1. This appeal by the assesses is directed against the assessment made under Section 158BC r/w Section 158BD of the IT Act, 1961, (hereinafter referred to as the 'Act') for the block assessment period 1st April, 1985 to 10th Oct., 1995.
1. On the facts and circumstances prevailing in the case and as per provision of law, it be held that invoking provisions of Section 158BD is bad in law. It further be held that the case of the appellant is not covered by provisions of Chapter XIV-B of the Act.
The order passed by the AO in terms of provisions of Section 158BC r/w Section 158BD is without jurisdiction and is vitiated. The order passed by the AO be declared as null and void and not tenable in law.
2. Without prejudice to ground No. 1 and assuming without admitting that the case of the appellant is covered by mischief of provisions of Chapter XIV-B and AO is within his right to proceed with the assessment in terms of provisions of the said Chapter, on facts and circumstances of the case and as per provisions of law, it be held that the AO erred in considering amount of Rs. 27,50,000 as investment alleged to have been done on account of finance for arranging bogus NRE gifts and holding the same as forming part of the income covered by Chapter XIV-B of the Act in making additions of Rs. 82,500 on account of commission at 3 per cent alleged to have been earned on alleged investment of Rs. 27,50,000 and holding the same as forming part of the undisclosed income, in making addition of Rs. 1,60,000 as undisclosed income on account of amount alleged to be received from Mr. Rajendra D. Mehta till 30th, in making addition of Rs. 4 lacs on account of amount alleged to be received from Rajendra D. Mehta by 15th April, 1994, in making addition of Rs. 4 lacs holding the same as forming part of the income being gifts alleged to have been not genuine in making addition of Rs. 2,52,750 by holding the investment as unexplained stated to have been done in construction of house property, in making further addition of Rs. 18,73,925 holding the same as forming part of the income on account of alleged undisclosed investment in foreign exchange, in making further addition of Rs. 4 lacs holding the same as part of income on account of alleged commission earned for arranging bogus NRE gifts and in making further addition of Rs. 9 lacs holding the same as forming part of the income on account of alleged commission earned for arranging bogus NRE gifts. On facts and circumstances prevailing in the case and as per provisions of law, it be held that no part of amount of Rs. 70,18,175 computed as undisclosed income is assessable in the hands of the appellant. It further be held that there is no undisclosed income in terms of provisions of Chapter XIV-B assessable for the block period in the hands of the appellant. The amount of Rs. 70,18,175 assessed by the AO for the block period in terms of provisions of Section 158 r/w Section 158BC r/w Section 158BD be deleted. The appellant be granted just and proper relief in respect of all such additions.
3. On facts and circumstances prevailing in the case and as per provisions of law, it be held that the AO proceeded for resuming the jurisdiction in terms of Chapter XIV-B on wrong premises and purely on the basis of assumption and surmises and on irrelevant factors.
It further be held that assumptions made by the AO in respect of FERA matters and in respect of Chit No. 8 holding the, same as forming part of the document is erroneous and without any supporting basis. It further be held that Chit No. 8 does not from part of any document. It further be held that the AO misdirected himself in holding that the said chit is in the handwriting of the appellant ignoring the fact that appellant has denied the same and in support thereof filed the affidavit in the file of the AO. The findings given by the AO in these respects be held as perverse.
4. The appellant prays to be allowed to raise, add, amend, delete, modify, rectify any grounds of appeal at the time of hearing.
2. Shri S.U. Pathak and Shri N.C. Khandelwal appeared for the assessee.
Shri Pathak submitted that he would not like to press ground No. 1.
Hence, this ground is rejected as not pressed.
3. Shri Pathak submitted a chart showing details of aggregate addition of Rs. 70,18,175 made in the block assessment. The details as given in the said chart are reproducted below.
Investment on account of finance for arranging bogus NRE gifts as discussed Income on account ofunexplained investment in construction of house property 4. Shri Pathak contended that he would first like to make his submissions in relation to additions appearing at Sr. 7, 8 and 9. The learned counsel pointed out that proceeding of search was conducted by Enforcement Directorate (FERA) at the premises of the assesses as well as on Shri Rajendra D. Mehta on 23rd Sept., 1995. Thereafter, proceeding under Section 132 of the Act was conducted at the premises of Shri R.D. Mehta. The AO issued notices under Section 158BD of the Act on 10th Sept., 1996. The draft assessment order was served upon the assessee on 25th Sept., 1997. The learned CIT granted an opportunity of hearing before according the approval to the draft order. The final assessment order for the block period was passed by the AO on 30th Sept., 1997. The learned counsel submitted that no opportunity was given by the AO nor by the CIT in relation to the additions of Rs. 18,73,925, Rs. 4,00,000 and Rs. 9,00,000 mentioned at Sr. Nos. 7 to 9 in the aforesaid chart. In order to support this contention, he drew our attention to the draft assessment order placed at pp. 202 to 216 of the paper book. The total income in the draft assessment order was computed by the AO at Rs. 40,44,250. Our attention was also drawn to the copy of the letter dt. 26th Sept., 1997 (page 217 of the paper book) and letter dt. 29th Sept., 1997 (p. 221 of the paper book) with a view to indicate that no such point was raised by the learned CIT during the course of hearing before him. The learned counsel referred to the copy of the direction given by the CIT on 30th Sept., 1997 (copy is placed on pp. 32 and 33 of the supplementary paper book). It was pointed out by the learned counsel that in para 2.5 of the aforesaid directions contained in letter dt. 30th Sept., 1997, the learned CIT only gave a direction for addition in respect of alleged commission earned for arranging the bogus NRE gifts mentioned at Sr. No. 8 and 9 of the above chart but no direction was given for making addition of Rs. 18,73,925 mentioned at Sr. No. 7 of the said chart. He submitted that the income of the assessee was determined by the AO in the final assessment order at Rs. 70,18,180 as against Rs. 40,44,250 proposed in the draft assessment order. Such addition made by the AO in the final order without giving and opportunity to the assessee till completion of the final assessment order is patently illegal and is contrary to all cannous of natural justice. The learned counsel urged that the addition so made in gross violation of the principles of natural justice, should be set aside or cancelled and the matter should not be restored back to the AO with a view to give the Department a second innings to patch the weak points of the case. The learned counsel placed heavy reliance on the following decisions : (i) Kasat Paper & Pulp Ltd. v. Asstt. CIT (2000) 69 TTJ (Pune) 924 : (2000) 74 ITD 455 (Pune); (ii) Asstt. CIT v. Anima Investment Ltd. (2000) 68 TTJ (Del)(TM) 1 : (2000) 73 ITD 425 (Del)(TM);Smt. Neena Syal v. Asstt. CIT (2000) 69 TTJ (Chd) 516 : (1999) 70 ITD 62 (Chd); (vii) Ponkunnam Traders v. Addl. ITO and Anr. (1972) 83 ITR 508 (Ker).
