Judgment:
1. In this appeal the assessee has objected to the order of the CIT(A), dt. 2nd Feb., 2002, by way of various grounds, However, later on, the assessee has filed concise grounds which are as under : "(1) Because the proceedings initiated under Section 132A of the Act are illegal as there was no information with the DIT, Kanpur, that the cash recovered by the police in three separate bags with three persons was undisclosed income and also because the case is covered by the Supreme Court decision in CIT v. Vindhya Metal Corporation and Ors. (1997) 224 ITR 614 (SC) and Delhi High Court decision in Ajit Jain v. Union of India (2) Because the assessment made in the status of AOP is bad in law as there was no authorisation under Section 132A in the status of AOP and there is no evidence of pooling of resources by three persons and also about existence of any business in the status of AOP. (3) Because the authorities have erred in holding that cash recovered by the police was undisclosed income as the cash had earlier been withdrawn from bank and also because all the parties were produced before the AO whose statements were recorded by the AO and also because necessary evidence was produced to explain the nature and source of the cash.
(4) Because, in any view of the matter and without prejudice to the above, the initial alleged investment by three persons cannot be assessed in the hands of AOP. (5) Because the AO has erred in charging interest under Section 158BFA(1) in the absence of any direction in the assessment order." 2. We have heard the counsel for the assessee as well as the learned Departmental Representative and have gone through various paper books filed by the assessee as well as the Department.
3. The brief facts relevant for disposal of various issues involved in this appeal and as have been revealed from the records are that the on the night of 3rd June, 1998, police party at Jhansi intercepted a Maruti car bearing registration No. PB-08-T-8130 in which three persons, namely, Shri Ram Krishan Agarwal, Shri Vidit Kumar Agarwal and Shri Deepak Kumar Agarwal, in addition to the driver, were travelling.
4. On checking by the police, cash of Rs. 32,34,600, contained in three bags was found (details of bag-wise cash have not been furnished by either of the parties).
5. The police had also found a slip from the possession of Shri Ram Krishan Agarwal containing the following details : 6. It is also stated by the parties that the police recorded the statements of all the three persons, namely, Shri Ram Krishan Agarwal, Shri Vidit Kumar Agarwal and Shri Deepak Kumar Agarwal, but the copies of the same have not been brought on record by either of the parties.
On 3rd June, 1998 itself, the police informed the IT authorities at Jhansi and in consequence on this information, the Asstt. CIT, Jhansi, issued notices under Section 131 of the Act in case of all the aforesaid three individuals and also recorded their statements, copies of which have been placed in Vol. 2 of assessee's paper book at pp. 5, 8 and 12.
7. In the statements recorded by the learned Asstt. CIT, Shri Ram Krishan Agarwal admitted that cash of Rs. 8 lakhs belonged to him, whereas cash amounting to Rs. 16 lakhs belonged to Shri Vidit Kumar Agarwal and cash amounting to Rs. 8,34,600 belonged to Shri Deepak Kumar Agarwal.
8. Similarly, Shri Deepak Kumar Agarwal and Shri Vidit Kumar Agarwal, in addition to owning cash amounting to Rs. 8,34,600 and cash amounting to Rs. 16 lakhs, respectively, confirmed the amount of cash belonging to other two persons.
9. Though there is no evidence on record but it seems that in consequence upon these proceedings, the DIT (Inv.), Kanpur, issued a warrant of authorisation under Sub-section 1 of Section 132A of the IT Act, 1961, on 4th June, 1998, whereby Shri Y.K. Singh, Shri Anurag Prasad, Shri T.S. Kain and H.S. Laharia were authorised to seize the cash caught by SHO, Kotwali, Jhansi, from Shri Deepak Kumar Agarwal and Shri Ram Krishan Agarwal and Shri Vidit Kumar Agarwal, and consequently, the authorised officers seized cash of Rs. 32,34,600 as well as the slip found from the possession of Shri Ram- Krishan Agarwal. A Panchnama in this respect was prepared on 4th June, 1998, copy of which finds place at p. 17 of assessee's paper book--Vol. 2.
10. Thereafter, proceedings for block assessment under Chapter XIV-B of the IT Act, as is clear from para 5 of the order of the Dy. CIT, Circle-I, Jhansi, passed in consequence upon the directions of the Hon'ble High Court of Allahabad given as per order dt. 19th March, 1999, while disposing of Civil Misc. Writ Nos. 168, 172 and 173 of 1999, filed by Shri Ram Krishan Agarwal and Shri Vidit. Kumar Agarwal, respectively, were initiated in case of Shri Vidit Kumar Agarwal, Shri Ram Krishan Agarwal and Shri Deepak Kumar Agarwal.
11. Before these proceedings could be concluded, these three individuals filed writ petitions before the Hon'ble High Court of Allahabad--Writ No. 168 of 1999 filed by Shri Ram Krishan Agarwal, Writ No. 172 of 1999 filed by Shri Vidit Kumar Agarwal, and Writ No. 173 of 1999 filed by Shri Deepak Kumar Agarwal.
12. The Hon'ble High Court of Allahabad disposed of all the three writ petitions by separate orders dt. 19th March, 1999, which, except for amount of cash, are similarly worded. The order of the Hon'ble High Court passed in Writ Petition No. 168 of 1999 in case of Shri Ram Krishan Agarwal, copy of which has been placed at p. 4 of the assessee's paper book Vol. 3 reads as under: Heard Shri S.P. Gupta, for the Petitioner and Shri A.N. Mahajan, for the Respondent.
The petitioner has come to this Court praying for a direction against the IT Department on two grounds. Firstly, the respondents should decide as to whether the amount seized from the petitioner amounting to a sum of Rs. 8,00,000 is disclosed or undisclosed income of the petitioner or not. Secondly, the petitioner has prayed that the aforesaid amount be kept in the fixed deposit bearing interest.
