1. The assessee. Shri G.C. Bafna, is an individual and is the proprietor of M/s G.C.B, Goods Transport which is engaged in the business of goods transport. The assessee also derives income by share profit from various concerns in Bafna group of cases. He is also a director in a private limited company promoted by the family.
2. The Revenue carried out extensive search operations on Bafna group covering the residential premises on 12th Sept., 1996. Bafna group consists of about 98 assessees, consisting of individuals, firms, AOPs, etc. The group is mainly engaged in the business of transport and it has allied businesses. In the search proceedings, cash of Rs. 4,48,089 was noticed out of, which cash of Rs. 2,50,000 was seized. Apart from the cash, jewellery, shares, securities, various loose papers, account books, etc. were also seized. However, there was no declaration of any undisclosed income made during the course of the search. Out of the group, 10 regular firms and few individuals were filing their returns regularly, but in other cases, including that of the assessee, no returns were filed and no assessments had taken place before the search action was taken. As far as the firms were concerned, the returns were filed for the asst. yr. 1995-96 and the assessments were also made.
Apart from these partnership firms which had filed their regular returns, there were 42 AOPs, 23 partnership firms, 3 HUFs, 3 family trusts and 15 individuals out of whom the assessee is one such individual.
3. The block assessments were completed in the case of a number of AOPs and these assessments were challenged in appeal before this Tribunal.
The representative case was that of G.C. Associates v. Dy. CIT in IT(SS)A No. 198/Pn/1997 which was decided by this Tribunal vide order dt. 18th Aug., 2000. [reported at (2003; 80 TTJ (Pune) 539--Ed.] Some of the grounds in the present appeal have already been dealt with in the order of the Tribunal in the case of G.C. Associates, Pune, to which suitable reference will be made later on while discussing the grounds of appeal.
4. After the search, assessment for the block period 1987-88 to 1997-98 was completed by the AO under Section 158BC at an undisclosed income of Rs. 2,93,78,183. Aggrieved by this order, the assessee is in appeal before this Tribunal and originally as many as 10 grounds were raised, but since the grounds were repetitive and verbose, the assessee condensed the grounds into 5 grounds which are discussed and disposed of as follows.
5. But before adverting to the various grounds, it would be first necessary to note down the names of the various family members, details of which have been given on p. 1 of paper book No. 2, The assessee, Shri G.G. Bafna, has two brothers Shri Narendra C. Bafna and Shri Satish C. Bafna and two married sisters, viz., Smt Sarla Raka and Smt V.K. Parekh. Smt Kundanbai C. Bafna is the mother of the assessee and takes active part in the business of the assessee in spite of her old age. The assessee's wife, is Smt Padamabai while Smt Padma and Smt Pushpa are wives of S/Shri Narendra and Satish. The assessee has two sons Shri Rajendra and Shri Sanjay and two daughters Madhubala and Swati. Shri Narendra has only one son and three daughters, while Satish has two sons and a daughter. Marriages of the sons and daughters are also relevant in this case in regard to the expenditure incurred on the marriages. The entire family of Bafna is a joint family who stays together in the premises at 280/1, Mahatma Phule Peth, Pune. In this house, the ground floor is occupied by various businesses carried on by Bafna group, while on second and third floor members of the family reside.
6. As stated earlier, block assessments of all the assessees were taken up by the AO simultaneously. Some mention must be made about the peculiar aspect of this case. Many additions in the present case are made by the AO on the ground that the assessee has not given the explanation or has not produced necessary evidence. The block return also was not filed till the draft assessment order was made. It was filed on 23rd Sept., 1997, declaring undisclosed income of Rs. 36,21,770 before the draft order was finalised. The AO instead of sending the copy of the draft order, sent a letter on 19th Sept., 1997, a copy of which is given on p. 1103 of paper book No. 1. In this letter, the AO at the end stated as under : "If you have to say in this regard, you may, seek hearing before the CIT, Pune, and file your written objections with evidence to him with a copy to this office on or before 25th Sept., 1997." In view of this specific opportunity given to the assessee, the assessee filed number of papers and evidences before the CIT with his letter dt. 26th Sept., 1997. Copies of these evidences and submissions have been placed in paper book No. 1. From the various letters addressed by the AO seeking information from the assessee, it is clear that scrutiny of Bafna group of cases started some time in the month of June, 1997, as is clear from the letters issued by the AO dt. 24th June, 1997 (p. 1167), 4th July, 1997 (p. 1151), 7th July, 1997 (p.
1193), etc. As far as the assessee is concerned, his case was taken up along with other individual assessees, viz., his brothers, his mother and his sons, etc. Thus, it is seen that in the short span of three months, compiling data for large number of assessees for a period of ten years was extremely difficult. This was mainly because the activities of the assessee and the group were on very substantial scale. It was submitted by the learned counsel of the assessee that getting the data from the various assessees books could be started only in the month of May, 1997 when all the xerox copies were made available, He also brought to our notice the peculiar difficulties in obtaining information, etc., which this Tribunal has taken note of in para 7 of its order in the case of M/s G.C. Associates referred to supra. According to the learned counsel, no efforts were spared on the part of the assessee, because two persons from the office of M/s Khandelwal and Jain, chartered accountants, and also the accountants of Bafna group were attending the office of the AO every day and information was being provided as and when asked for. In spite of these best and sincere efforts, because of the short time available at the disposal of the AO and the assessee, information on various points could not be given before the draft assessment was completed. The learned counsel submitted that substantial part of the information could be covered in the submissions before the learned CIT, but the learned CIT also could not take note of the submissions and evidence again because of the time constraint and he proceeded to confirm the additions proposed in the draft order, though in respect of some of the additions he had directed the AO to pass rectificatory order by taking appropriate evidence from the assessee.
7. With the above background, we now proceed to dispose of the grounds of appeal raised before us.
"On facts and circumstances prevailing in the case and as per provisions of law it be held that the AO ought to have considered return of income filed for the block period for the purpose of assessment. It may further be held that the return of income filed by the appellant before the completion of the assessment for the block period is valid return which ought to have been considered by the AO for the purpose of completing the assessment. It may further be held that not taking cognizance of the return filed by the appellant and finalising the assessment without considering such return is bad in law and vitiates the assessment order passed by the AO. The assessment order passed by the AO be held as null and void.
Just and proper relief be granted to the appellant in this respect." 9. After hearing both the parties, we hold that this ground is identical to ground No. 1 in the case of G.C. Associates referred to supra. This has been dealt with in paras 5 to 9 of the order dt. 18th Aug., 2000, in the case of G.C. Associates. As per para 9 in that order, we have held that filing of the belated return was valid in law and the AO is directed to take cognizance of the entire return as also its accompaniments in regard to computation of income.
"On facts and circumstances prevailing in the case and as per provisions of law, it be held that the undisclosed income should have been assessed at Rs. 36,21,770 as is admitted by the appellant as against Rs. 2,93,78,183 computed by the AO. The appellant be granted just and proper relief in this respect." This is general ground challenging various additions made to the undisclosed income returned. This ground has, therefore, to be read along with other grounds. The ground does not, therefore, call for any specific comment.
"3. Without prejudice to ground Nos. 1 and 2, and circumstances prevailing in the case and as per provisions of law it be held that: a. The AO ought to have granted depreciation on actual cost of truck declared by the appellant. It may further be held that not accepting such actual cost of truck declared by the appellant and substituting the same on ad hoc basis and granting the depreciation on such ad hoc substituted value is contrary to the provisions of law. The appellant be granted just and proper relief as per provisions of law and on facts and circumstances prevailing in the case." 12. The facts and arguments of both the sides are identical to those discussed by us in our order in the case of G.C. Associates (supra). As such the decision given by us in our aforesaid order will apply muiatis mutandis. For the detailed reasons given in our aforesaid order, we set aside the orders of the AO, restore the issue to his file with directions to allow depreciation on each truck acquired in the previous year on the actual cost to the assessee and in case of trucks acquired before the previous year, actual cost to the assessee less of depreciation actually allowed to him under the Act as per provisions of Section 43(6), after getting necessary details from the assessee.
"The depreciation determined for any of the years remained unabsorbed in the block period is adjustable and is eligible for set off against the income of the subsequent year covered by the block period. It further be held that not considering unabsorbed depreciation for the purpose of computation of the income covered in the block period is not in accordance with the provisions of law.
The depreciation should have been allowed in the block period on considering the unabsorbed depreciation pertaining to any of the years within the block period. Just and proper relief be granted to the appellant in this respect." The facts and arguments of both the sides are identical to those discussed by us in our order in the case of G.C. Associates (supra). As such, the decision given by us in our aforesaid order (para 25) will apply mutatis mutandis. For the detailed reasons given in our aforesaid order, we set aside the order of the AO on this issue and he is directed to determine the profits as well as losses on account of unabsorbed depreciation in respect of each previous year without setting off unabsorbed depreciation of earlier years. The income or loss so determined shall be agregated as per Section 158BB for computing undisclosed income. Accordingly, this ground is allowed in part.
"The AO is in error in granting depreciation on pro rata basis for the period from 1st April, 1996 to 12th Sept., 1996. The depreciation should have been allowed in full as per provisions of law and on facts and circumstances prevailing in the case for the said period. Just and proper relief be granted to the appellant in this respect." The facts and arguments of both the sides on this ground are identical to those discussed by us in our order in the case of G.C. Associates (supra). As such, the decision given by us in our aforesaid order (para 31) will apply mutatis mutandis. For the detailed reasons given in our aforesaid order, we direct the AO to allow depreciation at the rate of 50 per cent of the allowable depreciation for the broken period. This ground accordingly succeeds.
