1. The appellant/assessee in this case is one Shri Rati Ram Gotewala.
He is assessed with the Income-tax Department in the capacity of an individual. Shri Rati Ram Gotewala and his family members are into the business of Saris. They have their shops in Delhi and Calcutta. So is the situation with regard to their residences. They also have bank lockers in Delhi and Calcutta. Shri Rati Ram Gotewala is a partner in M/s Rati Ram Ram Vinod & M/s Rati Ram Vinod & Co. He is a Director in Rati Ram Ram Vinod Saree Store Pvt. Ltd. and proprietor of M/s. R.Bakesh Behari & Co.
2. On 24th September, 1997 the business premises of the said group companies/concerns, which are associated with Mr Rati Ram Gotewala, were subjected to search by the Income-tax Department. Searches were carried out at the business and residential premises at Delhi and Calcutta with respect to group companies associated with Rati Ram Gotewala. The searches conducted by the Department lead to seizure of documents/books of account as well as certain Hundis, which depicted the extension of cash loan by Shri Rati Ram Gotewala in the market. As the search led to the seizure of various documents which, according to the Revenue depicted the surfacing of undisclosed income, the AO called upon the said Shri Rati Ram Gotewala to file its return of income.
Notice us. 158-BC was served. Notice u/s 158-BC covered the block period commencing from 1st April, 1987 to 24th September, 1997 and was served on the assessee and his group companies on 17th July, 1998 calling for the filing of the return for the block period. The said return pursuant to the notice was filed on 19th April, 1999 disclosing an income of Rs. 1,27,17,493/-. For the relevant assessment years covering the block period, the assessee in its regular returns has disclosed Rs. 7,70,142/- as its income. After adjusting the income already disclosed in the income declared pursuant to notice u/s 158BC, the assessee declared in income of Rs. 1,19,47,351/-.
3. The AO pursuant to the return filed proceeded to frame assessment.
Various queries were raised which was replied to. The facts on the record transpire that during the search the Revenue found from the premises of the assessee at Delhi Cash Hundi loans or Rs. 1,04,45,000/-. The Revenue also found cash Hindi loan of the Value of Rs. 11,04,000/- from the premises at Calcutta. The sum and substance of this is that the cash Hundi of the value of Rs. 1,15,49,000/- were found from the said premises. During the search the Revenue has also got under its possession a diary written in the hands of Shri Rati Ram Gotewala. The diary had various information such as birthday of relations, telephone number of acquaintances, and dates of the court cases, etc., etc. All these were in the handwriting of Shri Rati Ram Gotewala. To this, there is no dispute. Apart from the information referred to above, in the diary Shri Rati Ram Gotewala had also jotted down the financial affairs of the group companies for the assessment year 1992-93, 1993-94 and 1994-95. The affairs of the group companies jotted by Shri Rati Ram Gotewala had two parts. On part reflected the financial affairs of the group company, which tallied, with the books of account. The other part jotted down in the diary was jotted down against the symbol 'Om'. The said affairs jotted down against the symbol 'Om' did not find a place in the regular books of account. Since the figures were not reflected in the regular books of account, which was jotted by Shri Rati Ram Gotewala in his diary, the AO called upon the assessee to explain these entires. It was made clear by the AO that if no plausible explanation is furnished, the addition of the amounts reflected in the diary against the assessment years will be added to the undisclosed income for the relevant assessment year. The facts on the record reflect that for the assessment year 1992-93 the figures jotted down under the symbol 'Om' were Rs. 54,04,036/- for the year 1993-94 the figures jotted down under the symbol 'Om' were Rs. 60,36,329/- and for the assessment year 1994-95 the figures were to the tune of Rs. 76,59,424/-. The reply was filed to this letter of the AO.Various objections were taken to the proposed action of the AO to the addition on the amounts referred to above under the symbol 'Om. Amongst the objections taken, the objections of the assessee were that no reliance can be placed on the diary unless it is corroborated by other material. According to the assessee each and every nook and corner of the business and residential premised of Delhi and Calcutta have been searched and part from this diary and the Hundis pertaining to the cash loans there is nothing found. The case of the assessee was that if there is no corroborative material which could establish that such of Rs. 1,90,973/- is the uncounted income of the assessee, merely on the basis of an entry in the diary the additions cannot be made. The record also transpires that the assessee took an objection that a sum of Rs. 1,15,49,000/- which has surfaced during the search in the form of cash Hundi have been surrendered and after giving an adjustment of this amount there is no material on the record which substantiates the balance amount of Rs. 75,48,389/- as the undisclosed income. The order objection of the assessee was that if the assessee has gained in Hundi loan he bas lost no Hundi loans, the assessee contended that if the addition is to be made to the income of the assessee on account of cash Hundi loans then he has to be given an adjustment of the losses suffered on account of bad debts in the business/transactions of Hundis. The sum and substance of the assesse's objection was that in the absence of corroborative evidence except what has been surrendered no other addition can be made. The assessee contended that the Department should take a positive attitude and make assessment only on the basis of the documentary evidence and no on the hearsay. The group companies to whom the notices wee also sent by the AO in this regard contended that none of the partners/Directors of the company had ever seen the diary of Shri Rati Ram Gotewala nor at any point of time Shri Rati Ram Gotewala had disclosed the nothings in the diary to them. In this background they denied the note about the figures in the diary and contended that they were written by Shri Rati Ram Gotewala in their personal capacity. As Shri Rati Ram Gotewala had surrendered the amount of cash Hundi, the loan to the extent of RS. 1,15,49,000/-, they expressed that they had no objection to the amount surrendered, but made it clear that it was surrendered in the personal capacity as an individual. The group companies in this manner wanted to wash ;off their hands from the said affairs and completely disown and the figures by stating that the figures of the amount are of the personal recording of Shri Rati Ram Gotewala in his personal capacity as an individual and does not bind on the group companies/concerns/firms. Shri Rati Ram Gotewala while replying to the notes of the of the stated that the figures written by him were written by memory only, but he is unable to explain the same. He also wanted to take shelter under the surrender made by him with respect to cash Hundi loans. On the one hand the firms through their partners, directors disowned the dairy and stated that they are not aware of the nothings in the diary while on the other hand Shri Rati Ram Gotewala while replaying to the AO stated that the said nothings in the diary are in his individual capacity as far as figures are concerned none of the firms should be held responsible for this.