The case of the petitioner is that the entire amount of Rs. 8,00,000 is the disclosed income of the petitioner which the petitioner acquired after selling and disposing of the jewellery, diamond, shops and other articles and the same was also disclosed to the respondents. In that view of the matter, the respondents are directed to consider the case of the petitioner carefully and shall also decide the question whether the aforesaid amount which was seized, is the disclosed or undisclosed income of the petitioner first and thereafter they shall be entitled to proceed in the matter. We further direct that the amount seized from the petitioner shall be kept in the fixed deposit bearing interest therein.
With these observations, the writ petition is disposed of finally.
There shall be no order as to costs.
13. In consequence upon the aforesaid directions/orders of the Hon'ble High Court, the Dy. CIT, Circle-I, Jhansi, proceeded to verify as to whether the cash seized from the aforesaid three persons and owned by them separately, was explained cash in-their hands or not. The learned Dy. CIT, as per order dt. 14th Jan., 2000, came to the conclusion that the said cash was undisclosed income of the persons, namely, Shri Ram Krishan Agarwal, Shri Vidit Kumar Agarwal and Shri Deepak Kumar Agarwal from whose possession it was recovered and seized under Section 132A of the IT Act, 1961. The concluding para of the order dt. 14th Jan., 2000 (para 6), reads as under : "After making necessary enquiries in compliance with the Hon'ble High Court's orders and material brought on records, as also considering the facts and circumstances of the case in entirety, as discussed above, I hold the entire cash as undisclosed, income of the persons, namely, S/Shri Ram Krishan Agarwal, Vidit Kumar Agarwal and Deepak Kumar Agarwal from whose possession it was recovered and seized under Section 132A of the IT Act, 1961." 14. Shri Vidit Kumar Agarwal and Shri Ram Krishan Agarwal had filed second set of writ petitions--Writ No. 454 of 2000 and 455 of 2000, respectively, against the order of the Dy. CIT, Circle-I, Jhansi, dt.
14th Jan., 2000 (supra).
15. The Hon'ble High Court of Allahabad disposed of these two writ petitions as per orders dt. 19th May, 2000, which are similarly worded and the order in case of Writ No. 454 of 2000 reads as under: Against the impugned order dt. 14th Jan., 2000, the petitioner has a right to appeal under Section 246 of the IT Act.
However, if petitioner files an appeal within three weeks from today, the same shall be entertained without raising any objections to limitation and shall be decided preferably within two months thereafter in accordance with law.
16. Thereupon, the aforesaid three individuals filed appeals before the CIT(A) which were, however, dismissed as per orders dt. 30th May, 2000.
17. After dismissal of appeals against order dt. 14th Jan., 2000, by the CIT(A), Shri Ram Krishan Agarwal and Shri Vidit Kumar Agarwal again filed writ petitions (3rd set) before the Hon'ble High Court of Allahabad which were disposed of by the Hon'ble High Court as per orders dt. 28th Sept., 2000, and again are similarly worded. The order in case of Writ Petition No. 929 of 2000, in case of Shri Vidit Kumar Agarwal reads as under : This is the 3rd successive petition which has been filed by the petitioner, Vidit Kumar Agarwal, before this Court as the petitioner had earlier approached this Court by filing Civil Misc. Writ Petition No. 172 of 1999, which was disposed of finally vide judgment and order dt. 19th March, 1999, with the direction to the respondents to consider the case of the petitioner carefully and decide the question as to whether the aforesaid amount which was seized, was the disclosed or undisclosed income of the petitioner first and thereafter, they would be entitled to proceed in the matter. The authority vide order dt. 14th Jan., 2000, had decided the matter against which the petitioner again preferred Civil Misc.
Writ Petition No. 454 of 2000, which was dismissed on the ground of alternative remedy vide judgment and order dt. 19th May, 2000. The appeal filed by the petitioner has been dismissed by the CIT(A) by the impugned order dt. 21st July, 2000. The said order is under challenge in this case.
Heard Shri R.R. Agarwal, learned counsel for the petitioner, and Shri Prakash Krishna, learned additional standing counsel for the respondents.
The petitioner has a right of appeal before the Tribunal. The writ petition is dismissed summarily on the ground of alternative remedy.
If the petitioner files an appeal within three weeks from today, the Tribunal concerned shall treat it as having been filed within the period of limitation.
18. Thereupon, Shri Ram Krishan Agarwal and Shri Vidit Kumar Agarwal filed appeals before the Tribunal but the same have been dismissed being defective for want of proper payment of Tribunal's fee as per orders of the Tribunal, Agra Bench, in ITA Nos. 11 and 12 dt. 31st Dec, 2004.
19. Thereupon, the Revenue authorities initiated proceedings under Section 158BC of the Act in the case of AOP alleging the same to have been constituted by Shri Vidit Kumar Agarwal, Shri Ram Krishan Agarwal and Shri Deepak Kumar Agarwal (AOP). The assessment in the status of AOP under Section 158BC of the Act was completed on 29th June, 2000, whereby the undisclosed income was computed at Rs. 40,76,000 which was inclusive of cash of Rs. 32,34,600 found in three bags at the time of interception of Maruti car in which these three individuals were travelling.