He also drew our attention to the relevant extracts from the Commentary on Income-tax Law by Chaturvedi and Pithisaria Vol. 3, 5th Edn. p. 4845 to support his contention about cancellation of such addition instead or restoring the matter back to the AO.5. Shri S.U. Pathak submitted that all these additions mentioned at Sr.
No. 7 to 9 of the chart which have been made in violation of the principles of natural justice are also devoid of any merit. He drew our attention to the assessment order passed in the case of Shri Rajendra Devraj Mehta. Shri Rajendra Devraj Mehta was also a co-partner of the assessee in the partnership-firm styled as M/s Ratnadeep Jewellers. At p. 59 of the assessment order in the case of said Shri Rajendra Devraj Mehta, the AO has observed "in such types of instances the involvement of Prakash Bafna is highly doubtful. At p. 73 of the said assessment order, the AO has again observed that Shri Rajendra Devraj Mehta was granted an opportunity to cross-examine one Shri Jeetu Lalwani on 16th June, 1996. Shri Mehta however, alleged that Mr. Jeetu Lalwani and Prakash B. Mehta were acquainted with each other, which fact was straightforwardly denied by Jeetu Lalwani. Such a version given by Jeetu Lalwani is also supported by his statement before the Enforcement Directorate (FERA) and IT Department. The learned counsel then drew our attention to p. 103 of the said assessment order where the AO has, inter alia, observed that in the statement of Mahipal recorded just a few days later on 16th Oct., 1995, it had been attempted to implicate Mr. Prakash Bafna. This was clearly an afterthought designed by both the in-laws. Mr. Pathak then drew our attention to the computation of taxable income made in the assessment order of Shri R.D. Mehta to show that the additions in respect of the amount referred to at Sr. No. 7, 8 and 9 of the chart were made in the case of Shri R.D. Mehta also on protective basis. The relevant extract from the computation of taxable income made by the AO in the case of Mr. R.D. Mehta are reproduced below : Protectively Rs. 4,00,000 Rs. 8,00,000Out of NRE accounts maintained at Protectively Rs. 9,00,000 Rs. 18,00,000Unexplained investments towards purchase of As discussed in para 32, p. 123 (Para 21, page Rs. 18,73,925" 96 Taxed protectively here The learned counsel submitted that the assessment in the case of Shri R.D. Mehta has been confirmed by the Tribunal vide order dt. 31st March, 2000, in IT(SS) A. No. 95 of 1996. He submitted that these very amounts, which have been assessed in the hands of Mr. Rajendra D.Mehta, cannot be taxed once again in the hands of the assessee. After the order of the Tribunal in the case of Mr. Rajendra D. Mehta, the addition so made in the hands of the assessee in respect of those very items should be deleted.
6. Shri Pathak, the learned counsel then made his submission in relation to the additions made at Sr. No. 1 to 5 of the said Chart. The learned counsel pointed out that these additions have been made by the AO on the basis of documents found and seized from the possession of the assessee Mr. Prakash Bafna by the Enforcement Directorate (FERA) during the search conducted on 23rd Sept., 1995. A photocopy of the seized documents has been placed at pp. 2 to 32 of the compilation. It was pointed out by the learned counsel that all these additions have been made on the basis of the seized papers a photocopy whereof has been placed at p. 2 of the paper book. The English translation thereof was also submitted during the course of hearing on 25th Feb., 2003 in supplementary paper book at p. 45. The English version as given by the learned counsel of this chit at p. 2 of the paper is reproduced below.
The learned counsel contended that there was some dispute about the handwriting and the contents of the aforesaid document seized by FERA authority. Since these documents were found from the possession of the assessee during search by the Enforcement Officer (FERA), the learned counsel contended that he would not dispute the fact that the said paper, in fact, belongs to the assessee. The learned counsel drew our attention to the statement recorded by Enforcement Directorate (FERA) on 23rd Sept., 1995 (pp. 63 to 65 of the paper book). He contended that, Mr. Bafna had later on retracted from the aforesaid statement and had stated before the concerned authorities that such statement was recorded under coercion by the Enforcement Officer. Even assuming that the aforesaid statement dt. 23rd Sept., 1995, contains true facts, Mr.
Bafna in that statement, had inter alia, contended that the figure 27/50 mentioned in the seized paper signifies that he has to pay Rs. 27,50,000 to Rajubhai Mehta in NRE work. The addition, if any, is warranted in relation to the aforesaid contents of those papers, it could be added only to the tune of Rs. 2,75,000 and not Rs. 27,50,000.
There is no basis whatsoever on record to support the addition of Rs. 27,50,000 made by the AO on the basis of this paper. The learned counsel also submitted that one of the items appearing in the said seized paper at S. No. 9 is 'Rajubhai 4 peti will complete the job by 15th April, 1994'. The word 'peti' signifies lacs. If 27/50 would have been meant for Rs. 27,50,000; a similar expression of 27/50 'peti' would have been mentioned opposite that figure. The word 'peti' does not appear along with the figure of 27/50. The AO could at best make the addition only of Rs. 2,75,000 instead of Rs. 27,50,000 made by him on the basis of the said seized papers.
