Gorakhpur Petro Oils Ltd. Vs. Additional Commissioner of - Court Judgment

Excerpt:
1. this is an appeal by the assessee in which the assessee has challenged the assessment for the block period completed under the provisions of chapter xiv-b of the it act, 1961 (hereinafter called the act).2.1. the assessee has listed as many as 11 grounds of appeal in the original memorandum of appeal, which were later on regrouped as per the direction of the bench. the grounds originally taken and as regrouped read as under : (i) that the learned ao has erred in law and on facts in making the following additions/disallowances while determining undisclosed income within the meaning of section 158bb of the it act, 1961 : (a) rs. 1,28,856 addition in financial year 1995-96 for alleged unaccounted sales outside the books of account vide para 11 of the order. (b) rs. 51,50,000 addition in.....

Judgment:
1. This is an appeal by the assessee in which the assessee has challenged the assessment for the block period completed under the provisions of Chapter XIV-B of the IT Act, 1961 (hereinafter called the Act).

2.1. The assessee has listed as many as 11 grounds of appeal in the original memorandum of appeal, which were later on regrouped as per the direction of the Bench. The grounds originally taken and as regrouped read as under : (i) That the learned AO has erred in law and on facts in making the following additions/disallowances while determining undisclosed income within the meaning of Section 158BB of the IT Act, 1961 : (a) Rs. 1,28,856 addition in financial year 1995-96 for alleged unaccounted sales outside the books of account vide para 11 of the Order. (b) Rs. 51,50,000 addition in financial year 1995-96 for alleged income from undisclosed sources vide para 78.2 of the Order. (c) Rs. 44,000 addition in financial year 1994-95 for alleged income from undisclosed sources as the unexplained cash credits vide para 43 of the Order. (d) Rs. 46,50,000 addition in financial year 1994-95 for alleged income from undisclosed income vide para 78.2 of the Order. (e) Rs. 5,11,000 addition in financial year 1994-95 for alleged income from undisclosed sources as the unexplained cash credits vide para 84 of the Order. (f) Rs. 12,33,000 addition in financial year 1993-94 for alleged income from undisclosed sources as the unexplained cash credits vide para 43 of the Order. (g) Rs. 12,60,000 addition in financial year 1993-94 for alleged income from undisclosed sources vide para 78.2 of the Order. (h) Rs. 11,83,000 addition in financial year 1993-94 for alleged income from undisclosed sources as the unexplained cash credits vide para 43 of the Order. (i) Rs. 24,32,000 addition in financial year 1992-93 for alleged income from undisclosed sources as the unexplained cash credits vide para 43 of the Order. (j) Rs. 2,13,000 addition in financial year 1992-93 for alleged income from undisclosed sources as the unexplained cash credits vide para 81 of the Order.

(ii) That the learned AO has erred in law and on facts while coming to the conclusion that shortage of 21,476 litres in raw material (Burnt oil) represented sale outside the books. The learned AO has also failed to consider and appreciate that inventory of raw material was not correctly made during the course of search and the oil lying in tanks in the main process line was not inventorised as explained vide written reply dt. 27th June, 1996 filed during block assessment proceedings.

(iii) That the learned AO has erred in law and on facts in not confronting investigation/enquiry material gathered behind or basis for making presumptive addition of over 1.66 crores as income from undisclosed sources allegedly representing unexplained cash credits and investment in shares. The assessment completed is, therefore, also violative of the provisions of Section 142(3) of the IT Act, 1961.

(iv) That the findings/inferences drawn by the learned AO relating to genuinity of creditors, their capacity to give loan/invest in shares, etc., are highly presumptive, insupportable in law and based merely on conjectures and surmises.

(v) That the addition at Sl. Nos. (a) to (j) of ground No. 1 hereinabove are outside the scope and ambit of the provisions of Sections 158B(b), 158BB of the IT Act, 1961, therefore, the addition made is illegal and deserves to be quashed.

(vi) That the observation of learned AO in para 64, on p. 61 of the order is contrary to the legislative intent and spirit, below and decorum and dignity of the office of the Registrar of Companies and in any case bad in law.

(vii) That the learned AO while relying on the statement of Shri.

G.S. Abrol, Notary Public at Delhi and relying on the same against the assessee in the block assessment has failed to consider and appreciate that he was legally obliged to provide a copy of the said statement and allow an opportunity of cross examination to the appellant. In any case the inference drawn does not bear out from the said statement in any manner whatsoever.

(viii) That the block assessment completed under Section 158BC read with Section 144 is not tenable in law because neither there was any non-compliance nor any other default within the meaning of Section 144 warranting an ex parte assessment particularly when the appellant had been making full compliance in assessment proceedings and had filed the return in the prescribed form though belatedly but during assessment proceedings.

(ix) That the learned AO was not justified in not properly considering and appreciating explanations filed from time to time arbitrarily rejecting adjournment application on 2nd Sept., 1996, without reasonable and sufficient cause and thereafter completing the assessment in an arbitrary manner.

(x) That the learned AO has erred in law and on facts in not acceding to the request of the appellant for holding a camp at Gorakhpur and appoint Commission for enquiry at Delhi for verification of various cash creditors and shareholders whose affidavits and confirmations were filed and arbitrarily treating them as not genuine and bogus.

(xi) That the cash credits allegedly treated as undisclosed income within the meaning of Section 158B(b) of the IT Act, 1961, is ultra viies the provisions of Section 158BB read with Section 158B(b) of the IT Act, 1961.

(i) The additions aggregating to Rs. 1,68,04,856 referred to above may kindly be deleted.

(ii) Any other relief or reliefs as may be deemed fit may be granted.

(iii) Appellant craves leave to add, amend, alter or withdraw from the grounds of appeal at any time before hearing of appeal.

1. The various additions made by the AO aggregating to Rs. 1,68,04,856 are outside the scope and ambit of Sections 158B(b) and 158BB of the IT Act, 1961, and do not fall to be assessed under Chapter XIV-B of the IT Act, 1961. The additions made are illegal and deserve to be quashed and may kindly be quashed. [Original grounds Nos. (v) and (xi)].

2.(a) The various additions made (aggregating to Rs. 1,68,04,856) are bad in law having been made in violation of the statutory provisions of Section 142(3) of the IT Act, 1961.

(b) Evidence collected behind the back of the assessee and not confronted to the assessee must be ignored altogether and ought not be taken note of to draw adverse inference against the assessee.

(c) The entire evidence collected by the ADI (Inv.) and passed on to the AO for being used to frame the impugned assessment falls in this category and may, therefore, be ignored [Original grounds Nos.

(iii), (iv), (vii)].

(d) The learned AO erred in law in not providing adequate opportunity of hearing to the assessee, despite request from the assessee. In particular, the learned AO erred in not examining the witnesses at Gorakhpur and in not granting adjournment to the assessee on 2nd Sept., 1996 despite cogent reasons being shown in support of the above requests [Original grounds Nos. (ix) and (x)].

3. Without prejudice to the above grounds, the learned AO erred in law and on facts in making the following additions : Assessment years(i) Additions under Section 26,45,000 36,76,000 52,05,000 51,05,000 1,66,76,000(ii) Addition under Section 1,28,856 1,28,856 Total 26,45,000 36,76,000 52,05,000 51,78,856 1,68,04,856 In addition to the above the assessee has prayed for permission to plead an additional ground as below : The assessment order is bad in law due to the mechanical application of mind by the learned CIT, which does not amount to approval.

2.3. The assessee, later on, as per its letter dt. 7th Dec., 1998 sought permission to raise the following additional ground : "That learned CIT, Allahabad, has erred in law and failed to objectively apply his mind while giving approval to the arbitrary and unfounded additions made by the learned AO in the block assessment. The assessment order is bad in law due to the mechanical application of mind by the learned CIT which does not amount to approval." 2.4 The assessee further sought to raise an other additional ground as per application furnished on 28th Sept., 1999 and the additional ground read as under : "The learned AO failed to assume valid jurisdiction under Section 158BC inasmuch as the notice issued by him under the said section was vague and hence invalid prayer : The assessment order, being void ab initio may be quashed." 2.5. The assessee, as per its application dt. 6th Oct., 1999 sought to raise reframed additional ground in place of additional ground having been sought to be raised as per application furnished on 28th Sept., 1999 (reproduced in para No. 2.4 above). The modified additional ground reads as under : "The assumption of jurisdiction under Section 158BC by the learned AO was improper in as much as he failed to serve on the assessee a valid notice under Section 158BC. The assessment order framed under Section 158BC is, therefore, void ab initio." 3. The additional ground raised by the assessee as per its application dt. 7th Dec., 1998 (reproduced in para No. 2.2 above) was admitted as per order of the Bench dt. 1st Feb., 1999 passed on the assessee's application itself.

4. The modified additional ground sought to be raised as per application dt. 6th Oct., 1999 (reproduced in para No. 2.5 above) was, after hearing both the parties and in view of decisions of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC) and in the case of Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC), was admitted on 14th March, 2000, and it was only thereafter, that the appeal was heard with respect to the additional grounds.

5. We have heard the assessee's counsel as well as the standing counsel appearing on behalf of the Revenue in detail but before diverting ourselves to their respective arguments and consideration of the same, we consider it necessary first to state facts necessary for deciding the issues raised in this appeal and have been revealed from the records available before us. The facts are as under : 5.1 (a) The appellant-company came into being on 3rd March, 1992 and the certificate of commencement of business was received on 5th May, 1992.

(c) The Director's report for the accounting period ended on 31st March, 1993, dt. 3rd Sept., 1993 stated that "company has not yet commenced commercial production".

6. The details of share capital and share application money received yearwise are as under (As per Chart n filed by the assessee);________________________________________________________________________________S. No.Period Share capital Share application Total Amount (Rs.) money (Rs.) considered as undisclosed________________________________________________________________________________1 Upto 31.03.93 7,000 57,35,600 57,42,600 24,32,0002 Upto 31.03.94 93,09,600 1,50,000 94,59,600 24,93,0003 Upto 31.03.95 1,79,69,600 2,60,000 1,82,29,600 46,94,0004 Upto 31.03.96 2,61,19,600 13,60,000 2,74,79,600 51,50,000________________________________________________________________________________ 7. Return of income for the asst. yr. 1994-95, along with audited accounts was furnished by the assessee on 28th Nov., 1994 and the regular assessment under Section 143(3) was completed on 25th Jan., 1995 after detailed scrutiny and verification of share capital, share application money and cash credits. It is important to mention here that in this regular assessment not a single rupee, out of share capital or share application money or cash credits was found to be ungenuine. In other words, all these were accepted as genuine after due verification.

8.1 (a) Action under Section 132 of the IT Act, 1961, (hereinafter called the Act) was taken at the appellant's premises and also in another assessee's case styled as M/s Jalan Enterprises.

(b) The search in appellant's case and in case of M/s Jalan Enterprises were carried on under separate and independent search warrants and separate Panchnama was prepared.

(c) So far as search in appellant's case is concerned, following cash and documents were found and seized : (i) As per Annexure B1 to the Panchnama, the appellant's regular books of account, RG-1, RG-23 and some loose papers were found and seized.

(ii) As per Annexure C-1 cash of Rs. 2,23,150 was found out of which cash of Rs. 2,00,000 was seized.

(iii) As per Annexure C-2 cash of Rs. 60,000 was found but was not seized.

(iv) The Annexure J, S-1, S-2 and S-3 contains the details of material, raw material and finished goods found at the time of search.

8.2 From the premises of M/s Jalan Enterprises income-tax files of persons listed in Annexure-1 to the block assessment order showing a total investment of Rs. 37,09,000 in appellant's share (investment of Rs. 24,23,000 in financial year 1992-93, Rs. 12,33,000 in financial year 1993-94 and Rs. 44,000 in financial year 1994-95) were found and seized.

8.3. On 5th Dec., 1995, the AO issued a notice claiming the same to be a notice under Section 158BC of the Act whereby the appellant was asked to furnish its return of undisclosed income for the block period "1st April, 1985 to 9th Nov., 1995" within a period of 16 days. This notice, which is reproduced hereunder, is claimed by the Revenue to have been served on 13th Dec., 1995.

In pursuance of the provisions of Section 158BC of the IT Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of which you as Company are assessable for the block period mentioned in Section 158B of the IT Act, 1961.

The return should be in the prescribed Form No. 2B and be delivered in this office within 16 days of service of this notice, duly verified and signed in accordance with the provisions of Section 140 of the IT Act, 1961.(Seal of the office of the AO) Name : Atulesh Jindal Designation: Karyaly, Aaikar Uppe (There is following endorsement on the certified copy of this notice furnished by the assessee).

8.4. The appellant furnished the return showing nil undisclosed income on 2nd Sept., 1996 and since this return was filed after the expiry of prescribed period, the AO ignored the same and proceeded to complete the block assessment under Section 144 of the Act after considering the assessee's various explanations/replies and ultimately completed the block assessment on 27th Nov., 1996 in which the total undisclosed income for the block period has been computed at Rs. 1,68,04,856.

8.5. The yearwise details of share capital and cash credits as well as business income which have been considered as undisclosed income are as under:____________________________________________________________________ Assessment yearsS.No.Description of 1993-94 1994-95 1995-96 1996-97 undisclosed income (a) Companies Nil 12,60,000 46,50,000 51,50,000 (b) Non-Company 24,32,000 12,33,000 44,000 Nil3.

Business Income Nil Nil Nil 1,28,856 Total : 26,45,000 36,76,000 52,05,000 52,78,856____________________________________________________________________ (a) No incriminating document or books of account or valuable or undisclosed assets except cash which has been accepted as explained, were found or seized during the course of search at the appellant's premises.

(b) The share capital/share application money relating to non-corporate persons, has been considered as appellant's undisclosed income solely on the basis of income-tax files of those persons found at the premises of another assessee styled as M/s Jalan Enterprises at a different place.

(c) None of the files/documents found and seized from the premises of M/s Jalan Enterprises belonged to the appellant.

(d) The share capital/share application money and cash credits relating to corporate persons as well as non-corporate persons were duly recorded in the appellant's books of account for the asst. yrs.

1993-94 to 1996-97 (date of search) (e) Assessment for the asst. yr. 1994-95 stood completed after accepting the whole of share capital/share application money as well as cash credits both in the names of corporate and non-corporate persons received during the period relevant to asst. yr. 1994-95.

(f) Since the time for filing the return of income for the asst. yr.

1995-96 had not expired by the date when search was conducted, i.e., 9th Nov., 1995, the regular return of income for the asst. yr.

1995-96 declaring an income of Rs. 7,35,652 was furnished on 24th Nov., 1995.

(g) It is only the undisclosed income of Rs. 1,28,856, computed on account of alleged shortage of stock found during the search at the assessee's premises, which can be said to be on the basis of documents/books/valuable assets found and/or seized in assessee's case.

(h) The search at the premises of M/s Jalan Enterprises was as a result of separate and independent search warrant and no documents/books of account/valuables/assets relating to the appellant was found or seized.

9. It was on the basis of above fact that the parties have argued their respective stand 10.1 The counsel for the assessee, after referring to the so-called notice under Section 158BC of the Act, copy of which has been placed on record, submitted that the assessee-company having been incorporated only on 3rd March, 1992, the period prior to it cannot be considered as the period falling within the "Block period" relevant to the block assessment in appellant's case. According to him, when the assessee had even not born, how the period prior to date of birth can be included in the block period. Pointing out the block period mentioned in the notice which reads as "block period 1-4-85 to 9-11-95" the counsel submitted that what the notice specifies is the block period as per definition under the Act and not the block period as relevant to the assessee's case and since the requirement of mentioning the correct assessment year--in this case, the block period; is a mandatory prerequisite condition for a valid notice, non-compliance to this condition renders the notice as invalid.

10.2 The other defect in the notice under reference, as submitted by the counsel for the assessee, was failure to address the notice in accordance with statutory provisions of Section 282(2)(b) of the Act read with provisions of Section 2(35) of the Act. According to the counsel, any notice in case of a corporate assessee has to be issued in the name of and has to be served upon the principal officer as defined under Section 2(35) of the Act and since the present notice has neither been addressed to the principal officer nor has been served on the principal officer and also the AO having not issued any notice of his intention to treat the person on whom the notice has been served as assessee's principal officer, the notice is bad in law.

10.3 The counsel for the assessee further submitted that the notice has also not been served on the proper person and in accordance with the provisions of section--of the Act and consequently, the same is vague and invalid. Referring to the endorsement on the notice, the counsel submitted that the notice has been served on some advocate, who was neither the appellant's principal officer nor was controlling the appellant's business affairs and also was not, even otherwise authorised by the appellant.

10.4 In view of above facts and circumstances, the counsel for the assessee pleaded that the notice under Section 158BC dt. 5th Dec., 1995, has to be declared as bad in law and vague and consequently, the block assessment completed on 27th Nov., 1996 has also to be declared bad in law and void ab initio.

In support of above submissions the learned counsel had relied on the arguments advanced on behalf of counsel for the appellant in case of Monga Metals (P) Ltd. v. Asstt. CIT (2000) 67 TTJ (All) 247 and in the case of Verma Roadways v. Asstt. CIT (2001) 70 TTJ (All) 728 : (2000) 75 ITD 183 (All).

11.1. The additional standing counsel, Mr. S. Chopra, appearing on behalf of the Revenue first of all submitted that the Revenue has gone in appeal against the orders on the Tribunal in case of Monga Metals (P) Ltd. (supra) as well as in case of Verma Roadways (supra) and, therefore, the same have not been accepted by the Department. The counsel further submitted that so far as defect in mentioning the correct block period is concerned there is no such defect because, provisions of Section 158BB place emphasis on the words "Block period" and it is not necessary that there is undisclosed income in every year covered by the definition of block period. According to him, the block period has been rightly mentioned.

Coming to the assessee's objection against addressing the notice to the principal officer, the counsel submitted that the principal officer as per Section 2(35) can be anybody either director or somebody else, who is managing the affairs of the company and, therefore, the notice under reference has been served on the principal officer.

When the Bench asked the counsel as to on whom the notice in appellant's case is served, the counsel's reply was that "It has been served on the company".

When Bench further asked the counsel about the AO having given any notice of his intention to treat the company itself as principal officer, the counsel's reply was that "It is not required".

11.2 The counsel further submitted that the notice in question was saved by the saving provisions of Section 292B of the Act and, therefore, was valid in the eye of law.

11.3 In support of above submissions the counsel has relied on the decisions in following cases : (b) Sardar Harvinder Singh Sehgal and Ors. v. Asstt. CIT (1997) 227 ITR 512 (Gau) (c) Arti Ship Breaking v. Director of IT (Inv.) and Ors. (2000) 244 ITR 333 (Guj) 11.4 The counsel further submitted that the assessee having been in the knowledge of notice and having complied with, the objection raised by the assessee is not tenable.

11.5 The counsel further submitted that so far as the service of the notice is concerned, the endorsement "for M/s Gorakhpur Petro Oils Ltd." goes to show that the person concerned was managing the affairs of the appellant's company and, therefore, the service is on the proper person.

When asked by the Bench as to on what basis he was making this plea, the counsel's reply was that the recipient of the notice being an advocate, it can be well said that he was managing the affairs of the company. He however, had no other evidence in support of this claim.

12. In rejoinder to the counsel's submissions that assessee being in the knowledge of and having complied with the notice the objection is not tenable, the assessee's counsel submitted that the AO can have the jurisdiction to make block assessment only after valid service of a valid notice and, therefore, it is not a knowledge or compliance, which are relevant. According to him, it is the valid service of the valid notice which can give rise of jurisdiction to the AO to proceed with the block assessment proceedings. According to him, the consent on the part of the assessee cannot confer the jurisdiction which the AO otherwise do not have and for this purpose he has relied on the decision of Bombay High Court reported as CIT v. Ramsukh Motilal (1955) 27 ITR 54 (Bom).

13. We have considered the rival submissions, facts and circumstances of the case, provisions of law in this respect and various decisions relied upon by the parties very carefully and after in-depth consideration of the totality of the circumstances, are of the opinion that the appellant is to succeed on this point because of the following discussion : (i) First of all we would like to consider the decisions relied upon by the additional standing counsel appearing for the Revenue.

(a) Decisions in case of National Insurance Company Ltd. (supra) and Sardar Harvinder Singh (supra) were considered by Tribunal, Allahabad 'A' Bench, in case of V.V.S. Alloys Ltd. v. Asstt. CIT (2000) 68 TTJ (All) 516, of which the learned JM was one of the party, and were held to be not applicable to the facts and circumstances which were similar to the facts and circumstances before us in this case. The relevant part as per para Nos. 13(iii) and 13(iv) reads as under : In this case, the Hon'ble Court was dealing with a return of income filed by company which had not been signed by the managing director thereof. The assessee's case was that it was just as a defective return and validity thereof should not be affected in view of the provisions contained in Section 292B. The assessee's plea was rejected and the Hon'ble Court even went to hold that 'Section 292B has been inserted to provide against purely technical objections without substance coming in the way of the validity of the assessment proceedings. In the instant case, the original return was invalid as it was not signed and verified by the person competent to do so' Obviously, reliance on this decision is misplaced by the Revenue. On the other hand, it goes to support the assessee's case that Section 292B is not meant to cover all omissions/defects even if such omissions/defects go to affect the assumption of jurisdiction to initiate proceedings under the Act".