Consequent to the stand taken by the group companies disowning the diary that the entire burden fell on Shri Rati Ram Gotewala who was to explain the figure of Rs. 1,90,97,390/- which, according to the Revenue, was the uncounted income and which income was recorded in his diary. The sum and substance of the reply of Shri Rati Ram Gotewala was that he also refused to divulge or admit that the figures recorded in the dairy which do not find a place in the regular books of account are unaccounted income.
4. The AO after examining the reply came to the conclusion that the diary reflects the true state of affairs. He had some reasons for this.
On reason was that this diary contains the true state of affairs of the concerns with which Shri Rati Ram Gotewala is associated with. By true state of affairs he meant that one part of the diary which contained financial result of various firms with which assessee was associated with tallied with the books of account maintained by the firm. The second as all these figures are in the personal handwriting of Shri Rati Ram Gotewala. Thirdly the diary contained vital information such as birthday of relations, date of court hearings and important telephone numbers connected with the personal life of the assessee, which too was in the he personal handwriting of the appellant. He, therefore, believed that the amount which did not find place in the books of account, but finds a place in the diary under the symbol 'Om' reflects his unaccounted income. He therefore, held that the figures of net profits recorded at page No. 60-66 of the personal diary of Shri Rati Ram Gotewala amounting to Rs. 1,90,97,389/- represents the undisclosed income. He further on the basis of the statement made by Shri Rati Ram Gotewala observed that out of the disclosed income the amount has been spent in cash Hundi loans. In this background he gave a finding that the sum of Rs. 1,90,97,389/-, depicts the undisclosed income of the assessee.
5. The AO, therefore, after giving an adjustment of Rs. 1,15,49,000/- from the total undisclosed profits arrived at by him on the basis of the personal diary at Rs. 1,90,97,389/- brought to tax the balance amount of Rs. 75,48,389/- as undisclosed profits of the assessee. The order area on which the AO divulged was with regard to interest on the Hundis, the assessee's explanation that the interest earned on the Hundi is included in the case value of the Hundi was not found to be correct and, therefore, the AO also brought to tax interest income of Rs. 12,44,084/-.
6. Some other additions were also made by the AO with respect to which we do not intend to deal for the reason that the same were deleted by the CIT(A) on appeal and the Revenue has no grievance to that as the Revenue is not in appeal and having accepted the finding of the CIT(A).
We, therefore, are not adjudicating those additions/areas which have been deleted by the CIT(A) to which the Revenue has no grievance.
7. The sum and substance of the order of the AO was that he framed the assessment at a figure of Rs. 2,08,14,824/-. While framing the assessment, the AO directed for the charging of interest u/s 158BFA and directed that the penalty proceedings u/s 158BFA (2) in initiated separately.
8. After having got assessment in his hand, Shri Rati Ram Gotewala was not satisfied with the same. He filed an appeal before the CIT(A).
Various grounds were raised before the CIT(A) challenging the action of the AO framing the assessment. The validity of the proceedings taken out u/s 132 of the IT Act was also challenged. The challenge was also made to the computation of income and charging of interest. The CIT(A) after hearing the parties did not agree with the assessee's challenge on the validity of the proceedings. On the other issue of undisclosed income determined by the AO at Rs. 2,08,14,824/- he made certain deletions and made certain modifications. The CIT(A) agreed with the contention of the assessee that the assessee had given out of the undisclosed income a sum of Rs. 30 lakhs to his children who have invested the said amount in the family house at Pitampura and has disclosed the same in their return. According to CIT(A), once the children have disclosed the said amount of Rs. 30 lakhs in their respective returns, the said amount of Rs. 30 lakhs cannot be taxed twice. He, therefore, out of s. 75 lakhs and odd left after the adjustment of cash Hundi loans Rs. 1,15,47,351/- gave a benefit of Rs. 30 lakhs claimed to have been spent by the family in the family house, to the appellant.
9. While the proceedings were pending before the CIT(A) he found that during the year 1992-93 which was the first year of unaccounted business, there were unaccounted sales to the tune of Rs. 202 lakhs. He felt that this cannot be achieved without unaccounted investment.
Another area which came to the notice of the CIT(A) during the appellate proceedings was on 31st march, 1995 there was an undisclosed closing stock of Rs. 69,81,510/-. The CIT(A) felt that this stock must have been disposed of in the subsequent year resulting in further unaccounted profits for which no summary was available. As this are was not touched by the AO, the CIT(A) during the pendency of appellate proceedings issued a notice to the assessee u/s 251(1)(a) read with section 251(2) of the IT Act calling upon the assessee to file objections, if any, because he proposes to enhance the income for the block period by 30 lakhs in the form of undisclosed investment in the undisclosed stock, and also Rs. 20,10,640/- on account of profits derived from the sale of unaccounted closing stock which was available on 31st March, 1995 amounting to Rs. 69,81,510/-. Various objections were filed to the proposed action of the CIT(A) proposing to enhance the income, in the manner indicated above and finally the CIT(A) by the impugned order added the said two amounts of Rs. 30 lakhs by way of investment which have generated undisclosed sales of Rs. 202 lakhs in the year 1992-93 and also Rs. 20,10,640/- generated by way of income on the basis of net profit rate disclosed by the assessee himself in the unaccounted business by sale of unaccounted closing stock of Rs. 69,81,510/-. On the one hand the CIT(A) gave the assessee a relief of Rs. 30 lakhs claimed by the members of the family to have been invested in the undisclosed investment in the house stated to have been given to them by the assessee, but on the other hand enhancement to the undisclosed income was also made. On the question of charging of interest u/s 158BFA, the CIT(A) rejected the contention of the assessee on the ground that the return was filed much beyond time prescribed by the notice. On the question of charging of interest on the Hundi Loans, the CIT(A) agreed with the finding of the AO. The CIT(A) rejected the contention of the assessee on the grounds of having suffered losses in the Hundi loans. The sum and substance of the order of the CIT(A) was that at one issue the assessee succeeded while on the issue of pumping in of unaccounted funds and profits of unaccounted sales in the later year, the assessee suffered.