"The AO ought to have granted claims of expenses pertaining to trips of trucks, truck expenses and administration expenses on the basis of the P&L a/c submitted by the appellant along with the returns and details submitted from time to time in that respect. It may further be held that disallowing part of such expenses and or allowing such expenses on percentage basis is arbitrary, unjust and improper. The appellant be granted just and proper relief in this respect," For the detailed reasons given in our order in G.C. Associates (supra) (para 39), we restore this issue to the file of the AO with the direction that he should take into consideration the return filed by the assessee before finalisation of the account as also to give an opportunity to the assessee to explain the nature and extent of such expenses and readjudicate upon the issue, after giving an opportunity of being heard to the assessee.
"The AO is in error in not considering the claim of interest in its entirety and allowing such claim partly. It may further be held that interest as claimed by the appellant pertaining to the truck loan and for the funds raised for the purpose of business from banks and other persons are fully allowable one while computing the income for the purpose of assessment. The appellant be granted just and proper relief in this respect." For the detailed reasons given in para 42 of our aforesaid order in G.C. Associates (supra), we hold that the item of interest is a permissible outoing and is fully allowable business expenditure.
Accordingly, we restore this issue to the file of the AO and he is directed to verify the assessee's claim regarding interest with basic supporting data to the extent it is supported from the bank statements, etc. Needless to say that the AO will provide adequate opportunity to the assessee while readjudicating upon this issue.
"The AO is in error in not granting credit on account of advance tax/tax deducted at source by the appellant pertaining to the period covered by the block assessment. The credit in respect of advance taxes paid and/or TDS should have been adjusted against the gross amount of tax liability determined by the AO. The appellant be granted just and proper relief in this respect." The facts here are identical to those discussed in the case of G.C.Associates (para 4) and for the reasons discussed therein, we reject the assessee's request for credit of advance tax. This ground accordingly fails.
"The AO is in error in computing the income pertaining to the previous year ended on 31st March, 1996 and for the period from 1st April, 1996 to 12th Sept., 1996, as undisclosed income and not granting relief in terms of provisions of Section 158BB(l)(d) of the Act. It further be held that the entire income so computed for the said period is to be adjusted and to be set off in terms of provisions of Section 158BB(l)(d) of the Act and tax imposable on such income would be regular tax leviable under the general provisions of the Act and not at the rate of 60 per cent chargeable on the basis of undisclosed income. Just and proper relief be granted to the appellant in this respect." 19. In this ground, it has been contended that the AO was in error in computing the income pertaining to the previous year ending on 31st March, 1996, and for the period from 1st April, 1996 to 12th Sept., 1996, as undisclosed income and not granting relief in terms of provisions of Section 158BB(1)(d) of the Act. It is further contended in this ground that the entire income so computed for the said period is to be adjusted and to be set off in terms of the provisions of Section 158BB(1)(d) of the Act and tax imposable on such income will be regular tax leviable under the general provisions of the Act. We find that this ground is the same as in the case of G.C. Associates (supra) and it has been dealt with in para 45 of the order in that case. The learned Departmental Representative, however, submitted that the AO is justified in treating the income for the period ending 31st March, 1996, and for the broken period upto 12th Sept., 1996, as undisclosed income on the ground that the assessee had never filed his return and that, therefore, it could not be said that income as reflected in the books of the assessee would have been shown by the assessee in the regular return. According to him, therefore, the AO was fully justified in treating the income of this period as undisclosed income.
20. Shri K.A. Sathe, the learned counsel for the assessee, submitted that on the date of search, the assessee's return for the asst. yr.
1996-97 was not due as the firm of which he was a partner was subject to tax audit and/therefore, in computing the income of undisclosed sources, the AO was required to adopt income as could be computed on the basis of books seized, particularly in respect of the assessee's business from transport is concerned. He further submitted that provisions of Clause (d) of Section 158BB are very clear and they require that in respect of the previous year which has not ended or in respect of the previous year for which the date of filing of the return under Section 139(1) has not expired, deduction of income to be computed on the basis of entries relating to the income of transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of search deduction has to be allowed.
21. Shri K. Srinivasan, the learned Departmental Representative relied upon the order of the AO.22. We have considered the rival submissions. In the present case, the assessee did maintain books of account in respect of the transport activity, though such books were not closed and adjusted. At the time of filing return for the block period before the assessment was completed the relevant closing entries were also passed. It is not, therefore, as if the income on the basis of books of account could not have been computed, Accordingly, the income so computed on the basis of books of account is directed to be deducted as per Section 158BB(1)(d).
In this, we stand supported by our decision in the case of G.C.Associates (supra) and also in the cases of Shradha Constructions v.Asstt. CIT (2000) 66 TTJ (Pune) 334 : (2001) 76 ITD 85 (Pune) and Vidya Madanlal Malani v. Asstt. CIT (2000) 69 TTJ (Pune) 456 : (2000) 74 ITD 341 (Pune). This ground accordingly succeeds.
"Without prejudice to ground Nos. 1, 2 and 3, on facts and circumstances prevailing in the case and as per provisions of law it be held that : a. Addition of Rs. 50,000 out of cash found at Rs. 55,054, that of Rs. 3,35,329 on account of value of part of the jewellery found at the time of search and seizure that of Rs. 5,07,543 on account of value of silver found at the time of search and seizure is unjust and improper. The same be deleted." This ground has to be read in the context of block assessments in the case of the assessee as well as of other individual members of the Bafna family. Shri K.A. Sathe, the learned counsel for the assessee, submitted that the cash found has relevance to the entire Bafna group and the addition has to be seen in the context of entire Bafna group.
This issue has been dealt with in para 1 on p. 2 of the assessment order. Out of the total cash of Rs. 3,84,569 at the time of search, cash in possession in the room of Shri G.C. Bafna was of Rs. 55,054.
Other cash was found in the room of Smt Kundanbai C. Bafna. The AO considered the cash of Rs. 50,054 only in the case of the assessee, while rest of the cash was considered in the block assessment of Smt.
K.C. Bafna. The AO had allowed deduction of Rs. 5,054 and balance cash of Rs. 50,000 was treated as unexplained cash and was treated as undisclosed income for the asst. yr. 1997-98.
24. The learned counsel for the assessee drew our attention to the explanation given before the CIT vide letter dt. 26th Sept., 1997 (p. 3 of paper book No. 1). It was pointed out in this letter that the partners as well as members of Bafna family manage financial aspects from the common premises situated at 280/1, Mahatma Phule Peth, Pune.
Cash balances are kept in the custody and at the residence of such persons. The residential premises of all the persons and administrative office is situated in the same building. Cash found at the time of search and seizure was to be allocated in the hands of the concerns as per books maintained by such concerns. On considering such cash balances of various concerns and the savings and accumulated funds with the various members out of the earnings, there was no warrant for making any addition on account of the cash. He drew our attention to the annexure and pointed out that the cash as per the books of account of various business concerns of Bafna group was Rs. 9,93,160 whereas the total cash found at the time of search was Rs. 4,48,890. The learned counsel further drew our attention to the analysis and pointed out that in this annexure it was pointed out that the cash found on the first floor was Rs. 3,84,569, whereas cash found on second floor was Rs. 63,520.
Thus, the total cash found was not Rs. 3,84,569 as mentioned in the assessment order, but Rs. 4,48,089 out of which cash of Rs. 2,50,000 was seized. In the above Note, it has been pointed out that with regard to cash balance as on 12th Sept., 1996, as per the corrected cash books of various Bafna concerns is Rs. 8,82,669, whereas the cash found of Rs. 4,48,089 is much less. He, therefore, submitted that this is not a case of excess cash found, but rather a case of shortage of cash. No addition, therefore, can be made in the case of the assessee or in the case of any other assessees in Bafna group in respect of the above cash. The learned counsel further submitted that the assessee has tried to reconcile the shortage in cash, and according to the assessee, Rs. 3,31,906 represents IOUs in the name of welders, fitters, painters or staff members. According to the learned counsel, the assessee has a system of giving advances to the various staff members as also persons to whom some work like welding, painting, etc. is given. At the time when the advances are given, entries in the cash books are not made, but when the final bill is received from the concerned staff member or the concerned welder, fitter, etc., expenses are debited. He submitted that a separate record is kept of such IOUs or the advances given which on the date of raid were of Rs. 3,31,906. The balance of Rs. 1,02,674, according to the learned counsel, representing further shortage will be on account of cash withdrawn by the family members from the family concerns for the purpose of business or advances, but which has remained to be accounted for.
25. The learned Departmental Representative relied upon the order of the AO.26. We have considered the rival submissions and perused the facts on record. We find considerable force in the submissions of the learned counsel, but the facts and figures given by the learned counsel need verification at the end of the AO. We accordingly direct the AO to verify the cash balances of various Bafna group members as have been brought on p. 2 of paper book No. 2 and if it is found that cash balances of Bafna group are much more than the cash found, addition of Rs. 50,000 in the case of the assessee may be delated.
27. The other addition challenged in this ground is of Rs. 3,35,329 representing the value of jewellery. This addition also has to be considered in the entire Bafna group. In the reply given before the CIT, details regarding Jewellery and silver were given. However, before the AO full details of the jewellery could not be given. The AO in the assessment has considered the gold ornaments found in the bedroom of Shri G.C. Bafna net weight of which is 779.780 gms. with total value of Rs. 4,25,281. Similarly, silver was to the extent of 90.315 Kts. valued at Rs. 6,01,000. The AO gave deduction of 200 gms. of jewellery which he considered to be belonging to the wife of the assessee Smt Padamabai Bafna and balance jewellery of 579,780 gms. valued at Rs. 3,335,329 (sic) was considered as assessee's undisclosed income for the block. As regards the silver the items found in the bedroom of Shri G.C. Bafna were of 76.330 Kgs. valued at Rs. 5,07,543 which were entirely treated as undisclosed income of the assessee.
28. Shri Sathe submitted that in the letter dt. 26th Sept., 1997, the assessee brought to the notice of the learned CIT that the lady members of Bafna family had declared jewellery in their wealth-tax returns filed for the asst. yr. 1982-83. It was also pointed out that jewellery was purchased in subsequent period from disclosed sources of funds.