In this case the Hon'ble Court was dealing with a notice under Section 148, validity of which was disputed on the ground that the said notice by itself did not contain the reason nor the particulars of business income which had escaped assessment. After having held in principal that the law did not require that the notice itself should communicate the reason or contain the details of income escaping assessment, the omission to contain such information was held to be of procedural nature, which would not go to vitiate the proceeding.

In the case before us the situation is entirely different. The mistakes, as have been pointed out by the counsel for the assessee, are not of procedural nature but are the irregularities of substance which go to adversely affect and vitiate the vary assumption of jurisdiction by the AO to pass block assessment order." (b) Decision in case of Arti Ship Breaking v. Director of IT (Inv.) and Ors. (supra) In this case the validity of notice under Section 158BC was challenged on the ground that, since the authorised officer, who had carried on the search under Section 132, had not handed over the seized material to the AO having jurisdiction over the assessee's case and has issued notice under Section 158BC, the notice in question was invalid and bad in law.

On a writ petition by the assessee, the Hon'ble Court found, as a matter of fact, that the authorised officer happened to be the AO having jurisdiction over the assessee's case and therefore, the notice issued under Section 158BC was held to be an valid notice.

(ii) In view of above discussion we are of the opinion that the decisions relied upon by the Revenue are of no help to it.

14. Now we proceed to discuss the decisions relied upon by the assessee's counsel:Monga Metal (P) Ltd. v. Asstt. CIT The arguments advanced by the parties and the decision thereof in this case as contained in para Nos. 3 to 12.2 reads as under : In these grounds the assessee has objected to the validity of the notice dt. 12th Dec., 1996 issued as required by the provisions of Section 158BC of the Act.

3.1 We have heard the assessee's counsel as well as the learned additional standing counsel.

3.2 The counsel for the assessee first of all submitted that the notice required to be served upon the assessee as per the provisions of Section 158BC is analogous/within the parameter of the requirements for a notice under Section 148 of the IT Act and, therefore, the law relating to the requirements for the validity of the notice under Section 148 and the case laws thereof, are fully applicable, so far as the requirements for a valid notice under Section 158BC of the Act are concerned.

3.3 Referring to the copy of the notice dt. 12th Dec., 1996 (Placed at page No. 1 of assessee's paper book--A copy, certified by both the parties, was filed during the course of hearing also). The assessee's counsel submitted that the notice is vague and invalid because of the following illegalities in the notice : (i) According to the provisions of Section 282(2)(b), every notice issued, under the Act, in case of a company has to be addressed to the principal officer of the company and since the impugned notice has not been addressed in accordance with the requirement of this provision, the notice in question is vague and invalid; (ii) The notice is also silent as to the 'status' in which the return was required to be furnished. Referring to the fourth and fifth line of the first para (main body of the notice), the assessee's counsel submitted that mentioning of the words "in respect of which an individual/HUF/Firm/Company/AOP/individual/local authority" leads one to presume that the AO was not satisfied as to whom the notice was being directed or in whose case the so-called block assessment was going to be completed.

According to the counsel, this illegality has also rendered the notice vague and invalid.

(iii) According to the definition given as per Section 158BA of the Act, the 'Block period is defined to be consisting of previous years relevant to 10 assessment years preceding the previous year in which the search had been conducted and period upto the date of commencement of search in the previous year in which search was conducted. According to the counsel, the definition of block period specifies the maximum number of previous assessment years which can be covered in assessment for the block period and it is not necessary that in each and every case the previous 10 assessment years are to be covered. Explaining his point, the assessee's counsel submitted that if assessee's business had been in existence, say for only 3 previous assessment years, then the block period in that case will include only 3 assessment years and not 10 assessment years. From this interpretation of the provisions, the assessee's counsel made out a case that in the notice under reference the exact period falling within the block period, i.e., assessment years; has not been mentioned and since non-mentioning of assessment year in a notice under Section 148 Act has been held to have rendered the notice under Section 148 of the Act as a vague notice, the present notice alleged to have been issued under Section 158BC of the Act is also rendered vagure and invalid. He further submitted that the business of the assessee's company was started during the previous year relevant to asst. yr. 1993-94 and since this fact was well within the knowledge of the AO, mentioning of the block period as "the previous years relevant to 10 assessment years preceding the previous year 1996-97 and including the period upto the last date of search warrant executed in the case as defined under Section 158BA upto the 3rd Sept., 1996", clearly goes to show that the AO has simply mentioned the definition of block period given under Section 158BA of the Act and not the assessment year--which are requirements for a valid notice asking for the return of undisclosed income.

(iv) From the period mentioned by the AO in the notice, the counsel for the assessee further submitted, that as per the provisions of Section 158B of the Act the block period is to include the period upto the date of commencement of search and not upto the "last date of search warrant executed in one's case" and, therefore, on this account also the AO cannot be said to have mentioned the block period/assessment year correctly.

3.4. In view of the above alleged illegalities claimed to have been committed in the notice under Section 158BC of the Act, the assessee's counsel submitted that the assessee-company was not able to understand as to whose, for which period and in which status, the return was required to be furnished.

Explaining the illegalities further, the counsel submitted that since the AO has mentioned various status such as individual/HUF/Firm/Company/AOP/Body of individuals/local authority in the notice, it is clear that the AO was not satisfied as to from whom he was going to ask for a return and in whose case was going to make assessment for block period. The assessee's counsel further submitted that simply addressing the notice in the name of company cannot be interpreted as a notice asking the company to furnish its return in the status of the company and for the period during which it existed. Giving an example, the assessee's counsel submitted that if a notice is addressed as per the provisions of Section 282(2)(b) of the Act to the principal officer, it cannot be interpreted as a notice asking the addressed person, i.e., the principal officer to furnish his return in the individual status.

3.5 The assessee's counsel, after referring to the purpose behind introducing the provisions of Chapter XIV-B of the Act, submitted that it is a complete and independent code itself in which not only the term "undisclosed income" is defined but procedure for making assessment, the period which are covered by such assessment and the requirement with regard to the service of notice as well as applicability of other provisions of the Act have been specified, and, therefore, the provisions have to be construed strictly.

3.6 In the light of the above submissions, the assessee's counsel submitted that since the notice dt. 12th Dec., 1996, claimed by the Department to have been issued as required under Section 158BC of the Act is vague and bad in law all the consequential actions including the assessment for block period are illegal and void ab initio.

3.7 In support of the submissions that the notice was illegal and bad in law, the assessee's counsel has placed reliance on the decisions in following cases : (ii) CIT v. Kurban Hussain Ibrahmji Mithiborwala (1971) 82 ITR 821 (SC)Madan Lal Agarwal v. CIT (v) CIT v. Thaylaballi Mulla Jeevaji Kapasi (Decd.) (1967) 66 ITR 147 (SC)P.N. Sasikumar v. CIT 3.8 The assessee's counsel further submitted that the notice under Section 158BC is neither akin or analogous to a notice under Section 142(1) of the Act nor can amount to an obligation for a return to be furnished under Section 139(1) because in those cases it is the assessee who is to choose the status but under the provisions of Section 158BC of the Act, the assessee is to furnish the return in the status in which notice has been issued to the assessee is required and, therefore, the assessee has no choice to claim a particular status.

3.9 The assessee's counsel further submitted that the illegalities pointed out in the notice under Section 158BC of the Act were not curable and consequently such notice cannot be cured/saved by the provisions of Section 292B of the Act and for this purpose relied on the Tribunal's decision in case of Prakash Spun Pipe, in asst. yr.

1990-91 ITA No. 1014/All/1994 dt. 1st Feb., 1998 and the relevant part is contained in paras 10 and 11 of the order which is reproduced as under : "10. Referring to the view taken by the learned CIT, that the AO had condoned the defect, with reference to Section 292B of the Act, we have no hesitation in saying that this provision of law is not a panacea, pulling the AO out of any and all sort of statutory non-compliances by him. Section 292B only says that a return, assessment notice, summons or other proceedings shall not become invalid merely by reasons of any mistake, defect or omission in such return, assessment notice, summons or other proceedings if these are in substance and effect in conformity with or according to the intent and purpose of this Act. Even a plain reading of this provision conveys that the heart of the matter is that it is only a technical or venial sort of defect in any return, assessment notice, summons or other proceedings that is capable of being cured under this provision. In this connection a reference may be made to Departmental Circular No. 179, dt. 30th Sept., 1975, which, as found at page No. 692B of Chaturvedi and Pithisaria's Commentary, Edn. 4, Vol. VI, also states that Section 292B was enacted to provide against purely technical objections without substance coming in the way of the validity of assessment proceedings, etc. We are certain that to treat a return as valid for the purposes of the completion of an assessment, which as per the unambiguous provisions of law, namely, Section 139(9) "Shall be treated as valid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return" is not at all a technical or venial matter. In our considered opinion it does in nowhere come even within the legal vicinity of Section 292B of the Act.

11. In the result, we are of the view that on the facts and circumstances of the case, the AO ceased to remain vested with the legal power to complete the assessment. If he had wanted to do so, he should have issued either a notice under Section 142(1) or resorted to proceedings under Section 147 of the Act. Not having done so, the resultant assessment is void ab initio." (i) It is not mandatory to address the notice to the principal officer--as claimed by the assessee relying on the provisions of Section 282; (ii) Since, it was addressed to the company itself, i.e., "to Monga Metals (P) Ltd., 76/43, Gopal Market, Halsey Road, Kanpur", the status was deemed to have been specified as that of a company; (iii) The option to choose the status was left to the assessee because it is the assessee who is to decide the status in which status it wants to be assessed.

(iv) Since the definition of block period defines the block period as consisting of previous years relevant to 10 previous assessment years and a part of current period, there was no illegality in mentioning the block period/assessment year as has been maintained in the notice.

(v) In the alternate, the notice being, in sum and substance, in confirmity with the provisions of the Act, the defect, if any, is cured by the provisions of Section 292B of the Act; 4.2 In support of above submissions, the additional standing counsel has relied on the decisions in the case of Balchand v. ITO (1969) 72 ITR 197 (SC) and Parameswara Ballakuraya v. Commr. of Agrl. IT (1987) 164 ITR 536 (Ker).

5. We have considered the rival submissions, provisions of the Act necessary and relevant for deciding the issue in hand and various decisions relied upon by the parties and after careful consideration, are of the opinion that for the decision of the dispute raised by the appellant the following 3 questions have to be decided : (i) The first question, in our opinion, for our decision is with respect to the nature/status of the notice required to be served under Section 158BC of the Act, i.e., is such a notice akin/analogous and within the parameters of a notice under Section 148 of the Act (ii) If so, can the points raised by the assessee's counsel amount to illegalities in the notice and consequently, have they rendered the notice illegal, bad in law and vague; (iii) If the notice is found to be vague, can the assessment for block period be quashed as a nullity 6.1 To decide the first question we consider it necessary to discuss the provisions of Sections 147, 148 and 149 on one hand, provisions of Sections 143(2) and (3) on the other hand, and provisions of Sections 158B, 158BB and 158BC on the other hand and for that purpose we would like to extract the relevant portion of the provisions, (2) Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142, the AO shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return.

Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.

(3) On the day specified in the notice issued under Sub-section (2), or as soon afterwards as many be, after hearing such evidence as the assessee may produce as such other evidence as the AO may require on specified points and after taking into account all relevant material which he has gathered, the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him (or refund of any amount due to him) on the basis of such assessment." 147. If the AO has reason to be believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for assessment year concerned (hereinafter in this section and in Sections 148 to 153 referred to as the relevant assessment year) Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year." (1) Before making the assessment, reassessment or recomputation under Section 147, the AO shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall so far as may be, apply accordingly, as if such return were a return required to be furnished under Section (2) The AO shall, before issuing any notice under this section record his reasons for doing so." "149. (1) No notice under Section 148 shall be issued for the relevant assessment year--(a) in a case where an assessment under Sub-section (3) of Section 143 or Section 147 has been made for such assessment year." Important provisions are contained in Sections 158B, 158BA, 158BB and 158BC which are in the following terms : (a) "block period" means the (previous years relevant to ten assessment years) preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A, and includes, in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition; (b) "Undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act.

158BA. (1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A in the case of any person, then, the AO shall proceed to assess the undisclosed income in accordance with the provisions of this chapter.

(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in Section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not 158BB. (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with AO, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years determined-- (2) In computing the undisclosed income of the block period, the provisions of Sections 68, 69, 69A, 69B and 69C shall, so far as may be apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition." 158BC. Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132A, in the case of any person, then-- (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th June, 1995, but before the 1st day of Jan., 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of Jan., 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under Clause (i) of Sub-section (1) of Section 142, setting for his total income including the undisclosed income for the block period : Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this chapter : Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 shall, so far as may be, apply; (c) the AO, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment; (d) the assets seized under Section 132 or requisitioned under Section 132A shall be retained to the extent necessary and the provisions of Section 132B shall apply subject to such modifications as may be necessary and the references to "regular assessment" or "reassessment" in Section 132B shall be construed as references to "block assessment." 6.2. From the in-depth analysis of aforesaid scheme of provisions relevant for making of a regular assessment, assessment of escaped income and assessment of search cases what we have been able to understand is that so far as the regular assessment is concerned, the AO is to complete the same after serving on the assessee a notice under Section 143(2) and on the date specified in such notice or as soon or afterwards, as may be, on the basis of evidence which the assessee may like to produce or such other evidence which the AO may require the assessee to furnish on specified points and after taking into account the relevant material which he has gathered.

Under this scheme of assessment the requirement of service of notice under Section 143(2) has been held to be a procedural irregularity and non-compliance of this requirement has resulted in setting aside of the assessment for proceeding from the stage of irregularity and it is so because after furnishing of a valid return the AO assumes a valid jurisdiction to proceed for making a regular assessment but as far as the other two schemes, i.e., the scheme provided for "assessment of escaped income in provisions of Sections 147, 148 and 149 and the scheme of "special procedure for assessment in search cases" as provided under Chapter XIV-B, i.e., under the provisions of Sections 158B, 158BA, 158BB and 158BC, etc., are concerned these go to show that (i) object of both the scheme is same, i.e., object is to tax the income which has not already been taxed. Under the former scheme, the requirement is that in the opinion of the AO the income should have escaped the assessment and search is not necessary and the prerequisite conditions to assume jurisdiction to tax the escaped income, are (i) limits with respect to the quantum of escaped income as provided under Section 147, (ii) service of valid notice under Section 148 upon the person and (iii) within the limitation prescribed under Section 149, whereas, in the later scheme the prerequisite mandatory requirements before the AO can assume jurisdiction to make assessment of undisclosed income are that (i) there should have been a search action under Section 132 of the Act or a requisition for books or documents under Section 132A of the Act, which is analogous to the requirement of taxing of escaped income in the earlier scheme. It is only on fulfillment of this condition that the AO gets clothed with the jurisdiction to proceed for making a block assessment of undisclosed income, meaning thereby that the AO is said have jurisdiction to proceed with under the provisions of Chapter XIV-B of the Act. (ii) the second required prerequisite condition, before proceeding to make assessment under Section XIV-B, i.e., an assessment of block period is that the AO has to serve a notice in conformity with the requirement of Section 158BC of the Act upon the person in whose case search has been conducted and in whose case the AO wants to make an assessment under Chapter XIV-B, meaning thereby that as in the case of assessment of escaped income, the AO can proceed to assess the escaped income only after the fulfillment of requirements upto the stage of service of valid notice in confirmity with the provisions of Section 148, in case of search, i.e., in case of asset of block period to be made under Chapter XIV-B of the Act the AO can proceed to assess the undisclosed income after satisfaction of the requirements upto the stage of service of a valid notice in conformity with the provisions of Section 158BC of the Act. Since under both these schemes the requirement of service of a notice, before proceeding to make assessment is a must, the requirement cannot be said to be a procedural and different one.

6.3 These schemes further go to show that the moment a notice under Section 148 is served (in the scheme of assessment of escaped income) or the moment a notice under Section 158BC is served (in the scheme of assessment of undisclosed income--Chapter XIV-B), the already completed assessments or the assessment for the year for which income has escaped (where there is no search) and the assessments falling within the block period, for the assessment of undisclosed income (where there is a search), get reopened.

This view is fortified by the existence of first proviso to Section 158BC (a), according to which the necessity of issuing a notice under Section 148 of the Act has been dispensed with for making an assessment for the block period which is inclusive of 10 previous assessment years. The dispensation with the requirement of issuing of a notice under Section 148 of the Act and the fact that assessment of block period includes the assessment of 10 previous years leaves one in no doubt about the purpose, nature, status and effect of a notice under Section 158BC, which according to us is, (i) to get already completed assessment falling within the block period reopened and the AO is clothed with the power to make assessment of undisclosed income for those assessment years; (ii) If assessments have not been completed, then the AO gets clothed with the powers to make assessment resembling with the assessment framed under Section 147 of the Act; (iii) If return has been furnished, then the AO is clothed with the power to make assessment of undisclosed income.

6.4 The above provisions envisaged in the 2 schemes (supra) confirm beyond any doubt that : (i) A notice under Section 148 and under Section 158BC can be issued only after fulfillment of required conditions such as an escapement of income or action under Section 132 of the Act, as the case may be.

(ii) In both the cases service of a valid notice is a mandatory prerequisite condition before proceeding to make a reassessment or assessment of block period, as the case may be.

7.1 Coming to the various decisions relied upon by the parties, the ratio of the decisions, in brief, is as under : "The notice prescribed by Section 34 reported in Y. Narayana Chetty and Anr. v. ITO (supra) cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the ITO would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid, then the validity of the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void." "It is well-settled that the ITO's jurisdiction to reopen an assessment under Section 34 depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by him would become void for want of jurisdiction. In the notice issued under Section 34 the ITO sought to reopen the assessment of the assessee for the asst. yr. 1948-49 but in fact he reopened the assessment of the year 1949-50. Hence, in our opinion, the High Court was right in holding that the notice in question was invalid and as such the ITO had no jurisdiction to revise the assessment of the assessee for the year 1949-50." "On the facts as found by the Tribunal, it is clear that the notice under Section 148 was issued to an entity which was, as a matter of fact, non-existent and was at any rate different from the entity which filed the return in response to that notice. The notice had been issued to Sardar Arjun Singh, individual, and the return was filed by Sardar Sampuran Singh, Karta of his HUF. The two are absolutely distinct entities in law, as also, as a matter of fact, no notice had been issued to it under Section 148 of the Act. We have already indicated above that the issue of notice under Section 148(1) is the condition precedent to the validity of an assessment under Section 147. It is a jurisdictional issue and unless such a notice is issued the ITO does not get jurisdiction to make an assessment on a particular assessee. In this view of the matter in our opinion, the Tribunal has been right in holding that the assessment in question was not valid in law."Madan Lal Agarwal v. CIT "It is now well-settled, and we do not consider it necessary, to advert to numerous authorities in this regard cited at the Bar, that issuing of a valid notice to the assessee under Section 148 of the IT Act within the period specified under Section 149 of the Act is a condition precedent to the validity of any assessment to be made against such assessee under Section 147 of the Act. Accordingly, where no such notice has been issued or if the notice issued is not valid or the same has not been served on the assessee in accordance with law it will be possible to sustain the eventual assessment made under Section 147 on the basis of such notice. We may also take it that where the notice issued to an assessee is vague, it would not be possible to rely upon it to sustain an assessment made under Section 147 of the IT Act." In this case the Hon'ble Supreme Court referred to its earlier decision in the case of Y. Narayan Chetty v. ITO (supra) and held as under : "Service of notice prescribed by Section 34 of the IT Act, for the purpose of commencing proceedings for reassessment, is not a mere procedural requirement; it is a condition precedent to the initiation of proceedings for assessment under Section 34. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO, without a notice or in pursuance of an invalid notice, would be illegal and void : see Narayana Chetty v. ITO, Nellore".P.N. Sasikumar v. CIT It is settled law that the issue of a notice under Section 148 of the IT Act, 1961, is a condition precedent to the validity of any assessment order to be passed under Section 147 of the Act. It is also settled law that if no such notice is issued or if the notice issued is invalid or not in accordance with the law or is not served on the proper person in accordance with law, the assessment would be illegal and without jurisdiction. The notice should specify the correct assessment year and should be issued to the particular assessee" 7.2 The next decision relied upon by the assessee is that of Tribunal, Allahabad, in the case of Prakash Spun Pipe (supra) in which it has been held that the provisions of Section 292B cannot validate a return which in sum and substance is not in confirmity with the provisions of the Act.

7.3 As far as the decision relied upon by the Additional Standing Counsel are concerned, we are of the opinion that the same are distinguishable on facts and are not applicable to the facts of the case.

7.4 In view of the above discussion, we are of the opinion that a notice required to be served under the provisions of Section 158BC is akin, analogous and within the same parameter, as a notice under Section 148 and, therefore, the grounds on which a notice under Section 148 can be held to be bad in law are sufficient to hold a notice under Section 158BC as bad in law.

8.1 The next question for our decision, as we have already formulated in the beginning of the order, is that can the illegalities pointed out by the assessee render the notice vague/bad in law. To decide this issue first of all we are of the opinion that since the notice under Section 158BC has been held to be akin/analogous to notice under Section 148, requirement of service of notice under Section 158BC, in view of the various decisions relied upon by the assessee and discussed by us (supra) issuance and service of a notice under Section 158BC is not a procedural formality but a substantive requirement to be fulfilled before the AO can proceed to make assessment of the block period or before the assessment proceedings for the block period are set into motion and consequently, the service of a notice under Section 158BC give rise to jurisdiction to the AO to proceed with the proceedings for assessment of block period.