21. Before the CIT(A), the assessee challenged the assessment order for block period of the status of AOP by raising the following objections : (1) The first objection raised by the assessee before the CIT(A) was that there cannot be two assessments for block period, for the same block period. According to the assessee, the Revenue having framed assessment under Section 158BC of the Act in case of three individuals, as per order dt. 14th Jan., 2000, whereby the Dy. CIT, Circle-I, Jhansi, had given categorical finding that the cash of Rs. 32,34,600 seized from three individuals was undisclosed income of all persons, namely, Shri Ram Krishan Agarwal, Shri Vidit Kumar Agarwal and Shri Deepak Kumar Agarwal. The same cash could not be assessed as undisclosed income of the AOP. The learned CIT(A) dismissed this ground as per para 4.3 of appellate order which read as under : "I have carefully considered the facts of the case, submissions made by the appellant and the comments of the AO. In my view, this ground of appeal deserves to fail. Insofar as the passing of the present order is concerned, in my opinion, the same is in accordance with the provisions of law. Though order dt. 14th Jan., 2000, passed by the AO was held to be an order by the Hon'ble High Court, but still the AO was justified in passing another order under Section 158BC(c) of the Act. Once a notice under Section 158BC was issued by the AO, he was duly-bound to take the same to its logical end by passing an assessment order under Section 158BC(c) of the Act. There is also force in the AO's views that in the order dt. 14th Jan., 2000, neither the income was fully determined nor the tax payable thereon was worked out. In the aforesaid order, only a finding was given as to whether the cash found was explained or not. Besides this, no other aspect of the case was examined and decided by the AO. For instance, the taxability of the amount mentioned in the paper seized from Shri Ram Krishan Agarwal was not considered by the AO. Further, the provisions of the Act require that after completion of the assessment, tax payable thereon has to be determined along with interest, if any, and thereafter a demand notice under Section 156 is to be issued and served in the prescribed form on the assessee.
Admittedly, no such notice of demand was issued by the AO while passing the order on 14th Jan., 2000. Considering these facts, I am of the view that there was no infirmity in the AO's action in passing an order under Section 158BC(c) of the Act and, therefore, this contention of the appellant cannot be accepted." (2) The second objection raised by the assessee was that proceedings initiated under Section 132A of the Act were invalid proceedings.
This objection was raised on the ground that provisions of Section 132A can be invoked only if some other authority has seized the assets or cash but in case of present three individuals, the police authorities had not seized the cash. The second objection raised with this regard was that all the three persons having owned their respective cash and explained the sources in the statements recorded by the police as well as by the IT authorities on 3rd June, 1998, the DIT (Inv.), Kanpur, had no material which could make him to have reasons to believe that this cash was unexplained cash, i.e., representing undisclosed or concealed income but the learned CIT(A) dismissed these plea as per para 5.2 of his order which read as under : "I have considered the facts of the case, submissions made by the appellant and the comments of the AO. In my view, this ground of appeal also deserves to fall. It is seen that similar objection was raised by the appellant before my predecessor while filing appeal against the AO's order dt. 14th Jan., 2000. The submissions made before him were almost the same as made before me. After considering the facts of the case and the submissions made by the appellant, my predecessor has held that the proceedings under Section 132A were validly initiated and there was no infirmity therein. Respectfully following my predecessor's decision, it is held that the proceedings under Section 132A were legally correct and hence the appellant's objection that the same were bad in law cannot be accepted. Even otherwise, in my opinion, if the assessee had any objection against such proceedings, proper course was a writ before the Hon'ble High Court. The remedy has already been availed of by the appellant. In view of these facts this ground of appeal also fails." (3) The third objection raised by the assessee that there was no AOP and consequently no assessment could be framed in the status of AOP. This objection of the assessee was rejected by the CIT(A) as per para 6.2 of his order which read as under: "I have considered the facts of the case, submissions made by the appellant and the comments of the AO. It is seen that the similar objection was raised by the appellant before my predecessor. My predecessor, in his abovementioned order, after considering the facts, submissions and the legal position, has upheld the AO's action. Respectfully following his decision, it is held that there was no infirmity in the AO's action in completing the block assessment in the status of the AOP. This ground of appeal also fails." (4) The fourth objection of the assessee was on merits and assessee's submission was that the cash found from three individuals and owned by them could not be income of the AOP because AOP had just, if at all considered to be there, came into existence with respect to the addition of Rs. 8,41,400 based on the loose slip; the assessee explained the sources of the same.
22. The CIT(A) deleted the addition of Rs. 8,41,400 holding the same to have been explained but confirmed the addition of Rs. 32,34,600 as per para 7.2 of his order which read as under: "I have carefully considered the facts of the case, submissions made by the appellant and the comments of the AO. Insofar as the issue regarding addition of Rs. 32,34,600 made on account of unexplained cash is concerned, the same was also involved in appeal filed against the AO's order dt. 14th Jan., 2000. My predecessor, after considering the facts of the case in detail, statements of various persons recorded by the AO and the submissions made by the appellant, vide his above appellate order dt. 21st July, 2000, has held that the cash of Rs. 32,34,600 was not explained. He, therefore, confirmed the AO's action in treating the same as undisclosed income of the appellant. Before me also, the submissions made by the appellant are almost the same as were made before my predecessor. I am in complete agreement with the views of my predecessor. Respectfully following his decision given in the order dt. 21st July, 2000, it is held that the cash of Rs. 32,34,600 represented the undisclosed income of the appellant. Thus, to this extent the action of the AO is confirmed." 23. It was in the light of the above facts and circumstances of the case that the parties have advanced their arguments.
24. The counsel for the assessee first of all submitted that the proceedings initiated under Section 132A of the Act were illegal and bad in law and in support of this objection, he made the following further submissions : 25. After referring to the provisions of Sections 132A and 132A(c), the learned counsel submitted that : (i) In this case all the three persons categorically admitted ownership of the cash seized and also disclosed the sources of the cash seized. The source disclosed was withdrawals either from banks or from books of account. This disclosure was made even in their first statement recorded by AO on 3rd June, 1998 (pp. 5 to 15 paper book II, statements of S/S Ram Krishan, Vidit Kumar and Deepak Kumar) (Also see p. 41 of paper book II).