There was an addition of jewellery also on account of lady members when they got married in the family. Keeping in view the status of the family, 500 gms. per family could have been treated as Stridhan in the hands of each lady and further credit for subsequent purchases should have been granted. According to the assessee, most of the jewellery was explained. However, if any part of the jewellery was to be treated as unexplained, benefit of intangible additions, particularly on account of shortage of cash may be allowed to be set off against the unexplained part of the jewellery. Similar claim was made in respect of silver and it was pointed out that silver was also declared in the wealth-tax returns.
29. In the course of arguments before us, the learned counsel filed full details of jewellery found which are to be found on pp. 3 to 5 of paper book No. 2. These details show the entire jewellery found in the house of Bafnas and it was requested that instead of considering the jewellery in the bedroom of each member of the family, the entire jewellery should be seen as a whole for the family, particularly because Smt K.C. Bafna who was the seniormost member of the family and Shri G.C. Bafna were also having jewellery of the family. The learned counsel submitted that the total jewellery as found in the various bedrooms was 8122.24 gms. as is clear from second column on p. 4. Out of this, jewellery to the extent of 5146 gms. is fully explained by way of jewellery declared by the four ladies in the house in their wealth-tax returns amounting to 3100 gms. and purchase of jewellery of 2046,15 gms, The details of purchase of jewellery are given on p. 21 of the paper book No. 1. The items of purchase are supported by bills and their sources also have been explained on p. 21. In addition to this gold, credit for three daughters-in-law whose marriages have taken place during the year to the extent of 1500 gms. can be given. These three daughters-in-law are wives of Rajendra and Sanjay (two sons of the assessee) and Hemant, son of Satish Bafna. It was further submitted that credit may also be given to the extent of 100 gms. each for 8 male members of the family, viz., the assessee, his two brothers and their 5 sons and two grandsons. The total credit, therefore, would be 1000 gms.
Thus, out of the total jewellery found of 8122.24 gms. the learned counsel submitted that credit may be given for 7646 gms. as under : This leaves only a balance of 476 gms. The learned counsel submitted that in the details given on p. 5, no credit has been taken for purchases during the period from 1982-83 (year under which wealth-tax returns were filed) to 1986-87 (before block started). He submitted that considering the status of the family and their income level, credit for 476 gms. could be easily given. He, therefore, submitted that no addition is warranted on account of jewellery.
30. As regards silver, total quantity of which was 131,39 kgs. (second column on p. 4), according to the learned counsel, credit can be given for 58.52 kgs. as has been brought out on p. 5 of paper book No. 2.
This is on account of 39 kgs. of silver declared in wealth-tax returns of the ladies in the asst. yr. 1982-83, purchase of silver on 18th March, 1985, of 7.172 kgs. and purchase of silver of 12.650 kg. on 19th Nov., 1989. Thus, the silver which is to be explained is 72.57 kgs (131.39 kgs. (-) 58.82 kgs). The learned counsel further submitted that some credit for silver purchased during the period from the asst. yr.
1982-83 to 1986-87 may be given. If any silver is considered to be unexplained, the learned counsel submitted that this may be considered to be out of cash shortage as has been shown earlier. He, therefore, submitted that no addition on account of silver also is required.
31. The learned Departmental Representative submitted that the facts and figures given by the learned counsel need to be verified at the end of the AO because these were not before him at the time of framing the assessment.
32. We have considered the rival submissions and perused the facts on record. We find that vide letter dt. 26th Sept., 1997, the assessee had brought to the notice of the learned CIT that the lady members of Bafna family had declared jewellery in their wealth-tax returns filed for the asst. yr. 1982-83. This fact was not before the AO. It was also pointed out that jewellery was purchased in subsequent period from disclosed sources of funds. There was an addition of jewellery also on account of lady members when they got married in the family. The submissions made before us now by the learned counsel with facts and figures were not before the AO and accordingly, we restore this issue to the file of the AO to readjudicate upon the same after giving an opportunity of being heard to the assessee. Same is the position with silver. The issue of gold jewellery and silver has to be considered in the context of different members of the family as a whole and accordingly we restore both the issues to the file of the AO with direction that he should go through the details furnished before us in the paper book and referred to supra and readjudicate upon the issue after giving an opportunity of being heard to the assessee.
"Addition of share profit from M/s Bafna Automobiles (ASD), Bafna Motor Transport Co., Bafna Auto Carriers, Bafna Translines, Bafna Transport India for asst. yrs. 1987-88 to 1992-93 on the basis of total income determined in the case of the concerned firm without deducting firm's tax and thereupon not allocating such adjusted income in terms of provisions of Section 158 is erroneous and contrary to the provisions of law. The share income should have been assessed after adjusting the firm's tax payable in case of the respective firms. Just and proper relief be granted to the appellant in this respect." 34. In the original ground 4(b), it was contended that, share profit of the assessee from M/s Bafna Automobiles, M/s Bafna Motor Transport Co., M/s Bafna Auto Carriers, M/s Bafna Translines and M/s Bafna Transport India for the asst. yrs. 1987-88 to 1992-93 was taken by the AO without deducting firms' taxes and consequently adjusted income as adopted by the AO under Section 158 was erroneous. As per the original ground, share income should have been calculated after adjusting the firms' taxes payable in case of the respective firms, but subsequently, however, this ground was amended so as to claim that entire share profit from the various concerns for the asst. yrs. 1987-88 to 1992-93 could not have been considered as undisclosed income. The amendment of the ground was made in view of the decision of the Bombay High Court in the case of CIT v. Shamlal Baliam Gurbani (2001) 249 ITR 501 (Bom). The learned counsel submitted that the above ground was purely a legal one and did not require any investigation of fresh facts, The learned counsel further submitted that the various firms in which the assessee was partner were regularly filing their returns of income till the date of search and in any case the returns for the asst. yrs. 1987-88 to 1992-93 were already filed. The AO had also undertaken the block assessments of these firms simultaneously with the block assessment of the present assessee. In dealing with the share profit of the various firms in para 4 of his order, the AO stated that the assessee was asked to explain why his share profit should not be taken as undisclosed income for the asst. yrs. 1987-88 to 1992-93 and the assessee was also asked to explain the credits in the capital account. Since the information was filed only in the case of M/s Bafna Transport India which was assessed at Bombay, in all other concerns the entire share profit as well as credits to capital account were assessed as undisclosed income of the assessee for the asst. yrs. 1987-88 to 1992-93.
35. In this behalf, Shri K.A. Sathe submitted that since the Bombay firm was not with the AO, separate information was given but in regard to other firms assessed in Pune the fact that these firms were regularly filing their returns and the details of share profit from the firms was already on record of the Department much before the date of search and there was thus no justification for treating share profit as undisclosed income, Shri Sathe submitted that the decision of the Bombay High Court in the case of Shamlal Balram Gurbani (supra) squarely applied to the facts of the case.
36. The learned Departmental Representative objected both in regard to the. amendment of the ground as well as the applicability of the decision of the Bombay High Court. According to him, the ground as amended was not a mere amendment, but seeks deletion of the entire share income as undisclosed income and it is in that sense a new ground of appeal. He urged that this ground required to be rejected. He further submitted that the decision of the. Bombay High Court referred to asst. yrs. 1993-94 to 1995-96 and could not be an authority as far as the question was relating to earlier years.
37. We have considered the rival submissions and perused the facts on record. In our view, the decision of the Bombay High Court in the case of Shamlal Balram Gurbani (supra) was still applicable because what the Bombay High Court was concerned was with interest and salary of the firm which was assessable in the hands of the partners as income from business. The logic and reasoning for assessing salary and interest for the assessment year after 1992-93 was the same as in earlier years and the ratio of the Bombay High Court decision that once firms had disclosed share profit, salary and interest of the partners in their own returns such share was disclosed income as far as partner was concerned was applicable even for the earlier years, In view of the above decision of the Bombay High Court, the contentions of the learned Departmental Representative are not tenable. The ground is one of law and goes to the root of the matter and is accordingly admitted on record and in view of the decision of the Bombay High Court (supra), the entire share profit of the various firms both of Pune as well as of Bombay for the asst. yrs. 1987-88 to 1992-93 are deleted as these cannot be considered as undisclosed income of the assessee.
"Addition on account of household expenses aggregating to Rs. 4,30,858 for the block period is unjust and improper and is based on no evidence and arbitrary out of guesswork, conjectures. The addition so made be deleted. The appellant be granted just and proper relief in this respect." 39. This ground is also a ground common to all the individual assessees in this group. During the course of assessment, details regarding household expenses could not be furnished. The AO made the addition with the following remarks : "(3) Household expenses : Vide this office letter dt. 2nd June, 1997, the assessee was asked to file details of household expenses with their break-up. However, the assessee has not filed the details. During the course of hearing, the assessee filed details of family members, according to which, there are nine major family members including the mother of the assessee Smt. Kundanbai C. Bafna. Since the assessee has not filed the details of household expenses, same are estimated at Rs. 75,000 in asst. yr. 1987-88 with the increase of 10 per cent every year. Since there are three male members in his family, same are distributed in all the three male members. Addition, therefore, on account of household expenses is made as per Annex. 22 enclosed with this order." 40. Shri Sathe, the learned counsel for the assessee, submitted that though the AO had proposed the addition on account of household expenses, there was absolutely no material found during the search warranting any conclusion that any undisclosed income is involved on account of inadequate household expenses. In fact, the AO had no material at all as to the total expenditure incurred by the assessee or his family members during the block period. During the course of assessment, details regarding household expenses could not be furnished. However, reply to the query raised was given before the learned CIT during the course of his approval in the letter dt. 26th Sept., 1997. This is dealt with at point No. 3 on pp. 5 and 6 of the paper book No. 1.