8.2 Having held so, the next question for our decision is with respect to the validity of the notice but since there is no codified law on the point or circumstances under which a notice could be held to be invalid, we are of the opinion that for deciding the issue relating to the validity of the notice, it is necessary to consider the circumstances under which a notice can be termed as invalid or bad in law as per the law laid down in various cases relied upon by the parties and then decide the validity of the impugned notice in the light of preposition of law laid down therein.

9. We have heard the parties in relation to the submissions made for pointing out as to how the notice was illegal/invalid one and as to how it was not illegal/invalid one.

10.1 After considering the facts and circumstances of the case and the rival submissions we are of the opinion that as in the case of initiation of reassessment, the proceedings commence with the issue of notice under Section 148 of the Act as held by the Hon'ble High Court of Allahabad in case of Dr. Onkar Dutt Sharma v. CIT (1967) 65 ITR 359 (All) and the service of the notice is a condition precedent for making a valid assessment, likewise, the proceedings for the assessment for block period commences on the service of notice under Section 158BC and, therefore, the service of "Valid" notice under Section 158BC is a condition precedent for making a valid assessment; meaning thereby that if there is no valid notice, there can be no valid assessment and it is because there is a clear cut distinction between jurisdiction and procedure.

10.2 Further, since the issuance of and service of notice under Section 148 is not a mere procedural requirement but a condition precedent for the validity of reassessment, if in a given case it is established that a notice under Section 148 has not been issued or if issued it is established to be invalid, the subsequent proceedings taken for making assessment would be illegal and void and this view is fully supported by the decision referred to in para 7.1(a) (supra).

11.1 In view of the above discussion we are of the opinion that a notice is said to be illegal/invalid if : (i)(a) it has not been addressed in accordance with the provisions of Section 282. (i)(b) Status of the person has not been mentioned.

(ii) The Hon'ble Bombay High Court in case of CIT v. Naraindas Dwarkadas (1976) 102 ITR 767 (Bom) has held that it is a condition precedent for initiation of reassessment proceedings under Section 147 that a status of a person, to be reassessed or assessed, must be specified, mentioned and clearly stated in the notice itself.

Respectfully following the ratio of this decision, we are of the opinion that it is a condition precedent for initiation of assessment proceedings for block period that the status of the assessee should be clearly stated in the notice under Section 158BC and, therefore, if the status of the person for whom a notice of 158BC is issued, is not clearly mentioned, the notice shall be invalid.

(iii) Similarly, as the Hon'ble Supreme Court has in case of CIT v. Kurban Hussain Ibrahimji Mithiborwala (supra), held that for a notice under Section 148 to be valid, the assessment year for which the assessment should be reopened must be specified clearly, Respectfully, following the ratio of this decision, we hold that for a notice under Section 158BC to be a valid notice, the assessment year covered by the block period, in a given case, must also be specified clearly.

11.2 (a) For deciding the issue relating to the existence of illegalities in notice under attack, first of all we prefer to reproduce the notice, which runs as under :Block Period : The previous years relevant to ten assessment years preceding the P.Y. 1996-97 and includes the period upto the last date of search warrant executed in your case (as defined under Section 158B(a) upto 3.9.96.Income-tax Office : Central Circle - II Kanpur In pursuance of the provisions of Section 158 (sic) of the IT Act, 1961, you are requested to prepare a true and correct return of your total income including the disclosed income in respect of which as individual/HUF/ Firm/Company/AOP/BOI, local authority are assessable for the block period mentioned Section 158B(a) of the IT Act, 1961.

The return should be in the prescribed form and be delivered in this office within 16 days of service of notice, duly verified and signed in accordance with the provision of Section 140 of the IT Act, 1961.

Sd/-(illegible)Seal of the Office of (Dr. Subhash Chandra)Central Circle-11, Kanpur Asstt. CIT Central Circle - II 11.2 (b) If we test the validity of the notice dt. 12th Dec., 1996, (supra) issued in assessee's case, in the light of aforesaid settled principles, it is quite evident that : (i) The notice has not been addressed to the principal officer as required under Section 282 of the Act.

(ii) Status, in which the return of so-called undisclosed income, was required to be furnished has not been mentioned.

(iii) 'Assessment year', i.e., previous years relevant to assessment year falling within the block period, which in a way is an assessment year for the purpose of assessment of the block period, has not been mentioned. On the contrary, the notice specified the 'definition' of the block period, i.e., assessment years this purpose, which could not be equated to the specifying of the specific previous years falling within the block period.

11.3 In view of the abovementioned illegalities in the notice dt.

12th Dec., 1996 claimed by the Revenue to be a notice in terms of provisions of Section 158BC and the decision in case of CIT v. Naraindas Dwarkadas (supra), and in case of CIT v. Kurban Hussain Ibrahim Ji Mithiborwala (supra), and other decisions referred to in para 3.7 of this order, we are of the opinion that the impugned notice is vague and illegal and cannot be said to be a valid notice as required under the provisions of Section 158BC. 11.4 (i) So far as the Revenues's plea that notice under Section 158BC is akin to notice under Section 142(1)(i) is concerned, we are unable to agree with the submission, because, as explained below, not only the purpose and scope of the notice under Sections 142, 142(1)(i) are altogether, different from the purpose and scope of notice under Section 158BC but are limited also.

Firstly, the service of a notice under Section 142(1)(i) is not mandatory rather is optional as there is use of term 'may serve' and not "shall serve" as in the provisions of Section 158BC. Secondly, the notice is meant both for enquiry purpose as well as for furnishing of the return and, Thirdly, the notice under Section 142(1)(i) can be meant for furnishing of the return for the current assessment year alone and not the previous assessment years as in the case of notice under Section 148 or under Section 158BC. (ii) Further, so far as the requirement of addressing the notice as per the terms of Section 282, specifying the status and the "assessment year" and, prerequisite mandatory requirements for a valid notice under Section 142(1)(i) are concerned the same are as are for a notice under Sections 148 and 158BC, and consequently, the Revenues's plea, instead of advancing its interest, goes against it, meaning thereby that if the illegalities referred to for the purpose of notice under Section 148 are found in the notice under Section 142(1)(i) also, then the notice under Section 142(1)(i) shall also be rendered bad in law.

(iii) In view of the above discussions we are of the opinion that a notice under Section 158BC, as far as purpose and scope is concerned is not akin to a notice under Section 142(1)(i) but as far as the prerequisite mandatory requirements, for a notice to be valid, are concerned they are same for both the notices and consequently, even if Revenue's plea that a notice under Section 158BC is akin to a notice under Section 142(1)(i), then also, in view the illegalities pointed out in the forgoing part of the order, the notice under Section 158BC cannot be said to be a valid notice.

11.5 We are, further of the opinion that validity of the notice is not saved by the provisions of Section 292B of the Act because the contents of the notice, as far as sum and substance is concerned, are not in confirmity with the provisions of the Act. This proposition finds support from the Tribunal's order in case of M/s Prakash Spun Pipe (supra) 12. The next question for our decision, after having found the notice under Section 158BC dt. 12th Dec., 1996 a vague and illegal notice, is that can the assessment framed as a result of such notice be quashed.

12.1 The answer to this question is self-evident, since for the assumption of jurisdiction to proceed with the making of an assessment for block period, service of a valid notice in terms of provisions of Section 158BC is a prerequisite mandatory requirement, meaning thereby that the AO cannot have jurisdiction to make an assessment for block period if there is no service of a notice under Section 158BC or if the notice so served is found to be bad in law or invalid or vague. Consequently, the assessment framed under any of these conditions shall be bad in law and void ab initio for want of jurisdiction.

12.2 So far as present case is concerned, since we have already held the notice, claimed to be a notice in terms of Section 158BC by the Revenue was bad in law and vague, the assessment framed in consequence upon the assumption of jurisdiction on the basis of such notice is also bad in law and void ab initio and we hold so. The AO, however, can proceed with the proceedings from the state of requirement of service of notice under Section 158BC, if the law so permits." 14. (ii) The aforesaid decision in case of Monga Metal (P) Ltd. (supra) has been followed by the Tribunal, Allahabad Bench in case of V.V.S.Alloys Ltd. (supra), and also in case of Verma Roadways (supra).

15.1 So far as the facts and circumstances of the case before us are concerned it is now quite evident that the so-called notice under Section 158BC of the Act neither specifies the correct assessment year, i.e., the block period; for which one can be said to have information for disclosing the undisclosed income nor the notice has been addressed and served properly as per requirement of law on this point. Meaning thereby that the notice in question does not fulfill the mandatory requirements of law and therefore, respectfully following the aforesaid decisions and for the reasons stated in case of Monga Metal Ltd. (supra), we hold the notice dt. 5th Dec., 1995 claimed to have been issued by the Revenue as a notice under Section 158BC of the Act, is bad in law and vague. Consequently, the block assessment framed in consequence of proceedings initiated by way of such notice and completed on 27th Nov., 1996 is also held to be bad in law and void ab initio. The AO, however, can proceed afresh from the stage of requirement of issue and service of a notice under Section 158BC, if the law so permits.

16. So far as Revenue's plea that the notice is saved by the provisions of Section 292B of the Act, we are of the opinion that it is not so because, in our opinion the notice in question could be said to be in conformity with sum and substance of the Act if it conforms to the mandatory requirements of law such as specification of correct assessment year, issuance of the notice and service thereof in accordance with provisions of law. Nothing else can be said to be the requirements of this notice and consequently, if the aforesaid requirements of law are not fulfilled then such a notice cannot be said to be in conformity with the sum and substance of the Act and consequently, the Revenue's plea is not tenable.

17. The assessee's counsel has further challenged the validity of the jurisdiction of the AO to complete the block assessment on the ground that the so-called notice under Section 158BC of the Act, was not served on the proper person. According to him the advocate, on whom the notice had been served was neither the assessee's principal officer nor was controlling the affairs of the assessee-company.

The additional standing counsel on the other hand has claimed the service of the notice on the proper person.

18. After careful consideration of the facts and circumstances as well as the provisions of Section 282(2)(b) read with Section 2(35) we are of the opinion that the Revenue having failed to produce any evidence in support of his claim that the notice was served on the proper person, we are of the opinion that the notice had not been served in accordance with and on the proper person. Consequently, the proceedings under Section 158BC as well as the consequential block assessment have to be declared bad in law and void ab initio. We do so. Our decision is supported by the decision of the Tribunal, Delhi Bench 'E', in case of Kanhya Lal Surinder Kumar v. AO (ITA No. 2986/Del/1996 for the asst.

yr. 1991-92 dt. 31 May, 1999) (2001) 72 TTJ (Del) 787 : (2000) 73 ITD 22 (Del).

18.1 The facts in the aforesaid case were that the partnership firm M/s Kanhaya Lal Surinder Kumar was constituted by two partners namely, Sh.

Kanhya Lal and his son Sh. Davinder Singh. The Partnership was dissolved w.e.f. 1st April, 1991, and the intimation of dissolution along with dissolution deed dt. 15th April, 1991, was furnished with the AO on 22nd April, 1991.

When the partner--Sh. Davinder Singh received notices under Section 142(1) and 143(2) for asst. yr. 1991-92 the assessee objected to the validity of the notices on the ground that the return of income for the asst. yr. 1991-92 was furnished on 31st July, 1991 and intimation under Section 143(1)(a) was received on 1st Oct., 1991 so the notice under Section 143(2) could be issued only before 31st March, 1993 and not after that. The AO however, claimed that the notices under Section 143(2) and 143(1) were in consequence upon the initiation of proceedings under Section 147 by way of the notice under Section 148, which was dt. 9th March, 1993 and was found to have been served on one Sh. Rajinder Singh, who was son of partner Sh. Kanhaya Lal. The assessee challenged the validity of service of notice under Section 148 and consequential assessment on the ground that Sh. Rajinder Kumar was neither the partner of assessees-firm nor the employee and also was not authorised to receive the notice.

On the facts and circumstances the Hon'ble Tribunal, on appeal by the assessee, quashed the proceedings under Section 147 as well as, the consequential, assessment by observing as under : "Sections 282 to 284 of the Act prescribe a procedure for service of notice in given circumstances. While Section 282 of the Act relates to service of notice when family is disrupted or firm, etc., is dissolved, Section 284 of the Act on the other hand, prescribes procedure of service of notice in the case of discontinued business.

These sections, viz., 282 and 283 read as under : "282. Service of notice generally--(1) A notice or requisition under this Act may be served on the person under the CPC, 1908 (5 of 1908).

(a) in the case of a firm or an HUF, to any member of the firm or to the manager or any adult member of the family; (b) in the case of a local authority or company, to the principal officer thereof; (c) in the case of any other association or BOI, to the principal officer or any member thereof; (d) in the case of any other person (not being an individual), to the person who managers or controls his affairs.

283. Service of notice when family is disrupted of firm, etc., is dissolved--(1) After a finding of total partition has been recorded by the AO under Section 171 in respect of any Hindu family, notices under this Act in respect of the income of the Hindu family shall be served on the person who was the last manager of the Hindu family, or, if such person is dead, then on all adults who were members of the Hindu family immediately before the partition.

(2) Where a firm or other AOP is dissolved, notices under this Act in respect of the income of the firm or association may be served on any person who was a partner (not being a minor) or member of the association, as the case may be, immediately before its dissolution." As per above, Section 282 of the Act recognizes two modes of services of notice, one by post and the other as if it were a summons issued by a Court under the CPC, 1908 (5 of 1908). The expression 'service' generally connotes formal communication to a party to whom notice is sent. Accordingly, notice sent by post is to be by registered post so that the communication is given personally to the party to whom notice is sent. As per Section 27 of General Clauses Act, 1897, where the notice is properly addressed, prepaying and posted by registered post, the same would be deemed to have been served on the party. As to the second mode of service, it is to be as per procedure laid down in respect of the summons issued by a Court under the CPC 1908 (5 of 1908). Reading all the provisions of Order 5, Rules 9, 12 and 20 of the CPC, 1908, makes it clear that ordinarily the service has to be effected on the person concerned personally. Whereas Rule 9 makes a mention by a summons to be sent by post, as per Rule 12 wherever it is practicable services is to be made on the party in person unless he had an agent empowered to accept service in which case service on such agent would be sufficient. Rule 17 speaks of the procedure when defendant refuses to accept the service or cannot be found. Rule 19 lays down the procedure for examination of serving officer.

5. The expression generally used in the title of the section read with the expression 'may' in Sub-section (1) of Section 282 of the Act would show that modes as prescribed are not exhaustive. As held by the Hon'ble Gujarat High Court in the case of CIT v. Bhanji Kanji's Shop (1968) 68 ITR 416 (Guj), "It is permissible to have a notice sent in a way not mentioned in Section 63(1) of 1922 Act (corresponding to Section 282 of the IT Act, 1961)." It has also been so held by their Lordships of Bombay High Court in the case of Ramnivas Hanumanbux Somani v. S. Venkataraman, ITO and Anr. (1959) 37 ITR 329 (Bom). The main purpose is effective communication to the party to whom a notice has been sent so as to afford him an opportunity of being heard in order to avoid any injustice being done. The service is to be an effective one. Mere knowledge of the notice cannot be equated to the service. This is as held by their Lordships of Jammu & Kashmir High Court in the case of B. Johar Forest Works v. CIT (1977) 107 ITR 409 (J&K). Thus, it has to be shown that the service of the notice was on the party either on himself in person or his authorised agent. The mere fact that in earlier occasions the notice has been received by person unconnected with the assessee would not make the notice valid otherwise. These are specific requirements which have to be met before the valid proceedings can be taken up against the assessee. In the case of the assessee, the notice has been served subsequent to the dissolution of the firm. There are separate provisions relating to the dissolution of firm as given in Section 28 of the Act mentioned earlier.

6. On perusing the provisions of Sections 282 and 283 of the Act, it would be clear that while in the case of Section 282 of the Act, the party on whom notices are to be served is either any member of the firm or the manager, in case of dissolution of firm, the term used is 'partner' (not being a minor). Apparently, in case of dissolved firm, it is the partner, who alone can effectively represent against any action contemplated by the Department. Coming to the assessee's case, we find that while properly addressing the notice, it has been mentioned that the same is to be through Sh. Kanhaiya Lal and Sh.

Davinder Singh. It is undisputed that notice has been served on Rajinder Singh, who was neither a partner of the dissolved firm nor was a member in the aforesaid firm. Nowhere it has been shown that he acted as an agent of the dissolved form. It would be relevant to mention that the assessee also did not respond to the aforesaid notice. It was only in response to notices issued under Section 142 of the Act, served on Sh. Davinder Singh that the assessee asked for inspection of the records and raised an objection in regard to the validity of that proceedings under Section 147. In view of the facts and the legal position, we are of the considered view that as notice under Section 148 of the Act was not served on the assessee, the proceedings under Section 147 cannot be held to be validly initiated. Therefore they are quashed." 19. In view of above discussion, we are of the opinion that the service of the notice under Section 158BC was not proper and in accordance with law. Consequently, the proceedings under Section 158BC and consequential block assessment were bad in law and are quashed.

20. Other legal issues raised by the assessee's counsel against consideration of share capital, share application money, and cash credits as undisclosed income were that : (i) So far as 'Share capital' and 'Share application money' is concerned, the same cannot be considered as assessee's income or undisclosed income and for this purpose, he relied on the decision of Hon'ble Supreme Court in case of CIT v. Stellar Investment Ltd., Civil appeal No. 7968 of 1996 (432440) dt. 20th July, 2000-- copy placed on record.

(ii) The counsel further submitted that all the receipts relating to 'Share capital', 'Share application money' and 'Cash credits' having been recorded in the regular books of account and there being no business during the period relevant for asst. yr. 1993-94, the same could not be treated as appellant's income and for this purpose has relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Bharat Engineering & Construction Co. (1972) 83 ITR 187 (SC), in the case of CIT v. Smt. P.K. Noorjahan and the decision reported as CIT v. Smt. P.K. Noorjehan (1980) 123 ITR 3 (Ker), the counsel further submitted that assessment for 1994-95 having been completed under Section 143(3) on 25th Jan., 1995, after detailed investigation regarding genuineness of 'Share Capital', 'share application money' and 'cash credits' as is evident from the observations of the AO in para 2 at p. 1 of the assessment order for block period which reads as "various details/explanations were called for during the course of assessment proceedings which have been filed by the assessee and are placed on record", the same could not be treated as appellant's income for the purpose of income-tax or undisclosed income for the purpose of Chapter XIV-B of the Act--copy of assessment order for the asst. yr. 1994-95 placed at pp. 44 and 45 of the Vol. 1 of paper book filed by the assessee (hereinafter referred to as 'paper book'). In support of having furnished all the necessary details in this respect, the counsel referred to page Nos. 23 to 39 and 43, of Vol. 1 of the paper book which are such as balance sheet, confirmations, copies of share application money, assessment orders, etc., of the shareholders/creditors and were filed as per appellant's letter dt.

7th Jan., 1995 (page No. 43 of the paper book).

Further submitted that the period for furnishing return of income for asst. yr. 1995-96 having not been expired by the date of search (due date for furnishing the return of income was 31st Dec., 1995 and the date of search is 9th Nov., 1995) and the 'share capital', 'share application money' and 'cash credits' received during that period having been recorded in the regular books of account and the details furnished along with the return furnished before due date thereafter and the previous year relevant to asst. yr. 1996-97 also having not expired by the date of search and all receipts on account of share application money/cash credits received during the period 1st April, 1995 to 9th Nov., 1995 having been recorded in the books of account before the date of search (found during the course of search) the AO was not justified or authorised : (a) In making roving enquiries for investigating the genuineness of the 'share capital', 'share application money' and 'cash credits' which had already been investigated and accepted during the regular assessment proceedings for the asst. yr. 1994-95.

(b) 'The share capital', 'share application money' and 'cash credits' have been duly recorded in the books of account and had already been disclosed cannot be subject-matter of undisclosed income for the purpose of Chapter XIV-B of the Act. Reference in this respect was made to Section 158B(b) of the Act.

(c) That the AO had considered the 'share capital', 'share application money' and 'unsecured loans' as undisclosed income without there being any iota of undisclosed income in the documents found and seized from the premises of the appellant and its directors and, therefore, it is illegal and bad in law based on conjectures and surmises.

(d) That none of the documents found and seized from the appellant and its director's premises contain any transaction or detail which was not found recorded in the regular books of account and, therefore, there was neither any reason for there being any undisclosed income nor the AO has determined on the basis of aforesaid documents; and, therefore, any undisclosed income determined on the basis of documents not found and seized from the appellant's or its director's premises without complying with the requirements of Section 158BD of the Act, is bad in law.

(e) That the documents and income-tax files relating to various individuals, who had contributed towards appellant's share capital or had advanced loans by way of account payee crossed cheques were found and seized from the premises of M/s Jalan Enterprises with which the appellant or its directors had no connection whatsoever and, therefore, even the presumption under Section 132(4) of the Act could not be said to be available with the Revenue so as to attribute the same to be relating to the appellant. In that case the presumption available with the Revenue was only to make M/s Jalan Enterprises responsible to explain any enquiry relating to those files.

(f) That the aforesaid income-tax files could not be a material relevant even for invoking the provisions of Section 158BD of the Act because it was not the case of assessee having made any investment or entered in any transaction with those persons. The position was reverse.