7. The learned counsel submitted that the figure of Rs. 82,500 mentioned at Sr. No. 2 of the chart being the addition made in respect of alleged commission at 3 per cent on the aforesaid investment of Rs. 27,50,000 allegedly made for providing finance for arranging bogus NRE gift as discussed above, is consequential to the aforesaid addition of Rs. 27,50,000. The submissions in respect of this addition are similar as have been made in respect of the addition of Rs. 27,50,000.
8. The addition of Rs. 1,60,000 at Sr. No. 3 of the chart in relation to the amount alleged to have been received from "R.D. Mehta upto 30th was based on the same said seized paper is also patently wrong, says the learned counsel. He submitted that the contents of the seized paper do not indicate as to whether the amount was to be paid or to be received from Shri Rajubhai. Moreover, it only indicates an intention to pay/receive but does not represent the actual transaction having taken place. He submitted that no tax can be levied on transaction intended to be carried out on a future date.
9. As regards the addition of Rs. 4 lacs mentioned at Sr. No. 4 of the said chart being alleged "amount received from R.D. Mehta by 15th April, 1994," the learned counsel contended that the said seized paper does not indicate whether the assessee had to pay that amount to R.D.Mehta or they have to receive the amount in question from him. As regards the addition of Rs. 4,00,000 being alleged income from NRE gifts, the learned counsel contended that the assessee received gifts aggregating to Rs. 4,00,000 from various NRE. The return of income for asst. yr. 1994-95 and 1995-96 were submitted by the assessee on 18th Sept., 1996. The fact relating to receipt of the aforesaid gifts were duly disclosed in the said returns of income. The genuineness of such gift can be considered only in regular assessment. Such addition in respect of gifts received from NRE which were duly disclosed in the returned income filed by the assessee are clearly outside the ambit and scope of assessment under Section 158BC.10. The Bench required the assessee to submit copy of the queries/show-cause notice issued by the AO in relation to the contents of the aforesaid seized papers and the copies of replies given by him to the AO. The copies of these documents were not submitted during the course of hearing.
11. The learned counsel submitted that the statement recorded by the Enforcement Directorate (FERA) during the search on 23rd Sept., 1995, were recorded under coercion. The assessee had retracted from the said statement. No reliance can be placed on such statement, which has been firmly retracted at later point of time. The learned counsel placed reliance on Pullangode Rubber & Produce Co. Ltd v. State of Kerala and Anr.(SC), Monga Metals (P) Ltd. v. Asstt. CIT (2000) 67 TTJ (All) 247, Radhakrishna Reddiar v. CED (1968) 67 ITR 838 (Ker), Atul Kumar Jain v. Dy. CIT (1999) 64 TTJ (Del) 786, ITO v.Ghanshyambhai R. Thakkar (1996) 56 TTJ (AM) 460, Chander Mohan Mehta v.Asstt. CIT (Inv.) (1999) 71 ITD 245.(Pune) 12. The learned counsel also drew our attention to the commentary of Income-tax law by Chaturvedi & Pithisaria Vol. 3, 5th Edn. at p. 4907 where the gist of various judgments relating to 'admission' and 'retraction from such admission' have been given. The learned counsel submitted that the assessee had retracted from the said statement before FERA authorities as is clear from the copy of orders passed by the competent authority under the FERA 1973. The FERA Appellate Board vide its order dt. 30th June, 1997, had set aside the penalty order levied by the adjudicating authority and he remanded the matter back for passing a fresh order. The Special Director, Enforcement Ministry of Finance, Bombay vide order dt. 5th Jan., 2001, has dropped the penalty proceedings against the assessee. The learned counsel submitted that no reliance should by placed on the aforesaid statement given by the assessee before the FERA authorities.
13. The learned counsel then made his submissions in respect of the addition of Rs. 2,52,750 mentioned at Sr. No. 6 of the chart, which represents the addition made on account of unexplained investment in construction of house property. The assessee had disclosed cost of construction at Rs. 2,74,450. The registered valuer determined the cost of construction at Rs. 2,77,400. The Departmental Valuation Officer (DVO) determined the cost of construction of Rs. 5,27,200. The AO has added the difference between the estimate of cost of construction made by the DVO as compared to the cost declared by the assessee amounting to Rs. 2,52,759. The learned counsel contended that such an addition made on estimate basis would not come within the ambit of undisclosed income defined in Chapter XIV-B relating to assessment for block period. Reliance was placed on the decisions reported as CIT v. Vinod Danchand Ghodawat (2001) 247 ITR 448 (Bom), Vrishali Hotels (P) Ltd. v.Asstt. CIT (2000) 66 TTJ (Pune) 692, (1999) 64 TTJ (Del) 786 (supra) and Indore Construction (P) Ltd. v. Asstt. CIT (2000) 66 TTJ (Ind) 420 : (1999) 71 ITD 128 (Ind). The learned counsel also submitted a copy of the statement of affairs as on 31st March, 1998 showing that the assessee's total capital was only Rs. 9,17, 200. The addition of such large amounts is apparently arbitrary in view of meagre capital owned by the assessee.