41. The details of household expenses and the addition made on that account are given by the AO in Annex. 22 to the assessment order. In making the estimate of household expenses, the AO has estimated the same at Rs. 75,000 in asst. yr. 1987-88 which was the first year and thereafter the estimate has been increased by 10 per cent each year.
The expenses have been equally divided between the assessee and his two brothers. Thus, for the asst. yr. 1987-88 the AO made an addition of Rs. 25,000. The total addition for the entire block is thus Rs. 4,30,858. Shri Sathe submitted that before the CIT, a chart showing withdrawals for household expenses was filed which is to be found on p.
19 of paper book No. 1. This chart is however for the asst. yrs.
1989-90 to 1997-93 (broken period). Details for the earlier two years, i.e., asst. yrs. 1987-88 and 1983-89 could not be compiled. In the chart referred to supra, total withdrawals by the family members for the purpose of household expenses excluding withdrawals for the marriages and jewellery purchases have been given. He drew our attention to the total withdrawals shown in the chart and the withdrawals estimated by the AO which is reproduced below : The learned counsel further submitted that the withdrawals made by the assessee and the family members are from the firm M/s Bafna Motor Transport, Pune, and M/s Bafna Road Lines and subject to the verification of the above figures, it would to seen that the withdrawals shown by the assessee and family members are far in excess of what the AO estimated by way of household expenses, He, therefore, submitted that there is no justification for the impugned addition.
42. The learned Departmental Representative relied upon the order of the AO.43. We have considered the rival submissions and perused the facts on record. In our opinion, addition on account of household expenses is not warranted, firstly, because in the absence of any material found during the search, this item could not be subject-matter of undisclosed income and, secondly, because in fact the expenses as shown by the assessee by way of withdrawals are far in excess of estimates made by the AO. But the figures of withdrawals as shown by the assessee deserve verification at the end of the AO and we direct the AO to verify the figures and subject to the verification, the addition as proposed may be deleted.
"Addition of Rs. 12,751, Rs. 30,000, Rs. 1,78,650, Rs. 5,41,800, Rs. 4,85,360 and Rs. 1,55,395 for asst, yrs. 1987-88, 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93, respectively, being credits appearing in capital account of the appellant in. various firms is unjust and improper. The entire addition so made be deleted. Just and proper relief be granted to the appellant in this respect." 45. In this ground, various additions made by the AO in respect of credits appearing in the capital account of the assessee in various firms has been challenged. This ground has to be read with ground No.4(b) under which it was firstly contended that the details of capital account were already available to the Department in the assessment of the firms before the date of search. The firms were filing their returns regularly before the date of the raid and in any case for the asst. yrs. 1987-88 to 1992-93 for which additions have been made. Shri Sathe submitted that though it is true that details regarding credits in the capital account could not be filed before the AO, in the letter addressed to the CIT dt. 26th Sept., 1997, during the course of approval, relevant capital account extracts were enclosed in the submissions made before him. He drew our attention to these extracts placed on pp. 237 to 383 of paper book No. 1. He further submitted that during the course of search, no documents or loose papers were found which will lead to the conclusion that there was any undisclosed income or any suppression of income on account of these credits. He further submitted that apart from the fact that addition on account of credits in the capital account could not be subject-matter of block, assessment, there being no material found during the search suggesting any undisclosed income and because the details of credits were already available on record of the firms before the search, factually also there does not appear to be any warrant for taxing the credits appearing in the capital account. He further submitted that it will be seen that most of the credits appearing in the capital accounts to the extent the credits represent the amounts introduced by the assessee and they are mostly transfers made from one firm to another and there is no element of income involved.
46. The learned Departmental Representative relied upon the order of the AO.47. We have considered the rival submissions and perused the facts on record. The submissions made by Shri Sathe deserve to be verified at the end of the AO. We accordingly direct the AO to verify details of the credits as have been filed before the CIT on pp. 237 to 383 and readjudicate upon the issue after giving an opportunity of being heard to the assessee.
"Addition in aggregate of Rs. 19,11,135 for asst. yrs. 1987-88 to 1997-98 in SB Account is unjust and improper. The addition so made be deleted. Just and proper relief be granted to the appellant in this respect." 49. The AO made an addition of Rs. 19,11,135 in all for the asst. yrs.
1987-88 to 1997-98 representing credits in savings bank account. In the early part of the hearing the AO had called for the details regarding the credits in the savings bank accounts of the assessee, but subsequently in the month of September two days before preparing the draft order, the AO obtained details of the credits from banks and asked the assessee to explain these details. Since the assessee could not immediately file these details, all such credits in the bank account were considered by the AO as undisclosed income of the respective assessment years in the block.
50. Shri Sathe submitted that the details were, however, before the CIT in the letter dt. 22nd Sept., 1997. These details and summary of the savings bank account are to be found on pp. 387 to 543 of the paper book No. 1. He submitted that from these details it will be seen that most of the amounts appearing in the deposit side of the account are by way of dividend received from companies or refund of share application money or maturity of LIC policy. To the extent the credits represent refund of share application money, they do not represent any income and such credits will have to be excluded from consideration. He further submitted that to the extent these credits represent dividend, interest or capital gain and to the extent these are not reflected in any regular returns filed by the assessee, these have been returned by the assessee as undisclosed income. He drew our attention to the details given in para 4 of the assessment order and submitted that the AO has taxed the share profit and credits to the capital account together for the asst. yr. 1997-98 to 1992-93 and these are to be found reflected on Annex. 30. He further submitted that the AO has also separately taxed income by way of dividend, interest and capital gains as shown by the assessee and as estimated by him as would be seen from Annex. 30. Thus, for the asst. yrs.. 1987-88 to 1992-93, there is a double addition on account of the credits in the savings bank account and again as also addition on account of dividend, interest, etc. as separately made.
51. The learned Departmental Representative relied upon the order of the AO.52. We have considered the rival submissions and perused the facts on record. At the time of assessment, details of credits in the savings bank account in various banks were not available. Since full details regarding credit are now available, these deserve to be verified at the end of the AO. Further, from the submissions of the learned counsel, it is clear that double addition has been made. Under the circumstances, we deem it fit to set aside the order of the AO on this issue and restore the issue to his file with the direction that he should go through the details and readjudicate upon the issue after giving an opportunity of being heard to the assessee.
"Addition of Rs. 4 lacs on account of value of stock of wooden logs is for asst. yr. 1996-97 is unjust and improper. The additions so made be deleted. Just and proper relief be granted to the appellant in this respect." 54. During the course of search and seizure of Bafna Auto Engg. (P) Ltd., stock of wooden logs was found at the business premises of the company. Query regarding the same was made in Dafna Auto Engg. (P) Ltd. by the AO. Reply was given by the assessee-company by its letter dt.
23rd July, 1997, It was explained by the company that the stock belonged to the members of the Bafna family. It was further accompanied by confirmation letter by B.C. Bafna on behalf of family members stating the facts, reasons for keeping the stock in premises of the company and details from whom logs were purchased (copy of the letter is placed at p. 66 of paper book No. 2). The AO thereafter never asked about the stock of wooden logs and source of investment in individual cases. In draft assessment order, by giving reference as "since you have filed certificate regarding ownership of the same", the addition was proposed. Reply was also filed before the CIT by letter dt. 26th Sept., 1997, relevant portion is on p. 767 of the paper book. The submissions before the CIT were filed in reply to addition which was proposed by the AO in the draft assessment order. According to the assessee, the assessee and his family members purchased wooden logs for construction at Suparshwanath bungalow from Shree Mahavir Saw Mills, Parathwada R.S. Pendhari. Payments were made from drawings made from the business from time to time. The payment of Rs. 2,75,000 was made from Bafna Headlines in the year 1995-96 and was debited in the name of Suparshwanath Constructions on behalf of family members. Further payment of Rs. 4,00,000 was paid towards purchase of wooden logs in the year 1990-91 and out of which Rs. 2,00,000 was debited in the books of Bafna Motor Transport Co. (Poona) on behalf of family members of Bafna group under Suparshwanath Constructions. According to the learned counsel, the amount paid towards purchase of wooden logs is reflected in the books of account and in this connection, he drew our attention to the relevant extract of account at pp. 66 to 76 of paper book No. 2.
The learned counsel further submitted that even if the AO wants to treat this as undisclosed income, he has not ascertained whether the correct value of stock of wooden logs is Rs. 4,00,000 or not, considering the stock of logs. He has only estimated the value to be Rs. 4,00,000 by stating that as the value is not given Rs. 4,00,000 is estimated as income. He, therefore, submitted that there is no justification for the impugned addition.
55. The learned Departmental Representative relied upon the order of the AO.56. We have considered the rival submissions and perused the facts on record. We find force in the submissions of the learned counsel, but the same deserve to be verified from the books of account which were seized. The AO is directed to verify whether the payment of Rs. 2,75,000 was made from Bafna Roadlines in the year 1995-96 and was debited in the name of Suparshwanath Constructions on behalf of the family members. Further, payment of Rs. 4,00,000 was made towards purchase of wooden logs in the year 1990-91 and out of which Rs. 2,00,000 was debited in the books of Bafna Motor Transport Co. (Poona) on behalf of family members of Bafna group under Suparshwanath Constructions. This fact also needs to be verified by the AO.Accordingly, we restore this issue to the file of the AO and direct him to verify the facts and readjudicate upon the issue after giving an opportunity of being heard to the assessee, "Addition of Rs. 15,68,400 for asst. yr. 1996-97 on account of investment in equity shares in Bafna Investment and Financial Services (P) Ltd. is unjust and improper. The additions so made be deleted. Just and proper relief be granted to the appellant in this respect." 58. The facts leading to this addition have been discussed by the AO on para 7 of p. 6 of the assessment order and Annex. 26. During the course of assessment proceedings of Bafna Auto Engg. (P) Ltd., details regarding Bafna Investments and Financial Services (P) Ltd. were filed on 8th Aug., 1997, giving details as to date of incorporation, authorised share capital, paid-up share capital and shareholding pattern, etc. (pp. 77 to 78 of paper book No. 2), In the chart of shareholding pattern, certain shareholding was shown in the name of individuals. Reply dt. 15th Sept., 1997, was filed in response to query raised by the AO on 9th Sept., 1997, stating source of investment in BIFSPL. Copy of letter placed at pp. 79 to 80 of paper book No. 2. The AO has made addition by giving reference as "above explanation of the assessee does not clearly explain the source of investment in shares of BIFSPL." 59. Shri Sathe, the learned counsel for the assessee, submitted that the investment made by the individual is recorded in the books of account. The source of investment in BIFSPL is explained below in the statement of facts : "The assessee applied for shares in BIFSPL in the year 1995-96. The amount was paid from his proprietary concern namely, G.C.B. Goods Transport, All the money was paid by cheque only and was duly recorded in the books of accounts. Source regarding amount received in G.C.B. Goods Transport: In G.G.B. Goods Transport, the assessee received amount as refund of share application money which was paid in the earlier year. The refund received was in turn paid to BIFSPL.