(g) Referring to para 4 at p. 144 of the paper book (page Nos. 143 to 146 is the copy of show-cause notice issued by the AO), the counsel submitted that the AO had clearly concluded that he had found "from the papers found during the search that 'modus operandi of the Jalan group' is to introduce their own unaccounted money as share capital of the appellant-company, allegedly subscribed by various persons by opening bogus income-tax files in the name of these persons" and therefore, the learned counsel submitted that what the AO was asking the assessee to explain was to explain the source of investment made by those persons or by Jalan group or the source of availability of funds with those persons for investing with the appellant and not the source of credits in appellant's books of account and since the appellant had not made any investment with any of those persons, it was not legal on the part of the AO to consider the credits appearing in appellant's books of account as undisclosed income--in spite of the fact that the appellant in all fairness had furnished all details and evidences for the genuineness of all the credited amounts.

(h) That the appellant having furnished confirmation/affidavits from all shareholders and creditors, copies of their income-tax assessment orders and copy of share allotment applications, the appellant had discharged the onus put on it by Section 68 of the Act and for this purpose relied on the decision of the Tribunal reported as Rishi Electronics Ltd. v. Asstt. CIT (1995) 53 ITD 10 (Del).

(i) Supporting his stand, the counsel submitted that even otherwise the AO was not justified in considering the investment by all the companies as undisclosed income because he himself had preferred to make verification with respect to the share capital/share application money/cash credits of a few companies and not all. The counsel further submitted that the appellant had submitted, vide letters dt. 22nd July, 1996, 9th Aug., 1996, 19th Aug., 1996, 2nd Sept., 1996 and 11th Sept., 1996 copies placed at page Nos. 184 to 218 of the paper book, had filed the affidavits in case of 14 companies, documentary evidence in case of 28 companies confirming that all these companies were available at the given address (out of companies whose availability at the given address was doubted by the AO) and, therefore, there was no question of non-availability of those companies at the given addresses he, therefore, submitted there was no question of considering any company as bogus. The learned counsel further submitted that since all the companies were registered with the Registrar of Companies, the AO was specifically requested to make necessary enquiries with respect to genuineness of those companies from his office but failed to do so. According to him, the AO, without making enquiries from the Registrar of Companies and in view of the evidence furnished by the appellant, was not justified to term those companies as bogus and consequently considering their investments with the appellant as appellant's undisclosed income.

(j) In support of aforesaid submissions, the assessee's counsel had relied on the decisions in following cases : (i) Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai) (v) Decision of Tribunal Pune Bench--In case of Sou. Vidya Aladanlal Malani v. Asstt. CIT in ITA No. SS3/Pn/1997 for asst. yrs. 1986-87 to 1996-97 dt. 14th Sept., 1999. (copy placed on record) [reported at (2000) 69 TTJ (Pune) 456--Ed.]CIT v. Sun Engineering Works (P) Ltd. (xi) CIT v. Stellar Investments Ltd's case decided by Hon'ble Supreme Court on 20th July, 2000 in Revenue's Civil appeal No. 7968 of 1996--copy on record (supra).CIT v. Orissa Corporation (P) Ltd. 20.1 Concluding the submissions, the learned counsel summed up the submissions as under : (a) That the action of the AO in considering the share capital/share application money of Rs. 24,32,000 for the asst. yr. 1993-94, Rs. 24,93,000 (12,60,000 + 12,33,000) for the asst. yr. 1994-95 and Rs. 46,94,000 (46,50,000 + 44,000) for the asst. yr. 1995-96 and Rs. 51,50,000 for the asst. yr. 1996-97 as appellant's undisclosed income is illegal and bad in law, in view of the decision of Hon'ble Supreme Court in the case of Stellar Investment Ltd. (Copy of which has been filed); (b) That action of the AO in considering the cash credits of Rs. 2,13,000 for the asst. yr. 1993-94, of Rs. 11,83,000 for the asst.

yr. 1994-95 and of Rs. 5,11,000 for the asst. yr. 1995-96 is also illegal and bad in law, in view of the various decisions recorded in para 20(J) above; (c) That, when business had not commenced, the presumption for income having accrued cannot be raised and, therefore, the consideration of cash credit of Rs. 2,13,000 and share capital/share application money of Rs. 24,32,000 received during the period relevant to the asst. yr. 1993-94 as assessee's undisclosed income is unjustified and bad in law because of the decision of the Hon'ble Supreme Court in the case of Bharat Engineering (supra) and the case reported as CIT v. Daulatram Rawatmull (1973) 87 ITR 349 (SC).

21. The additional standing counsel on the other hand, in addition to heavily relying on the block assessment order, pleaded that the Supreme Court decision in case of Stellar Investment Ltd. (supra) will not apply because the decision of the High Court in this vary case and reported as (1991) 192 ITR 287 (Del) (supra) was overruled by the Full Bench Decision of Delhi High Court itself in case of CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del)(FB) and, therefore, the decision in case of Stellar Investment Ltd. (supra) is no more a good law.

According to him, the decision of the Hon'ble Supreme Court affirming the Delhi High Court's decision in case of Stellar Investments Ltd. (supra) has not overruled the decision of the Full Bench of the Delhi High Court in case of Sophia Finance Ltd. (supra) and therefore, the AO was quite justified in making enquiries under Section 68 of the Act. He further submitted that if on investigation, the 'share capital' or the 'share application money' or the 'Cash credits' are found to be bogus, then the AO would be justified in considering the same as undisclosed income even in those cases where the assessments stood already completed. The learned Departmental Representative further, strongly supported the assessment order for block period by submitting that the undisclosed income has been computed on the basis of material found and seized during search. In support of his submissions the learned Departmental Representative relied on decisions reported as K.M.Sadhukhan & Sons (P) Ltd. v. CIT (1999) 239 ITR 77 (Cal), and Oceanic Products Exporting Co. v. CIT (2000) 241 ITR 497 (Cal). In support of his further submissions that the confirmation alone, furnished by the appellant without establishing the identity of various shareholders and cash credits, was not sufficient for discharging the onus put on the assessee under Section 68 of the Act, the learned Departmental Representative further submitted that assessments under Section 143(1) in case of various persons who had invested the money with the appellant in the form of share capital/share application money or loan were no conclusive evidence for their capacity and those assessments could also be reopened. The learned Departmental Representative relied on the decisions reported as Nanak Chandra Laxman Das v. CIT (1983) 140 ITR 151 (All), Jorawar Singh Baid v. Asstt. CIT (1992) 198 ITR 47 (Cal) and Hotel Amar v. CIT and Ors. (1993) 200 ITR 785 (Ori).

21.1 The learned Departmental Representative after referring to the provisions of Section 158BB submitted that the law has placed emphasis on block period because the reference is to the block period and, therefore, it is not necessary that one should have undisclosed income in each year falling within the block period and for this purpose relied on the decision reported as (1997) 227 ITR 512 (Gau) (supra).

Coming to the consideration of share capital, share application money and unsecured loans/cash credits as the appellant's undisclosed income, the learned Departmental Representative strongly supported the order of the AO on this point and further pleaded that the amounts having been found credited in the appellant's books of account, and assessee having failed to prove the genuineness of the same, the AO was quite justified in invoking the provisions of Section 68 of the Act.

22. In rejoinder the assessee's counsel challenged the scope of block assessment on the ground that the undisclosed income has to be on the basis of books of account/documents/valuables/assets found during the search and which have either not been disclosed in the returns furnished by that time or there is material to show that the same would not have been disclosed had there been no search and since in assessee's case nothing incriminating evidence or valuables or assets, which could be said to have not been disclosed or would not have been disclosed were found, nothing could be considered as assessee's undisclosed income. With regards to the record and material referred to and relied upon by the AO, the counsel submitted that the same was found from the premises of a third party M/s Jalan Enterprises, with which the appellant had no connection whatsoever and, therefore, computation of undisclosed income on the basis of that material was illegal and bad in law. Counsel further submitted that the cash found during the search had been duly accepted as explained. He/therefore, relied on decisions reported as (2000) 244 ITR 333 (Guj) (supra) and (2000) 245 ITR 488 (Guj) (supra).

22.1. When the counsel for the Revenue was asked to refer to the evidence or documents found and seized from the appellant's premises during the search and considered by the AO as evidence for computing assessee's undisclosed income, the counsel just referred to para 12 of the assessment order for block period. On verification of the records referred to by the AO in para 12 of the assessment order for block period it was found that the same were the income-tax files of shareholders/creditors found and seized from the premises of M/s Jalan Enterprises with which the appellant had nothing to do with.

23. We have considered the rival submissions, facts and circumstances of the case, provisions of Chapter XIV-B of the Act and various decisions relied upon by the parties and after careful consideration of the same, we are of the opinion that we should first decide the dispute regarding the survival of the decision of Hon'ble Delhi High Court in the case of CIT v. Stellar Investment Ltd. (supra).

23.1 The facts of this case, as have been noticed from the decision of the Hon'ble High Court reported as (1991) 192 ITR 287 (Del) (supra) and also the decision of Hon'ble Supreme Court in this case were that the CIT had filed a Reference Petition under Section 256(2) of the IT Act, 1961, (hereinafter referred to as "the Act"), before the Hon'ble High Court of Delhi requesting the Hon'ble High Court to direct the Tribunal to make a statement of the case and refer the following question for the opinion of the Hon'ble High Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in holding that the provisions of Section 263 have plot been validly invoked in this case by ignoring the material fact that the AO had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives ?" 23.2 The Hon'ble High Court rejected the CIT's petition holding that "no question of law arises" after observing as under : "In the present case, the subscribed capital of the assessee had been increased. The ITO assessed the company and accepted the increase in the subscribed capital. The CIT came to the conclusion that the AO did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company.

The CIT further held that the AO did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment.

The Tribunal reversed this decision for reasons which we need not go into.

It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself." 23.3 From the decision of the Hon'ble High Court what is evident is that the findings of the Tribunal for setting aside the order under Section 263 of the Act were found to be the "findings of fact" and that is why the petition under Section 256(2) of the Act was rejected. But so far as the observations that "It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself." are concerned, we are of the opinion that the same are in the nature of 'order on appreciation on facts' and that is why the Hon'ble Court rejected the petition under Section 256(2) of the Act. It seems that the Revenue might have pleaded that some of the shareholders may be bogus, i.e., might have pleaded that though the concerned shareholders existed as a person but the share capital or share application money might have been contributed by someone else on their behalf. If these observations are not considered as an 'order', then the same can be either an 'obiter dicta' or mere 'observations'.

23.4 Let us now consider the decision in the case of CIT v. Sophia Finance Ltd. (supra). The CIT had filed a reference petition under Section 256(1) before the Tribunal seeking the reference of the following question for the opinion of the Hon'ble Delhi High Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the CIT under Section 263 of the IT Act by holding that the assessment order of the company cannot be said to be erroneous and hence prejudicial to the Revenue ?" 23.5 The Tribunal rejected the application vide order dt. 26th April, 1991 by holding as under : "We find that the question as projected by the Revenue is not a referable question of law because it does not require opinion on any point of law decided by the Tribunal." 23.6 Though the decision does not refer as to what was the question sought to be got referred (in the petition filed by the CIT under Section 256(2) of the Act before the Hon'ble High Court), but since it is well-settled that the question in petition under Section 256(2) has to be the same question which was sought to be referred by way of petition under Section 256(1) of the Act, it has to be taken that the question stated in petition under Section 256(2) was the same as was before the Tribunal (in CIT's petition under Section 256(1) of the Act (supra).

23.7 On the aforesaid facts, the Hon'ble Full Bench of the High Court of Delhi, at pp. 109 and 110 held as under : "In our opinion, a question of law does arise and we, therefore, direct the Tribunal to state the case and refer the following reframed question to the Court : "Was the Tribunal right in setting aside the order of the CIT under Section 263 of the IT Act and in holding that the assessment order of the assessee' could not be said to be erroneous or prejudicial to the Revenue ?" 23.8 The Hon'ble High Court before arriving at the findings (supra) and after considering the nature of enquiries liable to be conducted for the purpose of Section 68 of the Act, at pp. 104 and 105, observed as under : "If the amount credited is a capital receipt, then it cannot be taxed but it is for the ITO to be satisfied that the true nature of the receipt is that of capital. Merely because the company chooses to show the receipt of the money as capital, it does not preclude the ITO from going into the question whether this is actually so.

Section 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The ITO would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do, in fact, exist or not. If the shareholders exist then, possibly, no further enquiry need be made.

But if the ITO finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words "may be charged" (emphasis, italicised in print, added) in Section 68 clearly indicates that the ITO would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee.

It is neither necessary nor desirable to give examples to indicate under what circumstances Section 68 of the Act can or cannot be invoked. What, is clear however is that Section 68 clearly permits an ITO to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the ITO. In the case of CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 (Del), the ITO had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the ITO cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of CIT v. Stellar Investment Ltd. (supra), are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory, then the provisions of Section 68 may be invoked. In the latter case Section 68, being a substantive section, empowers the ITO to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee".

23.9 The Hon'ble High Court after having observed as above, went on to consider the decision of Delhi High Court itself in the case of CIT v.Stellar Investment Ltd. (supra) and at p. 105 observed as under : "In the case of CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 (Del), the ITO had accepted the increased subscribed share capital.

Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the ITO cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of CIT v. Stellar Investment Ltd. (supra), are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory then the provisions of Section 68 may be invoked. In the latter case Section 68, being a substantive section, empowers the ITO to treat such a sum as income of the assesses which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee".

23.10 (a) From the aforesaid observations of the Hon'ble High Court and the context in which the observations seem to have been made what we are, once again, able to understand is that these observations also could be taken as either an 'order' or 'obiter dicta' or 'simply the observations' and if that is the case then in all eventualities the order in the case of Stellar Investment Ltd. (supra) could be taken as having been overruled by the Full Bench but the Hon'ble Court has not said so. Consequently, what transpires from both these decisions is that the relevant part of order in case of Steller Investments Ltd. seems to be "an order on appreciation of facts" whereas, the relevant part of order in case of Sophia Finance Ltd. (supra) seems to be an order "on appreciation of law", but since the Hon'ble Supreme Court has affirmed the decision of High Court in case of Steller Investments Ltd., it has to be accepted that the relevant part of that order was an order on appreciation of facts. In case this fact is not accepted then the relevant part of these orders was neither 'order' nor 'obiter dicta' and if that is the case, then it can easily be said that these were merely 'observations' which have no effect on the issue relating to law and it is so because in both the cases the issue before the Hon'ble High Court was 'as to whether the order of the Tribunal gave rise to a question of law or not'. In other words, the question for the consideration of the Hon'ble High Court in both the cases was that 'where the Tribunal has set aside the order of the CIT passed under Section 263 of the Act setting aside the assessment order on the ground that the AO has not conducted proper enquiries with regard to the genuineness of the share capital/share application money credited in the books of concerned public limited company, does a question of law arise out of the order of the Tribunal ?, and, therefore, the observations made by the Hon'ble Court for finding out the answer to this question, in our opinion, can be taken either 'an order' or 'obiter dicta' or 'simply observations with regard to the facts.' (b) However, we are of the opinion that the Departmental Representative's efforts to distinguish the decision of Hon'ble Supreme Court in case of Stellar Investment Ltd. (supra) on the plea that in that decision the CIT had not referred to Section 68 of the Act and, therefore, the decision of Hon'ble Supreme Court was only on the facts of the case and, therefore, decision of Full Bench of Delhi High Court in case of Sophia Finance Ltd. (supra) shall survive, we are unable to accept this interpretation of the three decisions because, in case of Stellar Investment Ltd., the conclusion of the CIT that "the AO did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The CIT further held that the AO did not make enquiries with regard to the genuineness of the subscribers of the share capital", shows that the reason for setting aside the assessment order was the failure of the AO to carry out detailed investigations with regard to the genuineness of the 'share capital' and the 'subscribers' of the 'share capital', which in other words, was to investigate or make inquiries with respect to the genuineness of the credits found recorded in the books of M/s Stellar Investment Ltd. under the head 'share capital'--an inquiry or investigation which could be made/conducted by the AO only in exercise of the powers vested in him by virtue of Section 68 of the Act and not otherwise. Simply, because, the CIT has not mentioned the Section 68 while concluding that the inquiry or the investigation for the purpose of genuineness of the 'share capital' and the 'subscribers' cannot be interpreted as to say that Section 68 was not involved in that case.

(c) In view of above facts and circumstances, conclusion of the CIT and the provisions of the IT Act, 1961 we are clear in our mind that what the CIT was referring to was the failure of the AO, to carry on his functions for exercising his powers under Section 68 of the Act and nothing else. Consequently, it is the decision in case of CIT v.Stellar Investments Ltd. (supra), since affirmed by the Hon'ble Supreme Court and not the decision in case of CIT v. Sophia Finance Ltd. (supra).

23.11 Without prejudice to the above, we are of the opinion that whatever the nature of the observations made in both these decisions may be the law of jurisprudence requires that the decision in the case of CIT v. Stellar Investment Ltd. (supra) was, even if not stated by the High Court in case of CIT v. Sophia Finance Ltd. (supra) in specific terms, overruled on law point but since the same has since been affirmed by the Hon'ble Supreme Court, it has to be taken that the concerned observations made in the case of Stellar Investment Ltd.--irrespective of the fact as to whether those were relating to the facts or to law and also irrespective of the fact that the same were overruled by the decision of Full Bench in the case of Sophia Finance Ltd. (supra) and also irrespective of the fact as to whether those observations can be taken as 'an order' or 'an obiter dicta' or 'simply observations, may it be with regard to facts or to law', have been revived/confirmed which otherwise means that the observations made in that order to the effect that "It is evident, that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself" have been revived and consequently we are of the opinion that the decision in the case of Stellar Investment Ltd. (supra) still survives, though, in our opinion subject to the fact that it cannot be applied blindly or without making inquiries, though, of course, to the limited extent (as discussed hereunder) under Section 68 of the Act : (i) In view of the above we are of the opinion that the decision in case of M/s Stellar Investments Ltd. still survives but to the extent that it applies to a case of a public limited company only and still not blindly because, in our opinion, in that case also the company has to comply with the requirements of Section 68 to the following extent : (a) That the credits found recorded in its books of account, in fact, were on account of 'share capital' or 'share application money'; and (b) That the same had been received through proper channels, i.e., along with a proper 'share allotment application' or 'call notice', as the case may be.

23.12 (i) It is so because in case of public limited company, the share capital is always sought to be raised by way of a public issue for which proper advertisement including the details of the risk factors, etc.--as prescribed under the Companies Act have to be issued through various advertising channels and any individual or HUF or co-operative society or a company from anywhere in India or abroad subject to conditions thereof can subscribe to the issue by remitting the share application money along with the properly filled in and signed application for allotment of a particular number of shares. Since the application can be made by any person and from anywhere in India or abroad, the public limited company raising the share capital cannot be presumed to know the genuineness of the person or even the existence of the applicant--a fact which neither limited company is required to verify nor has power to verify. The obligation of the public company raising the share capital, in our opinion, is simply to allot the shares as per allotment scheme and issue the share certificate in the name of concerned applicant and remit the same at the address listed in the application for allotment of shares.

(ii) It was probably in the context of this factual handicap of public limited company and circumstances of that case (the case of Stellar Investments Ltd. happened to be a case of public limited company) that the Hon'ble Delhi High Court had in the case of Stellar Investment Ltd. (supra) observed that "It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself." (iii) But in the case of a private limited company, the facts are quire different because a private limited company is a closely-held company.

The founders or the functionaries or persons in control of the affairs of such company are bound to be in the knowledge of the existence/genuineness of the persons whom they want to be shareholders of such company and, therefore, they cannot claim exemption as may be available to a public limited company. Consequently, we are of the opinion that in the case of privated limited company the decision in the case of Stellar Investment Co. can be applied only if it succeeds in establishing : (a) the existence/identity of the applicant paying share application money; In other words, in case of a privated limited company, the company has to discharge the onus put under Section 68 of the Act, i.e., a privated limited company has to prove all the three aforesaid ingredients before pleading that the said share application money cannot be considered as income under Section 68 of the Act.

(iv) So far as the present case is concerned, we are, therefore, of the opinion that the same being of a public limited company" that the provisions of Section 263 have not been validly invoked in this case by ignoring the material fact that the AO had failed to discharge his dues regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives? "it is fully covered by the decision of Hon'ble Supreme Court in the case of Stellar Investment Ltd. (supra) and consequently the amounts found credited under the heads 'share capital' or 'share application money' in the appellant's regular books of account cannot be added to appellant's income for the purpose of IT Act. Consequently, there is no question of considering these credits as appellant's undisclosed income under Chapter XIV-B of the Act.

23.13 (i) Without prejudice to the above, even if it is assumed that the decision in the case of Stellar Investment Ltd. has been affirmed by the Hon'ble Supreme Court only in the facts and circumstances of that case and reference to Section 68 was not made, then also, we are of the opinion that the ratio of that decision still holds good.

(ii) The nature of onus put on an assessee, in whose books of account the credits have been recorded differs from case to case and with the facts and circumstances of every case. The proposition of law held so far that such assessee can discharge his onus by satisfying all the three ingredients, namely, (i) Identity of the creditor, (ii) capacity of the creditor and, (iii) genuineness of the transaction is not uniformly or universally applicable as will be evident from the following example : If an assessee has procured loans through the efforts of a broker who in turn has arranged the loans from his various customers, then the onus on the assessee to prove the genuineness of the loans appearing in the name of such customers of the broker will be (i) to establish the identity of the broker and (ii) the genuineness of the transaction. In other words such an assessee is not obliged to establish either the identity of the customers or capacity of the customers Similarly, if the assessee happens to be a public limited company which has raised 'share capital' by way of a public issue then the onus to be discharged under Section 68 of the Act is only to the extent to the establishing the factum of having received the 'share allotment money' or 'call money', as the case may be, as a result of proper issue of public issue and through proper channels, i.e., through proper applications for allotment of shares or the call notices, as the case may be, however, it is not so if the company happens to be a private limited company because in that case the founders or the persons in control of the affairs of the company are in the complete knowledge of the persons whom they prefer to make shareholders. In other words it is the only nature of inquiry to be made by the AO and not his powers under Section 68 of the Act, which differs from case to case.