10. Having lost at two places the assessee is before us challenging the order of the CIT(A) on the ground detailed below :- "On the facts and in the circumstances of the case in law the following actions of the CIT(A) are arbitrary, erroneous and illegal and must be quashed :- 1. In upholding the legality and validity of the search and the consequential assessment and the computation of block income as made by the AO at Rs. 2,08,14,824/- which is misconceived and erroneous and contrary to the provisions of Section 132 r.w. section 150 BB and Section 158C(b) of the Income Tax Act, 1961 and in derogation of the cited Tribunal and High Court decisions; 2. In the CIT(A) confirming the action of the AO who had passed precipitous and fallacious order without giving reasonable adequate and proper opportunity for hearing which lapse the CIT(A) could not himself have rectified as per law and had no legal option other than remanding the matter back to the AO. 3. In the CIT(A) confirming the inclusion of the sum of Rs. 10,44,5000/- and Rs. 1,10,4000/- for assessment which sums were conditional offers despite the conditions accompanying the offer not having been accepted or acted upon by the AO. 4. In the CIT(A) not deleting the addition of Rs. 75,48,389/- and on the contrary enhancing the same by Rs. 20,10,641/- notwithstanding Ground 3 supra and there being wholly no merit otherwise in the points as canvassed by the AO and the CIT(A).
5. In the authorities below having failed to appreciate that the amount alleged to have been recorded in the diary was apparently not the income of the assessee and, therefore, could not have been assessed to tax in the hands of the assessee merely on the ground that the assessee has chosen to offer the same. In any case and without prejudice to be consistent, the AO could not have disturbed the income offered, being the basis of the offer of the income in the return of income.
6. In the CIT(A) confirming addition of Rs. 12,44,084/- contrary to law and facts; 7. In the CIT(A) upholding additions to stock based on surveys carried out under section 133A in the block assessment on a misconstruction of law and in denying requisite relief therefore; 8. In the CIT(A) upholding an addition of Rs. 3,98,351/- on account of cash other than Ground No. (5) above on erogenous and untenable considerations; 11. At the time of hearing of the appeal the assessee moved an application for urging additional grounds which is in the following terms;- "In the facts and circumstances of the case and in law the action of the authorities below in levying penal interest u/s 158BFA of the IT Act 1961 for the period 5.5.98 to 19.4.99 in the sum of Rs. 29,97,334 despite there is no delay in permitting inspection and copying of records which resulted in delay in the preparation of account and submission of return is arbitrary misconceived, erroneous and illegal and must be quashed." 12. This additional ground was raised on the day when the hearing in this appeal started. We suggested the counsel hearing for the assessee that we shall hear this ground at the time of hearing of the main appeal and if it goes to the root of the matter we will admit it. Once the submissions were heard on the maid appeal, we heard the counsel of this ground also and felt that this ground needs to be addressed. We, therefore, permitted the counsel to raise this ground. We intend to take this ground first. During the course of hearing the counsel for the assessee did not dispute the delay in filing the return. According to him the delay was on account of reasons beyond his control. The reasons which were pressed before us at the time of hearing of the appeal were that the Department did not supply the appellant the necessary documents despite a request made in this behalf. According to the counsel, when the necessary documents which facilitates the filing of the return wee not made available to the assessee, how could the provisions of Section 158BFA be invoked against him. To the arguments raised by the counsel for the assessee the Id. Dr Shri Anirudh Kumar submitted that the provision of reasonable cause are not there in Section 158BFA. According to the Id. Dr if a particular provision is not available, it cannot be invoked. According to the Id. DR, the moment the delay occurs in the filling of the return, the provisions of Section 158BFA(1) and (2) immediately comes into the operation.
13. We have heard the parties and taken ourselves through the record and strenuously considered the submissions made at the bar by both the sides. The challenge is to the charging of the interest u/s 158BFA.Section 158BFA falls in Chapter 14-B. Chapter 14-B we must say is a complete code it itself. When we say that it is a complete code in itself. we mean that it does not either extend support any where or takes help from anywhere. It means the strict compliance of the provisions of the Section before it can be invoked is a must. What does Section 158BFA sys is reproduced below :- (1) Where the return of total income including undisclosed income for the block period, in respect of search initiated u/s 132 or books of account, other documents or any assets requisitioned u/s 132A on or after the 1st day of January, 1997, as required by a notice under clause (a) of section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one-fourth per cent of the tax on undisclosed income, determined under clause (c) of section 158BC, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time specified in the notice, and - (a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or (b) Where no return has been furnished on the date of completion o assessment under clause (c) of section 158BC. (2) The AO or the Commissioner (A) in the course of any proceedings under this Chapter, may direct that a person shall pay be way of penalty a sum which shall not be less than the amount of tax livable but which shall not exceed three times the amount of tax so livable in respect of the undisclosed income determined by the AO under clause (c) of section 158BC. Provided that no order imposing penalty shall be made in respect of a person if- (i) I such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iv) an appeal is not filed against the assessment of that part of income which is shown in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the AO is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.
(3) No order imposing a penalty under sub-section (2) shall be made, - (a) unless an assessee has been given a reasonable opportunity of being heard; (b) by the Assistant Commissioner or Dy Commissioner or the assistant Director or Dy. director as the case may be, where the amount of penalty exceeds twenty thousand rupees except with the previous approval of the Joint Commissioner or the Joint Director as the case may be; In a case where the assessment is the subject matter of an appeal to the Commissioner (A) under section 246 or Section 246A oran appeal to the Appellate Tribunal u/s 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or the Commissioner, whichever period expires later; (d) in a case where the assessment is the subject matter of revision u/s 263, after the expiry of six months from the end of the month in which such order of revision is passed; (e) In any case other than those mentioned in clauses @ and (d), after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later; (f) in respect of search initiated u/s 132 or books of account, other documents or any assets requisitioned u/s 132A, after the 30th day of June, 1995 but before the 1st day of January, 1997.
Explanation-In computing the period of limitation for the purpose of this section, - (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129; (ii) the period during which the immunity granted u/s 245H remained in force; and (iii) the period during which the proceedings under sub-section (2) are stayed by an order or injunction of any court, shall be excluded.