14. The learned Departmental Representative relied upon the elaborate reasons mentioned in the assessment order. He was fair enough to admit that on account of short period of limitation then prescribed under Section 158BE, the AO could not grant adequate and reasonable opportunity in respect of some of the items of additions but all those additions have been made on the basis of facts already known to the assessee. These additions are mainly based on the statement given by the assessee before the officers of the Enforcement Directorate during search, which were accepted by the assessee as containing true facts in his statement recorded by the AO on 18th Sept., 1997, the extracts whereof have been reproduced in para 9.1 on page. 9 of the assessment order. The assessee has admitted before AO that facts mentioned in the statement recorded by the Enforcement Directorate (FERA) Bombay on 23rd Sept., 1995, represents true facts and he admits the same. The learned Departmental Representative placed heavy reliance on judgment of the Supreme Court in the case of CIT v. Jai Prakash Singh (supra) and Bombay High Court decision in the case of CIT v. Bharatkumar Modi (supra). The Hon'ble Bombay High Court has held that omission of the AO to confront the assessee with the material in his possession does not affect ab initio jurisdiction enjoyed by the AO in respect of the proceedings. He submitted that even if it is accepted that adequate and reasonable opportunity was not granted to the assessee, the assessment should be set aside and it should be restored back to the AO for passing a fresh order in accordance with law. The learned Departmental Representative also brought to our notice that the legislature itself realized the difficulty created on account of short period of only one year provided for completion of the block assessment and such limitation has now been extended to two years as against one year provided in relation to searches conducted before 1st Jan., 1997. The learned Departmental Representative placed heavy reliance on the elaborate reasons given in the assessment order. He also pointed out that the CIT has granted the approval to the said draft order and after providing adequate and reasonable opportunity to the assessee. The learned Departmental Representative thus strongly supported the assessment order.
15. We have considered the rival submissions made by the learned representative and have gone through the orders of the learned departmental authorities. We have also perused all the documents submitted in the compilation, to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives of both the sides.
16. The assessee Shri Prakash B. Bafna is one of the partners of the firm M/s Ratandeep jewellers. The other partner in the firm was Shri Raju D. Mehta. The officers of the Enforcement Directorate (FERA) conducted a search at the premises of the assessee on 23rd Sept., 1995.
The statement of the assessee was recorded by the officers of the Enforcement Directorate (FERA) in his own handwriting on 23rd Sept., 1995, and 24th Sept., 1995. The English translation of the said statement was furnished by the assessee to the Asstt. CIT along with letter dt. 11th Oct., 1996. It may be relevant here to refer to some of the facts recorded in the aforesaid statement dt. 23rd April, 1995. The English version of said statement has been placed at pp. 63 to 65 of the paper book and photocopy thereof has been placed at pp. 47 to 58 of the supplementary paper book. In this statement Shri Bafna had, inter alia, stated as under : When I come across non-resident Indians I offer them some money to open NRE a/c with Indian banks in Pune.
In order to open/imaintain/operate NRE a/c I purchase illegally foreign exchange from local market and deposit it in these NRE a/cs.
For this I take from these NRIs and keep in my possession, blank cheque books signed by them. As I finance these NRE a/cs, there would be no inconvenience to these NRIs. Anybody who needed NRE funds and approached me was charged 10-12 per cent premium on the sum required by him from NRE a/c and the sum along with the premium was received by me in Indian Currency in exchange for the NRE cheque.
Upon your interrogation in this respect I have to state that I have been carrying on this business activity since October, 1993. I had started this business with Raju Devraj Mehta. All the working capital in this business was contributed by me and Mr. Raju Mehta was a working partner, I came to know Mr. Raju Mehta in July/August 1993. The elder brother of Raju Mehta was known to my elder brother Mr. Hukmichand. At that point of time Raju Mehta's business Vijaykumar Devraj Mehta & Co. was running at a considerable loss. He offered me equal partnership in his firm.
I requested Raju Mehta to help me in opening NRE a/cs. And in selling NRE cheques. The profit arising out of these transactions would be shared equally between us. Upon your interrogation in this connection I have to state that whenever a customer approached me in my shop for buying NRE cheques I used to arrange the NRE cheques for him. Mr. Raju Mehta used to help me in this work. Some of the prospective customers used to contact him for NRE cheques.
Thereafter amount equivalent to NRE cheques required by a customer was deposited in foreign currency purchased from the open market in any of the NRE a/cs. Mr. Raju Mehta thereafter used to handover NRE cheques in exchange from the customer, value equivalent to the cheque and premium on the same at 10-12%." Again on 24th Sept., 1995, further statement of Shri Prakash Bafna was recorded by the officers of the Enforcement Directorate (FERA) and the relevant extracts from the statement recorded on 24th Sept., 1995, are reproduced below: "I have read again my statement recorded at Pune 23rd Sept., 1995. I state that my statement recorded on 23rd Sept., 1995 is true and correct. I continue my statement in writing below.
I have been shown and explained in Hindi, the statement of Mr. Raju Mehta recorded on 22nd Aug., 1995 and 23rd Aug., 1995, in English under Section 40 of the FERA. According to Mr. Raju Mehta I used to finance NRE a/cs opened by him and I used to finance funds required for the purpose of purchase of foreign currency illegally from the open market and for depositing such foreign currency in the a/c of P.B. Panwani and Shri J.G. Lalwani and NRE a/cs of other NRIs.
It is also written in his statement recorded that foreign currency purchased illegally from open market equivalent to Rs. 1.5 crores in aggregate, out of funds financed by me has been deposited in these NRE a/cs. It is also written in his statement that I used to supply the names and addresses of persons in whose names NRE cheque/draft were to be issued. The profit/premium arising on the sale of NRE cheque/draft was shared equally by both of us. I confirm the statement of Raju Mehta in this respect recorded on 22nd Aug., 1995 and 23rd Aug., 1995, and agree with the same.
I used to give Indian currency to Raju Mehta for purchasing foreign currency for the purpose of depositing the same in NRE a/cs. After depositing the foreign currency in the NRE a/cs, we used to issue NRE cheques from the respective a/cs to the customer as the singed cheque used to be in our possession. In exchange of the NRE cheque, Indian currency equivalent to the amount of the cheque together with 10-12 per cent premium on the same was being collected from the customer. I sometimes myself used to purchase foreign currency from the market and hand over the same to Raju Mehta for depositing in NRE a/cs.
Now you have read out the statement of a resident of Pune Mr. Dilip Lunavat, which has been recorded in English under the provisions of Section 40 of FERA on 15th Sept., 1995. According to Mr. Dilip Lunavat, I am his friend.
I and Raju Mehta had sold NRE cheques to Mr. Kunkulal through Mr.