23.14 In other words, if the public limited company is able to give a satisfactory explanation to establish that the 'share capital' or the 'share application money' had been received through proper channel, i.e., through application for allotment of shares or through call notice, as the case may be, then irrespective of the fact that the share capital or share application money might have been contributed by someone else (on behalf of the concerned subscriber) the amount cannot be considered as assessee's income under Section 68 of the Act.

23.15 In view of the above, we are of the opinion that whether the decision in the case of Stellar Investment Ltd. (supra) stands overruled by the Full Bench decision of the Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. (supra) or survives as a result of decision of the Hon'ble Supreme Court (supra), the law, so far as 'share capital' or 'share application money' in the case of a public limited company is concerned, is that the such company has to establish that the 'share capital' or the 'share application money' had been received through proper procedure, such as, by way of a share allotment application or by way of a 'call notice' as the case may be and nothing else.

23.16 If we consider the case of the present appellant in the light of the above discussion, we are of the opinion that the appellant having established the existence of the shareholders which were either individual living persons or corporate bodies i.e., companies; by way of ample evidence placed on record as detailed in charts captioned 'List of shareholders--individuals' and 'List of shareholders--Corporate' for the asst. yrs. 1994-95, 1995-96 and 1996-97 and the fact that the 'share application money' was received along with the proper share allotment applications and the appellant's case being that of a public limited company, has discharged the onus placed on it by Section 68 of the Act and since the Revenue has not been able to dispute the genuineness of the documentary evidence already on record with the AO and also having not been able to contradict the submissions made by the counsel for the assessee during the course of hearing before us, we are further of the opinion that the 'share capital' or 'share application money' cannot, in any case, be considered as appellant's income under Section 68 of the Act and that being the case there is no question for considering the same as appellants" undisclosed income for the purpose of Chapter XIV-B of the Act. Simply because addresses of some of the subscribers on 'share allotment applications' differ with the address given in income-tax or that some of the applications were not complete in all respects, Section 68 could not have been invoked.

23.17 Without prejudice to the above, in view of the admitted facts that the appellant had not received any 'share capital' or 'share application money' from any corporate body during the period relevant to the asst. yr. 1993-94 and that the 'share capital'/'share application money' except of Rs. 44,000 from one Mr. Nirendra Jalan C/o Jalan Agencies Ltd., Gorakhpur, from non-corporate persons was received during the periods relevant to the asst. yrs. 1993-94 and 1994-95 and 'share capital' of Rs. 12,60,000 from corporate persons was received during the period relevant to asst. yr. 1994-95 (para 8.5 of this order) and the assessment for the asst. yr. 1994-95 having been completed under Section 143(3) of the Act after making detailed enquiries as to the genuineness of 'share capital', 'share application money', the same have to be taken as having been disclosed and accepted prior to the date of search and, therefore, by virtue of the provisions of Section 15BB(1)(d) of the Act and the various decisions relied upon by the counsel for the assessee--already listed by us, we are of the opinion that the said share capital/share application money amounting to Rs. 12,60,000 and of Rs. 12,33,000 received from corporate bodies and non-corporate persons, respectively, during the periods relevant to asst. yr. 1994-95, cannot be appellant's undisclosed income and, therefore, we delete the same.

For the reasons as stated above we delete the undisclosed income of Rs. 11,83,000 computed by the AO by considering the cash credits to this extent and found credited in appellant's books of account for the asst.

yr. 1994-95 as ungenuine.

23.18 Further, since the previous year relevant to the asst. yr.

1996-97 (which was to end on 31st March, 1997) had also not expired by the date of search which in this case was 9th Nov., 1995 and the 'share capital' and 'share application money' received during the period 1st April, 1995 to the date of search, i.e., 9th Nov., 1995 having been duly recorded in appellant's regular books of account, none of them could be considered as appellant's income by virtue of provisions of Section 158BB(1)(d) of the Act and, therefore, there was no question for considering the 'share capital'/'share application money' amounting to Rs. 51,50,000 received during the period 1st April, 1995 to 9th Nov., 1995 as appellant's undisclosed income for the purpose of Chapter XIV-B of the Act.

23.19 Without prejudice to the above, we are further of the opinion that so far as unsecured loans "arid share capital or share application money received by the appellant during the periods relevant to asst.

yrs. 1993-94 and 1994-95 are concerned, the genuineness of the same having been accepted as a result of the assessment order for asst. yr.

1994-95 having been passed under Section 143(3) of the Act after making detailed enquiries with respect to the genuineness of the credits under all the heads, the share application money of Rs. 12,60,000 received from non-corporate bodies during the periods relevant to the asst. yr.

1994-95 and share capital/share application money received from non-corporate persons during the periods relevant to the asst. yrs.

1993-94 and 1994-95 amounting to Rs. 22,34,000 and Rs. 12,33,000, respectively, and the cash credits/unsecured loans of Rs. 2,13;000 and Rs. 11,83,000 received during the periods relevant to the asst. yrs.

1993-94 and 1994-95 stood accepted as genuine and the AO had no jurisdiction to investigate the genuineness of the same once again for the purpose of Chapter XIV-B of the Act.

23.20 So far as the 'share capital'/'share application money' and cash credits received during the periods relevant to the asst. yr. 1995-96 amounting to Rs. 46,50,000 and of Rs. 44,000 and cash credits of Rs. 5,11,000 are concerned, we are of the opinion that the same having been found recorded in the appellant's books of account before the search and the Revenue having not found any incriminating document during the course of search at appellant's premises or at the premises of appellant's directors, the same, in view of the various decisions wherein it has been held that undisclosed income has to be computed only on the basis of books of account and documents found and seized during the course of search, cannot be considered as the appellant's undisclosed income by virtue of the Section 158BB(1)(d) of the Act.

23.21 In view of the above discussion and the various decisions relied upon by the learned counsel for the assessee as well as the law relating to the concept of 'undisclosed income 'for the purpose of Chapter XIV-B pronounced by various Courts as well as the Tribunal and also the provisions of Section 158BB(1)(d) of the Act, we are of the opinion that the impugned 'share capital', 'share application money' and the 'unsecured loans/cash credits' found credited in the appellant's regular books of account maintained for the periods relevant to the asst. yrs. 1993-94 to 1996-97 (upto. 9th Nov., 1995) cannot be considered as appellant's undisclosed income for the purpose of Chapter XIV-B of the Act and consequently, we direct the exclusion of the same from the appellant's undisclosed income.

24. With regard to the addition in trading account amounting to Rs. 1,28,856 as appellant's undisclosed income, the counsel for the assessee has submitted that the impugned addition in the trading account had been made on the allegation of shortage in raw materials found during the course of search. The counsel for the assessee submitted that the observation of the AO that the raw materials to the extent of shortage were sold by the appellant outside the books of account is not correct. Firstly, because the AO has not brought any evidence on record which may prove the sale of the raw materials outside the books of account and secondly, the counsel submitted that the raw materials used by the appellant were lubricants the appellant was carrying on the business of refining of various types of lubricants; and the net yield of the finished product was 50.35 per cent during financial year 1993-94, 57.85 per cent during the financial year 1994-95 and 52.08 per cent during the financial year 1995-96.

According to the counsel the yield of final product was based on quality of the raw material and the same has not been objected to by the Revenue. Coming to the shortage, the counsel submitted that the raw materials are stored in various tanks and sometimes the raw material flows out of the tank or flows away during various processes of transferring the oils of tankers to the shortage tanks/barrels, etc.

25. The learned Departmental Representative, on the other hand, has relied on the finding of the AO in para 11 of the assessment order for block period where the AO has observed that the assessee has not given satisfactory explanation with regard to the shortage of 21,476 liters.

(valued at Rs. 1,28,856) 26. We have considered the rival submissions and the facts and circumstances of the case and are of the opinion that the shortage in raw material in the appellant's line of business cannot be ruled out.

However, the shortage of 21,476 litres, especially when the appellant is stated to have not explained it satisfactorily, seems to be excessive. We, therefore, restrict the shortage to 10,000 liters which could be allowed to the appellant and consequently, the AO is directed to reduce the undisclosed income to the extent of value of 11,476 litres of raw material.

27. In the result, the appellant's appeal, so far as legal grounds are concerned, is allowed subject, however, to that in case our order on for want of the legality of the notice under Section 158BC and valid service of notice under Section 158BC on the appellant is reversed by the Hon'ble High Court or the Hon'ble Supreme Court, as the case may be, then the amounts found credited in the appellant's books of account under the head 'share capital', 'share application money' and 'unsecured loans'/cash credits during the periods relevant to the asst.

yrs. 1993-94 to 1996-97 (upto 9th Nov., 1995) as detailed in the chart reproduced in para 8.5 of this Order shall stand excluded from the ambit of undisclosed income for the purpose of Chapter XIV-B of the Act and amount equal to the value of 10,000 liters of raw material i.e. Rs. 60,000 shall also stand excluded from the ambit of undisclosed income computed as a result of addition in trading account and in that case assessee's appeal shall be deemed to have been partly allowed.

1. I have gone through the order proposed by my learned Brother but after going through order and discussions with learned Brother I am unable to agree with the conclusion of my learned Brother on the following issues : 2. First issue is whether the notice issued by the AO under Section 158BC is valid.

2.1 Search under Section 132 of the IT Act, was conducted on the premises of the assessee-company on 9th Nov., 1995. A notice under Section 158BC was issued on 5th Dec., 1995 requesting, the assessee-company to file return of income within 16 days of service of notice. Notice was served on 13th Dec., 1995 on an advocate, who has received the notice "for Gorakhpur Petro Oil Ltd." 2.2 It was argued by the assessee's counsel that the notice was issued by the AO requiring the assessee to file return of income under Section 158BC for the period from 1st April, 1985 to 9th Nov., 1995. This notice has been reproduced at p. 11 of the order of my learned Brother.

It was argued by the assessee's counsel that the assessee-company was incorporated only on 3rd March, 1992. The period mentioned in the notice cannot be considered as period falling within block period relevant to the block assessment in appellant's case. The argument of the assessee has been mentioned by my learned Brother in paras 10(1) and 10(2) of the order.

Further argument of assessee's counsel was that the notice was not properly addressed. The learned counsel referred to the provisions of Section 282(2) of the IT Act read with provisions of Section 2(35) of the IT Act. According to the learned counsel of the assessee, notice in the case of a corporate assessee has to be issued to the principal officer and has to be served upon the principal officer as defined under Section 2(35) of the IT Act. Since the notice under Section 158BC was neither addressed to the principal officer nor served on the principal officer and therefore, notice was bad in law. The learned counsel of the assessee also relied on the order dt. 13th June, 1999 in the case of Monga Metal Ltd. (ITA No. 1377/Alld/1997). The learned Department's Representative hereinafter referred to as Department Representative for the sake of convenience, argued that decision of the Tribunal in the case of Monga Metal (Order dt. 13th June, 1999) in ITA No. 1377/Alld/1997) has been challenged in the High Court and the issue is still pending. It is argued by the learned Departmental Representative that when a counsel makes a statement the same has to be taken at its face value. According to the learned Departmental Representative there was no infirmity in notice issued under Section 158BC. The learned Departmental Representative also referred to the provision of Section 292B and argued that even if there may be some defects in the notice, then notice would not be invalid in view of the provision of Section 292B. The learned Departmental Representative referred to the decisions of the High Court in : (ii) Sardar Harvinder Singh Sehgal and Ors. v. Asstt. CIT and Ors.

(1997) 227 ITR 512 (Gau) (iii) The English & Scottish Jt. Co-Operative Wholesale Society Ltd. v. CIT (1945) 13 ITR 295 (Cal) It is also mentioned by the learned Departmental Representative that the AO has mentioned the block period as per provision of Section 158BC in the notice and therefore, there was no invalidity in the notice.

3. I have considered the rival submission, facts of the case and material on records. The copy of the notice has been reproduced at p.

11 of my learned Brother. Under Section 158B(a) the block period has been defined. The block period means the period of previous years preceding the previous year in which search was conducted under Section 132 and includes the previous year in which such search was conducted, the period upto the date of commencement of such search.

3.1 The AO has required the assessee to furnish the return of income under Section 158BC for the block period mentioned in Section 158B(a) of the IT Act. If the assessee was having any doubt about the block period for which return of income was required to be filed under Section 158BC, the assessee could have sought clarification from the AO. But assessee was not having any doubt about the block period and, therefore, assessee filed the return of income under Section 158BC. The assessee-company was incorporated on 3rd March, 1992 then obviously, period prior to 3rd March, 1992 cannot be considered as falling within block period relevant to block assessment even if the AO has mentioned the period as per provision of law. The AO has only used the statutory language mentioned in Section 158B(a). As the assessee was not having any doubt (regarding) block period and in fact the assessee has filed return of income for the block period from asst. yr. 1994-95 to 1996-97. No legal prejudice has been caused to the assessee by the AO by using statutory language in the notice under Section 158BC, therefore, there was no illegality in the notice issued by the AO. The AO as per requirement of the Section 158B(a) has required the assessee-company to file return of income for the block period, therefore, there is no infirmity on this account in the notice issued by the AO.3.2 The AO has mentioned address of the assessee on the notice issued under Section 158BC as under : According to the learned, counsel, the principal officer of the appellant's company should have been mentioned on the notice and since the principal officer of the company was not mentioned in the address as required under Section 282(2) of the IT Act the notice was not valid.

3.3 I do not find any merit in the argument of the asseessee's counsel.

The assessee-company is also a person under the IT Act. Since the AO has addressed the notice to the assessee-company, there is no illegality in the notice, the provision of Section 282(2) are not exhaustive. The provisions of Section 282 have only mentioned a manner in which notice or requisition may be addressed. These are not mandatory provisions. The address mentioned by the AO on the notice is substantially correct and notice cannot be considered invalid merely because words "principal officer" has not been mentioned in the address on the notice. In this connection, I may also refer to the following decision of the High Courts : 4. In the case of CIT v. Anand Co. (1994) 207 ITR 418 (Cal), the Hon'ble Calcutta High Court held as under as per headnotes (A) : "The Revenue authorities must act uninfluenced by procedural technicalities in guarding the public exchequer as well as the taxpayer against undue jeopardy by inflexible interpretation of the procedural laws except where the law puts absolute fetters without leaving any scope for relaxation. It is precisely from that awareness that the provisions of Section 292B of the IT Act, 1961, were introduced and grafted as part of the statute enjoining that procedural rigidity should not stand in the way of substance of the procedure." 4.1 In this case reassessment was completed by AO pursuant to the notice under Section 148 read with Section 147(b). In first appeal, assessee raised objection that notice was not valid as notice did not contain distinguished signature of the ITO. The CIT(A) did not give finding on these issues as the assessment itself was quashed on the ground of want of initial jurisdiction. In second appeal, the Tribunal also held that the notice did not bear authentic signature of the ITO The Hon'ble Calcutta High Court held as under : "Held, that there should not have been a place for a miscellaneous petition under Section 254(2), nor the occasion for the Tribunal to pass an order thereon. The validity of the mode of issue of the notice under Section 148 was not at all the subject-matter of appeal. Even on the merits, the Tribunal had taken an unduly technical view of the matter. What is of the utmost importance was whether the person issuing the notice was identified. It might have been that the ITO by the curved line drawn in the notice only set out his initials and not his full signature. By putting his initials the officer might have left a defect but such defect should not be fatal. The officer was quite identifiable and was, in fact identified by the assessee as is evident from the fact that the assessee in due compliance with the said notice filed its return.

The notice was dt. 12th March, 1984, while the return pursuant thereto was filed on 16th April, 1984. There was no doubt in the assessee's mind as to the nature of the notice or the identity of the officer issuing the notice. In view of a similar curved line appearing in the order sheet the notice under Section 148 could not be said to be illegal." 4.2 In the case of CIT v. R. Girdhar (1984) 145 ITR 246 (Kar) the Hon'ble Karnataka High Court held that the determination of the tax payable in the assessment order is mandatory and non-compliance with the provisions vitiated the assessment order. In this case, reassessment order was passed by the ITO contained only computation of the income; computation of the tax on income was made on a separate sheet of paper which was not signed by the ITO The Hon'ble Karnataka High Court held that as the assessment order was made after the insertion of Section 292B by Taxation Laws (Amendment) Act, 1975, impugned assessment order was in substance in conformity with and according to the provision of the IT Act. Hence, assessment order was not invalid under Section 292B of the IT Act and could not be nullified.

4.3 Similarly the Hon'ble Allahabad High Court in the case of CIT v.Smt. Phoolmati Devi (1983) 145 ITR 266 (All) pointed out that Section 292B might apply to the case where service has already been effected and there has been technical mistakes in the notice.

4.4 In the case of Smt Kaushalya Bai v. CIT (1999) 238 ITR 1008 (MP), the AO issued the notices under Section 148 in the name of person who has expired. All the six notices under Section 148 were received by Sh.

C.B. Tahliyani for the deceased assessee. Smt. Kaushalya Bai wife of deceased filed return of income for all the six years in response to notices under Section 148 of the IT Act. Kaushalya Bai, widow of deceased, participated in reassessment proceeding. In this case, the issue considered by the Hon'ble High Court was whether the Tribunal was justified in holding even with the aid of Section 292B of the IT Act that the reassessment proceedings were valid, when the notice under Section 148 was issued in the name of the dead person and was served upon a person not shown to be authorised on behalf of the legal representative of the assessee. The Hon'ble Madhya Pradesh High Court held as under (as per headnotes) : "That since the widow of the deceased had already participated in the proceedings notwithstanding the fact that notice was issued in the name of the dead person, the defect in the notice stood automatically cured." 4.5 In the case of Ganeshi Lal & Sons and Anr. v. ITO and Ors. (1981) 130 ITR 846 (All) the Hon'ble Allahabad High Court also held that provisions of Section 282 are permissive in nature and not mandatory.

The words used is "may" and not "shall". A notice addressed in firm's name and served on partner is valid.

5. Keeping in view of the above mentioned cases and the facts that the assessee-company has filed return of income without any objection, I am of the opinion that there is no invalidity in the notice issued by the AO in the name of the company. If the AO has not mentioned the "principal officer" in the address mentioned in the notice then notice is not invalid because provisions of Section 282 are not mandatory and exhaustive. The AO has substantially complied with the provisions of law and notice was in substance and effect in conformity with or according to the intent and purpose of the Act which is not invalid under Section 292B of the IT Act, therefore, there is no invalidity in the notice and no law has been violated by the AO even if there was some minor defects in the notice, those defects do not invalidate the notice because of provisions of Section 292B of the IT Act as the assessee has not raised any objection before the AO regarding defects in the notice and so-called defects in the notice has not caused any legal prejudice to assessee who has filed return of income without objection before the AO.6. Second issue is whether the notice was validly served in this connection. The notice under 158BC of the IT Act was issued at the address of the assessee-company. Assessee-company was asked to file the return of income within 16 days of the service of the notice. The notice was served on 13th Dec., 1995 on an advocate who has received the notice, "for Gorakhpur Petro Oils Ltd." The assessee has filed return of income under Section 158BC in response to this notice on 2nd Sept., 1996. The AO has not treated this return of income filed under Section 158BC on 2nd Sept., 1996 as the valid return of income as the said return of income was not filed within the period mentioned in the notice dt. 5th Dec., 1995 under Section 158BC issued to the assessee.

But the assessee has himself admitted in the ground of appeal (No.VIII) that the return of income has been filed by assessee on the prescribed form during the assessment proceedings, which means that the notice was received by the assessee.

6.1 In this connection, I may also refer to the following decisions.

The Bombay High Court considered similar issue in the case of K.C.Tiwari & Sons v. CIT (1962) 46 ITR 236 (Bom). The Hon'ble High Court considered the validity of service of notice on manager of assessee who has no written authority to accept service. The Hon'ble Bombay High Court held as under (as per headnotes) : "The mode of service of notice or requisition provided in Section 63(1) of the IT Act, 1922, is not exhaustive and it is permissible to have the notice effected in a way other than the two modes mentioned in Section 63(1) of the IT Act, 1922, (which is corresponding to Section 282 of the IT Act 1961). Even if there is a procedural irregularity in serving to notice (e.g., serving the notice on a manager who has no written authority to accept service) if the assessee admits that he has received the notice and asks for adjournment, the assessee cannot subsequently be allowed to plead that there was no valid and legal service." In this case, though the manager had no written authority to receive the notice, but Tribunal came to the conclusion that on the facts and the circumstances of the case and considering the conduct of the assessee and the manager, recorded a finding that the manager had such implied authority. This finding of fact of the Tribunal was not interfered by the Hon'ble High Court. In this case, the Hon'ble Bombay High Court considered the provisions of Section 63(1) of the IT Act, 1922 (corresponding to the provision of Section 282 of the IT Act, 1961). The Hon'ble Bombay High Court in this case followed its earlier decision in case of Ramniwas Hanumanbux Somani v. S. Venkataraman, ITO and Anr. (1959) 37 ITR 329 (Bom).