Bafna Auto Engg. (P) Ltd. refunded share application money to all individuals in the year 1995-96. Total share application money collected was Rs. 86 lakhs and which was refunded in the year 1995-96.
Source reg. amount paid to Bafna Auto Engg. (P) Ltd. towards share application money: All the individuals applied for shares in BIFSPL and paid the share application money. The details are enclosed herewith. The assessee along with other family members paid the amount through cheque only and was duly recorded in the books of accounts. The amount was paid by making withdrawals from firms where the assessee and other family members were partners.
Full details explaining source of investment and account extracts in respective concerns are enclosed highlighting the relevant portion.
(Ref. page Nos. 81 to 92/paper book II).
As far as investment by individuals in BIFSPL is concerned, no documents or loose papers were found during the course of search.
Queries were raised on the basis of details filed by the assessee. " 50 (sic-60). The learned Departmental Representative relied upon the earlier of the AO.61. We have considered the rival submissions and perused the facts on record. It is noted that the AO has rejected the explanation filed by the assessee without any verification. Least the AO was expected to verify the contents of the letter dt. 15th Sept., 1997, which was filed before the AO. In our opinion, the AO should have given adequate opportunity to the assessee and accordingly, we restore this issue to the file of the AO. He is directed to go through the details filed by the assessee and get explanation wherever necessary from the assessee and readjudicate upon the issue after giving an opportunity of hearing to the assessee.
"Addition of Rs. 4 lac for asst. yr. 1993-94 on account of estimated marriage expenditure of Swati G. Bafna alias Swati Mehta, that of Rs. 2 lacs on account of estimated marriage expenses of Sanjay B. Bafna, that of Rs. 1,50,000 on account of estimated marriage expenses of Rajendra G. Bafna, that of Rs. 1 lac on account of estimated expenses on functions and ceremonies in asst. yr. 1987-88 is, unjust and improper. The additions so made in the concerned assessment years be deleted. Just and proper relief be granted to the appellant in this respect." 63. As per the AO's remark on p. 6 of his order, there were in all 8 marriages in the Bafna group during the block period and as far as the assessee was concerned, according to the assessee's information, there were three marriages of the following persons : According to the AO details like head-wise marriage expenses, jewellery gifted, etc. had not been furnished. He estimated the marriage expenditure on the marriage of the daughter, i.e., Swati K. Mehta of Rs. 4,00,000 for the asst. yr. 1993-94, marriage expenses of Sanjay G.Bafna (son of the assessee) at Rs. 2,00,000 in the asst. yr. 1990-91 and expenses on the marriage of Shri Rajendra G. Bafna other son at Rs. 1,50,000 in the asst. yr. 1989-90.
64. Shri Sathe submitted that the AO has made the addition of Rs. 4 lakhs as undisclosed income on the marriage of Swati K. Metha, whereas the withdrawals were Rs. 7,02,642. Further, the withdrawals were made by the family members from the regular concerns and duly recorded in the books of account. He drew our attention to the details and submitted that withdrawals were made by Mrs. P.G. Bafna (mother of Swati Bafna) and Mr G.C. Bafna for marriage of Swati G. Bafna. The assessee had debited these withdrawals to his capital account in the books of firms where he was a partner. As far as reference in the AO's order on p. 7, loose paper Nos. 3 and 4 of bundle 1 seized by party No.1 on 13th Sept., 1996, the AO made reference to the amount of . Rs. 1,18,428 on p. 3. According to the learned counsel, the amount was paid to Hotel Ashoka Executive for Swati Bafna's marriage. The amount of Rs. 1,18,428 was paid as follows : As regards the marriage of Sanjay Bafna, the AO has made an addition of Rs. 2,00,000 as undisclosed income, whereas the withdrawals were Rs. 1,16,521. Further, the withdrawals were made by the family members from the regular concerns and duly recorded in the books of account. As regards the marriage of Shri Rajendra G. Bafna, the learned counsel admitted that no details were readily available. However, he submitted that the AO has made simply estimates which are not warranted in a block assessment.
65. The learned Departmental Representative relied upon the order of the AO.66. We have considered the rival submissions and perused the facts on record. For the marriage expenses of Swati Bafna, the AO has made an estimate of Rs. 4 lakhs while according to the assessee he has debited a sum of Rs. 7,02,642. This fact needs to be verified at the end of the AO and if the assessee proves that withdrawals were to the tune of Rs. 7,02,642 no addition will be called for. As regards the expenditure on the marriage of Sanjay G. Bafna, the AO has made an estimate of Rs. 2 lakhs whereas according to the assessee the withdrawals were to the tune of Rs. 1,16,521. If these withdrawals are found to be correct as verified from the books of account, then an addition of Rs. 86,000 will have to be made, but the figure of Rs. 1,16,521 needs to be verified by the AO. Accordingly, we restore this issue to this issue to the file of the AO. He may verify whether the assessee debited an amount of Rs. 1,16,521 and then readjudicate upon the issue after giving an opportunity of being heard to the assessee. As regards the estimate of marriage expenses of Rajendra G. Bafna, since the assessee does not have details, an estimate has to be made. The AO has made the estimate at Rs. 1,50,000 which, in our opinion, taking into consideration the status of the assessee, is fair and reasonable and no interference is called for.
67. Further, an addition of Rs. 1,00,000 has been made by the AO on the basis of loose paper No. 18 with the following remarks: "Loose paper No. 18 of party No. 5 Panchnama dt. 25th Sept., 1996, shows expenditure of Rs. 27,143 on 30th May, 1986, in the name of the assessee. Details of expenditure show that same has been incurred on Mandap, stage, decoration, generator, etc. It appears that some marriage/function has been performed on 30th May, 1986, for which no details have been filed by the assessee. In view of the above, expenditure of Rs. 1 lac is estimated on the above function and the same is treated as undisclosed income of the assessee for asst. yr. 1987-88 for which the year ending is 30th June, 1986." According to the learned counsel, the said loose paper reflects statement of expenditure for function held on 20th May, 1986. This amount was paid from the withdrawals made by the group from time to time. We do not find any merit in this contention of the learned counsel. From the tenor of the loose paper, it, is clear that the expenditure was incurred outside the books of account. Accordingly, addition has to be made, but it has to be restricted to Rs. 27,143 i.e., details of expenditure given in the loose paper and there is no scope for any estimation at Rs. 1,00,000. Accordingly, we retain an addition of Rs. 27,143 and the assessee will be entitled to a relief of Rs. 72,857.
"Additions made as under is unjust and improper. The additions so made be deleted. Just and proper relief be granted to the appellant in this respect.
During the course of search, loose papers, details of which have been given in the ground as above were found. The AO has discussed these loose papers in para 9 of his order under the head 'Seized material'. He has added the figures given in the loose papers because according to him the assessee did not furnish any explanation about the entries in the loose papers.
69. Shri Sathe, the learned counsel for the assessee, has relied upon his detailed submissions given in the Statement of Facts on pp. 14 to 23. The crux of his explanation is that the assessee did respond to the queries made by the AO. but the AO summarily rejected the explanation furnished by the assessee. Detailed explanations were also filed before the learned CIT. But he also did not consider the same. For example--L.P. No. 4 : The assessee and his other family members purchased wooden logs for construction at Suparshwanath bungalow from Shree Mahavir Saw Mills, Paratwada and R.S. Pendhari. The payments were made from drawings made from the business from time to time. Further payment of Rs. 4 lakhs was made towards purchase of wooden logs in the year 1990-91 and out of which Rs. 2 lakhs was debited in the books of Bafna Motor Transport Co. (Poona) on behalf of family members of Bafna group. According to the learned counsel this is a vital issue and this fact has not been taken into consideration by the authorities below.
Similarly, an amount of Rs. 2,75,000 was paid to Mr. Pendhari for purchase of wooden logs in the year 1995-96 and was duly recorded in the books of Bafna Roadlines, but the AO did not verify the entries from the books of Bafna Roadlines. Similarly, for L.P. No. 8, according to the learned counsel, reply was filed before the learned CIT vide letter dt. 26th Sept., 1997 and submitted that these were mere jottings in the name of B.C. Bafna, N.C. Bafna and S.C. Bafna. The figures on the loose paper do not show whether this is an income to G.C. Bafna or an expenditure for G.C. Bafna. According to the learned counsel, in all fairness the CIT ought to have gone through these submissions or ought to have referred the matter to the AO for verification, but he did not do so. In the detailed submissions in the statement of the case, the learned counsel has given details of the contents of the loose papers and explanations and submitted that most of the figures given in the loose papers were accounted for in the books of account. Neither the AO nor the CIT had perhaps time to go through the exact nature of the loose papers.