(ii) In the statement recorded on 4th June, 1998, of S/S Deepak Agarwal, Ram Krishan and Shiva Ram, father of Ram Krishan (p. 1 to 8 paper book I) also, admission was made that the money belonged to them and source was also disclosed.
Thus there was no denial of the ownership but clear-cut admission of ownership along With the sources from where money had been withdrawn.
(iii) (a) After referring to the provisions of Section 132A of the Act, the counsel for the assessee, Shri Panna Lal, submitted that as per these provisions, before forming a belief, the DG/DIT/Dy. DIT or CIT should have some reasons, which should satisfy the conditions as lays down under the Act as above. In the instant case, at all time ownership was admitted and source was disclosed. Therefore, there was no reason to form a belief that notice under Section 132A should be issued and executed. In support of above reliance was placed on the decisions in following cases :CIT v. Vindhya Metal Corporation (supra) (copy of judgment filed), where the Hon'ble apex Court has held that: "Mere unexplained possession of amount without anything more could hardly be said to constitute information which could be treated as sufficient by a reasonable person leading to an inference that such income could not have been disclosed for IT purposes."Ajit Jain v. Union of India and Ors. (2001) 117 Taxman 295 (Del) (copy of the judgment already filed) where the Hon'ble High Court has held as under : "Reason to believe means that a reasonable man under the circumstances would form a belief which will impel him to take action under the law. The formation of opinion has to be in good faith and not on mere pretence. There should be rationale and the belief about the undisclosed income which has not been or is not likely to be disclosed." (b) Coming to the present case, the learned counsel submitted that right from the first statement before the service of the notice under Section 132A and thereafter, all the three persons have been admitting the ownership and disclosing the source. Therefore, no notice under Section 132A should have been issued. Hence, it is illegal and void.
Last requirement of law is that the notice under Section 132A will be served on an officer or authority who takes control or possession of such assets for violation of any law for the time being in force.
This further requires certain conditions. The possession or control should be taken under any law. It is not the possession and control taken for no violation of the provision of any law. Also, it appears that such authority or officer, if it is police, is excluded because of the certain procedure prescribed in Cr. PC. This position is made clear by Hon'ble Andhra Pradesh High Court in their judgment in the case of: (iv) (a) Sadruddin Javeri v. Govt. of AP. (1999) 104 Taxman 335 (AP) (copy already filed), wherein the Hon'ble High Court has held that : "The police officer is duty-bound to report the seizure to the Court having jurisdictions and to transport same to the Court or to give custody thereof to any person on his executing a bound and undertaking to produce property before Court as and when required and give effect to further orders of Court as to the disposal of same." (b) Referring to present case, the learned counsel submitted that police has not registered a case hence it cannot take control and possession of the cash. Therefore, it could have been returned to the parties from whom it was seized. And if it was seized in violation of any law, it should have been reported to the Court and it was the Court who could have decided the issue and not the police officer. Therefore, the action of the police officer is also wrong and invalid.
26. The second objection raised by the counsel for the assessee was that the cash in question having been seized in different sums from different three persons and contained in three different bags, there could not be assessment of block period in the status of AOP.27. In support of this objection, the counsel for the assessee submitted as under : "(1) Authorisation under Section 132A issued was to get the cash of all the three individual (p. 16 of paper book II).
(3) Writs were filed by the individuals (copies of writ petitions filed before the Bench).
(4) Writs have been disposed of by the High Court in individual cases.
(5) Directions of High Court were to the Department to decide whether cash seized was disclosed or undisclosed.
(6) By the order passed by AO on the directions of High Court, the AO held that the entire cash was undisclosed income of the persons, namely, S/S Ram Krishan Agarwal, Vidit Kumar Agarwal and Deepak Kumar Agarwal, from whom it was recovered and seized under Section 132A of IT Act (p. 11, para 6 of order original paper book).
(7) Individual filed separate appeals before the CIT(A) who decided the appeal in individual hands (pp. 19-30 of original paper book).
(8) It was only piece of paper found in the pocket of Shri Ram Krishan, the AO observed that all the three had joined hands to carry some clandestine deal, for which they were carrying cash together and thus in the regular assessment, the AO made addition of Rs. 8,41,400 and completed assessment at total income of Rs. 40,76,000 in the status of AOP (p. 14 of paper book I).
(9) The learned CIT(A) while giving partial relief has deleted this addition of Rs. 8,41,400 made on the basis of piece of paper found in the pocket (p. 88, paper book I, para 7.3).
Thus, the above facts do indicate that there was no AOP. AOP must be one where two or a more persons have joined hands together in a common purpose or common action to produce income, profit or gain. Relying on the decision in case of CIT v. Indira Bed Kishan (1960) 39 ITR 546 (SC), the learned counsel . submitted that in this case nothing has been established to hold AOP and whatever effects were made by the AO, have been demolished by the CIT(A) by deleting the addition. Also, notice for AOP is dt. 23rd Nov., 1998 (p. 20 paper book II) for regular assessment, while the order of AO on the directions of High Court is dt. 14th Jan., 2000, where it has been held that cash belongs to individuals (p. 11 of the original paper book). Thus, there is contradictions in the findings of AO itself.
28. To support the above submission, the learned counsel drew our attention to order of Dy. CIT, Circle-I, Jhansi, dt. 14th Jan., 2000 (supra).