6.2 In the case of CWT v. Mrs. Illa Pal Choudhury and Ors. (1971) 82 ITR 936 (Cal), the WTO served notices for reassessment on the accountant of the assessee who was authorised by the assessee to represent the assessee in connection with wealth-tax assessment proceedings but was not authorised to accept notices. The assessee duly filed returns in answer to the notices and reassessment orders were passed. At the hearing before the AAC from the reassessment orders a ground was allowed to be taken that the accountant was not accredited agent of the assessee and, therefore, the service of notice on him did not constitute proper service. The AAC held that there was proper service and that even on the footing that there was no proper service, the assessee having filed the returns without objection had waived any irregularity in service. The Hon'ble Calcutta High Court has held as under at p. 930 (Headnotes) : "Held, that Section 41 of the WT Act requires that notices under the Act may be served either by post or in the same manner as summons under the CPC are served. T.P. Pal was the accountant of the assessee. He accepted service. Returns were filed by the assessee pursuant to the notices received by accountant. No point was taken that the assessee was not properly or validly served. In the original grounds taken before the AAC also this point was not taken.

Taking the cumulative effect of all these facts together, it appeared accountant had been duly authorised to accept service of notices on behalf of the assessee. Therefore, under Order V Rule 12 of the CPC, services on accountant would be sufficient and would be proper service under Section 41 of the WT Act." 6.3 In the case of CIT v. Bhanji Kanji's Shop (1968) 68 ITR 416 (Guj), it was held by Hon'ble Gujarat High Court that, mode of service of notice as mentioned in Section 63(1) of the IT Act, 1922 (corresponding to Section 282 of the IT Act, 1961) were not exhaustive and it was permissible to have a notice served in a way not mentioned in Section 63(1) of the IT Act, 1922. The Hon'ble High Court further observed that even if there was any procedural irregularity in the service of the notice of reassessment if assessee admits that he had received the notice, the contention on behalf of the assessee that notice was improperly served must be rejected. In that case, the notice for reassessment under Section 34 of the IT Act, 1922, was served on a temporary agent of any assessee who was not authorised agent for receipt of notice on behalf of the assessee. The assessee filed the return in pursuance of the notice and order of reassessment was passed.

In appeal against the reassessment order, the assessee had contended that the notice of reassessment have been improperly served and so the order of reassessment was bad in law. It was held by the Hon'ble Gujarat High Court that in view of the fact that the return had been filed by the assessee in pursuance of the notice served on temporary employee, it was clear that the notice had been received by him. The reassessment proceedings, therefore, have been properly instituted.

6.4 In the case of Mohammed Idrees Barry & Co. v. CIT (1957) 32 ITR 180 (Lahore), notice under Section 22(2) of the IT Act, 1922, calling upon an unregistered firm to file a return of income was served on salesman of firm who gave the notice to the manager who in turn informed one of partners of the firm. After the time for filing the return expired, the ITO issued the notice under Section 22(4) for the production of account books. When application was made requesting time for production of account books, time was refused and the ITO made his best judgment assessment under Section 23(4) of the IT Act, 1922. The firm appealed on the grounds that service on its salesman was not valid service.

After considering the circumstances of the case, the Tribunal inferred that Salesman was authorised to receive notice and held that the service was valid. The Hon'ble Lahore High Court held as under (as per headnotes) : "Held, that although he could not be said to be empowered to accept notice on behalf of the of firm and the notice was not valid under Order V, Rule 12 of the CPC, the real question to be decided was whether the service of the notice was effective, as after the issue of the notice under Section 22(4) the firm applied for time to produce the accounts, it accepted that the notice under Section 22(2) had been validly served and waived any irregularity in the service of that notice; the firm was thereafter stopped from objecting to the validity of the notice unless it showed prejudice to it. The firm not having suggested any prejudice, the service of the notice on H was effective so as to bind the firm."A.K.M. Govindaswamy Chettiar (Decd) and Ors. v. ITO (2000) 244 ITR 559 (Mad) the notice for reassessment under Section 148 was served on the agent of the assessee though not a power agent. It was argued before the CIT(A) that notice under Section 148 was not served on assessee. The CIT as well as Tribunal held after considering the facts and circumstances of the case, the notice was validly served.

The Tribunal found that the service of notice was acknowledged by authorised representative of assessee on 24th March asking for time to file the return and Tribunal also noticed that the assessee has not raised any objection either before the IAC that there was no valid service on the assessee and the jurisdiction was questioned only before the CIT(A) after the decision of this Court in the case of Jayanthi Talkies Distributors v. CIT (1979) 120 ITR 576 (Mad). The Tribunal came to the conclusion that notice under Section 148 of the Act was validly served. The Hon'ble Madras High Court after considering the facts and the circumstances of the case held as under (as per headnotes) : "That in the instant case, the Tribunal had found that there was no exclusive agent for service of notice and more than one person had been acting as an agent of the assessee. The assessee did not raise any objection at any time before the ITO that the notice was not served on the assessee personally or was not served on the agent who was empowered to receive notice. The objection raised regarding the validity of the service of notice had lost significance when the assessee acted upon the notice and filed the return in pursuance of the reassessment proceedings. The reassessment proceedings were valid." It is clear from the decision of the various High Courts that if the assessee has complied with the notice issued by the AO for furnishing of return of income, then even if the notice is not served directly on assessee but served on some other person who handed over notice to the assessee, then the presumption is that notice has been served on assessee in view of the ratio mentioned in abovementioned various decisions.

7. In the case of assessee before us, company has filed the return of income which shows that the assessee has received the notice under Section 158BC. The assessee has raised the ground of appeal No. VII in the original appeal (Form No. 36) before the Tribunal stating that the block assessment completed under Section 158BC read with Section 144 is not tenable in law because neither there was any non-compliance nor any other default within the meaning of Section 144 warranting an ex parte assessment particularly when the appellant has been making full compliance in assessment proceeding and had filed the return on the prescribed form though belatedly but during the assessment proceedings.

8. This ground of appeal has been taken by assessee which shows that the assessee has received notice and filed the return of income. There was irregularity in the service of notice but by filing the return of income the irregularity has been waived by assessee-company. The assessee may not waive legal right but assessee can waive procedural irregularity. The procedural irregularitry committed by AO if any, in the service of notice served on an advocate who has signed as "on behalf of the Petro Chemical Oils Mills Ltd.", has been waived by assessee by filing return of income under Section 158BC. The filing of return of income by the assessee under Section 158BC also shows that the learned advocate who has received the notice on behalf of the assessee, was having implied authority. An advocate is a responsible professional and would not like to receive the notice if he does not have authority to receive the notice on behalf of the assessee. Though Department has not produced any written authority given by assessee to the said advocate to receive the notice on behalf of the assessee, it was irregularity on the part of AO to serve notice on an advocate without obtaining authority of the assessee-company from him. But the irregularity has been waived by assessee by filing return of income in response to notice under Section 158BC. In view the decisions cited in preceding paras the assessee has waived procedural irregularity committed by the AO. The assessee has also not raised any objection before the AO regarding validity of the service of notice under Section 158BC. The assessee has been complying with the notices issued by the AO after filing the return of income which shows that the irregularity in service of notice has been waived . The service of of notice in ray opinion, is valid. Thus, issue regarding waiver of procedural irregularity in the service of notice by the assessee was not considered by Hon'ble High Court in the cases cited by learned counsel on behalf of assessee and were also not considered by the Tribunal in the case of Monga Metal (P) Ltd. (cited supra).

9. Now the grounds of appeal raised by the assessee-company are considered on merits. Various grounds of appeal have been raised by the assessee-company against the following additions as the undisclosed income in the block assessment under Section 158BC for the period 1st April, 1992 to 31st March, 1995 :1(a) 24,32,000 1992-93 (para 43 of the (b) 12,33,000 1993-94 assessment order) (c) 44,000 1994-95 The abovementioned additions of Rs. 37,09,000 at S. No. I(a), (b) and (c) have been made by the AO as the assessee failed to prove the genuineness of subscription of share capital by 34 individuals which were treated as unexplained cash credit in the case of assessee-company by the AO.2. (a) 1,26,000 1993-94 (para 78.2 of the (b) 46,50,000 1994-95 assessment order) (c) 51,50,000 1995-96 The addition of Rs. 1,10,60,000 has been made by AO to undisclosed income as the assessee-company failed to prove genuineness of subscription of share capital by various companies which were treated as unexplained cash credits in the case of assessee-company by the AO.During the course of search, cash, jewellery and various documents and papers were found as seized in the case of assessee as mentioned by AO in para I. Search and seizure operations were conducted in the case of assessee and other cases of Jalan Group under Section 132 of the IT Act on 9th Nov., 1995.

10.1 The AO issued notice under Section 158BC of the IT Act on 5th Dec., 1995. The assessee filed the return of income under Section 158BC after the expiry of period of 16 days mentioned in the notice on 2nd Sept., 1996 declaring Nil undisclosed income for the block period. The said return was not treated as return filed under Section 158BC as the return was not filed by assessee within the period stipulated in the notice dt. 5th Dec., 1995 issued under Section 158BC to the assessee.

The AO, therefore, completed assessment under Section 144 of the IT Act. During the course of search on 9th Nov., 1995 certain files/documents were seized from the premises of M/s Jalan Enterprises, Dharamshala Bazar, Gorakhpur also. These files pertain to various persons who have subscribed to the shares issued by the assessee-company. These files contained original papers with reference to income-tax matters of persons who have subscribed to the shares issued by the assessee-company. AO observed from these files that the persons who had subscribed to the shares were receiving small amount of salary, they have large families, they have very low withdrawals.

Income-tax returns were filed in which sources of income have been declared as business and interest but no details of the nature of business carried on by them were disclosed. The AO noticed that these persons have filed their returns showing substantial opening capital.

AO considered that the names of most of these persons have been utilised to show heavy investment in the shares of the assessee-company. Investments of about Rs. 90,000 by way of share capital in the name of each person was found by the AO. The AO also noticed that these persons have issued cheques as share application money which are the only transactions made by them. In fact, pass-books of some of these persons have also been found in the premises of a group company. Most of these persons have deposited cash in the bank account just before the issue of cheques in subscription to the shares of the assessee- company. For the purpose of opening bank account most of these persons were introduced by the members of the Jalan Group and sometimes even the cash deposits in their account have been made by one of the directors of the assessee-company. The income-tax records of these persons seized from the premises of Jalan Enterprises revealed that their cases have been processed under Section 143(1)(a) of the IT Act. The returns of income of these persons were filed on the same day, the cheques/drafts shown to have been issued by these persons towards share application money were also in same series of serial numbers. The AO came to the conclusion that all these bogus files were maintained by the directors of the assessee-company belonging to the Jalan Group for the purpose of introduction of unaccounted money of the assessee in the name of these various bogus concerns. The total investments made by such persons towards subscription as mentioned by the AO in para 13, p.

13 of the assessment order amounting to Rs. 37,09,000 during financial year 1992-93, 1993-94 and 1994-95. The AO asked the assessee to show cause as to why the said amount of Rs. 37,09,000 may not be treated as unexplained cash credit in the books of the assessee-company and considered as undisclosed income of the assessee.

10.2 It was explained by the assessee before the AO that the relevant inquiry mentioned above was outside the scope and purview of Chapter XIV-B of the IT Act, 1961, and reasons were given by the assessee which have been summarised by the AO on p. 14 para 15 of the assessment order. The AO did not accept the explanation of the assessee on the ground that the query regarding unexplained cash credit have been raised on the basis of evidence found as a result of search and other materials or information which was available with the AO. Therefore, the AO considered the aforesaid cash credit while determining the total income of the assessee for the block period. The AO considered that new facts were found during the search and information gathered during the subsequent inquiries showed that the cash credit appearing in the books of the assessee were not genuine and the income represented by these bogus transactions has not been disclosed by the assessee in the relevant financial year. According to the AO if a transaction was disclosed by the assessee in the return of income which is subsequently found to be false it cannot be said that the income represented by the said transaction also stands disclosed by the assessee in the earlier years. As per provisions of Section 158BB(1) of the IT Act, the total income of various previous years falling in the block period is to be computed on the basis of evidence found as a result of search and such other materials or information as are available with the AO. Under Section 158BB(2), the provisions of Sections 68, 69, etc. shall so far as may be applied while computing the total income of the assessee under Section 158BC. The AO, therefore, rejected the contention of the assessee that unexplained cash credit does not fall within the Chapter XIV-B.10.3 It was also contended by the assessee that summons under Section 131 can be issued to all shareholders and creditors who are within 320 kms. from Allahabad at the cost of the assessee and in case of others, inquiry can be instituted by issuing commission. It was also stated before the AO that identity of the person cannot be doubted in the light of Permanent Account Number, filing of income-tax return by them, their bank account, etc. The assessee also submitted vide his letter dt. 18th Aug., 1996, letters and affidavits from 17 shareholders out of 34 shareholders mentioned in query No. 01 of show cause dt. 31st May, 1996. The AO also issued summons under Section 131 as requested by the assessee to 34 shareholders mentioned in the chart as per Annexure 1 of the assessment order. The summons were issued to these persons by Regd.

Post A.D. from 14th Aug., 1996 to 3rd Sept., 1997. Summons were issued to these 34 shareholders on the addresses given by them in their share application forms. The same addresses were given by the assessee also.

However, the assessee also took the plea by letter dt. 19th Aug., 1996 that the address at which summons have been issued were not full and complete. The AO came to the conclusion as mentioned in para 33, p. 29 of the assessment order that "it was beyond comprehension why a shareholder would give its incomplete address to the said company if it was a case of genuine application for allotment of shares" as claimed by the assessee. Out of 34 summons issued by regd. post, summons in 22 cases were returned unserved by the postal authorities with the remarks "incomplete address, not known, returned, no such address, etc." On the date of hearing also none of the shareholders attended in response to the summons issued by the AO. The assessee failed to produce any of the shareholders though the summons were issued at the instance of the assessee and details of the summons were also supplied to the assessee.

10.4 After taking into consideration the facts of the case and the assessee's failure to produce 34 shareholders before the AO, he came to the conclusion that the onus of proving the identity of the aforesaid persons has not been discharged by the assessee. The assessee relied on the affidavits of 17 shareholders and also the fact that all the 34 shareholders were regular income-tax assessees. No explanation was given by the assessee on evidence/information found during the course of search as mentioned in paras 21 to 29 of the assessment order. AO also came to the conclusion that the assessee has maintained income-tax files in the name of non-existing persons, petty paid employees, with a view to create bogus capital build up cases and for the purposes of introduction of unaccounted money of the assessee. For the reasons mentioned in paras 37 to 43, the AO came to the conclusion as under : "37 It is clear from the above that the basic onus of even proving the identity of the aforesaid persons has not been discharged by the assessee. From the explanation given by the assessee during the course of various hearings, it is seen that the assessee has mainly relied on the affidavits of some of the so-called shareholders and also on his claim that all these 34 shareholders are regular income-tax assessees. No explanation has been given by the assessee on various evidence/information found during the search as enumerated in detail in paras 21 to 29 above. The said evidence/information clearly shows that captive income-tax files were maintained by the assessee in the names of non-existent persons/petty paid employees with a view to create bogus capital build up cases and for the purposes of introduction of unaccounted money of assessee by building up fictitious capital in bogus names.

The assessee has no explanation to offer on various evidences found e.g.

(a) Recovery of original income-tax files created in the names of various persons containing the original documents e.g.

acknowledgement of filing return, orders obtained under Section 143(1)(a), original income-tax deposit challans, etc. from the premises of Jalan Enterprises, a group concern.

(b) Various evidences showing that captive income-tax files were maintained by directors of assessee-company e.g. opening of bank accounts in various names with the help of introduction from directors of the assessee-company, deposits of money in bank account in some cases by directors of the company, etc.

(c) Clinching evidence in the form of seized paper in File 2 of Annexure 'A' which is a consolidated bill raised by advocate in respect of these various bogus income-tax files created for capital build up purposes, which shows that consolidated charges were paid by the members of Jalan family to advocate for creating these bogus income-tax files.

(d) Evidence showing that bank accounts in the names of the so-called shareholders were opened for this single transaction of making investment in assessee-company and that the withdrawal is preceded by a deposit of same amount in cash, in several cases.

(e) Evidence showing that cheques/drafts for investment in share capital by the so-called persons were in serial.

(f) Information showing that these so-called individual shareholders have total income between Rs. 20,000 to Rs. 25,000 p.a. and are having lot of dependents and they can neither have source nor creditworthiness for heavy transactions of investment in the assessee-company.

38. It is, therefore, seen that the assessee has no explanation to offer on the aforesaid important evidence/information found during the search.

As regards the assessee's reliance on the affidavits of the so-called shareholders, it is submitted as stated earlier also that when the very existence of these persons has not been established, the contents of the affidavits cannot be relied upon; assessee also could not produce the said persons in support of the submissions made in the said affidavits. It is further seen from the affidavits of the 17 shareholders furnished by the assessee with letter dt.

19th Aug., 1996, out of the said list of 34 shareholders that all the affidavits are of the same date i.e., 17th Aug., 1996 and have been signed by the same Notary at Gorakhpur. Moreover remarks on the back of these affidavits show that the affidavits have been attested by the Notary on the basis of identification of signatures of deponents done by some advocate and it is clear that deponents were not produced before the Notary. Hence from the affidavits also, the existence of the so-called shareholders is not proved. The assessee, therefore, could not even establish the existence of the said creditors, leave aside their creditworthiness and the genuineness of the transaction. All these three requirements are required to be proved by the assessee to establish the genuineness of cash credits as has been held by the Hon'ble Allahabad High Court in Nanak Chandra Laxman Das v. CIT (1983) 140 ITR 151 (All). This has however, not been done by the assessee. Furthermore it has been held by the Hon'ble Allahabad High Court in Sri Krishna v. CIT and Ors.

(1983) 142 ITR 618 (All) that affidavits are self-serving statements, and in the absence of any supporting evidence, the same need not always be accepted as correct. In the present case, there is adequate evidence on the contrary which shows that the contents of the affidavits are not correct. Hence no reliance can be placed on the affidavits filed by the assessee and the same are, therefore, rejected.

39. The assessee has further contended that since all the said 34 sharesholders are income-tax assessees having PANs their existence and creditworthiness cannot be doubted. In this regard it is submitted that from the ample evidence found during the search and as discussed in details in the preceding paragraphs, it is evident that bogus income-tax files have been created by the assessee in the names of various fictitious persons and the said 34 cases are only capital building up cases. It is actually the unaccounted money of the assessee which has been introduced in the names of the so-called individual shareholders. Despite adequate opportunities allowed, even the existence of these shareholders could not be established by the assessee. On the other hand, the summons issued by registered post were returned unserved in most of the cases showing that these persons do not actually exist. Further, the evidence gathered during the search shows that captive income-tax files were maintained by the directors of the assessee-company/family members of Jalan group and the opening of bank accounts in various names making deposits in bank accounts, payment of taxes, etc. all was done by the members of the Jalan family and consolidated fees was also paid to the advocate by members of Jalan family for creating such bogus income-tax files.

Moreover, the said returns in the cases of so-called shareholders were processed under Section 143(1)(a) without questioning the correctness, completeness and truthfulness of the statements/documents given in the return. There was no application of mind by the AO while processing these returns, under Section 143(1)(a). As such it cannot be said that existence of the so-called shareholders was accepted by the Department and the source of capital shown in their hands was accepted.

40. The scope of assessment orders framed under Section 143(1) also came up for consideration before the Hon'ble Tribunal, Allahabad in ITA No. 154 and 155/Alld/1989, dt. 7th Oct., 1993 in the case of M/s Ban Family Trust Varanasi. In that case, the assessment order made in the status of AOP was challenged by the assessee on the ground that assessment orders under Section 143(1) were framed earlier in the hands of the beneficiaries by the Department than the assessment order framed on the trust in question. The Hon'ble Tribunal held in para 5 of the said order that "We have heard the parties at length on the point and we are of the opinion that the argument of the learned counsel for the assessee does not have any force. Admittedly the assessment orders of the beneficiaries were framed under Section 143(1). Law provides that if anybody filed return of income, it has to be accepted as such under Section 143(1). Consequently the acceptance of the said income by the AO does not amount to the conscious application of his mind for the said framing of the assessment order." 41. The aforesaid judicial finding also supports the view that processing of earlier returns of the so-called shareholders under Section 143(1) before the date of search will not establish that the Department accepted them as genuine and that the source of capital in their hands was accepted. The facts found during the search clearly shows that these are only capital buildup cases, when actually the said shareholders do not exist and it is assessee's own money which has been introduced in the names of these various bogus persons.