Dilip Lunawat. Upon your specific question in this respect. I have to state that in order to pose issue of NRE cheques as Gift cheques, I and sometimes Raju Mehta used to prepare gift deeds. In the same manner NRE a/cs cheques were being deposited either by me or by Raju Mehta.
In the same manner the application form for purchase of draft used to be filled up by either of us.
On your interrogation in this respect I state that I have not financed any other person for the purpose of such NRE a/c except Mr.
Raju Mehta." 17. The ITO recorded the statement of Mr. Bafna on 18th Sept., 1997, and has reproduced question Nos. 2, 3 and 4 and their answers given by Mr. Bafna in para 9 of the assessment order.
"9.1 As per summons under Section 132 dt. 17th Sept., 1997 assessee attended on 18th Sept., 1997. His statement is recorded by the undersigned. Question Nos. 2, 3 and 4 of the statement are reproduced below : Q. No. 2 : In you statement dt. 23rd Sept., 1995, given from Enforcement Directorate (FERA), Mumbai they have raided you on 23rd Sept., 1995.
Q. No. 3 : You have furnished photocopy of statement recorded by Enforcement Directorate of (FERA), Mumbai on 23rd Sept., 1995, and you have filed English translation of the same on 15th Oct., 1996.
What you have to say about this Q. No. 4 : I have shown you chit No. 8 in bundle of papers serially numbered from 1 to 15 received from Enforcement Directorate, (FERA), Mumbai dt. 19th Dec., 1996. In you statement dt. 23rd Sept., 1995, to Enforcement Directorate, (FERA) Mumbai it is stated that this paper is written in your own handwriting. In 6th line of this Chit (document) following words and figures are stated." The assessee contended that the copy of the statement recorded by the AO on 18th Sept., 1997, was not supplied to him. He drew our attention to letter dt. 19th Sept., 1997, placed at p. 197 of the paper book in which Mr. Bafna requested the AO to supply copy of the statement recorded on 18th Sept., 1997. However, the assessee has nowhere stated before the AO nor the learned counsel has stated before us that the extracts reproduced from statement dt. 18th Sept., 1997, in para 9.1 of the assessment order are incorrect. It is, therefore, clear that the facts mentioned in the statement written by Shri Bafna in his own handwriting on 23rd Sept., 1995, recorded by the Enforcement Directorate (FERA) were once again admitted by him before the assessing authority in his statement record on 18th Sept., 1997. The Bench required the learned counsel to state as to whether the assessee had retracted from the aforesaid statement recorded on 18th Sept., 1997, by the AO in which he confirmed the facts stated in statement dt. 23rd Sept., 1995. The learned counsel admitted that no specific retraction was made before the AO. However, a letter was submitted to the learned CIT on 29th Sept., 1997, i.e., only a day before the assessment was going to be barred by limitation of time. Such a retraction was made simply by mentioning in the aforesaid letter to the CIT that the statement recorded by the customs authorities was under threat and force and since the assessee was scared both by Mr. R.D. Mehta as well as by the attitude of the customs authority, he had no alternative but to state the matter in a manner suggested by the authority which was not from free will and which was under coercion, fear and mental pressure.
18. The principles of law emerging from various judgments relied upon by the learned counsel appearing for the assessee in relation to 'admission' and 'retraction from such admission' clearly shows that admission is an important piece of evidence. What is admitted by a party to be true must be presumed to be true unless contrary is established. In the present case Mr. Bafna made a clear and categorical admission about his active involvement in arranging bogus gifts from bogus NRE accounts. He also admitted that entire funds required for this purpose were provided by him and such activities of arranging bogus foreign gifts were arranged by him in association with Mr. R.D.Mehta. Such admission in a statement dt. 23rd Sept., 1995, was made by Mr. Bafna in his own handwritten statement. The burden heavily lies on Mr. Bafna to support his retraction from such a clear and categorical admission made in earlier statement dt. 23rd Sept., 1995, by producing strong and clinching evidence that such a statement was recorded under fear and coercion. The facts stated in statement dt. 23rd Sept., 1995, before the officers of the Enforcement Directorate (FERA) were once again admitted by Mr. Bafna in his statement recorded by the AO on 18th Sept., 1997. Thus after a gap of two years, Mr. Bafna had once again admitted that all the facts stated in statement dt. 23rd Sept., 1995 are true and correct and he admits all those facts. Mere submission of a letter at the fag end of the assessment proceedings to the CIT without any evidence to prove the fact of exercise of any coercion or threat by the officers of the Enforcement Directorate or by the AO, has no legal' value. Moreover, it was admitted by the learned representatives of both the sides during the course of hearing that various gifts made out of bank accounts of different NRIs referred to in assessment order have offered the amount of such bogus foreign gifts received by them, as income liable to tax and they have paid the taxes on such amounts. The Tribunal in some cases of recipients of such bogus foreign gifts have even sustained penalty under Section 271(1)(c) to the extent of 100 per cent of the tax sought to be evaded by them in respect of such bogus foreign gifts.
19. It may also be relevant here to refer to the extracts of statement of Mr. Bafna recorded in the course of assessment proceedings in the case of Mr. R.D. Mehta. The AO has reproduced the same in para 8 of the assessment order while making an addition of Rs. 4,00 lakhs in respect of such bogus gifts taken by the assessee from four NRIs which is the subject-matter of addition mentioned at Sr. No. 5 of the Chart "8. In the statement of assessee recorded by the undersigned on 18th Sept, 1997, assessee has stated that above mentioned gifts are genuine (Q. No. 8 of the statement). However, in the statement of cross-examination of the assessee by Shri Rajendra D. Mehta recorded before the Asst. CIT (Inv) Cir. 3(1), Pune, on 29th Aug., 1996 Shri Prakash B. Bafna (assessee) has stated that he admit that he has taken gifts along with his family members on the advice given by him (Rajendra D. Mehta) and on realization of his mistake he is declaring the same to the IT Department and paying the tax on the same thereon on consulting the same with his Chartered Accountant.