29. The next objection raised by the assessee's counsel was that even if it is held that there was AOP then also the Revenue having assessed the cash in question under Section 158BC of the Act in individual hands as per order dt. 14th Jan., 2000, the same could not be assessed in the hands of AOP and for this purpose reliance was placed on the decision of Hon'ble Allahabad High Court in case of CIT v. Jaiswal Motor Finance (1983) 141 ITR 706 (All) and the decision of the Madras High Court in case of CIT v. K, Chandrasekaran and Ors. (1990) 182 ITR 392 (Mad), wherein the Hon'ble High Court has followed the earlier decision of the Madras High Court in CIT v. R. Dhandayutham and Ors. (1978) 113 ITR 602 (Mad). As per this order of the Hon'ble Madras High Court, the preposition of law is that where an assessment had already been made on each member of an AOP, the subsequent assessment on the AOP is not valid.
30. The fourth objection raised by the assessee was on merits whereby the counsel submitted that each individual having explained the source of availability of cash with them at the time of interception, there was no question of adding the same in the hands of any other entity and to support this submission, submitted as under : "Shri Ram Krishan Agarwal had contributed Rs. 7,00,000 out of his own resources (pp. 47 to 48 of paper book II) and Rs. 1,00,000 belonged to his father Shri Shiva Ram Agarwal (pp. 52 and 53 of paper book II).
Shri Ram Krishan had withdrawn from Punjab National Bank on 2nd April, 1998, Rs. 4,50,000 and on 6th April, 1998, Rs. 2,50,000.
Photostat copies of pass book and typed copies of pass book are available on p. 47 to p. 50 of paper book II. Similarly, photostat copies of pass book and typed copies of pass book of Punjab National Bank are available at pp. 52 to 53 (paper book II). Entries in the books of account are on p. 54 of paper book No. II. These pass book entries are verified by the ITO. Thus, the source explained by Shri Ram Krishan. was more or less same as has been stated in the first statement recorded on 3rd June, 1998 (p. 5 paper book II).
He also stated on 3rd June, 1998, in his first statement (p. 8, paper book II) that Rs. 16,00,000 belonged to him which was withdrawn from Punjab National Bank, Mauranipur, from the accounts of Rajjan Baboo, Harish Chand, Ganpat Lalji--from bank when it was withdrawn was not known to him. At p. 42, paper book II, we have claimed that Rs. 5,00,000 belonged to father, Shri Rajjan Lal, Rs. 4,00,000 to Geeta Devi, Mother, Rs, 3,00,000 belonged to Harish Chand (Uncle) and Rs. 4,00,000 Phool Mani (Grand Mother). Details of sources are given as under : Vidit Kumar's father p. 102, typed copy of bank pass book p. 104, photostat copy of pass book duly signed by AO. Pages 85 and 87 (paper book II), copies of pass book which clearly indicate the deposits and withdrawal.
Rs. 3,00,000 pp. 112 and 114 paper book II, typed and photostat copies of pass book.
Rs. 4,00,000 pp. 69 and 72, paper book II. All these entries view the credits in the bank pass books and withdrawal from more.
During these assessment proceedings, all the three persons were produced and their statements were recorded.
Copies of statements of various persons are at pages as under :Name Date of Statement Pages of paper book IIRam Krishan Agarwal 16-8-1999 125 to 130Shiva Ram 16-8-1999 131 to 134Smt. Phool Mani Devi 13-8-1999 135 to 138Smt. Geeta Devi 13-8-1999 139 to 143Rajjan Baboo 1-9-99 144 to 150Harish Chand 1-9-99 151 to 154Ashok Kumar 27-8-1999 155 to 160 Everyone of them has accepted to have owned the money in his statement on pages mentioned above.
Thus, it is clear that money was disclosed along with its source.
Deepak Kumar Agarwal: He is salesman of Shri Ashok Kumar proprietor of M/s Ashoka Automobile, Chhattatpur, MP. The money was given from the books (cash book's copy p. 121, paper book II). This was stated by Shri Deepak Agarwal in his first statement, p. 12 of paper book II which is further established by the copy of cash book at p. 121.
31. The last objection raised was with respect to levy of interest under Section 158BFA of the Act. With respect to this objection the learned counsel submitted that the same may be decided as being consequential because he was not going to object to the legality of levy of interest without there being specific order in the assessment order.
32. The learned Departmental Representative, on the other hand, in addition to supporting the orders of the Revenue authorities, submitted that the decisions relied upon by the counsel in the assessee are not applicable to the present case.
33. Having considered the rival submissions, facts and circumstances of the case and various decisions, we proceed to decide various objections raised by the assessee.
(1) So far as assessee's objection with regard to legality of proceedings under Section 132A of the Act is concerned, we are of the opinion that to decide this issue, it is necessary to consider the provisions of Section 132A(1) and various decisions in this respect relied upon by the counsel for the assessee : (i) 132A(1). Where the (Director General or Director) or the (Chief CIT or CIT), in consequence of information in his possession, has reason to believe that : (a) any person to whom a summons under Sub-section (1) of Section 37 of the Indian IT Act, 1922 (11 of 1922), or under Sub-section (1) of Section 131 of this Act, or a notice under Sub-section (4) of Section 22 of the Indian IT Act, 1922, or under Sub-section (1) of Section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents, has omitted or failed to produce, or cause to be produced, such books of account or other documents, as required by such summons or notice and the said books of account or other documents have been taken into custody by any officer or authority under any other law for the time being in force, or (b) any books of account or other documents will be useful for, or relevant to, any proceeding under the Indian IT Act, 1922 (11 of 1922), or under this Act and any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not produce or cause to be produced, such books of account or other documents on the return of such books of account or other documents by any officer or authority by whom or which such books of account or other documents have been taken into custody under any other law for the time being in force, or (c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian IT Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force, then the (Director General or Director) or the (Chief CIT or CIT) may authorise any (Jt. Director), (Jt. CIT), (Asstt. Director (or Dy. Director), (Asstt. CIT (or Dy. CIT) or ITO) (hereinafter in this section and in Sub-section (2) of Section 278D referred to as the requisitioning officer) to require the officer or authority referred to in Clause (a) or Clause (b) or Clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer."CIT v. Vindhya Metal Corporation and Ors.