42. As per the details given in chart placed at Annexure "1" of assessment order, the total investment in shares in these bogus names comes to Rs. 37,09,000 whose break-up financial yearwise is as under : 43. As per the detailed discussion in the preceding paragraphs (paras 12 to 42) above and on the basis of evidence found during the course of search and other material and information as is available with the AO, the sum of Rs. 37,09,000 credited in the books of the assessee is held as unexplained cash credits as the identity and the creditworthiness of the various creditors (shareholders) could not be established by the assessee. The assessee's explanation regarding the said sum of Rs. 37,09,000 credited in the books of the assessee is not found satisfactory and is rejected. Accordingly, the sum of Rs. 24,32,000 falling in financial year 1992-93 is added as assessee's income from undisclosed sources for the said previous year, the sum of Rs. 12,33,000 falling in the financial year 1993-94 is added as assessee's income from undisclosed sources for the said previous year and a sum of Rs. 44,000 falling in the financial year 1994-95 is added as assessee's income from undisclosed sources for the said previous year." 11. The AO also observed from the papers found during the course of search that the assessee-company is introducing unaccounted money as its own share capital in the names of various companies as under : The addition of Rs. 1,10,60,000 was made by AO to undisclosed income as the assessee-company failed to explain the genuineness of subscription to the share capital by various companies, which were treated as unexplained cash credits in the case of assessee-company by the AO.12. The AO observed various discrepancies in the share transactions which have been mentioned in para 44 of the assessment order which are given as under : "As a result of search action, number of discrepancies were noticed in these share transactions, which indicated that these were the unexplained cash credits and the undisclosed income of the assessee-company brought into the business in the form of share capital allegedly subscribed by these companies. The following discrepancies were noticed in these share transactions : (i) No correspondence in respect of share transaction other than share application was available with the assessee-company.

(ii) No letter of offer for subscribing to the share capital has been made by the assessee-company.

(iii) The photo copies of the share application made by the applicant do not mention their GIR/PAN, though the applications are for the amount exceeding Rs. 25,000.

(iv) The date of receipt of application is not mentioned in the acknowledgement issued by the assessee-company.

(v) The company is not maintaining any receipt and despatch register for these share transactions.

(vi) The share applications made by the outstation private limited companies are not accompanied by the copies of resolution passed by their Boards for investment in assessee-company.

(vii) In many cases, the number of share applied for has not been mentioned.

(ix) Most of the demand drafts sent by the investors are not in serial order.

(xi) In many cases it was seen that drafts were obtained from the banks where applicants had no account. These drafts are in excess of Rs. 50,000 and, therefore, could not have been issued by bank in cash.

(xii) Share application forms are simply addressed to director, Delhi. Obviously application forms cannot be sent on such vague address.

(xiii) Share application forms sent by investors from New Delhi mentioned about company's prospectus, which as per company's admission was not sent.

(xiv) As no correspondence in respect of share transaction other than the share application is available with the company, it only implies that no letter of allotment or even share certificate was issued to the holders." 13. On the basis of above discrepancies noted during the course of search, the AO got the matter investigated through the Investigation Wing of the Department at Delhi to verify the genuineness of the companies/parties in whose names issue of shares and receipt of cash has been shown by the assessee-company. The Inspector of Income-tax in Investigation Wing of the Department at Delhi reported that the companies at given address did not exist. The AO also issued summons to various companies in whose names receipt of amount and issue of share was shown. The name of such companies have been mentioned in Annexures 3 and 4 of the assessment order but the summons were returned by the postal authorities with the remark that these companies did not exist on the said addresses. The assessee has shown receipt of share application money from such companies amounting to Rs. 1,10,60,000. The AO asked the assessee-company to explain why the share application money allegedly received from the said companies amounting to Rs. 1,10,60,000 may not be treated as unexplained cash credit and added to the assessee's total income. The assessee-company in its explanation vide letter dt. 27th June, 1996, stated that the query was outside the scope and purview of Chapter XIV-B of the IT Act i.e., Sections 158B(2), 158BH. The assessee-company's reply was the same which was given in the case of cash credits appearing in individual names as mentioned in the preceding paras. The assessee-company however, submitted 50 affidavits of corporate shareholders and the following documents : (iii) Memorandum and articles of association with certificate of incorporation, balance sheet, P&L a/c and bank statement The assessee also submitted later on, affidavits of 15 companies vide letter dt. 19th Aug., 1996. Therefore, 65 affidavits of companies were submitted by the assessee upto 19th Aug., 1996.

14. From the affidavits of the director of the companies, the AO noticed that 50 affidavits filed by the assessee along with its letter dt. 22nd July, 1996 were attested by the Notary on the same date, i.e., 19th July, 1996. The AO in order to verify the genuineness of the affidavits got inquiries made through Investigation Wing, Unit-III of the IT Department, New Delhi. Sri G.S. Abrol, Notary Public, who attested the said affidavits was examined on oath under Section 131 of the IT Act on 6th Aug., 1996. He confirmed that all these affidavits were brought to him in bunch and the signatories (Deponents) were not presented before him at the time of attestation. He could not disclose the name of the advocate who brought various affidavits before the Notary Public for signature. The Notary Public even did not enter the fact about attestations of 50 affidavits and the names and addresses of the deponents in the register which a Notary Public is required to maintain in respect of affidavits attested by him. Notary Public admitted that the directors of the companies were not personally present before him as deponents signing the affidavits. In order to verify the genuineness of the affidavits, the AO issued registered letters in the name of deponents in a certain cases as a test-check. A copy of the affidavit signed by the deponent was also enclosed with the letter and information was called for under Section 133(6) of the IT Act. The AO wanted to know from the deponents whether the affidavits were signed by them but all the letters written by the AO to the deponents were returned unserved by the postal authorities. The details of letters to 5 deponents have been mentioned by the AO in para 62 p.

60 of the assessment order. The AO came to the conclusion that various affidavits submitted by the assessee were bogus and not reliable. The AO, therefore, rejected these affidavits.

15. The assessee also claimed before the AO that the said companies from whom share application money have been received were incorporated by the Registrar of Companies. The assessee claimed that the existence and genuineness of the companies are established but the AO did not accept the contention of the assessee-company because the Registrar of Companies does not make any inquiry about the existence or genuineness of the companies before issuing certificate of Incorporation. According to the AO, the certificate of incorporation issued by the Registrar of Companies is not conclusive evidence about the genuineness and actual existence of companies when the said companies were not found to be actually existing on the addresses given. The AO considered that the companies whose share application money has been received cannot be said to be actually existing just because they have been incorporated by the Registrar of Companies. The AO came to the conclusion (as mentioned in para 64 p. 61 of the assessment order) that the incorporation of the said companies is only on paper and bogus companies have been floated in order to give Hawala entries.

15.1 It was also claimed by the assessee before the AO that since all companies are income-tax assessees, they have PANs and bank accounts, their existence and creditworthiness cannot be doubted. The AO noticed that return of income filed by the said companies was processed under Section 143(1)(a) before search without questioning the correctness of the statement/documents filed with the return. Therefore, there was no application of mind by the AO while processing the return under Section 143(1)(a). According to the AO, the existence of the so-called companies was not accepted by the Department.

15.2 Again, the assessee-company claimed before the AO that it has sent money orders on random basis to various companies to reaffirm the addresses and identity of various corporate shareholders. The post and telegraph Department could pay petty amounts sent under money order without any difficulty. The list of 11 companies to whom money orders were sent was also furnished before the AO and it was claimed that these companies have received the money order. The list of such companies have been mentioned in para 66 p. 63 of the assessment order.

15.3 The AO examined the details submitted by the assessee and found that these details submitted by the assessee did not show as to what were the addresses on which the money orders to said companies were sent. The AO considered that the possibility that the said money orders were collected by the same person from the post office at Delhi could not have been ruled out. The AO also observed that the signature of the payee were in different link and the name of the company on whose behalf money orders were allegedly received were in different ink in a few cases. It was considered as very unusual by the AO as the persons receiving the money order is likely to use the same pen acknowledging the receipt. However, in order to again verify the genuineness of the evidence submitted by the assessee regarding the receipt of money orders by the companies, the AO again issued commission under Section 131 of the IT Act on 19th Aug., 1996, in favour of the ADI (Inv.), Unit-III, New Delhi, for examining the directors/signatories of the said 11 companies under Section 131 of the IT Act. Accordingly, summons were issued by the ADIT (Inv.), Unit-III, to the said 11 persons.

Summons were returned by the postal authorities in case of 6 companies mentioned in para 68 (p. 65) of the assessment order. The AO came to the conclusion that since the summons were returned unserved by the postal authorities in 6 cases (mentioned on p. 65 of the assessment order), the evidence furnished by the assessee regarding remittance of money orders by the postal authorities is not genuine in respect of the said companies. Local inquiries were also conducted and Inspector of Income-tax Department reported that the six companies did not exist at the addresses given by the assessee and the assessee's claim regarding the remittance of money through money order to such companies was not correct. In the case of remaining 5 companies, since the summons under Section 131 were not complied with, the ADIT (Inv.) conducted survey under Section 133A of the IT Act on 10th Sept., 1996, in case of following two cases : (i) Mohak Trading (P) Ltd., 2150, Tilak Bazar, Khari Baoli, Delhi.

Director Shri Kamal Kishore Aggrawal.

(ii) Profn. Finance & Investment (P) Ltd. 2150, Tilak Bazar, Khari Baoli, Delhi.

15.4 During the course of survey it was found that no records were being maintained or kept at the office. No books of account, stock or cash was kept in the office. As per statement of Shri Kamal Kishore Agrawal and Shri Vimal Kishore Agrawal, directors of the two companies mentioned above, the books of account and other records were kept with the chartered accountants only. The directors did not know the number of shareholders authorised/subscribed/paid up capital of the company.

The AO came to the conclusion that both the companies exist only on paper without any actual operations and created for the purpose of giving Hawala entries. Similarly, in the case of M/s Decent Realator (P) Ltd., B-5/217, Sector V, Rohini, Delhi-85 it was found on local inquiry that the said address is that of a residential flat in a residential colony. In the absence of evidence about the genuineness and creditworthiness, the AO came to the conclusion that the company existed only on paper without any actual operation. Results of inquiries by AO in respect of certain companies out of 11 companies to whom money orders were sent by the assessee was brought to the notice of the assessee vide letter dt. 1st Oct., 1996 and assessee-company was required to file reply in the matter on 7th Oct., 1996. The assessee filed reply dt. 3rd Oct., 1996, on 4th Oct., 1996. In this reply the only contention of the assessee was that just because summons or the notices could not be served on the given address it could not mean that the company did not exist or that the transactions are sham. It was again stated by the assessee that the genuineness and creditworthiness of the companies are established because they are regularly assessed to tax, they have bank accounts and they have been incorporated with the Registrar of Companies.

16. After considering the reply of the assessee and decision of the Hon'ble Delhi High Court in CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del), AO came to the conclusion that corporate shareholders are not identified and it is not established that they have invested money in the purchase of shares of the assessee-company. In paras 77 and 78.2 p.

73 of the assessment order, AO has held as under : "77. In the case of the assessee, as per detailed discussion made in the preceding paragraphs, it is clear that the shareholders are not identified and it is not established that they have invested money in the purchase of shares of the assessee-company. The ratio of the said full Bench decision of the Delhi High Court is, therefore, applicable in the case of the assessee and invoking the provisions of Section 68 of the IT Act, the said sum of Rs. 1,10,60,000 is to be treated as income of the assessee.

78.1 To sum up, the detailed discussion (paras 44 to 77) clearly shows that the alleged corporate shareholders of the assessee do not exist and could not be identified. Even in five cases where companies were found to exist on the address given, their creditworthiness and genuineness could not be established.

78.2 It was clear from the inquiry made that even those five companies existed only on paper with no evidence of any actual business operations or their creditworthiness. The facts clearly show that bogus income-tax files have been created in the names of non-existent companies to give Hawala entries. The ratio of full Bench decision of the Delhi High Court in CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) is fully applicable in the present case as shareholders are not identified and it is not established that they have invested money in the purchases of shares of the assessee-company. Therefore, invoking the provisions of Section 68 of the IT Act, the sum credited in the books of account of the assessee as share capital in the names of these bogus companies amounting to Rs. 1,10,60,000 is treated as assessee's income from undisclosed sources. As per the details given in Annexure 7 of the assessment order, out of the said sum of Rs. 1,10,60,000 the sum of Rs. 12,60,000 falls in the financial year 1993-94 which is treated as assessee's income from undisclosed sources for the said financial year; the sum of Rs. 46,50,000 falls in the financial year 1994-95, which is added as assessee's income from undisclosed sources of the said financial year and the balance amount of Rs. 51,50,000 falls in the financial year 1995-96 (till the date of search) which is added as assessee's income from undisclosed sources for the said financial year." 17. The assessee's arguments have been mentioned in para 20 p, 44 to p.

52 of the order of my learned brother. Briefly stated, according to learned counsel, addition of share capital and cash credit recorded in the books of account cannot be considered as undisclosed income. There may be difference of opinion regarding the character of the income but as the share capital and cash credits have been recorded in the books of account, the same cannot be considered as undisclosed income of the assessee-company. According to the learned counsel only such cash credits can be considered in the block period which are recorded in duplicate sets of books of account but the cash credit recorded in regular books of account cannot be considered as undisclosed income of the block period because they are disclosed in the books of account.

Share capital of Rs. 93,09,600 was also disclosed in the regular books of account and return of income and documents already filed before the search. Once the facts are accepted by the AO at the time of regular assessment, it was not for the AO to reopen the issue without fresh material. The learned counsel stated that the assessment for asst. yr.

1994-95 has been completed and same evidence cannot be examined by the AO which has been admitted at the time of regular assessment. The learned counsel therefore, referred to the Supreme Court decision in CIT v. Bharat Engineering & Construction Co. (1972) 83 ITR 187 (SC).

For asst. yr. 1993-94, the company has not started production and the factory was under construction, and the share capital receipt during that period could not be treated as assessee's undisclosed income from asst. yr. 1993-94. According to learned counsel the company was started in December, 1993. The learned counsel also referred to the decision of Kerala High Court in CIT v. Smt. P.K. Noorjehan (1980) 123 ITR 3 (Ker).

The learned counsel also stated that share capital cannot be considered as income in view of the decision of the Delhi High Court in case of CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 (Del) which has been approved by Hon'ble Supreme Court.

18. Learned Departmental Representative on the other hand argued that the decision of Supreme Court in the case of Stellar Investment Co.

does not cover the case of the assessee because in the case of the assessee creditors were not available and all the credits were sham and not genuine. Referring to the material found at the time of search, the learned Departmental Representative stated that the files were found during the course of search which shows bogus cash credits. It was stated by the learned Departmental Representative that whether the assessee has carried on business is not material for determining the undisclosed income because the assessee might have carried on some other business or earned income from other sources not known to the Department. The learned Departmental Representative pointed that the search was conducted in premises of the company and directors and certain inquiries were conducted on the basis of material found during the course of search. The learned counsel referred to various paras in the assessment order and stated that the assessee has not established the identity and creditworthiness of cash creditors and shareholders and same are not produced by the assessee. The learned Departmental Representative read various paras of the assessment order and pointed out that even the affidavits filed by the assessee was false No deponent has signed affidavit before the Notary Public. It is also argued by the Departmental Representative that the incorporation of the company with the Registrar of Companies does not mean that the company is genuine. According to learned Departmental Representative exhaustive inquiries were made by the AO and none of the company in whose name share application money is shown, has been found by the AO The learned Departmental Representative also referred to the decision of the Delhi High Court in the case reported in CIT v. Sophia Finance Ltd. (supra).

According to learned Departmental Representative the facts in the case of CIT v. Stellar Investment Ltd. (supra) were different from the fact of the case reported in CIT v. Sophia Finance Ltd. (supra). According to learned Departmental Representative case of Sophia Finance Ltd. (supra) lays down good law.

The learned Departmental Representative on behalf of the Department, therefore, relied on the finding given by the AO in the assessment order.

19. Learned counsel of the assessee further, pointed out that certain files were found from the premises of Jalan Enterprises and not from the premises of assessee-company. He has referred to para 12 of the assessment order. According to learned counsel maintenance of files by M/s Jalan Enterprises does not prove that the assessee-company has introduced the bogus cash credit. Though subsequent inquiries were made by the AO but no document was found from the premises of the assessee-company. The learned counsel referred to certain pages in the paper book which contains details of shareholders, their confirmation regarding the purchase of shares. The learned counsel has furnished list of individual shareholders whose files were found from the premises of M/s Jalan Enterprises and the following facts have been stated to prove the genuineness of shares purchased by them : 19.1. As regards shares in the names of corporate shareholders, counsel stated that at the time of original assessment the memorandum of association, articles of association of the companies and money order receipt by the companies were produced before the AO. Learned counsel referred to decision of the Supreme Court in CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC). It is argued by the learned counsel that it is for the Department to prove that shareholders are non-existent. According to learned counsel, names and addresses of the corporate shareholders, their bank accounts, etc. have been given and the AO has not even found from the bank or Registrar of Companies whether the companies are genuine shareholders. According to learned counsel the assessee was intimated about the inquiries made in 26 cases of the company shareholders but made addition in respect of 59 company shareholders and, therefore, the AO did not mention how the balance 33 companies are bogus companies. It is stated by the learned counsel I that the AO gave information about 16 companies which were considered as non-genuine but for other companies the AO did not give any intimation or show cause to the assessee. According to learned counsel the existence of corporate shareholders have been proved by the following details : (iv) Wherever assessments have been made or audited accounts were available, the same were filed.

The learned counsel further stated that no paper was found during search relating to period upto financial year 1994-95. Learned counsel also referred to certain cases of companies which have applied for shares. For example learned counsel referred to share applied by Bankey Bihari Company. Share capital of this company is Rs. 23,00,000 and this company was formed in 1988. Learned counsel referred to the case of Ram Lal Garments which applied for 2000 shares. Learned counsel referred to balance sheet of this company which was incorporated in February, 1992.

Learned counsel referred to the case of Mohak Trading (P) Ltd. which has applied for 15,000 shares and this company was incorporated in May, 1990. Learned counsel stated that this company has filed income-tax return and assessed to tax. Bansal Consultants (P) Ltd. was incorporated in 1992 and applied for 10,000 shares.

20. I have considered facts of the case, rival submissions and material on record. The issue to be considered first, is whether the amount of share capital can be considered as undisclosed income of the assessee.

This issue arose before the Hon'ble Delhi High Court in the case of CIT v. Stellar Investment Ltd. (supra). In the case of Stellar Investment Ltd., the assessee-company had increased subscribed capital which was accepted by the AO. The CIT in revision under Section 263 of the IT Act set aside the order of assessment being of the view that there had been a device of converting black money into white by issuing shares with the help of formation of an investment company and that the AO did not make any inquiry with regard to genuineness of the subscribers to the share capital. On appeal the Tribunal reversed the decision of the CIT and restored the order of the AO. It seems that the CIT requested the Tribunal to refer the question of law whether the provisions of Section 263 have been correctly invoked by the CIT. It seems that the Tribunal rejected the Reference under Section 256(1). The CIT sought Reference of the following question under Section 256(2) before the Hon'ble Delhi High Court : "Whether, on the facts and in the circumstances of the case, Tribunal was correct both on facts and in law in holding that the provisions of Section 263 have not been validly invoked in this case by ignoring the material fact that the AO had failed to discharge his duty regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives." The Hon'ble Delhi High Court dismissed the reference application on the ground that no question of law arose. The Hon'ble Delhi High Court observed as under : "It is evident that even it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances can the amount of share capital be regarded as undisclosed income of the assessee." The Hon'ble Supreme Court in Civil appeal No. 1968 of 1996 vide order dt. 20th July, 2000 has dismissed the appeal of the Revenue against order of Delhi High Court (1991) 192 ITR 287 (Del) (supra) on the ground that the Tribunal came to the conclusion on the facts and no interference is called for.

20.1 In the case of CIT v. Sophia Finance Ltd. (supra) again, the CIT filed a petition under Section 256(2) of the IT Act which was referred to the Full Bench because correctness of the observations in the judgment of the Division Bench of the Delhi High Court in the case of CIT v. Stellar Investment Ltd. (supra) was doubted. In the case of Sophia Finance Ltd. (supra) also the return of income filed by the assessee-company was accepted by the AO The CIT issued a notice under Section 263 to the assessee to show cause why the assessment should not be revised under Section 263 of the IT Act. After hearing the assessee-company the CIT came to the conclusion that the AO had made no inquiries to find out whether the so-called shareholders were actually in existence or not. The CIT set aside the order of assessment. In appeal by the assessee-company against the order of CIT under Section 263 the Tribunal allowed the appeal of the assessee-company. The CIT filed an application under Section 256(1) seeking reference of the following question to the High Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the CIT under Section 263 of IT Act by holding that assessment order of the company cannot be said to be erroneous and hence, prejudicial to Revenue." The Tribunal dismissed reference application under Section 256 on the ground that the question as projected by the Revenue is not a referable question of law.

The CIT filed a petition under Section 256(2) of the IT Act before the Hon'ble Delhi High Court. When the petition under Section 256(2) came up for hearing before the Division Bench of the Court, as the correctness of the observations of the Division Bench of the Delhi High Court in the case of Stellar Investment Ltd. (supra) were doubted on the ground that provisions of Section 68 of the IT Act were not referred to in the case of Sophia Investment Ltd. (supra). It was argued that Section 68 would come into play if the ITO finds on inquiry that the shareholders were fictitious persons. In view of the submissions of the Revenue's counsel which were construed running contrary to the ratio of the judgment in Sophia Investment Ltd.'s (supra), the case was referred to the Full Bench. After hearing the reival submissions and submission of Sri M.S. Syali, advocate on behalf of the intervenor M/s Gunja Investment and Trading Ltd., the Hon'ble Delhi High Court held as under as pp. 104 and 105 of 205 ITR."It is not unknown that in order to avoid payment of tax an amount may be credited in the books of account in such a manner which may not disclose its true nature or source thereof. For example, amounts may be credited in the books of account as if they presented sums received from different persons. As we read Section 68, it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the ITO has the jurisdiction to enquire from the assessee the nature and source of the said amount.