(4) An income tax authority on making an order under sub-section (2) imposing penalty, unless he is himself an AO, shall forthwith send a copy of such order to the AO." 13. A perusal of Section 158BFA mandates that after the search the return should be asked for. The assessee must file the return within the time prescribed and the if the return is not filed within the prescribed time, then the assessee shall be liable to pay simple interest @ 1/4% of the tax on the undisclosed income determined under Clause (c) of Section 158BC for every part of the month. for the invocation of this there are certain conditions precedent and the condition precedent are that there should be a search. Pursuant to the search a notice u/s 158BC should be served calling upon the assessee or the persons whose premises is searched to file a return. Notice u/s 158BC must indicate the time within which the return is to be filed. If the return is not filed within the time, then only interest and penalty can be charged.
15. We are conscious of the arguments raised by the Id. AR that it was the Department which was responsible for the delay in not supplying the documents and, therefore, penalty u/s 158BFA cannot be imposed. We were persuaded for moment to agree with him. We were impressed by his arguments and might have held the assessee to be not responsible for delay in filing the return, but we came across a letter on the record filed by the assessee himself which is dated 18th November, 1998 under the signature of Shri R.P. Mahato, Asstt. Commissioner of IT wherein it has been stated as under :- "After your search on 24th September, 1997 notice u/s 158BC was issued and we have on your group on 17th April, 1998 calling for filing of the return in the block period relevant to the search period. For filing of returns you had requested this office to make you available the photocopies of the relevant documents and the same were made available to you in the month of July, 1998. Till today no return for the block period has been filed by you. You are, hereby required to file the returns immediately on the receipt of this letter to expedite the assessment proceedings. The aforesaid letter clarifies the position in so far as it relates to the supply of documents. It also clarifies that despite the availability of decrements up to 18th November, 1998 the return is not filed. and is filed on 19th April, 19983 it also clarified that despite the availability of documents up to 18th November, 1998 the return is not filed. And is filed on 19th April, 1999. There is no contradiction to the letter ever issued that the contents of it are wrong and documents are not supplied. There is no material on the record which would reflect that after this date the documents ware supplied. In the absence of this we have no reason to disbelieve the contents of the letter which indicate that the documents were supplies." 16. We may observe one more fact in this regard available on record and the fact is that the assessee has placed on page 259 of the paper book a letter dated 14th September, 1998 wherein he has requested the Revenue to supply the copy of the statement recorded by the investigating team for record and reference. The letter dated 14th September, 1998 does not reflect as to how it was sent. We are conscious of the fact that there are certain modes of dispatch of letter and the modes which is know in common parlance is (a) one goes and delivers the letter personally and in that one gets an endorsement/acknowledgement in lieu having delivered the letter which is missing in this case. There is no endorsement or acknowledgement on the record.(b) the other mode of communication is to send the letter by registered post or speed post. There is no document worth its name placed on the record which would reflect that the letter was sent by registered post or speed post. The other mode which is known is to send by UPC which is called 'Under Postal Certificate' which is also not the case here. After this letter of 14th September, 1998 there is a letter placed by the assessee issued by the Revenue which has been reproduced above and which does not refer to this letter of 14.9.98. After the letter of 18th November, 1998 there is no other letter placed on the record by the assessee which would contradict the contents of the said letter of 18th November. Had the assessee delivered the letter dated 14.9.98 earlier he would have immediately reacted to the letter of 18th November, 1998 and denied the contents of it. To the contrary there is a complete silence on the part of the assessee after the letter of 18th November was written by the Revenue. This makes us believe that the letter of 14th November, 1998 is not a genuine letter and tailored to raise the defense of reasonable cause of delay in filing the return. In the light of the above discussion, we feel that the assessee had delayed the filing of the return pursuant to notice issued by the assessing officer u/s 158BFA and, thus, we have no hesitation in holding that the provisions of Section 158BFA have rightly been invoked. We may also say here itself that the plea of reasonable cause is not available to the assessee under Chapter XIV-B of the Income Tax Act, but we cannot keep our eyes closed to those cases where there is a delay in supplying vital information asked for by the assessee, which information is available with the Revenue and without which information the assessee cannot file his return. The onus to establish that the assessee was in need of vital information without which the assessee could not complete the return is on the assessee. The assessee must discharge this onus by positive evidence. He must demonstrate that without the information asked for by him from the Revenue, he was unable to complete the return. He must also demonstrate that it is the Revenue, which has delayed in supplying the information. If the assessee establishes this, it is then and only then he shall be entitled to the benefit of reasonable cause, otherwise not.
The next question that arises is that if the assessee establishes beyond doubt that it is the Revenue that had delayed the supply of vital information which has delayed in filing the return, there is the penalty and the other consequences of Section 158BFA be wiped of for not. The obvious answer shall be no. The interest and the penalty u/s 158BFA shall in he eventuality is to be restricted only to the period of delay beyond the one attributable to Revenue by giving the assessee some grace period to complete the return, but in no case we make it clear that any of the authorities have power to condone the penalty in toto.
17. The next question that arises for our consideration is that if the provisions of Section 158BFA have been rightly invoked, then that is the period for which the provisions of Section 158BFA can be said to be operative in this case.
18. To answer this question we again have to refer the letter of 18th November, 1998. When we refer to the said letter of 18.11.98, this letter reflects that the documents were supplied in the month of July, 1998. There is a complete silence on the part of the Revenue in this letter t indicate the date on which the said documents were supplied.
In the absence of the specific date we take the date as 31st July, 1998. Assessee has to be given a reasonable time to file the return which was feel should be one month which ends on 31st August, 1998. We, therefore, feel that the provisions of Section 158BFA as far as this case is concerned shall be operative from 1st September, 1998 up to 19th April, 1999 when the return is filed.
