The assessee is in appeal before us against the order of the learned CIT dated 27-3-2001 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act). In the first ground, assessee has challenged the validity of jurisdiction invoked under section 263 of the Act. No serious arguments were advanced on this ground and hence the said ground is rejected. In the next ground, the assessee is aggrieved against the direction of the CIT to treat the seized cash of Rs. 20 lacs as unexplained and to subject it to tax.
First the facts. On 29-1-1998, the assessee was intercepted at Santacruz airport and was searched under section 132 by virtue of a duly authorized warrant. The assessee was found to be in possession of cash worth Rs. 20 lacs which was seized. Notice under section 158BC was issued to the assessee in response to which he filed his return for the block period from 1-4-1987 to 29-1-1998, showing undisclosed income at Nil. However, he did show the income earned by him from assessment years 1988-89 to 1998-99. For assessment year 1998-99 nil income was shown, the main reason being that at the time of the search, the year had not ended and hence income was not ascertainable.
On 29-1-1998, i.e., on the day of search, assessee's statement under section 132(4) was recorded. In reply to question No. 13, assessee stated that the cash seized was out of his undisclosed income and that the same was being offered for taxation in the current year. It was also stated that the declaration was being made voluntarily without any threat, coercion or undue influence. However, in the return filed for the block period, assessee did not disclose the sum of Rs. 20.00 lacs.
In support of this stand taken by the assessee, he filed a duly sworn affidavit dated 7-2-1998. The gist of the affidavit was that the said sum of Rs. 20 lacs was a part of Rs. 40 lacs disclosed by him under the Voluntary Disclosure Scheme, 1997 (VDS for short) and that he was compelled to accept Rs. 20 lacs as his undisclosed income.
In the course of block assessment proceedings, the assessee, besides stating what had been stated in the affidavit, relied on certain decisions to contend that though admission was a good piece of evidence, it was not conclusive. The fact of disclosure under VDS was reiterated to show that this admission earlier was erroneous. Further, assessee also produced the regular books of account of his proprietary concerns as also the supplementary cash book. Supplementary cash book was specifically opened for the purpose of income disclosed under VDS and a sum of Rs. 40 lacs was credited on 31-12-1997 in it. The entire amount was shown as cash on hand and it was reduced by Rs. 20 lacs on 29-1-1998, on account of the seizure and the balance Rs. 20 lacs was transferred to the regular cash book of Halar Maritime Agencies. A copy of the declaration made under VDS was also placed on record.
Considering all these facts, assessing officer assessed the undisclosed income at Nil.
The CIT, invoking jurisdiction under section 263 of the Act, held the assessment order to be erroneous and prejudicial to the interests of the revenue. The main reasons for holding the order as such were that, the affidavit dated 7-2-1998 was filed as late as on 25-5-1998, that there was no purpose of opening the supplementary cash book which contained entries relating to disclosure under VDS only, that the sum of Rs. 40 lacs was credited in the cash book of Halar Maritime Agencies (HMA) on 31-12-1997, that the computer printouts of the assessee's books were given after the assessment order was passed, that the assessing officer did not verify the correctness of the assessee's allegation that the statement on the day of search was given under pressure, that there was no enquiry as to why the assessee was carrying so much of cash with him and hence the order under section 158BC suffered from the vice of lack of enquiry and non-application of mind.
Thus, he directed the assessing officer to treat the seized cash of Rs. 20 lacs as unexplained and subject the same to tax.
The learned counsel, assailing the order under section 263, at the outset, gave a background of the assessee that after retiring as captain of the Navy, he had started stevedoring business in 1984. It was submitted that the assessee was in the habit of maintaining heavy cash balances, both on hand as well as in Banks. In support of this submission the learned counsel referred to the various papers in the paper book like balance sheets of few earlier years, copies of wealth-tax returns, etc. The main plank of his argument was that in Dec., 1997, assessee had declared Rs. 40 lacs in VDS and these Rs. 40 lacs were in the form of cash. This amount was taken in supplementary cash book and after deducting Rs. 20 lacs: seized by the department, the balance was transferred to the regular cash book. The reason for opening supplementary cash book was stated to be that the cash book for the period ending 31-12-1997, was already closed. It was contended that the admission by the assessee should not be given due credence as it was not a normal search in the sense that it was not at the residence or at business place but was at the airport and it had taken nearly 3 1/2 hours to record the statement. Immediately on his return from Chennai, assessee lost no time and swore an affidavit on 7-2-1998, stating that the cash seized was part of the amount disclosed under VDS. No adverse inference should be drawn by the fact that the computer printouts of the account books were furnished after the assessment order was passed in so much so that original hand written account books were examined by the assessing officer. Only thing is that the assessing officer did not elaborately discuss this in his order. But otherwise he had done everything to check the veracity of assessee's contentions and having duly satisfied himself of all the aspects, the undisclosed income was determined at nil.
The learned Departmental Representative emphatically reiterated the late filing of the affidavit. It was against human nature on part of the assessee not to have taken any steps for two months. The fact that assessment was completed within a short time of filing the return showed that the assessing officer had not conducted proper enquiry.
