO, having jurisdiction over the assessee, issued notice under Section 158BD on 5th March, 1998, i.e., just within 3 days.
Therefore, the AO having jurisdiction over the assessee has acted very promptly. The learned counsel for the assessee has pointed out that the satisfaction note was recorded by the Dy. CIT, Hyderabad, after one year of Section 158BD proceedings in the case of MCPL. He stated that there is no time-limit in the IT Act for initiation of Section 158BC proceedings and, therefore, the time taken by the AO i.e., one year cannot be said to be undue delay so as to invalidate the proceedings. He, therefore, submitted that there was no undue delay from the side of the Department but, on the other hand, the assessee made undue delay during the course of assessment proceedings. The AO has recorded the details at pp. 9-10 of the assessment order that in spite of allowing a number of opportunities to the assessee, it was seeking adjournment on one pretext or the other. Thus, it is a case where undue delay 'was taking place on the part of the assessee and not the Revenue.
(e) That there was no violation of natural justice. The statement recorded during the assessment proceedings was confronted to the assessee's representative, Mr. Homi Doctor who appeared in the assessment proceedings. The statement of Mr. Homi Doctor was also recorded and he denied to make any comment on the statement of various wine merchants which were recorded by the AO and which were shown to Mr. Homi Doctor. Mr. Homi Doctor never asked for opportunity to cross-examine those witnesses. He therefore, stated that there was no violation of natural justice in this case. He also stated that it is not necessary to allow cross-examination of each and every witness. In support of this contention, he relied upon the decision of Hon'ble apex Court in the case of State Bank of Patiala and Ors. v. S.K. Sharma 3 SCC 364 and Mg. Director, ECU, Hyderabad v. B. Kamnakaran and Ors. 4 SCC 327. (f) He further stated that the ITO should consider the totality of the facts and then a proper inference be drawn from the overall facts. In support of this contention, he relied upon the decision of Hon'ble Rajasthan High Court in the case of CIT v. Golcha Properties (P) Ltd. (1996) 227 ITR 391 (Raj).
5. In the rejoinder, the learned counsel for the assessee pointed out that the use of the word "may" in Section 262 has to be construed as "shall". He claimed that when the context warrants the word "may", it may be construed as "shall". In support of this contention, he relied upon the decision of Hon'ble apex Court in the case of the Textile Commissioner v. Sagar Textile Mitts (P) Ltd. AIR 1977 SC 1516. He also relied upon the decision of Hon'ble jurisdictional High Court in the case of S.K. Manekia v. CST 1978 TLR 1625. He pointed out that in this case the assessee had challenged the service of notice. In the ST Act, Chapter XI of the Rules deal with service of notice. Rule 47 provides the mode of service and there also the word used is "may". However, Their Lordships have held that the word "may" was not used in Rule 47 to give an option to a serving officer either to adopt one of the modes of service specified in Rule 47 or some other mode but was used in order to give an option to a servicing officer to select one out of the modes of service specified in Rule 47. He further pointed out that in this case Their Lordships have held that wrong service of notice would invalidate the notice and would confer no jurisdiction upon the AO in pursuance of such notice. Their Lordships have also observed that appearing before the ST authorities by the assessee does not amount to waiver or acquiescence in the invalidity. He stated that the above decision of the Hon'ble jurisdictional High Court would be squarely applicable to the facts of the case under appeal and the notice under Section 158BD should be quashed having not been served as per the mandatory provisions of Section 282 of the IT Act. He further stated that it is not a technical or clerical error and cannot be cured by Section 292B of the IT Act. He distinguished the various decisions relied upon by the learned Departmental Representative and pointed out that the facts in those cases are altogether different than the facts in the present appeal. He further stated that Mr. Homi Doctor, the representative of the assessee, had been to the office of the AO for seeking adjournment. The AO recorded his statement and during the course of recording of his statement, he was shown the statements of various wine merchants which were recorded by the AO. He was asked to comment on those statements. Since Mr. Homi Doctor was unable to make any comment instantly, he stated that he is not in a position to make any comment. However, merely because the statements of the witnesses recorded behind the back of the assessee were shown to one of the employees of the assessee would not amount to confronting those statements to the assessee. As per law, the AO should have allowed opportunity to the assessee to cross-examine the witnesses whose statements were recorded behind the back of the assessee. In any case, the assesses should have been supplied copy of those statement before utilising the same against the assessee. He, therefore, concluded that not only the initiation of proceedings under Section 158BD is invalid but the assessment also is invalid, null and void and the same should be quashed.