19. The Id. AR during the course of hearing suggested that as the assessee is not at fault the interest u/s 158BFA be condoned. We feel that we have no power to condone. Once we hold that there is a delay in filing the return, the necessary consequence enshrined in Section 158BFA which mandates the charging of interest along with other consequences, if any, comes into play. The word used in Section 158BFA is "shall charge interest." The language of the statute is very clear and unambiguous and gives no power to any of the authority to exercise discretion and waive interest and contemplated be Section 158BFA. We are, therefore, of the firm view that the moment there is a delay in filing the return and delay is attributable to the assessee's conduct, the provision of Section 158BFA comes into operation. Looking at the wording of the Section and the fact that delay is attributable to the assessee coupled with the fact that the AO has also mentioned the same in the body of the order, we have no hesitation in holding that the provisions of Section 158BFA have rightly been invoked.
20. Consequent to the above discussion the ground raised by the assessee in the form of additional ground challenging the action of the authorities below charging interest u/s 158BFA falls to the ground and we have no hesitation, therefore, in rejecting the same.
21. This brings us to another ground of challenge in the grounds of appeal by which the assessee has challenged the validity of the search and consequential assessment. The main plank of the assessee's arguments was that there was no material before the authorities below which could lead them to form an opinion that there is unaccounted money available at the hands of the assessee. The Submission of the counsel for the assessee was that the satisfaction of the authorities with regard to the availability of unaccounted money/wealth is sine qua non i.e., a condition precedent to the order of the search which, according to the counsel for the assessee was missing. The counsel would contend that if the element of satisfaction with regard to the availability of undisclosed wealth is not recorded, the entire proceedings would be a nullity.
22. The the arguments raised by the Id. AR, Id. DR submitted that this Tribunal has no jurisdiction to go into the question of validity of search. The Id DR Would content that the power of this Tribunal are not akin to those of the High Courts under Article 226 of the Constitution of India. The Id. DR contended that in appeal all that the Tribunal needs today is whether undisclosed income has been rightly assessed or wrongly assessed. Beyond this the submission of the Id. DR was that this Tribunal has no power. The Id. Dr in support of his contention brought to our notice the order of this Tribunal reported in 79 ITD 340 in the case of Varinder Bhatia Vs. DCIT to which one of us (Shri Sikander Khan, Accountant Member) was a party. Drawing strength from the said order the Id. DR contended that the question of validity of the search is beyond the purview of this Tribunal.
23. In rejoinder the Id. Ar while reiterating his submission relied upon the Special bench decision of this Tribunal reported.
24. We have heard the parties and taken ourselves through the record and the provisions of the law relied upon by both the parties on this issue while framing the assessment u/s 158 of the IT Act, the AO has to confine itself to the issues which pertain to the quantification of the income. Neither the AO nor the CIT(A) hearing the appeal not this Tribunal which while hearing appeal is bound by the provisions of the Act and cannot go into the question of legality and validity of Search as this is an administrative act of the tax authorities and the legality of an administrative act cannot be subject matter of an appeal. In appeal, we must say we are concerned with the quantification of the income pursuant to search and nothing else. We may with respect refer to the observations of the Tribunal in 79 ITD 340 which are in the following terms:- The Tribunal's power to scrutinize the validity of the search is limited. The Tribunal can only consider whether the AO had validly and legally assumed jurisdiction u/s 158BA/158BC. For assuming jurisdiction and issuing notice u/s 158BA/158BC, the AO is required to see whether search was initiated in the case. he has no power to go into the validity of search. Similarly, in appeal the Tribunal can consider whether the search was initiated in the case and thereby the AO has assumed jurisdiction to issue notice u/s 158BA/158BC. This power arose because the impugned assessment was based on the assumption of jurisdiction and the issue of notice and was based on the initiation of search in the case. Thus, the question of validity of search is beyond the pale of power of the AO and the Tribunal so far as the making of assessment and adjudication of appeal thereon are concerned. Every authority must act within its powers and jurisdiction. There is no appeal provided in the Act against the power u/s. 132.
If at all the validity of search has to be challenged, it can be challenged in a writ before the High Court. After seeing the search warrant and the ground of authorization of search the Tribunal was satisfied that there was proper search warrant in the case and the assessee's name was at number one in the said search warrant. There was no question of mistaken identity of the assessee as there was direct link between the grounds for the authorization of the search and the assessee's name in the search warrant. Mistaken relationship could not be a ground to challenge the validity of search. The search was intended and was authorized against the assessee and him name was properly noted in the search warrant.
Prolonged litigation on the question of validity of search would not serve any effective purpose in such a case. Even if the search is to be declared as invalid and on hat ground, impugned block assessment is also declared a invalid, the revenue cannot be legally stopped from making use of the material and information which came into the revenue's possession in eh course of search for taking action against the assessee u/s 147. Thus, it would open a floodgate of litigation in large number of cases. It was, therefore, in the interest of all concerned that dispute on the merits of the additions alone should be properly and judiciously adjudicated in the case to reach expeditious finalization. In important matters particularly, prolongation of litigation is counter productive both for the assessee and for the revenue and, therefore, the approach should be quick and just adjudication. Therefore, grounds raised by the assessee are failed." 25. In view of the above we say that the question of validity of search and its legality are beyond the pale of this Tribunal.
26. That apart, we may at this stage say that in this case the search was initiated Notice u/s 158BC was filed. Pursuant to the notice issued u/s 158BC of the IT Act the returns were filed. Not only the returns were filed, evidence in support of the claim and allowances was also filed. Having done so, we feel that it is too late for the day for the assessee to go out and challenge the validity of the search which as we have held above, is beyond the pale of Tax authories. If the assessee was that disturbed with the validity of the search, the remedy, if any, available to him was somewhere else. This Act does not empower the Income-tax Authorities to permit them to go into the question of validity of the search. This what the CIT(A) has done. We feel that there is no ambiguity in the order of the CIT(A) and we have no hesitation in agreeing with the view taken by him. In view of the discussion, ground No. 1 of the appeal falls to the ground and is hereby rejected.
27. This brings us to Ground No. 2 of the appeal wherein the grievance of the assessee is that no adequate and reasonable hearing was given by the AO and the CIT(A) erred in confirming the action of the AO., Id, AR made a statement at the bar that he is interested in quantification of the income and is not interested in the technicalities of the matter.