He has repeated this statement again after its admission (Answer No. 9 of Prakash B. Bafna in the statement of his cross-examination by Rajendra D. Mehta recorded on 29th Aug., 1996). Ans. No. 9 of statement of cross-examination of the assessee by Rajendra D. Mehta is reproduced below.
"P.B. 9. 1 do not have personal knowledge of bankruptcy of Mrs.
Rajendra D. Mehta either before or at the time of entering into partnership.
Ref. To Q. 5 : No papers as alleged and incriminating documents as alleged of NRE business were found in my personal pocket. No NRE gift matters have been handled by me as alleged with you or with any other person, I however, admit that I have taken gifts along with my family members on the advice given by you and on realising my mistake I am declaring the same to the IT Department and paying the tax on the same thereon on consulting the same with my C.A. I also deny to have any transactions with any outside people in respect of NRE account excepting the certain amount as stated earlier in the garb of gift through Mr. R.D. Mehta".
"8.1 In view of facts stated in para 8 above amount of Rs. 4,00,000 represented by 4 NRE gifts it taken as assessee's undisclosed income." It was contended by the learned counsel that the cross-examination of the assessee in the course of assessment proceedings of Mr. R.D. Mehta was left incomplete and Mr. Mehta or his representative did not appear before the assessing authority after leaving cross-examination at an incomplete stage. It was also pointed out that the material brought on record of Mr. R.D. Mehta were not supplied to the assessee nor any opportunity was granted for cross-examination in relation to such material before placing reliance on all such material while completing the assessment in the case of the assessee.
20. After giving our deep and thoughtful consideration to the entire relevant facts, we are of the considered opinion that the aforesaid case needs further probe and detailed investigation.
21. The request made by the assessee's counsel that the assessment should be annulled or cancelled or set aside and the matter should not be restored back to the AO for passing fresh order, has no merit in view of the facts and discussions made hereinbefore. It is a case where the involvement of Mr. Bafna (assessee) along with Mr. R.D. Mehta for running a racket of giving bogus gifts out of bogus NRE accounts, appears to be certain. However, it was also necessary that adequate and reasonable opportunity ought to have been given to the assessee in respect of the entire material on which reliance has been placed in the assessment order against the assessee.
22. It may now be relevant to make a useful reference to the judgment of the Hon'ble Supreme Court in the case of Jai Prakash Singh (supra).
The Hon'ble Supreme Court in this case observed that 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 a distinct substantive provision. Any such omission or defect may render the order irregular depending upon the nature of the provision not complied with but certainly it will not make the order void or illegal. In the present case, most of the additions made by the AO are based on statement of Mr. Bafna recorded by the Enforcement Directorate on 23rd Sept., 1995, which were once again confirmed to be true by the assessee in his statement recorded by the AO on 29th Sept., 1997, and also on the basis of statement of Mr.
Bafna recorded in the case of R.D. Mehta. It cannot therefore, be said that there was inherent lack of jurisdiction but it was only a case of inadequate opportunity, which too was unavoidable on the part of the AO on account of the short time limit allowed for completion of block assessment. The Hon'ble Supreme Court in the case of Jaipal Prakash Singh (supra) reversed the judgment of the Hon'ble Gauhati High Court and held that the assessment made without service of notice under Section 143(2) to nine out of ten legal heirs cannot be treated as null and void but at best it was an irregularity justifying setting aside the assessment for passing a fresh assessment order. The Hon'ble Supreme Court thus confirmed the order of the AAC of setting aside the assessment and restoring it back to the AO.23. The Hon'ble jurisdictional High Court also in the case of CIT v.Bharatkumar Modi (supra) held that there is a difference between irregular exercise of jurisdiction and lack of jurisdiction. The omission of the AO to confront the assessee with the material in his possession does not affect ab initio jurisdiction enjoyed by the AO in reject of the said proceedings. It was held that the Tribunal was not justified in holding that the assessment was a nullity. The Hon'ble High Court further observed that CIT(A) rightly exercised his authority under Section 251 by remitting the matter back to the AO after setting aside the impugned order passed by the AO. The facts of the present case are very startling and telling. It is a case, which requires adequate time for conducting further probe and full investigation. The AO provided a reasonable opportunity which was possible keeping in view the limitation of time. The conduct of the assessee as indicated from the statement recorded by the officers of the Enforcement Directorate (FERA) and by the AO is also extremely relevant. The assessee, after completion of the draft order, has submitted a letter to the CIT, for the first time, one day before the assessment was going to be time barred by limitation stating that the statement was recorded by the Enforcement Directorate (FERA) under threat and ceoercion. In this letter the assessee has not even stated a word about his accepting the same' statement once again before the AO in his statement on oath recorded on 18th Sept., 1997. Now, the learned counsel wants that the assessment made under Section 158BC without providing an adequate and reasonable opportunity in respect of some material should be annulled.
Such a request by the learned counsel is clearly contrary to the principles of law enunciated from the judgments of the Hon'ble Supreme Court and the Hon'ble Bombay High Court referred to above.
24. The learned counsel, inter alia submitted that various additions made in the case of Shri R.D. Mehta on protective basis were made in the hands of the assessee on substantive basis. Those additions have now achieved finality in the hands of Mr. R.D. Mehta, as the Tribunal has dismissed the appeal in the case of R.D. Mehta vide order dt. 31st March, 2000, in ITA No. 95/PN/1996. He, therefore, urged that same amount cannot be assessed once again in the hands of the assessee. A perusal of the order passed by the Tribunal in the case of Mr. R.D.Mehta indicates that Mr. R.D. Mehta nor any of his representatives attended the hearing before the Tribunal. The Tribunal, therefore, relying upon the decision in the case of CIT v. Multiplan India Ltd. (1991) 38 ITD 320 (Del) and the decision of the Madhya Pradesh High Court in Estate of Late Tukojirao Holkar v. CWT (1997) 223 ITR 480 (MP) dismissed the said appeal for want of prosecution. During the course of hearing the learned counsel appearing for the assessee also stated that Mr. R.D. Mehta has now become bankrupt. It, therefore, requires a serious consideration as to whether there is any hidden game-play behind this fact of non-appearance of any one in the case of Mr. R.D.Mehta before the Tribunal. There may be a conscious effort on the part of the concerned person to get the demand finally sustained against Mr.