There was no reason adduced as to why assessee was going to Chennai or why the assessee was carrying so huge cash with him. There was nothing in favour of the assessee except his affidavit. Thus, it was pleaded that the order under section 263 should be upheld.We have duly considered the rival contentions and the material on record. The saga in this case unfolds like a James Bond movie. Hence, it is necessary to recapitulate the events in their chronological order. The assessee retired as a Navy Captain and on account of his association with sea, continued his maritime adventures in his new 'Avatar' by starting the business of stevedoring. The assessee appears to have been a successful businessman as is evident from the figures of income earned by him from assessment years 1988-89 to 1998-99 which range from over Rs. I lac to nearly Rs. 10 lacs. This is also evident from the returns of wealth filed by him and placed on record.
In 1997 VDS was announced and assessee deemed it wise to come clean and taken benefit of the scheme. Accordingly, he filed a declaration offering Rs. 40 lacs for taxation on 31-12-1997. The amount was fully represented in cash. Tax of Rs. 12 lacs on the said amount was duly paid. Certificate to this effect has been placed at p. 107 of the paper book.
On 29-1-1998, the assessee was travelling from Mumbai to Chennai. As he was about to board the Chennai bound flight, he was intercepted by the IT authorities duly armed with authorized warrants. Assessee's baggage was checked and cash of Rs. 20 lacs was found and seized. Assessee's statement was recorded in which he admitted the seized cash to be his undisclosed income and offered it for tax. Search took place at around 4 in the morning and was concluded at around 10.30 a.m. On completion of search, assessee boarded the first available flight for Chennai to attend to his scheduled programme. On his return from Channal, he had some reprieve and then swore an affidavit retracting from his earlier admission offering Rs. 20 lacs as cash. The sensational part of the story ends here. Before proceeding further we take a short break here to analyze the situation thus far.
Certain things clearly stand out from the above discussion. The assessee is in a high income bracket and is in the habit of maintaining heavy cash and Bank balances. Secondly, it is not in dispute that just barely a month before the date of search, assessee had offered Rs. 40 lacs for taxation under the VDS. Moreover, these Rs. 40 lacs were in form of cash as is reflected by the certificate of the CIT under VDS.Thirdly, it has to be only imagined the state of mind of a person who is a constantly travelling businessman, is nabbed at the airport by the search party in the wee hours of the day and put to a grueling interrogation session. Under such circumstances, the tension of the person gets compounded. There may not be any coercion on the part of the search party but that does not necessarily mean that the person cannot come under pressure on his own. The pressure of business engagement at Chennai was already there. This can be inferred by the fact that as soon as the assessee was allowed to go, instead of remaining back in Mumbai or going back to Jamnagar, he proceeded to Chennai by the first available flight. It means that assessee must be wanting to get released as soon as possible . to attend to his Chennai engagements. This pressure, alongwith the sudden interception could have triggered a thought to accept Rs. 20 lacs as undisclosed income.
In our view, not much credence can be given to such admission given in the circumstances described above. Further, immediately on his return to Jamnagar, he retracted this admission by way of an affidavit without any delay. Merely because the affidavit was filed late, it cannot lose its sanctity particularly when the explanation is found to be palatable. The explanation was that assessee was under a bona fide impression that the affidavit was to be filed alongwith the return. The impression can be considered to be bona fide particularly when assessee was neither summoned nor had anything to do with regard to the proceedings in the interregnurn between the swearing of the affidavit and the filing of the return. The fact remains that assessee had retracted from the admission immediately on his return from Chennai, i.e., just after a week or so.
To continue with the story, assessment under section 158BC was taken up. Assessing Officer examined the regular books of account and found that cash deposits made in the Bank account were from the cash balances shown in the regular books of account. He also examined the supplementary cash book opened for the purposes of making entries regarding the amount declared under VDS. Assessing Officer also verified the disclosure in all respects and having been satisfied by all these facts, came to the conclusion that the sum of Rs. 20 lacs seized from the assessee was part of Rs. 40 lacs cash declared by the assessee under VDS. We do not see any infirmity, in arriving at this conclusion. It is not true to say that there was lack of enquiry or non-application of mind on the part of the assessing officer., The CIT has given mainly four reasons for holding the assessment order to be erroneous. Firstly, it is mentioned that assessing officer should not have taken the affidavit at face value. We have already discussed earlier to show as to why the affidavit cannot be brushed aside. Second reason given is that supplementary cash book is a self serving device., Nothing turn out of this. The CIT has not appreciated the fact that computer printouts given to the assessing officer were merely reports, But otherwise the assessing officer had examined the manually maintained books and satisfied himself about the entries. Thirdly, it is stated that the assessing officer did not verify the reason for the assessee to carry such large sum of cash. We do not see whether any purpose could have been served in the light of the fact that assessee always maintains huge balances. When it is not unusual for the assessee to maintain huge balances, the presumption is that it must be for genuine business needs. Fourth reason is that computer printouts were dated 14th & 15-7-1998, i.e., well after the draft order was submitted.
This reason pales away into insignificance when assessing officer had verified the regular books of account. Moreover, the printouts were given because the assessing officer had insisted for the same to keep them on record. Thus, none of the reasons given by the CIT carry any real force or conviction to hold the order of the assessing officer to be erroneous.
Lastly, the explanation of the assessee gathers weight on account of two more reasons also. One, there is no long gap between the declaration under VDS and the date of search. Secondly, there is no finding that cash declared under VDS was either converted into any other asset or was used for incurring any expenses till the date of the search. In view of all these facts and attendant circumstances, we hold that the order of the assessing officer was not erroneous and prejudicial to the interests of the revenue. The order of the CIT under section 263 directing the assessing officer to tax the sum of Rs. 20 lacs is quashed.