70. The learned Departmental Representative relied upon the order of the AO.71. We have considered the rival submissions. We find that the draft assessment order was completed and forwarded to the CIT before the assessee could file the return of income. Queries made by the AO were responded to and detailed submissions were filed before the CIT at the time for approval of the draft order. In our opinion, neither the AO nor the learned CIT had time enough to go through each and every seized paper in the light of submissions made by the assessee. For example, if the contents of some of the seized papers are recorded in the books of account, no addition will be called for after verification. After taking into consideration the facts and circumstances of the case, we restore this issue to the file of the AO. He will go through the detailed submissions of the learned counsel before us as given in the statement of facts referred to supra and readjudicate upon this issue after giving an opportunity of being heard to the assessee, "Addition of Rs. 22,554, Rs. 37,000, Rs. 22,230, Rs. 2,06,556, Rs. 3,90,764, Rs. 1,57,180, Rs. 70,200, Rs. 3,20,580, Rs. 97,800 and Rs. 2,91,900 in asst. yrs. 1987-88, 1989-90, 1990-91, 1991-92, 1992-93, 1993-94, 1994-95, 1995-96, 1996-97 and 1997-98 on account of investments in shares is unjust and improper. The additions so made be deleted. It may further be held that estimating the value of certain shares at 6 times of the face value is unjust and improper.
The value of the shares should have been considered on the basis of the investments made duly recorded by the appellant. Just and proper relief be granted to the appellant on these scores." The above additions related to alleged investment in shares seized during the course of search. Shares given in the annexures are few out of large number of shares seized by the Department on 12th Sept., 1996.
Shri Sathe submitted that reply was filed before the CIT under common issue vide letter dt. 26th Sept., 1997. Further, chart showing shares seized and source of investment of that shares was enclosed at the time of hearing before the CIT (pp. 547 to 679 of paper book). He further submitted that this chart was already filed before the AO during the course of assessment proceedings. He drew our attention to the chart showing investment in shares for the respective assessment years (pp.
132 to 147 of paper book No. 2) and submitted that it can be seen that all investment made was from regular books of account and transactions were duly recorded in the books of account. The learned counsel further submitted that in Annex. 9, the AO computed the investment in shares for the asst. yr. 1987-88 seized on 12th Sept., 1996. In the chart the date of acquisition is also written against various shares. In that certain dates were prior to block period which means that the investment in that particular share is made prior to block period. He submitted that all these explanations were ignored by the AO and CIT without bringing any material on record.
73. The learned Departmental representative relied upon the order of the AO.74. After hearing both the sides, we are of the opinion that the matter must go back to the AO for verification of the charts filed before him and before the learned CIT. The submission of the assessee that all the investment made was from regular books of account and transactions were duly recorded in the books of account need to be verified at the end of the AO. Accordingly, we restore this issue to the file of the AO for fresh adjudication after giving an opportunity. of being heard to the assessee.
"Addition of Rs. 48,129, Rs. 48,129, Rs. 49,404, Rs. 50,529, Rs. 66,729, Rs. 96,531, Rs. 1,05,690, Rs. 1,09,176, Rs. 1,25,205, Rs. 1,30,095 and Rs. 1,30,095 in asst. yrs. 1987-88 to 1997-98, respectively, estimating the dividend at 30 per cent of the investment in shares in place of dividend declared and admitted by the appellant in the return of income filed and not granting the deduction under Section 80L is unjust and improper and is not in accordance with the provisions of law. The amount of dividend be considered on the basis of the declaration and admission made by the appellant and relief under Section 80L be granted to the appellant in all concerned years. Just and proper relief be granted to the appellant in this respect." 76. The above additions relate to estimation of dividend at the rate of 30 per cent on investment in shares for asst. yrs. 1987-88 to 1997-98.
These shares were those for which additions on account of investment in shares was made by the AO for asst. yrs. 1987-88 to 1997-98 on the basis of shares seized during the course of search.
77. Shri Sathe submitted that the assessee had offered dividend received as income from other sources in the return filed for the block period. Further, the AO has not given any explanation why he has considered dividend at the rate of 30 per cent of the investment.
78. The learned Departmental Representative relied upon the order of the AO.79. We have considered the rival submissions and perused the facts on record. We have already restored the issue of shares seized during the course of search to the file of the AO for verification as to whom the shares belong and to verify the source of investment. Further, we do not find any justification on the part of the AO for estimating dividend at the rate of 30 per cent of the investment. There cannot be any uniform formula of dividend on investment because investments are in shares of different companies. Accordingly, only the dividend which the respective company had declared has to be added in the hands of those persons to whom the shares belonged. Accordingly, we restore this issue to the file of the AO with the direction that as per our directions given in respect of the seized shares supra in para 64 (74) and to add only the dividend actually declared by the respective company in the hands of the respective persons in the group.
"The AO is in error in not considering the relief pertaining to the interest earned on fixed deposit receipts with bank covered by Section 80L, amount paid towards life insurance premiums and other investments made from year to year eligible for the relief as per the various provisions of Chapters VI-A and VIII of the Act. The appellant be granted relief under provisions of said Chapters." The assessee claimed interest on accrual basis for the years covered in the block period and claimed deductions under Chapter VI-A of the Act (Sections 80C, 80L, etc.) The assessee also paid premium towards LIC and investments eligible under Chapter VII of the Act and claimed rebate in respective years covered in the block period under Chapter VII of the Act.
81. From the order of the AO, it is noted that deduction under Chapters VI-A and VII has not been considered and allowed by him while passing the order. Shri Sathe, the learned counsel for the assessee, submitted that the AO is in error in not considering the relief pertaining to interest on FD with banks covered by Section 80L, amount paid towards LIC and other investments from year to year eligible for relief under Chapters VI-A and VII of the Act.
82. The learned Departmental Representative relied upon the order of the AO.83. We have considered the rival submissions and perused the facts on record. In our view, the issue stands covered by the order of this Tribunal in the case Control Touch Electronics (Pane) (P) Ltd v. Asstt.
CIT (2001) 72 TTJ (Pune) 65.: (2001) 77 ITD 522 (Pune) and accordingly, the AO is directed to give relief under Chapters VI-A and VII after verification.
"Addition of Rs. 6,83,172, Rs. 68,044, Rs. 9,425 and Rs. 76,030 for asst. yrs. 1987-88, 1992-93, 1993-94 and 1994-95, respectively, on alleged profit on sale of shares in place of Rs. 2,57,620, Rs. 42,292, (loss) Rs. 30,315 and loss of Rs. 10,688 shown and admitted by the appellant is unjust and improper. The difference between the amount estimated by the AO and declared and admitted by the appellant be deleted. The appellant be granted just and proper relief in these respects." In the block return, the assessee had already declared profit on sale of shares. The profit as computed by the AO is higher than that shown by the assessee in the block return. The difference is mainly on account of the fact that the AO has not allowed deduction under Section 48 on account of indexing wherever applicable, inclusion of shares of other members of the family and shares of the period earlier to the block period. Even while computing undisclosed income for the purposes of block assessment, normal deductions which are available to the assessee in computing capital gains are available as is clear from the provisions of Section 158BB according to which provisions of Chapter IV are applicable. Section 48 falls within Chapter IV and accordingly, it has been submitted before us that there is no reason for the AO to deny benefits of deduction under Section 48 as might be due.
85. The learned counsel also brought to our notice that the AO has considered the transactions prior to the block period. This would be clear from the fact that in Annex. 30 in computing the income for the asst. yr. 1987-88 he has included profit of Rs. 6,83,172 as profit on sale of shares and an amount of Rs. 4,90,236 is added as investment, in shares. Details of Rs. 4,90,236 are to be found on p. 224 of paper book No. 2. This is copy of the statement considered by the AO. In this chart, it has been clearly written by him that these shareholdings are as on 12th Oct., 1985, and 28th Aug., 1985, and, therefore, value of this investment has been taken for the asst. yr. 1987-88. According to the learned counsel, actually this investment of Rs. 4,90,236 is made prior to the block period and could not have been considered as investment to be taxed in asst. yr. 1987-88 nor profits therefrom should have been brought to tax. The learned counsel submitted that the AO may be directed to verify these aspects also and accept the figure of profit shown by the assessee on sale of shares as per the block return.
86. The learned Departmental Representative had no objection if the matter is restored back to the AO.87. After hearing both the parties, we restore this issue to the file of the AO with the direction that the matter may be examined in the light of the submissions of the learned counsel reproduced supra.
"Addition of Rs. 3,000 and Rs. 48,000 each for the asst. yrs.
1992-93, 1993-94 and 1994-95, respectively, on account of investment in shares by Swati G Bafna alias Swati Mehta is unjust and improper and contrary to the provisions of law. The addition so made be deleted. The appellant be granted just and proper relief in this respect." 89. The addition relates to investment in shares seized during the course of search. These are some of the shares seized by the Department on 12th Sept., 1996. Shri Sathe, the learned counsel for the assessee, submitted that reply was filed before the CIT under common issue vide letter dt. 26th Sept., 1997. Further, chart showing shares seized and source of investment of those shares was filed at the time of hearing before the learned CIT (pp. 547 to 679). According to the learned counsel, this chart was already filed before the AO during the course of assessment proceedings. The learned counsel further submitted that certain shares in the name of Swati G. Bafna were found during the course of search and were seized by the Department. Swati G. Bafna is daughter of G.C. Bafna and as she is daughter, the AO made additions on account of investment in shares in the name of Swati G. Bafna in the hands of the assessee as undisclosed income. According to him, these shares should be considered in the hands of Swati Bafna because these were purchased by her.
90. The learned Departmental Representative submitted that this ground is consequential to ground No. 4(j) dealing with shares and accordingly, the matter may be decided. Since we have restored the issue regarding investment in shares and dividend on shares, this matter being consequential, we restore the same to the file of the AO.He is directed to readjudicate upon the issue following our directions given in respect of shares seized in para 64 (74) supra.