R.D. Mehta who may not have any funds or property from which substantial tax demand may be recovered and the fact of finality of assessment of income in the case of Mr. R.D. Mehta may be utilized as ground for deletion of same amount in the hands of Mr. Bafna. It is necessary to find out by conducting further probe and investigation as to who is the real person who provided the required finance for running such a racket of giving bogus gifts out of bogus NRE account. What was the reasonable amount invested in carrying out such illegal activity of converting black money into white money in the hands of various persons by giving them bogus gifts or cheque/draft cut of such bogus NRE account. It is also necessary to find out as to how much income represented by investment of black money for carrying out such illegal business and the commission income derived from such activity has to be assessed in the hands of all those who were really engaged in carrying out such activity. The statement referred to hereinbefore clearly indicates that Mr. Bafna provided the entire funds required by carrying out such racket for arranging bogus gifts out of bogus NRE a/cs. The commission income was shared both by Mr. Bafna and Mr. Mehta. The facts so clearly and categorically mentioned in the statement dt. 23rd Sept., 1995, and 24th Sept., 1995, before the officers, of the Enforcement Directorate (FERA) and once again confirmed before the AO in the statement on oath recorded on 18th July, 1995, are important piece of evidence against the assessee. The assessee is, of course, entitled to an opportunity to show that the aforesaid facts are incorrect or that such statements were recorded under coercion or threat. The assessee will have to discharge the burden of proving this by producing clinching and conclusive evidence. Likewise the AO will also have to provide copies of the entire material discussed in the assessment order of R.D. Mehta to the assessee and provide him a reasonable opportunity thereafter to make his submissions in that regard and to submit evidence in rebuttal thereof. It may be worthwhile to mention, that if as a result of further probe and deep investigation, it is found that the entire income or part of such income is rightly assessable in the hands of the assessee, the addition made in respect of these very amounts, in the hands of Mr. R.D. Mehta, if any, may by deleted under Section 154 of the Act, in consonance with the circular issued by the Board, it will be relevant here to reproduced the said circular as appearing in Taxman's Direct Taxes Circular Vol. 2 page 1172.
"459. Board's authorization for taking action under Section 154 beyond time limit specified under Section 154(7) in cases of protective assessments requiring to be cancelled--Order under Section 119(2)(b).
A copy of the order dt. 20th Dec., 1971 passed by the Board on the subject is enclosed for information and guidance.
1. Where the same income was assessed, as a protective measure, in the hands of more than one assessee or as the income of more than one assessment year, and one or more of these protective assessments needs to be cancelled as a result of some of the relevant assessments having become final and conclusive, it has been the practice of the IT Department to cancel the redundant assessments under Section 154, treating these as involving mistakes apparent from the records. This is being done by the ITO either suo motu or on applications made by assessees. Sometimes, it is not possible to take action under Section 154 in such cases because of the operation of the time limit laid down in Sub-section (7) of Section 154. Since the operation of this time-limit causes genuine hardship to the affected assesses, the Central Board of Direct Taxes, in exercise of the powers vested in them under Clause (b) of Sub-section (2) of Section 119, hereby authorizes the ITO to take action under Section 154 or to admit or dispose of on merits applications under Section 154 filed by assessees seeking relief, for cancelling such protective assessments as have become redundant by waiving if necessary, the time limit fixed under Sub-section (7) of Section After the income is finally assessed in the hands of the person who is rightly assessable in respect of such income, the addition made on protective basis of the same amount in the hands of other persons can be deleted under Section 154 even after the expiry of time limit fixed under Section 154(7) of the Act. This will obviate levy of double taxation of the same amount in the hands of more than one person.
25. The learned counsel made elaborate submissions with regard to the additions mentioned at Sr. No. 1 to 5 on the basis of paper found and seized from the possession of the assessee during search on 23rd Sept, 1995, by officers of Enforcement Directorate.
26. It has been submitted that the content 27/50 cannot be interpreted to mean that it represents the amount of Rs. 27,50,000 as investment made by the assessee on account of financing the arrangement of bogus NRE gifts. It was also contended that the amount should be read as Rs. 2,75,000 as mentioned by Mr. Bafna in his statement dt. 23rd Sept., 1995, before the FERA authority. It is true that there is no basis of translating 27.50 mentioned in the seized document placed at p. 2 of the paper book and English translation of the said chit placed at p. 45 of the supplementary paper book. It is pertinent to repeat that the learned counsel appearing for the assessee has admitted before us that the said paper was found from the possession of the assessee during search and contents mentioned in the said sized paper relate to the assessee. He does not dispute that the assessee was the owner of the said paper and the contents thereof relate to him. A careful reading of the said paper clearly establishes the assessee's association with Mr.
R.D. Mehta in relation to NRE transaction/gift. The learned counsel himself content that the content 27.50 should be taken as Rs. 2,75,000.
This is only an isolated instance of one transaction, which was recorded in the chit found and seized during the search. The content 27.50 cannot be translated as Rs. 27,50,000 without any further evidence. Further interrogation of concerned person may reveal the truth relating to true figure represented by 27/50 appearing in the seized paper. These documents also clearly indicate that the assessee gave certain funds in relation to carrying out the activity of arranging bogus gifts from NRE a/c. The amount of capital required for carrying out such activity has to be estimated on the basis of aggregate gifts made out of such bogus NRE a/cs in the name of various so-called NRE donors. Likewise the other additions made on the basis of said seized paper require further probe and investigation. The statement of concerned persons including the statement of Mr. R.D.Mehta will have to be recorded in the presence of the assessee.