6. We have carefully considered the arguments of both the sides and have perused the material placed before us. The basic issue in this appeal, and which is ground Nos. 1 to 11 of the assessee's grounds of appeal, is whether the initiation of proceedings under Section 158BD is valid. Section 158BD reads as under; "158BD. Where the AO 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 AO having jurisdiction over such other person and that AO shall proceed against such other person and the provisions of this Chapter shall apply accordingly." From a plain reading of the above section, it is clear that the above section can be invoked (i) where the AO is satisfied, and (ii) that there is undisclosed income which belongs to the person other than whose premises were searched.
"Undisclosed income" has been defined in Clause (b) of Section 158B, which reads as under : "undisclosed income" includes any money bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act." Let us examine in the light of above definition of "undisclosed income" whether in the case of the assessee there was any undisclosed income for the purpose of Section 158BD. Section 158BD proceedings have not been initiated on the ground of possession of any money, bullion, jewellery or other valuable article or thing. Therefore, the only thing remains to be examined is whether their was any income based on any entry in the books of account or other documents or transaction which represents wholly or partly income which has not been or would not have been disclosed for the purposes of this Act. In assessee's case, Section 158BD has been initiated on the alleged grounds of certain bogus purchases from MCPL. So far the assessee's case is that the entire purchases were not only disclosed in the books of account but were also disclosed in the audited statement filed before the AO. It is contended that the details of purchase of sales promotion articles, which includes purchases from MCPL, were duly considered during the proceedings under Section 158BC as well as in the regular assessment for the asst. yr. 1995-96. Neither in the block assessment nor in the regular assessment of asst. yr. 1995-96, the genuineness of the purchases from MCPL was doubted. We have also noticed that regular assessment for asst. yr. 1995-96 was completed even after the initiation of proceedings under Section 158BD The AO issued notice under Section 158BD on 5th March, 1998 and completed the assessment of the assessee for asst. yr. 1995-96 under Section 143(3) on 30th March, 1998. The entire purchases in dispute were made during the accounting year relevant to asst. yr. 1995-96. Therefore, it is not the case of the Revenue that the assessee has not disclosed the factum of purchase of sales promotion articles from MCPL and UPL. The Department initiated proceedings under Section 158BD on the basis of satisfaction note recorded by the Dy. CIT, Hyderabad, who was the AO of MCPL, which is already reproduced above vide para 3 (pp. 2 & 3). The AO, while examining the case of MCPL, verified the purchases and it was found that MCPL made purchases from UPL and M/s Swetha Traders, UPL is said to have made purchases from The AO conducted the enquiry M/s Sreedev Krupa Traders and M/s Lakshmi Trading through ADI (Inv.) Mumbai. He, on the basis of letter No. ADIT(Inv.)/Unit-VI(1)/1996-97, dt. 20th Jan., 1997, concluded that M/s Sreedev Krupa Traders and M/s Lakshmi Trading are not in existence. The AO, therefore, inferred that Mahavir group of companies raised fictitious invoices in the names of bogus entities such as M/s Lakshmi Trading and M/s Sreedev Krupa Traders. From this, he further concluded that sales effected to M/s Chhabria Marketing Ltd. were bogus.
7. The learned Departmental Representative has also produced before us the letter of ADIT(Inv.), Bombay, dt. 20th Jan., 1997. Since the Department's entire case rests on the strength of this letter, we would like to reproduce the same hereunder in toto :"No ADIT(Inv)/Unit-VI(1)/1996-97 Office of the Addl. Director of IT (Inv.), Sub : Asst. yr. 1994-95--In the case of M/s Unique Plastics (P) Ltd. 3-5-784/1, King Koti Raod, Hyderabad - Enquiries regarding - Ref. : Your letter CONFIDENTIAL dt. 13th Jan., 1997 F.No. GIR No. U. 5 1. The enquiries were made in respect of all the 3 parties mentioned at para 3 of your above referred letter. But none of the parties could be located at the given address.
2. In the local enquiry the building by name Prem Chambers were not found at Mohammedali Road, in fact it was learnt that no such building is available on Mohammedali Road, Mumbai-3. Hence the concern by name M/s Laxmi Trading Co., could not be located.
3. As regards Vimal Plastic Industries no such concern could be located on Bandari Cross Lane No. 1, Mumbai-3, as the name of the building has not been given.
4. Efforts made to locate M/s Sreedev Krupa Traders were also in vain as the building named Mulji House could not be located at Bhuleshwar Road, Plot No. 45 is a single storeyed structure where a business in the name of Mohan Mitaiwala is being carried on. Plot No. 47 is an old building without any name. 5. In view of the above, you are revested to furnish some more details about the said 3 concerns well in advance to enable me to locate and conduct necessary enquiries.
From a perusal of the above letter, it is obvious that the ADIT(Inv.), Mumbai, has only informed that the above parties could not be located at the given addresses and he requested the Dy. CIT, Spl. Rg. 2, Hyderabad, to furnish some more details about the said three concerns so as to enable him to locate them and conduct necessary enquiries.