"Addition of Rs. 300 in asst. yr. 1992-93, Rs. 2,700 in asst. yr.
1993-94 and Rs. 17,100 each in asst. yrs. 1994-95 to 1997-98 being the dividend estimated on shares owned and held by Swati G. Bafna alias Mrs. Swati Mehta is unjust and improper and contrary to the provisions of law. The addition so made be deleted. It may further be held that dividend estimated at 30 per cent on investments by the AO is erroneous. The appellant be granted just and proper relief in these respects." This ground is identical to ground No. 4(k). For the detailed reasons given in para 69 (79) supra, we restore this issue to the file of the AO with similar directions.
"Addition of Rs. 5,000, Rs. 12,328, Rs. 12,328, Rs. 4,195, Rs. 14,917, Rs. 3,024, Rs. 42,250, Rs. 67,500 and Rs. 5,000 in asst.
yrs. 1987-88 to 1994-95, respectively, is unjust and improper. The additions so made be deleted. The appellant be granted just and proper relief in this respect." During the course of assessment proceedings, the assessee filed details of share transactions made through Kalpataru Holdings/Parag Parakh. On that basis, the AO computed purchase of shares as investment in shares as undisclosed income for the assessment years. This ground is consequential and identical to grounds 4(j) and 4(k). Accordingly, for the detailed reasons given in paras 64 (74) and 69 (79) of our order (supra), we restore this issue to the file of the AO to reajudicate upon the issue in accordance with the directions given in paras 64 (74) a 69 (79) supra.
"Addition of Rs. 99,50,000 in asst. yr. 1996-97 on account of so-called investment in shares pledged with Citibank is unjust and Improper and perverse. The addition so made be deleted. Just and proper relief be granted to the appellant in this respect." The facts leading to the impugned addition have been discussed by the AO on pp. 14 and 15 of the assessment order under the head "Shares secured with Citibank". The AO noted that the assessee had pledged certain shares with Citibank, Mumbai. He obtained details from the Citibank and supplied the same to the assessee vide letter dt 12th Sept., 1997, asking various details. The details were to be supplied on 17th Sept., 1997. The assessee filed reply dt. 15th Sept., 1997, that required information cannot be supplied by 17th Sept., 1997 and requested time upto 22nd Sept., 1997. The AO made the addition by multiplying the amount mentioned in the list by 1,000 to number of shares pledged with Citibank. The shares of Reliance Industries Ltd. pledged with Citibank were 1,600 and the AO adopted the value by multiplying 1,000 as Rs. 16 lakhs.
94. Shri Sathe, the learned counsel for the assessee, submitted that during the course of hearing before the learned CIT, the representative of Citibank explained before the CIT all the details in the statements how the figures are to be interpreted and the number of shares. He drew our attention to the observations of the learned CIT in Annex. 30 to the order. The CIT had directed the AO to obtain the details of cost of acquisition and to take up the issue in rectification proceedings. The AO has not taken up rectification proceedings and the learned Departmental Representative submitted that he had no objection if the issue is restored to the file of the AO. Accordingly, we restore this issue to the file of the AO. He is directed to follow the directions of the CIT, i.e., resort to rectificatory proceedings by giving an opportunity of being heard to the assessee.
"Addition of Rs. 91,125 in asst. yr. 1996-97 and Rs. 1,25,000 in asst. yr. 1997-98 on account of alleged investment in property purchased at Ambegaon is unjust and improper and without any evidence. The addition so made be deleted. Just and proper relief be granted to the appellant in this respect." 96. The issue covered in this ground has been referred to by the learned AO in para 11 of his assessment order. It has been stated by the AO that the assessee along with other male members of the family purchased three pieces of land at Ambegaon. On perusal of rates, it was found by him that one property had been purchased at the rate of Rs. 50 per sq. ft. on 9th Feb., 1995, while other property has been purchased at the rate of Rs. 23 per sq. ft. on the same date at the same place and again a further property was purchased at the rate of Rs. 40 per sq. ft. on 9th Sept., 1996, i.e., after 19 months of the first purchase, In the absence of explanation coming from the assessee, the AO concluded that since the first property was purchased at the rate of Rs. 50 per sq. ft. the second property also must have been purchased by the assessee at the rate of Rs. 50 and the third property also must have been purchased at the rate of Rs. 60 per sq. ft. since it was purchased by the assessee after 19 months. On the basis of these hypothetical investments, the AO concluded that excess amount to be taxed was Rs. 7,29,000 for the second property and Rs. 1 lakh in respect of the third property. Since the property was purchased in the names of 8 male members of the family, Rs. 91,125 was taxed in asst.
yr. 1995-96 and Rs. 1,25,000 was taxed in asst. yr. 1997-98 in the hands of the assessee.
97. Shri Sathe, the learned counsel for the assessee, submitted that the whole basis of the addition is based on suspicion and surmises. All the three investments in the properties have been duly supported by the purchase deeds, copies of which have been given in the paper book.
Actual copies of the agreements relating to properties were filed during the course of assessment proceedings and details of properties were also gone into by the AO. There was no material found during the course of search pointing out any additional investment made by the assessee over and above shown in the agreement. The learned counsel submitted that the AO has presumed that second property was also purchased at the rate of Rs. 50 only because the transaction was entered into on the same date.
98. In the course of hearing, referring to the statement of facts and details given in the statement of facts on p. 32, Shri Sathe pointed out that the first property was purchased on 9th Feb., 1995, for Rs. 14 lakhs. This property was purchased from Beldare and family and the agreement for the said property was entered into on 17th May, 1993. The price in this transaction was determined at Rs. 5,00,000 per 1,000 sq.
mts. and token amount of Rs. 2 lakhs was paid by cheque on 17th Feb., 1993, at the time of purchase agreement and Rs. 25,000 each was paid on 6th July, 1994 and 20th Sept., 1994. Balance payment of Rs. 11,50,000 was paid in February, 1995. The source of investment has been fully accepted by the AO and no addition was made by him.
99. As regards the second agreement, it was in respect of property at Section No. 34 and the agreement was for Rs. 6,21,000. The property was purchased from Chhajed Jain Lunawat and others. There was no Sathekhat as far as this property was concerned. According to the learned counsel, whereas the first property was agreed to be purchased on 17th Jan., 1993, second property was purchased only in February, 1995.
Though actual sale deeds of both the properties were on the same date, the agreement for the first property was two years earlier. The main reason why smaller price was paid for this transaction was that this plot had no access at all from the main road. Shri Sathe in this behalf referred to the map enclosed with the purchase agreement placed at p.
197 of paper book No. 2. It is seen from this map that Hissa No. 7 did not have any access from Mahamarg which was adjacent to Hissa No. 16 which was covered in the first agreement. In fact, Hissa No. 7 which was purchased in the second transaction had a smaller internal access common with other plot-holders on the inside. Because of lack of access to the main road and because the assessee had already succeeded in entering into transaction in respect of Hissa No. 16, the owners of Hissa No, 7 had to offer the land at much lesser price because they had no other independent buyer for their property. The assessee, having already acquired the property at Hissa No. 16. which was adjacent to Hissa No. 7, had all the advantages and could thus succeed in negotiating the purchase of the property at much lesser price.
According to the learned counsel, there was no question of doubting this transaction, particularly because there was total absence of material in this behalf. The learned counsel also relied on the decision of the Hon'ble Supreme Court in the case of K.P. Varghese v.ITO & Anr.
100. As far as the third property was concerned, the learned counsel submitted that this was a transaction admittedly after 19 months from the first transaction. Here also there was no basis for presuming that any extra price over and above the price stated in the agreement was paid. The AO, therefore, was not justified in holding that this property was purchased by the assessee at the rate of Rs. 60 as against Rs. 40 shown by the assessee.
101. We have considered the rival submissions and perused the facts on record. All the three properties were purchased vide duly executed deeds in which price was mentioned. Nothing was found during the course of search that anything over and above the price recorded in the purchase deeds was paid by the assessee. The AO has simply presumed and has applied a tailor-made formula which is not permissible in a block assessment. In the case of K.P. Varghese (supra), the Hon'ble Supreme Court has held that unless there is a positive material to show that any excess consideration has passed hands, there is no reason to dispute the consideration as per the document. Under the circumstances, we see no justification for the impugned additions. The same are accordingly deleted. This ground accordingly succeeds.
102. Vide letter dt. 13th Aug., 2001, the assessee has moved the following revised ground No. 4(b) : "The learned AO erred in holding that share of profit from M/s Bafna Transport India, M/s Bafna Automobiles (Auto Sales Div), Bafna Motor Transport Co. (Poona) Bafna Auto Carriers, Bafna Translines for asst. yrs. 1987-88 to 1992-93 which was duly available on the file of the respective firms who had filed their regular returns in due course, before the search, constituted undisclosed income of the assessee for the above years and was to be included in the total undisclosed income of the block period. It may, therefore, be held that inclusion of the share income of the above firms as detailed in para 4 of the assessment order may kindly be deleted." We have dealt with this issue in paras 35 to 37 of our order supra.
Accordingly, no further comment is called for.
104. I have had an occasion to go through the proposed order of the learned AM when the same was received by me for consideration.
105. So far as ground No. 1 is concerned, the finding and the conclusion of the learned AM is given in para 9 of the proposed order which is reproduced as under.
"After hearing both the parties, we hold that this ground is identical to ground No. 1 in the case of G.C. Associates referred to supra. This has been dealt with in paras 5 to 9 of the order dt.
18th Aug., 2000, in the case of G.C. Associates. As per para 9 in that order, we have held that filing of the belated return was valid in law and the AO is directed to take cognizance of the entire return as also its accompaniments in regard to computation of income. " 106. Notice under Section 158BC, dt. 7th April, 1997, for filing of the return for the block period which was served on the assessee on the same day, but he did not file the return so demanded for the block period within the time allowed in the notice under Section 158BC.However, the same came to be filed on 23rd Sept., 1997, when the AO had already prepared the draft of the assessment order for the block period on 18th Sept., 1997. So, the AO declined to take cognizance of the said return filed by the assessee, as per para 2 of the assessment order.