The facts of this case, as were before the Hon'ble Supreme Court, were that one V, a resident of Mirzapur, was detained while travelling to Calcutta by train and cash of Rs. 4,63,000 was seized from him on the suspicion that the money was stolen property or had been obtained through some other offence. He was charged under Section 411 of the Indian Penal Code. Intimation of the seizure of the money was sent to the CIT by the IAC along with the information that V had no papers regarding ownership or possession of the money, and that V was not an assessee on the files of the ITO at Mirzapur.
The CIT issued a warrant of authorisation under Section 132A(1) of the IT Act, 1961, for the ITO concerned to receive the money from the railway police. A search was conducted under Section 132 of the Act on the premises of the respondent-firm, during which the books of the firm were found to contain an entry that the sum of Rs. 4,63,000 had been handed over to V, who was serving as Munim of the firm, for being carried to Calcutta in connection with the business of the firm. A sum of Rs. 17,353 being the cash balance and the books of account were seized from the respondent-firm. The railway police reported that the money found in the possession of V did not represent stolen property or property acquired from any offence and that the sum belonged to the respondent-firm. The respondent-firm filed an application for return of the money carried by V. The Magistrate ordered return, but on a revision petition by the IT Department, the High Court permitted the IT Department to take possession of it. The respondent-firm filed a writ petition questioning the validity of the warrant of authorisation issued by the. CIT under Section 132A(1) of the Act. The High Court held that on the information in the possession of the CIT, no reasonable person could have entertained a belief that the amount in the possession of V represented income which would not have been disclosed by him for purposes of the Acts and allowed the writ petition.
On appeal by the CIT before the Hon'ble Supreme Court, the Hon'ble Supreme Court, on consideration of the facts of the case, affirmed the decision of High Court and dismissed the appeal.
"Sec. 132A of the IT Act, 1961, r/w Article 226 of the Constitution of India-Search and seizure--Requisition of books of account etc.--Police raided residential premises of petitioner and seized several articles in connection with alleged offence under Section 102 of the Code of Criminal Procedure, 1973--Influenced by press reports and wide publicity of seizure of goods worth crores of rupees, tax authorities served notice under Section 132A upon police officer investigating case and obtained possession and custody of seized articles, and also issued notice under Section 37(1) of the WT Act, 1957, upon petitioner --Independent investigation ordered by Court ended ultimately in submission of a final report by police under Section 173(2) of the Code that no offences were made out against petitioners--Tax authorities found that value of seized articles did not exceed even Rs. 15 lakhs and thus they were not exigible--Whether police officer was duty-bound to report seizure to. Magistrate having jurisdiction and to transport same to Court or to give custody thereof to any person on his executing a bound and undertaking to produce property before Court as and when required and to give effect to further orders of Court as to disposal of same--Held, yes--Whether there can be no transfer or appropriation of any property seized by police except under order of Court -Held, yes--Whether Section 132A does not authorise any notice to Court or by no stretch of imagination, Court can be identified as any officer or authority under any other law in force as contemplated under Clause (c) of Section 132A(1), r/w Clause (a) thereof--Held, yes--Whether there was gross violation of law by entry of ITO to take the delivery of property from police before seizure was reported to Court and Court passed any order as to its custody--Held, yes--Whether, tax authorities were, therefore, to be directed to hand over seized property to petitioner forthwith--Held, yes."Ajit Jain v. Union of India In this case it has been held that reason to believe means that a reasonable man under the circumstances would form a belief which will impel him to take action under the law. The information to form the opinion has to be in good faith and not on mere pretence. There should be rationale and the belief about the undisclosed income which has not been or is not likely to be disclosed.
34. After analysing the provisions of Section 132A(1) and aforesaid decisions, we are of the opinion that the settled proposition of law which comes out, is that the officer issuing requisition under Section 132A should have information before him, which at that time, could have led him to have reasons to believe that the assets in question have either been not disclosed or will not be disclosed, if not seized, meaning thereby that, the satisfaction in each and every case has to be looked into on the basis of facts available in a given case.
35. So far as facts of the present case are concerned, what we are able to conclude is that till order dt. 14th Jan., 2000, passed in consequence upon the direction of the Hon'ble High Court of Allahabad passed in Writ Petitions 168, 172 and 173 of 1999, whereby the Revenue authorities were directed first to verify as to whether cash in question was disclosed cash or undisclosed cash, the authorities had neither any material nor could have arrived at a finding which could be considered as material leading the authorising officer to have reasons to believe that cash in question was undisclosed cash and it is so because had the Revenue any evidence to arrive at such a conclusion before issuing authorisation under Section 132A, the Revenue could have placed the same before the Hon'ble High Court and the Hon'ble High Court could not have issued such directions. The directions issued by the Hon'ble High Court clearly lead to the conclusion that not only till the time of issuance of directions by the Hon'ble High Court, but even before giving effect to the directions of the Hon'ble High Court (as per order dt. 14th Jan., 2000), the Revenue had no material to arrive at a finding that the cash in question was undisclosed cash or would not have been disclosed.
36. Once we have arrived at the above conclusion, the automatic result is that the Revenue authorities could not have reasons to believe that cash in question was undisclosed or would not be disclosed, meaning there by that there was no material with the DIT (Inv.), Kanpur, while issuing summon under Section 132A of the Act that the cash in question was undisclosed.