Now, we are surprised to know how on the basis of this letter the Dy.
CIT, Rg.-2, Hyderabad, concluded that the two concerns, M/s Sreedev Krupa Traders and M/s Lakshmi Trading Co., are not in existence. The ADIT(Inv.), Mumbai, never opined that the parties are not in existence.
On the other hand, he asked the Dy. CIT, Hyderabad, to send more particulars about the parties so that he may locate the parties and conduct necessary enquiries. The Dy. CIT, Hyderabad, perhaps, instead of sending further information, drew an inference that the parties are not in existence. However, in our opinion, such an inference by the Dy.
CIT, Hyderabad, is totally untenable. Moreover, the letter of ADIT, Mumbai, is dt. 20th Jan., 1997 and the Dy, CIT, Range-2, Hyderabad, recorded the satisfaction note for initiation of proceedings under Section 158BD on 2nd March, 1998. Thus, there is time gap of more than one year between the letter of ADIT, Mumbai, and the satisfaction note.
We are unable to understand what prevented the Dy. CIT, Hyderabad, when he had enough time, to communicate the Asstt. CIT, Mumbai, more particulars of the parties as was requested by him. Therefore, in our opinion, the letter of ADIT, Mumbai, does not at all establish that the parties from whom MCPL and UPL purchased the goods were bogus. This is not the report of the ADIT but this is the presumption/inference of Dy.
CIT, Hyderabad. The Dy. CIT, Hyderabad, made further presumption that since the purchases by MCPL and UPL are bogus sales by them to the assessee are also bogus. Perhaps, his view is that MCPL and UPL are involved only in showing bogus purchases and issuing bogus bills for the sales. But, from the finding recorded by the same AO, which is reproduced in page 2 of the assessment order, this presumption is rebutted. While making the assessment of MCPL, the .Dy. CIT, Spl. Rg.
2, Hyderabad, has recorded a finding that "the other, area of clandestine activities was that the group started its manufacturing base where major portion of own production was sold outside accounts.
Large scale suppression of income from manufacturing and trading activities was established by seizure of unaccounted sales vouchers".
Thus, the finding by the same AO while completing the assessment of MCPL was that MCPL had its own manufacturing base, the production was on large scale and major portion of the production was unaccounted.
Therefore, it cannot be said that MCPL did not have the goods which they sold to the assessee. In fact, at the search of premises of MCPL and UPL, trading stocks worth Rs. 55 lakhs and 1.87 crores respectively were found. In their block assessment, sales were found at Rs. 13,62/20.18 crores respectively. Such a huge quantity of trading stock, which was found and physically verified by the Revenue authorities at the time of search, clearly proves that they were actually selling the goods and not only the Havala transactions. We may clarify that we are not deciding any issue at that may arise in the appeals of MCPL or UPL but our observations are limited to and in the context of disposal of the appeal before us. From these facts, the only conclusion we arrive at, for the purpose of this appeal, is that MCPL and UPL had enough capacity which is substantiated by enough stock found with them at the time of search as well as huge turnover in their hands. Therefore, even if any of the purchases by them is doubtful, a further presumption cannot be drawn that the sale by them to the assessee is also bogus, because the Revenue has not identified and has not established that the goods sold to the assessee were the same items of articles, the purchases of which were doubtful in the hands of MCPL and UPL. In view of the totality of the facts discussed above, we hold that the satisfaction recorded by the Dy. CIT, Hyderabad, is based on no material and, to be more specific, it is contrary to the evidence and material on the record of the Department. Therefore, we have no hesitation in quashing the notice issued under Section 158BD. We accordingly quash the notice issued under Section 158BD.8. The learned counsel for the assessee had argued at length to establish that notice under Section 158BD has not been served as per the provisions of Section 282 of the IT Act. In support of his contention, he had placed heavy reliance on the decision of Hon'ble jurisdictional High Court in the case of S.K. Manekia v. CST (supra).
However, as we have already quashed the notice under Section 158BD, the question whether the notice is properly served or not does not survive.
Since we have already quashed the proceedings under Section 158BD, the assessment order, dt. 26th March, 1999 is also quashed.
9. Before we part with the matter, we may mention that a number of decisions have been relied upon by both the sides. However, whether the proceedings under Section 158BD were properly initiated or not and whether there was enough material to form satisfaction for issuance of notice under Section 158BD are essentially matters of fact. It depends upon the facts of each case whether the proceedings were validly initiated or not. We have decided the issue considering the fact of this case in detail. Therefore, we deem it unnecessary to refer to the facts and findings given by the various Courts and Tribunal in those cases. Similarly, since we have decided the appeal on facts and quashed the assessment order, the various legal grounds argued by the parties before us need not be dealt with separately.