In view of the statement made, we would not have entered into the area of this ground, but since the ground was raised, we scrutinized the record and found that enough reasonable opportunity wa given by the AO to the assessee to present its case. The CIT(A) who was also seized of the matter in appeal had given adequate opportunities. How was the opportunity being denied and how was the opportunity afforded was inadequate is nowhere substantiated from the record. We in this background are unable to persuade ourselves that the submissions made before us through this ground and, therefore, in view of this observations and in view of the statement of the counsel we have no hesitation in rejecting the said ground.
28. We now propose to deal with Ground No. 4 and 7 of the grounds of appeal. As far as Ground No. 4 of the appeal is concerned, the addition of Rs. 20,10,641/- has been made to the undisclosed income of the assessee on the ground that on the year ending 31st March, 1995 undisclosed stock of Rs. 69,81,510/- was available with the assessee which the assessee has sold in the subsequent period. Applying the same GP rate which the assessee himself had applied to the unaccounted sales, the CIT(A) arrived at this figure. The other ground which is Ground No. 7 the grievance of the assessee is that the CIT(A) has erred in making additions to the stocks which led to unaccounted sales of Rs. 202 lakhs, based on survey carried out u/s 133 A and this addition is to the tune of Rs. 30 lakhs. The Id. AR at the time of hearing of the appeal questioned both the actions of the CIT(A) and submitted that the addition of Rs. 30 lakhs added to the value of the stock has no justification or basis. It is a pure guesswork of the CIT(A). The Id.
Ar would contend that unless and until a particular addition is substantiated by reasons, it cannot stand for a while. The submission of the Id. Ar was that the assessee had made no investments in stock while carrying out the business from where the unaccounted sales have been conducted. The Id. AR could contend that all the material which was sold in the form of unaccounted stock was taken on credit.
29. To the arguments raised by the Id. AR, Id. DR agreed with the counsel very fairly that the addition of Rs. 30 lakhs is based on mere guesswork. The Id. DR contended that the assessee is fair. He has not disputed that during the year 1992-93 his unaccounted sales were 202 lakhs. The Id. Dr would contend that for a sale of Rs. 202 lakhs it does not stand to any reason that there is no investment. The Id. DR would contend that how much influential a businessman may be there has to be an element of initial investment which may be very small, before a bulk material can be brought in to business. The Id. DR contended that assuming though not admitting that the material was obtained at credit where is the evidence to that effect. The Ld DR questioned. The submission of the Id. Dr was that there is not even an iota of evidence open the record either in the form of oral evidence or in the form of documentary evidence which would reflect that the material that has been pumped into business which led to uncounted sales or Rs. 202 lakhs was never paid for, initially. The Id. DR contended that the onus that material was bough on credit as on the assessee. As there was no material evidence available on the record to substantiate such an assertion, the assessee according to the Id. DR failed to discharge the onus and thus no interference in the order of CIT(A) in this regard is called for.
30. We have heard the parties and taken ourselves through the record as far as this issue is concerned. It is a matter of common knowledge that for any business some initial investment is needed. If it is a case of new business the element of investment may be more, but if it is in the case of an established business, the element of investment may have to be measured with a different barometer. One fact remains and which cannot be denied, is that in any business there has to be an element of initial investment. The assessee, we are informed, are into the business of saris since 1954. We may say that from 1954 up till the date of search is not a small period and thus it can safely be said that the assessee is established businessman in the said trade. During this period of 49-50 years he must have generated goodwill as well, but that does not mean that no investment in needed. We are also conscious of the fact that the assessee has not led any evidence that the material that led to sales of Rs. 202 lakhs was on credit. If there is no evidence that would reflect that the material that led to unaccounted sales of Rs. 202 lakhs was on credit, then the only inference that can be drawn is that unaccounted investments have been made to buy material which has led to unaccounted sales. But the next question is as to how to arrive at the figure of unacconted investment.
This purely has to be on estimation, but that downs not mean that whatever come to the mind of the Assessing Authority can be a figure which should be taken to have been pumped in as initial investment. On a Rs. 202 lakh investment the CIT(A) has taken the figure of 30 lakhs as the initial investment which turns out to be a little above 15%. It is a question of estimation. The quantification of the initial investment is on the basis of the sales spread over a long period.
There may be rotational amounts also i.e., material must have been pumped in, sold again, pumped in and the chain goes on. In this view of the matter when the estimation is done one has to also keep in mind the fact that the assessee is an established businessman and being in business for the last more than 49 years, we feel that initial investment of 10% in the unaccounted business would meet the ends of justice. We, therefore, modify the addition made by the AO from Rs. 30 lakhs on the sale of Rs. 202 lakhs to 10% on the sale of Rs. 202 lakhs.
The assessee, therefore, gets the relief accordingly on the said sum.
31. The other issue with which we are now concerned is the issue of the sale of unaccounted stocks which were found at the time of search to the tune of Rs. 69,81,510/- and which was sold after 31st March, 1995.
The CIT(A) has fixed the net profit on the stock at 22.36%. How the said net profit rate has been arrived at by the CIT(A) is based on the net profit rate disclosed by the assessee in his diary which contains the net profit rate of the unaccounted stock sold. As far as the unaccounted stocks is concerned there is no challenge that there was no unaccounted stock. The grounds of appeal are silent. In such a situation when there is no challenge to unaccounted stock the only thing which need to be worked out is as to how much is the net profit.
This is not a difficult question. When we talk of unaccounted profit, we have no options as the assessee in the diary has on the sale of unaccounted stock depicted a net profit rate of 22.36%.
32. We take this as the benchmark and follow the same net profit rate as shown by the assessee himself as the net profit on anaccounted stock as per his diary. This is what we propose to do. But the assessee says we cannot do this. He repeated the same arguments that entires in the diary are not conclusive, unless corroborated by other material. We feel that the objection is unfounded. The entries in the diary and in thus can are primary evidence. How they are primary evidence and how they have been corroborative, we shall be dealing with it a little later, while discussing grounds 3 & 5 of the appeal. The assessee has questioned the diary. The CIT(A) has based his claim on the diary which contains the sale of accounted and unaccounted stock and where the assessee himself has declared a net profit rate more or less same to the one assessed by the assessee. Had it been a case of estimation we would definitely have interfered but this is a case where the CIT(A) has applied the same profit rate as the assessee himself has talked about. We, therefore, feel that this addition does not call for any interference and, therefore, confirm the same.