27. As regards the addition made in respect of unexplained investment in construction of house property is concerned, this matter also requires further investigation. The comparison of the valuation made by the registered valuer and Departmental Valuation Officer should be made and exact reasons of the difference should be ascertained. The AO will have to examine both the DVO as well as registered valuer for arriving at proper estimate of cost of construction of house property in question. The AO will also take into consideration the submissions made on behalf of the assessee whether such addition would come within the ambit of undisclosed income as defined for the purposes of Chapter XIV-B.28. On a careful consideration of the entire relevant facts, we are of the considered opinion that the assessment made by the AO should be set aside and the entire matter should be restored back to him for passing fresh order after concluding further probe and detailed investigation in accordance with the provisions of law, and after providing a reasonable opportunity to the assessee. The AO may, inter alia consider the following points while making further probe and investigation in the course of de nova fresh assessment proceedings : (a) The AO should prepare a complete list of all the persons who have received such bogus gift through various NRE a/c mentioned in the impugned assessment order. He should also verify from the assessment records of all those persons who have received bogus gifts and find cut as to how many persons amongst them have admitted that those gift cheques/demand drafts are bogus gifts and they have offered that amount as income liable to tax in their hands. A summary thereof and taxes paid on such bogus foreign gifts should be prepared. The fact that large number of these persons who have received such gifts have paid taxes thereon by accepting that such gifts are bogus will support the view of the AO in sustaining the addition in respect of unexplained capital invested by the assessee and commission income derived by them from such illegal activities.
(b) The AO should examine some of those persons who have admitted such gifts to be bogus gifts and who have paid taxes thereon in the presence of the assessee and find out as to who are the real persons who arranged such bogus gifts from such NRE a/cs. And how much premium/commission was paid by them.
(c) It may also be relevant here to mention that the Tribunal, Pune in various cases have sustained inter alia, an addition at the rate of 10 per cent of such bogus foreign gifts such as in order dt. 8th March, 2002 in ITA No. 789/Pn/2000 and others and in other dt. 10th June, 2002 in ITA No. 464/Pn/2002. The facts, material and discussions made in those orders of the Tribunal may also be kept in view.
(d) Mr. R.D. Mehta should be examined in the presence of the assessee in respect of various facts recorded in the assessment order in the case of the assessee as well as in the case of Mr. R.D. Mehta and in relation to any other relevant material.
(e) The AO should also examine all the NRE a/c holders from whose NRE accounts such bogus gifts have been given. Sources of deposits in their NRE accounts should be investigated. Copies of pay-in-slips for such deposits may also be obtained to ascertain the handwriting of persons who filled up these pay-in-slips. It may also be ascertained whether foreign currency in cash could be validly deposited in NRE a/cs. Such statement should be recorded in the presence of the assessee.
(f) The AO may obtain cheques issued from all the bogus NRE a/cs referred to in the assessment orders from the respective banks and may find out as to in whose handwriting those cheques were prepared.
It may be ascertained whether those were prepared-in the hand writing of Mr. Bafna or Mr. R.D. Mehta or by their employees.
Whether the cheques issued from different NRE a/c in the name of different persons, are in similar handwriting. The names and addresses of the persons, are in similar handwriting. The names and addresses of the persons who have prepared the cheques should be ascertained by proper interrogation of NRE a/c holders, Mr. Prakash Bafna and Mr. R.D. Mehta.
(g) In the statement dt. 23rd Aug., 1995, Mr. Bafna also stated that the application form for purchase of draft were filled up either by him or Mr. Mehta. Ptotocopy of such application form should be obtained from the respective banks with a view to further confirm the correctness of these facts.
(h) Mr. Bafna in the said statement had also stated that he or Mr.
R.D. Mehta used to prepare gift deeds. The names and addresses of the persons who prepared the gift deeds and other relevant documents should be found out and they should also be interrogated.
(i) The AO should provide copies of entire relevant material discussed in the assessment order of Mr. R.D. Mehta to the assessee and should grant thereafter a reasonable opportunity to make his submissions in that regard and also to lead evidence in rebuttal if any.
(j) The AO may also consider the entire evidence including the diary seized from the possession of Mr. Bafna by the Officers of the Enforcement Directorate (FERA) in the light of amended provisions contained in Chapter XIV-B with specific reference to the amendment made in the relevant provisions with retrospective effect. The proviso (b) to Section 158BC now provides that the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BC and the provisions of Section 142, 143(2)(iii), 144 and 145 of the Act so far as may be applicable. The resort to estimation as per Section 145 based on the incriminating documents and material found during the course of search by invoking Section 145 may be justified in view of the facts and circumstances of the case.
(k) It may also be imperative to prepare a peak statement of all the bogus NRE a/cs with various banks in the names of all the concerned persons, from whose accounts bogus gifts cheques/DDs have been given. Such peak amount will be the minimum amount invested by the assessee for running such racket of giving bogus gifts out of bogus NRE a/cs in view of his statements before FERA authorities and AO referred to hereinbefore. Such clear and categorical statements made before Enforcement Directorate at the time of search and reaffirmed once again after two years before the AO (unless successfully rebutted by assessee) coupled with the admitted contents of the seized documents may by themselves justify addition of minimum amount of investment of funds (such peak amount) and commission income earned thereon, in the hands of the assessee by resort to Section 145 r/w other provisions of Chapter XIV-B. (l) The AO will be at liberty to conduct the detailed probe and further investigation in the manner as he may consider proper.
However, the AO should give copies of the entire material to the assessee and should thereafter provide him an adequate and reasonable opportunity to make his submissions and to lead evidence in rebuttal thereof. The AO should also provide the assessee an opportunity of cross-examination of all the persons, on whose statements he intends to place reliance.
(m) The AO will pass a fresh order in accordance with the provisions of law and after providing an adequate, reasonable opportunity to the assessee.
29. In the result, the appeal is treated as allowed for statistical purposes.