37. This aspect can further be considered in the light of evidence which was or could be available with the DIT (Inv.), Kanpur, and that evidence in the light of the facts and circumstances of the case could be as follows : (i) Information from the police authorities for having intercepted the car and recovered the cash in question contained in three bags.
(ii) Statement of three concerned persons given before the police authorities and their admission to own their respective cash.
(iii) Statement recorded by the Asstt. CIT, Jhansi, on 3rd June, 1998, of all the three individuals wherein they had owned their respective cash and explained the source of the same.
38. Since the Revenue has not brought to our notice that there was any other material available with the DIT (Inv.), Kanpur, except aforesaid, we are of the opinion that no prudent person on the basis of aforesaid material could arrive at the conclusion that cash in question was undisclosed cash or would not have disclosed and for this purpose we rely on the decisions in case of Vindhya Metal Corporation (supra), in case of Ajit Jain (supra) and in case of Sadrudin Javeri (supra).
39. In view of above discussion, we are of the opinion that so far as authorisation under s, 132A is concerned, the same was not in accordance with law and consequently cannot lead to assessment under Chapter XIV-B of the Act.
40. (i) Before parting with this issue, we would like to consider the Revenue's objection that the validity of proceedings under Section 132A having become final as a result of orders of the CIT(A) in case of individuals, we are of the opinion that the findings of the CIT(A) in appeals of the individuals are relevant only for the cases of individuals and since the present appellant, i.e., AOP is independent and has been taxed as it is, the present appellant has right to challenge the proceedings under Section 132A, moreso, because the present entity has been brought in existence by the Revenue only in consequence upon the seizure of slip from Shri Ram Krishan Agarwal seized in consequence upon summons under Section 132A of the Act and, therefore, this objection of the Revenue, in our opinion, is not tenable.
(ii) Even otherwise, the issue before the CIT(A), in appeals against orders dt. 14th Jan., 2000, was very limited, i.e., was relating to the issue as to whether the cash in question was disclosed cash or undisclosed cash in the hands of three individuals and, therefore, even if they had raised the issue regarding validity of authorisation under Section 132A, but the CIT(A) had no jurisdiction to decide that issue.
Consequently, we are of the opinion that the CIT(A)'s findings in case of individuals do not act as bar for the present assessee to challenge the validity of authorisation or to the jurisdiction of the Tribunal to decide the issue.
41. Coming to the second objection of the assessee that there was no AOP in existence, we, after considering the facts and circumstances of the case, are again of the opinion that Revenue's conclusion that there was an AOP is misplaced. Firstly, because there is no evidence that all the three persons had agreed to carry on a business jointly. Secondly, the Revenue's conclusion is just based on loose slip found from the possession of Shri Ram Krishan Agarwal which, in our opinion, was not sufficient evidence because even if it is assumed that these three persons had authorised one person to keep account of all the cash, then also, it cannot be concluded that they had decided to carry on business in the status of AOP. Thirdly, as stated by all the three individuals in their statements before the police as well as Asstt. CIT on 3rd June, 1998 itself, the cash was being carried for purchase of a property and since it is settled law that whenever any immovable property is purchased by more than one person then except in case of evidence of purchase for dealing in business of sale/ purchase of immovable properties, they purchase the same in the capacity of co-owner and not members of AOP. In other words, property can be purchased in the status of AOP only when the same is to be purchased for carrying on a business venture but neither there is such evidence on record nor the Revenue has claimed so. The Revenue's claim that they were going to carry on a clandestine deal is not supported by any evidence on record. If the Revenue authorities were having any information, it was obligatory for them to bring it on record. Simply assuming that the parties had joined hands to carry on some clandestine deal is not, in absence of nature of deal, sufficient to hold the existence of AOP.42. In view of above discussion, we are of the opinion that there was no AOP and consequently, no assessment could be framed in the status of AOP.43. Coming to the assessee's objection that even if it is assumed that there was an AOP, then also the same case having been assessed in the hands of the individuals could not be assessed again in the hands of AOP. We first would like to consider same decisions relied upon by the assessee : "If there are cash credit entries in the books of a firm, in which the accounts of the individual partners exist, and it is found as a fact that cash was received by the firm from its partners, then, in the absence of any material to indicate that they were the profits of the firm, it could not be assessed in the hands of the firm.
The ITO found certain deposits in the accounts of the partners in the books of the assessee-firm in the first year of assessment of the firm. The assessee explained that the source of the deposits was the agricultural income of the partners, which was rejected by the ITO. The AAC affirmed the order of the ITO. The Tribunal found that the deposits had been made by the partners as their capital, because without these investments they could not have become partners and that the assessee had discharged the onus of proving the deposits in its accounts and was not further required to explain the source of the deposits in the hands of the depositors. On a reference : Held, that the onus placed on the assessee by Section 68 of the IT Act, 1961, was discharged by the assessee." "Benevolent circulars issued by the CBDT, even if they deviate from the legal position, are required to be followed by the ITO since the circulars would go to the assistance of the assessee.
The principle that is applicable in taxing statutes is that income is subject to tax in the hands of the same person only once. Thus, if an association or a firm is taxed in respect of its income, the same income cannot be charged again in the hands of the individual members and vice versa. Trust income cannot be taxed in the hands of the settlor and also in the hands of the trustee or beneficiary or in the hands of both the trustee as well as the beneficiary. These principles are subject to any special provision enabling double taxation in the statute.
The assessee-firm consisted of four partners, all the partners having equal shares. Upto the asst. yr. 1967-68, the firm was assessed in the status of a registered firm. For the asst. yr.