33. The other grievance of the assessee is that the CIT(A) has erred in not deleting the addition of Rs. 75,48,739/- as is obvious from Ground NO. 4 as well. In this case according to the AO the amount of Rs. 75,48,389- which has been taxed as undisclosed income of the assessee by the AO. The grievance of the assessee is that this ought to have been deleted. We feel the grievance is unjustified. Out of Rs. 75,48,389/- the CIT(A) has already granted relief to the tune of Rs. 30 lakhs which amount is stated to have been invested by the family members in the family house at Pitampura. The amount of Rs. 30 lakhs has been disclosed by the children in the personal return stating that the said amount was received by Shri Rati Ram Gotewala. The CIT(A) has granted an adjustment of the said amount i.e., telescoping has been done. The amount of Rs. 75,48,389/- after telescoping of the said amount of Rs. 30 lakhs is reduced to Rs. 45,48,389/-. We feel that the telescoping having been done and the CIT(A) has granted the assessee the necessary relief. In view of the observations made herein above, the Ground No. 4 and 9 are disposed of in this manner. The grievance of the assessee that the CIT(A) has erred in not deleting this addition and has also not done telescoping additions is not correct and this ground falls to the ground.
34. This brings us to Ground No.3 and 5 of the appeal wherein the challenge is that the CIT(A) erred in confirming the inclusion of a sum Rs. 1,04,45,000/- and Rs. 11,04,000/- for assessment which sums were conditional offers and the conditions having not been accepted the said amount could not be brought to tax. In Ground No. 5 the grievance of the assessee is that the amount recorded in the diary is not the income of the assessee. As these two grounds are more or less identical and touch common issues we propose to dispose of together.
35. To adjudicate these two grounds, we will have to go to the facts already recorded and which we propose to touch once again. The undisputed facts are that Shri Rati Ram Gotewala is partner, Prop/dir.
in certain concerns. He keeps financial records of partner, proprietor, Director in certain concerns which is mentioned in page 2 of the assessment order. Shri Rati Ram Gotewala has his own way of working. He at the time of search was 75 years old and he has spent his entire life in business. he is an experienced businessman. Apart from the record which is maintained in the regular course he also keeps record of financial aspects of business which is not recorded and to achieve he maintains a diary. The diary which we are talking about is the diary which is found at the time of search from the residential/business premises of Shri Rati Ram Gotewala. This diary contains the financial results of the concerns with which he is associates. As stated above this diary has two phases/parts. One phase/one part deals with the business which is duly accounted for and the entires in diary tallies with entries/results(s) as per the books of account. The other part contains some entries with regard to the business, but on a comparison there is a complete back out with regard to this part of the diary joint he books of account maintained in the regular course of business.
Apart from this, the diary contains certain information connected with the personal life of shri Rati Ram Gotewala i.e., some birthday information, some telephone numbers and some course cases. Right from the time this diary was seized till the conclusion of the hearing before us, the ownership of the diary is not denied. It is also not denied that the diary is in the handwriting of Shri Rati Ram Gotewala.
it is also not denied that some of the financial results contained in the diary tally with the results in the books of accounts or in other words some of the entries in the diary tally with the entry in the books of account maintained in the regular course of business and it is that business with respect to which Shri Rati Ram Gotewala is associated with. The children of Shri Rati Ram Gotewala have very conveniently put the entire burden on him by saying that they do not know about this diary. They also have denied the purpose for which this diary was maintained. The have gone to the extent of saying that this is the personal affairs of Shri Rati Ram Gotewala. Now the only thing which we need to say is whether the diary has an evidentiary value or not. As far as the positive aspects of the diary are concerned, no one denies it, but when it goes in the question of recording of some financial results for assessment year 1991-92, 92-93 & 93-94 of various business concerns with which he is associated with recorded in the diary, everyone disowns the some. The stand of the children of assessee before the authorities below that the diary was a personal affair of Shri Rati Ram Gotewala cannot be relied upon unless it is corroborated by any other evidence. caught in such a situation, the authorities started finding out as to whether there is a corroborative evidence or not. The assessee has throughout made a grievance that there is no corroborative evidence, despite the fact diary reflects truth of certain financial affairs of the concerns of the assessee and his children. The arguments which were advanced before the authorities below were also raised before us that unless corroborated by other material the entires in the diary cannot be relied upon. When we examine the totality of the circumstances and the material on the record we find that it does not lie in the month of the assessee and the submissions made by the Id. AR during the course of hearing before us that there being no corroborative evidence to establish that the entires in the diary are correct, has no force. When we say so, we say so on the strength that apart from this diary cash Hundis to the extent of Rs. 1,15,49,000/- are found. Sh. Rati Ram Gotewala does not say that the Hundis which depict cash loan transactions, the funds for the same were from somewhere else. Not only this the existance of the said amount is not disputed. That apart, the assessee surrenders the same.
had he indicated the source of these Hundi loans, the situation would have been different. If there is no source of cash Hundi Loans, then obviously the source of cash Hundi loans is from the undisclosed income of Shri Rati Ram Gotewala, which is from the unaccounted business and the results of the same are deflected in the diary. This is one piece of corroborative evidence. The other piece of corroborative evidence is that the CIT(A) has given an adjustment of Rs. 30 lakhs being the amount spent by the family members of Shri Rati ram Gotewala in the family house at Pitampura. The said amount of Rs. 30 lakhs stand shown by the family members of Shri Rati Ram Gotewala in their individual returns. The source of the amount disclosed in the individual return which collectively comes to Rs. 30 lakhs is stated to be hat of Shri Rati Ram Gotewala. Shri Rati Ram Gotewala has not explained any other source of Rs. 30 lakhs had it disclosed that source it would have been different. He accepts the telescoping or the adjustment of the amount of Rs. 30 lakhs. If he has not disclosed the source the obvious source would be the unaccounted money found in the diary. This is another piece of corroborative evidence. In this situation it would be difficult for anyone even to remotely suggest that there is no corroborative evidence to substantiate the amounts in the diary. We, therefore have no hestiation in holding that in this background the diary found during the course of search is primary piece of evidence and has rightly been acted upon. The other reason for acting upon the diary is the truth of the statement recorded in the diary which affairs tallies with the books of account. This is another piece of corroborative evidence which suggests that the entries in the diary are correct and, therefore, we once again say that it is a primary evidence. Apart from this, in accordance with the provision of Section 132 (4A) the contents of the diary are true unless otherwise contradicted. The assessee has not led any evidences to reflect that the statement contained in the diary are not correct, meaning thereby that the onus that the contents of diary are not correct was on the assessee which onus we must say he has failed to discharge. We have another reason for believing the diary and the reason is that the law is that document has to be read as a whole. The diary as referred to above has two parts. On part contains results/entries which are supported by books of account. There is no quarrel on this. The other part contains entries which are not reflected in books, but are part of the same documents, in the handwriting of the same person, and apart from unaccounted affairs contain information connected with personal life of the assessee when it comes to the question of telescoping as has been done by CIT(A) while giving the benefit of Rs. 30 lacs from the sum total of entries in the diary, the assessee accepts it, but when it comes to the question of additions, the assessee disowns the diary. In such a situation we can only say that the assessee is blowing hot and cold at the same time, Which we feel he cannot. The net effect of the above is that the diary maintained by Shri Rati Ram Gotewala is nothing but primary evidence of the affairs of business and can be relied upon.