107. So far as the conclusion of the learned AM with regard to belated return is concerned, I fully agree with his conclusion that it is a valid return in law but do not agree with the latter part of the conclusion with respect to this ground. Once it is held that belated return is valid return, the consequential action has to follow as provided under Section 158BC(b) of the Act which is reproduced as.
under.
"158BC(b) : the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 shall, so far as may be, apply;" In this view of this legal position, the matter, to my mind, is required to be remanded back on the file of the AO with the direction to follow the procedure as laid down under the law which was not adhered to because the return, at that point of time, was not treated as valid return though there is a vast difference between returned figures and assessed figures but no notice under Section 143(2) was issued by the AO. This being procedural irregularity, in my view, do not go to the root of jurisdiction and could be cured in appeal proceedings by remanding the case back on the file of the AO with a direction to redo the assessment after following due procedure. So far as assessee's contention about treating these proceedings to be null and void is concerned, it cannot be accepted in view of Supreme Court decision in the case of CIT v. Jai Prakash Singh (1996) 219 ITR 737 (SC) wherein it was held as under : "An omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging section). Any such omission or defect may render the order irregular-depending upon the nature of the provision not complied with-but certainly not void or illegal.....
Held, allowing the appeal, that the Tribunal was correct in holding that non-service of notice under Section 143(2) of the IT Act, 1961, to nine out of the ten legal representatives of the. deceased S did not invalidate the assessment orders of the ITO relating to the asst. yrs. 1965-66, 1966-67 and 1967-68 and that it was at best an irregularity for which the AAC was justified in setting aside the assessments and it was not a case fit for cancellation of the assessments." 108. Therefore, in view of this authoritative pronouncement of the Hon'ble Supreme Court on the point at issue, the assessment made without following procedure as laid down, could only be held to be irregular but not null and void. Therefore, seeking of cancellation of assessment by, the assessee is not justified and. I reject its plea on this count.
109. In view of the facts, circumstances and the discussions held above, I hold that the assessment made by the AO without following proper procedure after receipt of the return, which has been held to be valid, is liable to be set aside. Therefore, while accepting second part of first ground of appeal of the assessee partly, I set aside the order of the AO and restore the matter back on his file to be decided afresh after following due procedure as provided under the law and to pass de novo assessment order accordingly. Needless to mention that the AO while doing so would afford necessary and due opportunity to the assessee of being heard in this behalf.
110. Since the order of assessment is being set aside on the very first ground of appeal on legal issue, therefore, it is found not necessary to go into the merits of the case in view of the Special Bench of the Tribunal decision in the case of Rahulkumar Bajaj v. ITO (1999) 64 TTJ (Nag)(SB) 200 : (1999) 69 ITD 1 (Nag)(SB).
111. Therefore, appeal of the assessee gets accepted for statistical purposes in above terms.
As there is a difference of opinion between the AM and the JM, the matter is being referred to the President of the Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire : "Whether, on the facts and in the circumstances of the case, the AM is right in allowing the appeal in part or the JM is right in setting aside the order of the AO and restoring all the issues to the file of the AO for fresh consideration?" 1. This appeal came before me as a Third Member to express my opinion on the following question : "Whether, on the facts and in the circumstances of the case, the AM is right in allowing the appeal in part or the JM is right in setting aside the order of the AO and restoring all the issues to the file of the AO for fresh consideration.?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon.
3. Notice under Section 158BC of the IT Act, 1961 (hereinafter called 'the Act'), was issued and served on the assessee on 7th April, 1997, calling for the return for the block period. The assessee did not file return for the block period within the time allowed in the said notice.
Assessee did file return for the block period on 23rd Sept., 1997, declaring therein undisclosed income of Rs. 36,21,770. As the return was filed beyond time, it was treated as non est return by the AO. AO acknowledged receipt of return in the order. It was received when AO almost finalized the assessment. Details were submitted to the CIT for his approval on 26th Sept., 1997. CIT accorded the approval on 29th Sept., 1997.
4. Both the learned Members agreed on the point that belated return filed by the assessee was a valid return. It was incumbent on the AO to take cognizance of the return and details filed along with the same.
5. Learned AM appreciated the fact that adequate time was not available at the disposal of the parties, as such information on various points could not be given before the draft assessment was completed.
Substantial information was provided to the CIT. CIT could not take note of the submissions and evidence because of the time constraints.
As such principle laid down in the dictum audi alteram partem was not followed.
6. Assessee raised, inter alia, the following ground before the Tribunal in that connection.
"On facts and circumstances prevailing in the case and as per provisions of law it be held that the AO ought to have considered return of income filed for the block period for the purpose of assessment. It may further be held that the return of income filed by the appellant before the completion of the assessment for the block period is valid return which ought to have been considered by the AO for the purpose of completing the assessment. It may further be held that not taking cognizance of the return filed by the appellant and finalizing the assessment without considering such return is bad in law and vitiates the assessment order passed by the AO. The assessment order passed by the AO be held as null and void.
Just and proper relief be granted to the appellant in this respect".
While adjudicating this ground, learned AM held that filing of belated return was valid in law. He directed AO to take cognizance of entire return and also its accompaniments in regard to computation of income.
Learned JM concurred with this finding.
7. Having decided this ground in the aforesaid way, learned AM proceeded to decide the appeal on merits in regard to other aspects agitated in the grounds of appeal. Learned JM disagreed on this aspect.
Learned JM was of the opinion that the matter may be remanded back to the file of AO with a direction to follow procedure as laid down under the law which was not adhered to because the return, at that point of time, was not treated as valid return. This was held to be a procedural irregularity. It could, therefore, be cured by remanding the case back to the file of the AO.8. Learned Departmental Representative invited my attention on various paras of learned AM's order. It was demonstrated with reference to the observation made in those paras that learned AM was aware that relevant details were not made available to the AO. He proceeded to decide the issues one way or the other. Some points were adjudicated, some were restored. My attention was adverted to para 47. Relevant portion of learned A.M's order is reproduced as under : "We accordingly direct the AO to verify details of the credits as have been filed before the CIT on pp. 237 to 383 and readjudicate upon the issue after giving an opportunity of being heard to the assessee".
"Since the assessee could not immediately file these details, all such credits in the bank account were considered by the AO as undisclosed income of the respective assessment years in the block".
Thereafter, in para 50 he notes the submissions that the details were, however, before the CIT. Then he concluded in para 52 that since full details are now available these deserve to be verified by the AO.9. The aforesaid example just indicates the approach of the learned AM in regard to the whole issue. In the case of Smt. Tapati Pal v. CIT (2002) 124 Taxman 123 (Cal), Hon'ble High Court has held that when any question or issue is raised for first time before Tribunal, which requires enquiry into facts, Tribunal cannot make enquiry of facts in second appeal but when it has entertained plea which requires enquiry into facts, Tribunal has no option but to remit matter back to AO.10. Hon'ble Gujarat High Court in the case of CIT v. Valimohmed Ambedbhai (1982) 134 ITR 214 (Guj) has held that Rule 46A(3) of the IT Rules, 1962, makes it clear that the AAC should not take into account any evidence produced under Sub-rule (1) unless the ITO is given a reasonable opportunity to examine evidence or to cross-examine witnesses whose evidence is taken on record or to produce any evidence in rebuttal.
11. In my opinion, an invalid or non est return is, in the eye of law, non-existent and the position is that as if no return has been furnished. In such a case, a notice under Section 143(2) cannot be issued because that section pre-supposes a valid return having been filed. Even where notice under Section 143(2) is issued and the assessee complies therewith, the resultant assessment under Section 143(3) will also be void ab initio. Such an assessment cannot be treated or conducted as one made under Section 144.
12. The expression 'assessment' is used in a number of provisions in a comprehensive sense and it can comprehend the whole procedure for ascertaining and imposing liability on the taxpayers and the machinery for enforcement thereof. Where the return is filed it is incumbent on the AO to proceed on the basis of the return filed. It is the bedrock qua the assessment proceedings. Assessment de horse return and assessment qua return are to be completed in different manner.
Therefore, validity of the return goes to the root of the matter.
13. In the present case, I find that AO proceeded on the basis that the return filed by the assessee was non est return. Tribunal found that belated return was a valid return. As such, entire assessment is to be restructured on the premise that assessee did file valid return. In such eventuality, the proper course is to set aside the impugned order and restore the same, to the file of the AO for fresh adjudication.
Whenever an order is struck down as invalid being in violation of the principles of natural justice, there is no final decision on the cause and fresh proceedings are left open. Tribunal assailed the order of assessment by virtue of its inherent defect. Flaw in the order appealed against was non-observance of certain procedure, It is, therefore, appropriate to direct AO to start the procedure once again with a view to follow the rules of procedure and the principles of natural justice.
Learned JM found that order was crept with a curable infirmity. As such the order of AO was set aside and all the issues were restored to the file of AO for fresh adjucdication. In my opinion, this is a correct view. I am inclined to agree with the decision given by learned JM.14. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority.
1. As there was a difference of opinion between the AM and the JM, following question was referred to a Third Member : "Whether, on the facts and in the circumstances of the case, the AM is right in allowing the appeal in part or the JM is right in setting aside the order of the AO and restoring all the issues to the file of the AO for fresh consideration." 2. The learned Vice President, Shri M.K. Chaturvedi, sitting as Third Member, by his opinion dt. 11th Dec., 2002, has concurred with the view of the JM to set aside the order of the AO and all issues were restored to the file of AO for fresh adjudication. In accordance with the majority view, the order of the AO is set aside and all the issues are restored to the file of the AO for fresh adjudication.
3. As a result, the appeal of the assessee shall be treated to have been allowed for statistical purposes.