1968-69, the firm filed Form No. 12 under Section 184(7) of the IT Act, 1961, for the grant of renewal of registration. Owing to disputes between them, one of the partners did not sign the form for renewal, and the ITO refused continuance of registration and assessed the firm in the status of an unregistered firm. On appeal to the AAC, the assessee contended that the assessment of the firm was completed on 30th March, 1973, in the status of an unregistered firm, but the assessment of one of the partners was completed on 30th March, 1972, i.e., one year earlier and since the ITO had exercised the option of assessing a partner of the firm directly, no assessment could be made in the hands of the firm thereafter in view of the decision in CIT v. Murdhar Jhawar & Puma Ginning & Pressing Factory (1966) 60 ITR 95 (SCI The AAC accepted the contention of the assessee and relying on a circular of the Central Board, dt. 24th Aug., 1966, held that the decision in Murlidhar Jhawar's case (supra) would be applicable to an assessment made under the IT Act, 1961. On further appeal, the Tribunal held that in view of the difference in language between Section 3 of the Indian IT Act, 1922, and Sections 4 and 2(31) of the IT Act, 1961, the circular issued by the CBDT and the decision in Murlidhar Jhawar's case (supra), which was rendered under the 1922 Act, would not apply in the context of the 1961 Act. As regards the circular, the Tribunal held that it merely stated the legal position and could not be construed to be one in the nature of directions as contemplated under Section 119 of the IT Act, 1961, and allowed the appeal of the Revenue. On a reference : Held, (i) That the instructions given by the CBDT in the circular of 24th Aug., 1966, were that the decision in Murlidhar Jhawar's case (supra) would apply to assessments made under the Act of 1961 and on the basis of that instruction, the CBDT issued directions as to how the ITO should proceed with assessments of firms so that the situation which arose in Murlidhar Jhawar's case (supra) would not arise in a case dealt with under the Act of 1961.
(ii) That even if in the case of the circular of 24th Aug., 1966, there was deviation from the correct legal position on the part of the CBDT in stating that the provisions of the Act of 1961, I were on the same lines as the provisions of the Act of 1922 and that the decision in Murlidhar Jhawar's case (supra) would apply equally to assessments made under the IT Act, 1961, the statement in the CBDT's circular would be binding on all officers functioning under the Act.
(iii) That in view of the principle against double taxation in the hands of the same person and in the absence of any special provision enabling double taxation of income, once in the hands of the unregistered firm and again in the hands of its partners, the assessee could not be taxed as an unregistered firm after the assessment of a partner thereof." SLP against aforesaid order was dismissed by the Hon'ble Supreme Court [(1989) 178 ITR (St) 73].
25th July, 1989 : Their Lordships S. Ranganathan and T. Kochu Thommen JJ. Dismissed the Department's Special Leave Petition against the judgment dt. 20th Oct., 1986, of the Madras High Court in TC Nos. 338--340 of 1984, whereby the High Court, following CIT v. Blue Mountain Engineering Corporation (1978) 112 ITR 839 (Mad), answered against the Department the question whether, where the ITO had already assessed each member of an AOP (under the 1961 Act), he could again assess the AOP. While dismissing the petition their Lordships made the following order : "In view of the fact that the view taken by the Tribunal is also the view that has been followed since 1966 as per circular of the CBDT, dt. 24th Aug., 1966, extracted in Laxmichand Harjibhai (1981) 128 ITR 747, 751 (Guj), we do not think this is a fit case for interference under Article 136.
The Special Leave Petitions are, therefore, dismissed." CIT v. K. Chandrasekaran : SLP (Civil) Nos. 1782-1784 of 1988." In this case the Hon'ble Madras High Court, after following its own decision in CIT v. R. Chandrasekaran (supra) held as under :.
"Where an assessment had already been made on each member of an AOP, the subsequent assessment on the AOP is not valid." 44. After having considered the rival submissions and the facts and circumstances of the case as well as the aforesaid decisions, we are of the opinion that where assessments of members of AOP have been completed therein in their individual capacity then assessment in the status of AOP cannot be framed.
45. Coming to the facts of the present case, it is an admitted fact that the order dt. 14th Jan., 2000, passed by Dy. CIT, Circle-I, Jhansi, in consequence upon directions of the Hon'ble High Court of Allahabad given while deciding writ petitions of three individuals, 'i.e., Writ Nos. 168, 172 and 173 of 1999 has not only been accepted by the CIT(A) as an order under Section 158BC but the AO had also, in his report sent to the CIT(A), had termed that order as an order under Section 158BC of the Act [reference is made to para 4.1 of the order of the CIT(A) in assessee's case] which otherwise goes to show that the Revenue had made assessments under Section 158BC of the Act first, in the hands of three individuals and then in the hands of AOP, and, therefore, it is in view of these facts that objection raised by the assessee is to be decided.
46. So far as assessee's objection is concerned, we, after following the decisions of Madras High Court (supra), are of the opinion that the cash found at the time of interception of three individuals in a car having been assessed in the hands of individual, the same cannot be assessed again in the hands of AOP.47. Even otherwise, we are further of the opinion that the issue is squarely covered by the decision of Hon'ble High Court of Allahabad in the case of Jaiswal Motor Finance (supra) because all the three individuals having accepted the cash as belonging to them or as theirs cash, no addition could be made in the hands of AOP.48. So far as issue relating to assessee's claim that cash belonging to three individuals stand explained by them, we are of the opinion that in view of above discussion, this issue, so far as present assessee is concerned, is only academic because whether the cash was explained or unexplained, the fact remains that action can be taken only in the hands of individuals and not in the hands of AOP.49. In view of above facts and circumstances and the discussions, we are of the opinion that assessment in the status of AOP assessing the cash found from the possession of three individuals was illegal and bad in law, and is, therefore, quashed.
50. So far as issue relating to charging of interest is concerned, though the same is consequential, but we, having quashed the assessment itself, question of charging interest do not arise.