36. The next issue which comes is that the sums were conditionally offered, we fail to understand as to how the said ground has been raised. The statement of Shri Rati Ram Gotewala was recorded and in the statement he has categorically stated before the authorities below that he out of his own free will is offering the amount of taxation. When we proceed further we find that the children of the assessee who are part and parcel of his business activities have also state that they have no objection whatsoever to the amount having been surrendered by Shri Rati Ram Gotewala in his personal capacity. These observations about the statement of the children that they have no objection to the surrender of the amount by shri Rati Ram Gotewala is recorded by the AO at page 5 in the terms "non of the Directors/partner/proprietor is, therefore, questioned computation whatsoever amount has been surrendered by Shri Rati Ram Gotewala in his personal capacity as an individual." 37. When we examine this from another angle, we say Hundis were found at Delhi and Hundis were found at Calcutta. Assessee admitted that his is undisclosed income. He declared this for taxation. No ifs and but's were attached to it. The assessee having voluntarily made the surrender, we fail to understand as to how can he now come out and say that there were conditions attached to it and the conditions having not been accepted he withdraws the surrender. We may say that the surrender which was unconditional and unequivocal. In view of the unequivocal declaration and in view of the discussion that the entries in the diary were primary evidence and have rightly been acted upon and the recording in the diary ware duly corroborative, nothing survives in Ground No. 3 and 5 which fall to the ground and are hereby rejected.
38. During the course of hearing, the Id. AR for the assessee submitted that if the income from the cash Hundi loan is taxed, then he should be given the benefit of those loans which had become had debts. The arguments sounded impressive. We asked the Id. AR to point out for how much the worth Hundi loans had become had debt and where is the evidence to that effect? The counsel submitted that whatever is left after Rs. 1,15,49,000/- and Rs. 30 lakhs the remaining is bad debt. To this submission the Id. DR during the course of hearing submitted that the assertions of the Id. Ar was nothing, but imagination of the thoughts of the assessee. The submissions of the Id. Dr was the every claim/allowance is to be supported by a cogent evidence. The submissions of the Id. Ar was what to talk of cogent evidence there is no evidence at all which could reflect that there were losses in Hundi business. Not an iota of evidence was placed before us which could reflect a particular amount covered by the Hundi loans had become bad debts. The onus that a particular loan had become a bad debt was on the assessee. The assessee according to us has miserably failed to discharge this onus. We, therefore, do not want to enter into any further issue with the assessee on the bad debts and, would, therefore, observe that the claim of the assessee that loans had become had debts has rightly been not entertained by the authorities and we have no inclination to entertain the same. Assuming that the assessee has suffered certain bad debts. we keep the issue open for the assessee and say that the assessee will be entitled to make the claim of the bad debts in the subsequent years as they pertain to post search period as per the assertions of the assessee.
39. This brings us to Ground No. 6 of the appeal wherein the challenge is to the order of the CIT(A) who has confirmed the action of the AO in making an addition of Rs. 12,44,084/- which obviously is on account of interest. The case of the Revenue was that on the Hundi documents the Hundi loans had been advanced in different financial years. The Hundi documents indicates that loans are interest-bearing loans. According to the Revenue the assessee was asked to give details of the interest received and receivable of this Hundi loans. the assessee explained that whatever interest had been received in the past had been included in the amount of Hundi documents because the investments in the Hundi loans is the net amount. When the investigation into the said assertion was undertaken by the Revenue, the Revenue found that the assessee has not produced any document to prove that the interest on Hundi documents found as on the date of search had already been received and reflected/included in the face value of Hundis. In this situation, according to the Revenue the assessee was asked to work out the amount of interest receivable on this Hundi loans from the date of search, but the assessee did not cooperate despite various opportunities. The AO worked on his own on the calculation of the interest and arrived at a figure Rs. 12,44,084 which is the basis for which the disclosed in annexure attached to the assessment order and proceeded to make the addition. Before the CIT(A) the assessee made a grievance on this addition but the CIT(A) did not agree with the assessee and confirmed the order of the AO. Before us the assessee made the identical grievance which was made before the CIT(A).
40. We have heard the parties on this issue and find that the Hundis are alive. There is no denying the fact that the interest has accrued.
The interest is the income of the assessee. The said income has arisen out of the loan. As the income has arisen to the assessee and the income is substantiated by the documents seized, we fail to understand as to how the assessee can have a grievance to the said addition. We, therefore, do not find any infirmity in the order of the CIT(A) or the AO on this account, and, therefore, have no hesitation in rejecting this ground of appeal.
41. This brings us to Ground No. 8 of the ground of appeal filed by the assessee wherein the assessee has challenged the deletion of an addition of Rs. 3,98,351/- on account of cash other than at Ground No.42. We have scanned through the order of the CIT(A) and find that this does not arise out of the order of the CIT(A) and, therefore, this ground of appeal is hereby rejected.
43. Consequent to the discussion above the appeal filed by the assessee is partly allowed in terms above.