When an explanation in regard thereto is given by the assessee, then it is for the ITO to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the ITO may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. Be that as it may, it is clear that the ITO has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of assessee and it would be immaterial as to whether the amount as credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an ITO is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money.

If the amount credited is a capital receipt then it cannot be taxed but it is for the ITO to be satisfied that the true nature of the receipt is that of capital. Merely because the company chooses to show the receipt of the money as capital, it does not preclude the ITO from going into the question whether this is actually so. Section 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The ITO would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do, in fact, exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the ITO finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words "may be charged" (emphasis, italicised in print, added) in Section 68 clearly indicates that the ITO would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee.

It is neither necessary nor desirable to give examples to indicate under what circumstances Section 68 of the Act can or cannot be invoked. What is clear, however, is that Section 68 clearly permits an ITO to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the job assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the ITO. In the case of Stellar Investment Ltd. (supra), the ITO had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the ITO cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares, then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of Stellar Investment Ltd. (supra), are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory, then, the provisions of Section 68 may be invoked. In the latter case Section 68, being a substantive section, empowers the ITO to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee.

After referring to the decision of the Supreme Court in the case of CIT v. Biju Patnaik (1986) 160 ITR 674 (SC) and Delhi High Court decision in the case of Gee Vee Enterprises v. CIT (1975) 99 ITR 375 (Del) and certain other decisions, the Hon'ble Delhi High Court allowed reference to the CIT under Section 256(2) of the IT Act and directed the Tribunal to refer the question of law mentioned at p. 110 of 205 ITR.20.2 It is clear from the observation of the Hon'ble Delhi High Court mentioned above in the case of Sophia Finance Ltd. (supra) that : (i) Whatever the sum is found credited in the books of account of the assessee then irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the AO has the jurisdiction to inquire from the assessee, the nature and source of the said amount.

(ii) It would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. Section 68 is very widely worded and AO is not precluded from making an inquiry as to the true nature and source of credit even if the sum is credited as receipt of share application money.

(iii) The AO would be entitled to inquire and it would indeed be his duty to do so whether the alleged shareholder do in fact exist or not. If the AO finds that the alleged shareholder did not exist then in fact it would mean there is no valid issuance of share capital.

Share cannot be issued in the name of non-existing persons. The use of the words "may be charged" in Section 68 clearly indicates that the AO would have the jurisdiction if the facts so warrant, to treat such a credit to be income of the assessee.

(iv) In the case of Stellar Investment Ltd. (supra), Section 68 of the IT Act was not referred to. Full Bench of the Delhi High Court, in the case of Sophia Finance Ltd. (supra) clarified that the observation in the said judgment cannot mean that the ITO cannot or should not go into the question as to whether the alleged shareholder actually exists or not.

It is, therefore, clear from the decision of the Delhi High Court (Full Bench) in the case of Sophia Finance Ltd. (cited supra) that the AO has the jurisdiction rather indeed it is his duty to inquire whether the shareholders shown by the assessee-company in its records exist or not.

If the AO after taking into consideration of the facts and circumstances of the case is not satisfied about the genuineness and existence of shareholders, then the AO can treat such credit of share application money in the name of non-genuine shareholders as income of the assessee under Section 68 of the IT Act. Whether the assessee has discharged the onus that an amount credited in the books of account as share capital is genuine will depend upon the facts of the case.

In the case of Stellar Investment Ltd. in Civil Appeal No. 1968/1996 order dt. 20th July, 2000, the Hon'ble Supreme Court, confirmed the decision of Hon'ble Delhi High Court in (1991) 192 ITR 287 (Del) (supra) because the Tribunal came, to the conclusion on the basis of facts. The issue regarding the applicability of provision of Section 68 was not before the Supreme Court in the aforesaid civil appeal No.1968/1996, order dt. 20th July, 2000. In the case of Stellar Investment Ltd. as decided by the Hon'ble Delhi High Court at p. 105 of 205 ITR (in case of Sophia Finance Ltd.) "Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that ITO cannot or should not go into the question whether the alleged shareholders actually existed or not." 21. Now adverting to the facts of the case of the assessee before us, it is clear that material was found during the course of search at the business premises of the assessee-company and others on 9th Nov., 1995.

As a result of search operations and availability of material found and seized from the premises of the assessee-company and others, the AO issued notice under Section 158BC of the IT Act on 5th Dec., 1995.

Assessee filed the return of income in response to notice under Section 158BG on 2nd Sept., 1996, after the expiry of period mentioned in the notice under Section 158BC issued on 5th Dec., 1995. Since there was no provisions for filing the belated return under Section 158BC, the return of income filed by the assessee on 2nd Nov., 1996 was not considered as return of income filed under Section 158BC and technically the AO completed assessment under Section 144 only because of the fact that return of income was filed by the assessee after expiry of 16 days from the date of service of notice under Section 158BC, otherwise, the AO has given full opportunity of hearing to the assessee. The AO issued notice under Section 142(2) of IT Act dt. 15th May, 1996, and 13th May, 1996, before the return of income was filed by the assessee on 2nd Sept., 1996. The AO has made addition of share capital in the name of 34 individual shareholders and other company shareholders which were not considered as genuine by the AO 22. The AO made addition of Rs. 37,09,000 on account of share capital issued to 34 persons (individuals) in the following Financial Years : The undisclosed income of Rs. 37,09,000 has been determined by the AO on the basis of documents/files seized from the premises of Jalan Enterprises, Gorakhpur also. These files are original income-tax files of various persons who have subscribed to the share capital issued by the assessee-company. Bank pass books of some of these persons was also found from the premises of a group company. The AO found that these persons (shareholders) have shown receipt of small amounts of salary.

They have large family but have shown low withdrawals. They have shown source of income as business in their return but no nature of business was disclosed. These persons have deposited cash in their bank accounts before issue of cheque for subscription to the shares of the assessee-company. Bank account was also introduced in some cases by means of the Jalan group and even the cash was deposited in their account by one of the directors of the assessee-company. The income-tax returns filed by these persons/shareholders have been accepted under Section 143(1)(a) on the same date. In most of the cases, cheque/drafts issued by these persons for shares were also in serial.

The assessee's plea that query raised by the AO regarding the share capital was outside the scope and purview of Chapter XIV-B of the IT Act (158BH) was rejected by the AO. On the request of the assessee the summons were issued to 34 shareholders under Section 131 by registered post acknowledgment due on 14th Aug., 1996 to 3rd Sept., 1996 and details of summons issued by the AO were also supplied to the assesses.

Out of the 34 summons issued by the AO, in 22 cases, summons were returned unserved by the postal authorities with the remark "incomplete address, could not be located, not known, returned, no such address".

On the date of hearing, the other shareholders did not attend in response to summons which was not returned by the postal authorities.

The assessee also could not produce the shareholders for verification of genuineness of issue of shares to them though shares were not issued to public in general by advertisement in newspapers. The assessee however, produced affidavits of 17 shareholders but the contents of the affidavits were not relied upon by the AO because when the persons concerned have not been produced, the contents of the said affidavits were not relied upon by the AO. Now the issue to be considered is whether the contribution of share capital shown in the books of account of the assessee-company in the names of shareholders who are neither traceable by the AO, nor produced by the assessee-company before the AO for verification of facts, can be considered as undisclosed income under Chapter XIV-A or Section 158BC of IT Act.

23. Section 158BB prescribes the manner in which undisclosed income for the block period is to be computed. Undisclosed income has been defined under Section 158B(b) as under : "undisclosed income includes any money, bullion jewellary or other valuable article or thing or any income based on an entry in the books of account or other documents or transactions where such money, bullion, jewellary or article, thing, entry in the books of account or other documents or transactions represents wholly or partly income or property which has not been or would not have been declared for the purpose of this Act".

Section 158BB(2) provides that in computing the undisclosed income for the block period, the provisions of Sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and reference to financial year under these sections shall be construed as reference to the block previous year falling in the block period including the previous year ended with the date of search. In view of the provisions of Sub-section (2) of Section 158BB, it is clear that the cash credits, unexplained investments, etc. can be considered as undisclosed income if the facts and circumstances of the case justify. In the case of the assessee-company before us, the AO has found certain income-tax files of certain persons from the office of Jalan Enterprises in whose case search was also conducted under Section 132 of the IT Act. Under Section 158BD, if the AO is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made under Section 132 then the books of account, other documents or assets seized shall be handed to the AO having jurisdiction over such person and the AO shall proceed against such other person and provision of Chapter XIV-B shall apply accordingly. Therefore, the documents, files, books of account, etc. found during the course of search under Section 132 in the case of M/s Jalan Enterprises can also be used while determining the undisclosed income of the assessee-company. While determining the undisclosed income under Section 158BC, the AO is entitled to determine total income of the previous years falling within the block period computed in accordance with the provisions of Chapter VI on the basis of evidence found as a result of search and such other material or information as are available with the AO as reduced by the aggregate of the total income, or as the case may be as increased by the aggregate of the losses of such previous years determined in the manner laid down in Section 158BB. Therefore, provisions of Section 158B(b) defining undisclosed income have to be considered along with the provisions of Section 158BB harmoniously. Material, documents, transactions, books of account or entry recorded in the books of account or other documents found during the search may require further clarification, inquiry or investigation.

In my opinion, the material or information gathered during the course of investigation or inquiry in respect of such entry or transaction recorded in the books of account or documents, etc. found during the course of search can be used for the purpose of making assessment for the block period. Therefore, the expression "such other material or information as are available with the AO" has to be construed to include material or information which are available with the AO on the date of framing the assessment order and not only such material or information found during the course of search only, but such material found as a result of inquiry or investigation should be related or connected with documents, materials, etc. found during search and not produced before AO before search.

If it had been the intention of the legislature that AO should consider only those documents which were found during the course of search then the words "such other material or information as are available with the AO" would not have been inserted in the provisions of Section 158BB(1).

It rather seems incongruous that though the material is available with the AO on the date of assessment order but he cannot use the same because the same was not available with him on the date of search and was not found during the course of search. There is no prohibition in law to prohibit the AO to use such material which is available with him on the date of assessment order, if such material is gathered by further inquiry with reference to documents or material found during search.

24. In the case of assessee-company before us, the material in the shape of income-tax return, bank pass-book, etc, of shareholders shown in the books of assessee-company were found from the premises of M/s Jalan Enterprises. The AO made further inquiries as finding of such material relating to income-tax return or bank pass-book of various shareholders in the assessee-company at the premises of Jalan Enterprises was very unusual. The AO even issued summons to the shareholders but summons in the case of 22 shareholders were returned unserved by postal authorities with the remark such as 'incomplete address, could not be located, not known, no such address, etc. The assessee-company is a public limited company. Most of the public limited companies issue advertisement offering shares to the public but in the case of assessee-company no letter of offer or advertisement for offer of subscription to the public or individual shareholders has been made. It is not known how the shareholders who have applied for the shares of the company came to know about the assessee-company's' offer of subscription for shares. There is no correspondence in respect of share transactions or offer of share by the assessee-company. It is also not clear how the share application form came on record of the assessee-company when the shareholders are either not traceable or have not confirmed the transaction of shares obtained by them. The applicants applying for shares are required to mention GIR No./PAN on share application form, in case investment in share exceeds amount of Rs. 25,000. But in the case of assessee-company for the share application form for shares exceeding Rs. 25,000, there is no PAN/GIR number on the share application forms. The assessee has not maintained any receipt and despatch register to show the date on which the application was received or when the shares were issued. There is no evidence on record to show that the assessee-company issued any share allotment letter or share certificate to the alleged shareholders (para 45 p. 40 of assessment order). It is strange that there is no indication about the number of shares on share application form as mentioned by the AO on p. 39 of the assessment order. Even the share application forms are addressed to "Director, Delhi" as mentioned by the AO on p. 39 of the assessment order and not to the company. In the absence of correspondence, receipt and despatch register, the AO specifically mentioned that no letter of allotment or share certificate has been issued to the shareholders. The assessee-company has not submitted any evidence to show that share certificates have been issued and served on the shareholders. Under these circumstances, it is not possible to consider that issue of shares in the names of shareholders who are not traceable and transaction of receipt of money from such shareholders is genuine. The summons were not served on most of the shareholders at the address given by the assessee-company. The assessee-company has also not produced any shareholders before the AO to show that the transaction of issue of shares and receipt of share application money is genuine.

25. As already mentioned in the case of CIT v. Sophia Finance Ltd. (supra) the Hon'ble Delhi High Court Full Bench have laid down proposition of law that if the assessee offers no explanation or the explanation offered is not satisfactory then the provisions of Section 68 may be invoked. Section 68 is a substantive section and empowers the AO to treat such sum, the nature and source of which has not been satisfactorily explained, as income of the assessee. Under Section 68 if the AO is not satisfied about the (i) identity of the payee (ii) creditworthiness of the payee and (iii) genuineness of the transaction, then the AO can include such amount shown in the name of such persons in the total income of the assessee under Section 68 as observed by the Delhi High in the case of CIT v. Sophia Finance Ltd. It would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing sale proceeds or even receipt of share application money. The Hon'ble Delhi High Court further held as under (at p. 104 of 205 ITR) : "the use of the words 'any sum found credited in the books' in Section 68 indicates that the said section is very widely worded and an ITO is not precluded from making an inquiry as to the true nature and source thereof even if the same is credited as receipt of share application money".

25.1 In the case of CIT v. Precision Finance Ltd. (1994) 208 ITR 465 (Cal) it was held that mere furnishing of particulars of creditors is not enough. Mere payment of account payee cheque is not sacrosanct nor it can make a non-genuine transaction genuine.

25.2 In the case of M.A. Unneeti Kutty v. CIT (1992) 198 ITR 147 (Ker) [SLP filed by the assessee against the judgment of Kerala High Court has been rejected by the Supreme Court as reported in (1993) 201 ITR (St) 23] there was one cash credit of Rs. 75,000 in the name of Smt. K.Pathu Kutty Umma. She had filed confirmatory letters before the AO She has also shown the amount of Rs. 50,000 as withdrawn by her from Vijaya Bank. It was found that she had only 3 acres of land. The Tribunal after considering facts confirmed the AO's. order that cash credit of Rs. 75,000 in the name of Smt. K. Pathu Kutty Umma was not genuine.

25.3 It is therefore, clear from the ratio laid down in these cases that payment by cheque or by cross cheque does not mean that the transaction is genuine. In the case of the assessee there is no evidence regarding the identity of the shareholders because most of the notices issued to the individual shareholders have been returned by the postal authorities unserved. Under these circumstances it cannot be stated that the amount shown as receipt by the assessee-company as share application money from the said shareholders represent genuine transaction because the AO has found that the shareholders are not traceable, and the assessee-company has not proved conclusively the existence of shareholders. Under these circumstances, the AO was justified in treating the share application money as cash credit.

26. During the course of search under Section 132 on 9th Nov. 1995 as mentioned by the AO in paras 44 to 46 (pp. 39 to 41) of the assessment order, certain papers, documents, materials, etc. were found from the premises of assessee-company. This material found from the premises of the assessee-company revealed certain informations or discrepancies which have been mentioned by the AO in paras 44 to 46 (pp. 39 to 41) of the assessment order. Details of informations and facts mentioned in paras 44 to 46 were brought to the notice of the assessee-company by show-cause notice dt. 15th May., 1996 issued by the AO. The assessee has shown receipt of share application money (Rs. 1,10,60,000) from certain companies. In view of the fact stated by the AO, particularly in paras 44 to 46 of the assessment order, the AO asked the assessee to explain why the share application money received from bogus companies should not be treated as unexplained cash credit and added as assessee's income from undisclosed sources. It was contended by the assessee that the query made by the AO was outside the scope and purview of Chapter XIV-B of the IT Act. The AO rejected the contention of the assessee-company. The assessee submitted 50 affidavits of various corporate shareholders and also submitted income-tax orders, acknowledgment, confirmation, memorandum and articles of association with certificate of incorporation, balance sheet, P&L a/c and bank statement. The AO had made inquiries through Inspector of the Investigation Wing of IT Department at Delhi about the existence of these companies. The inquiry made through Investigation Wing at Delhi revealed that 59 companies did not have their offices at the addresses given and that those companies did not exist. Summons under Section 131 of IT Act were issued to 9 companies on the addresses given by the assessee-company by registered post, but the summons were returned by the postal authorities with the remark that those companies did not exist at the said addresses. Few samples of inquiry made by the Inspector of Investigation Wing were also sent to the assessee as mentioned by the AO on p. 43 of the assessment order.

27. The AO asked for the explanation of the assessee in respect of facts or points mentioned in paras 51 and 52 at pp. 46 and 47 of the assessment order. The assessee-company did not offer further explanation except relying on the earlier submission that these corporate shareholders are income-tax assessees and money has been advanced through bank account. The AO made further inquiry about the genuineness of the shareholders through the DDIT (Investigation), Unit-III, New Delhi. Summons issued in the case of 9 companies as mentioned in para 54 were returned by the postal authorities with the remark that those companies did not exist at the given address. Remarks of the postal authorities and the names of such companies have been mentioned by the AO on p. 48 of the assessment order. Inquiries made through Inspector of Investigation Wing at New Delhi in the cases of companies as mentioned in para 55 of the assessment order revealed that the said companies did not have any office on the address given and the said companies did not exist on those addresses. Few inquiry reports of the Inspector were also given to the assessee as mentioned by the AO in para 15 of the assessment order. When summons issued to the companies were returned unserved and inquiry through Inspector of Investigation Wing at Delhi revealed that certain companies at the given address did not exist. The AO came to the conclusion that bogus companies have been floated and capital have been built in their names as hawala entries.

From the addresses of few such companies it was found that the addresses were those of residential houses and occupants of those houses denied existence of companies on those addresses as mentioned by the AO in para 56 p. 54 of the assessment order. In some cases other persons were running the business who confirmed that no company ever operated from their premises whose addresses were given at those premises. As mentioned in para 57 of the assessment order, the AO issued letter dt. 1st Aug., 1996 requesting the assessee-company to make its submission in the matter. The submission of assessee has been mentioned in paras 57 and 58 of the assessment order.

28. It was claimed by the assessee-company before the AO that addresses of the corporate shareholders given by the assessee were the last known addresses and if the concerned persons have shifted from their last known addresses, no adverse view should be taken. The AO noted that the share capital of Rs. 51 lac was subscribed during the financial year 1995-96 before the date of search. Local inquiries were conducted towards the end of 1995 and beginning of 1996. The AO pointed out that if the companies had ever existed on the given addresses, the occupants of the premises would have remembered the existence of those companies but the occupants of the premises had denied the existence of the companies as mentioned in para 59 of the assessment order. The AO also observed that the assessee has filed 50 affidavits on behalf of those companies on 20th July, 1996 which were all attested on 19th July, 1996 and the same addresses were given which shows there was no change in the addresses of companies.

28.1 The assessee has filed 50 affidavits of the companies along with the letter dt. 27th July, 1996. These affidavits were dt. 17th July, 1996 and were attested by the Notary Public at Delhi, 19th July, 1996.

The AO made inquiries through Investigation wing, Unit-III, New Delhi to verify the genuineness of these affidavits. The Notary Public, Shri G.S. Abrol, who attested the said affidavits was examined on oath under Section 131 of the IT Act on 6th Aug., 1996 and he confirmed that all these affidavits were brought to him in a bunch and deponent/signatory of these affidavits were not present before him at the time of attestation. He stated that these affidavits were brought to him by an advocate and on his assurance he attested the affidavits but he was not able to tell the advocate's address and his name. Notary Public has not mentioned these 50 affidavits in his register maintained for this purpose. The AO came to the conclusion that though the assessee has filed 50 affidavits of the directors of companies but the existence of such directors or companies have not been proved. The AO was not satisfied about the authenticity of the affidavits because the inquiries made by the Department revealed that the companies did not exist on the given address.

The AO in order to verify the genuineness of the affidavits further made inquiries and sent a registered letter in the names of the deponents in a few cases on a test check basis requesting the deponent to intimate whether the affidavits have been signed by them. However, such letters as mentioned by the AO in para 62 (pp. 61 and 62) were returned by the postal authorities unserved. The AO came to the conclusion that the affidavits submitted by the assessee were bogus and not reliable.

28.2 It was also claimed by the assessee before the AO that the companies were incorporated by the Registrar of Companies and their existence was genuine is established. The AO did not accept this contention of the assessee on the ground that certificate of incorporation is not a conclusive evidence about the genuineness of the companies because the Registrar of Companies does not inquire about the existence or genuineness of the companies before incorporating the same, particularly, when the said companies were not found to be actually existing at the addresses given by the assessee. It was also claimed by the assessee that since the said companies are income-tax assessees having GIR number and bank accounts, their existence and creditworthiness cannot be doubted. The AO was of the opinion that processing of return under Section 143(1)(a) does not mean that existence of the so-called companies was accepted by the Department and source of capital shown in their hands was also accepted.

28.3 It was claimed that the assessee has also sent moneyorders on random basis to various companies to reaffirm the addresses and their identity. It was claimed that Post and Telegraph Department had paid petty amount sent by moneyorders without any difficulty and the list of such companies was submitted to the AO as mentioned by the AO in para 66 p. 64 of the assessment order. The AO, however, observed that the details submitted by the assessee did not show as to what were the addresses of the companies on which money orders were sent. The AO considered that the possibility that the money orders were collected by the same person at the post office at Delhi could not be ruled out. The AO also observed that the signature of the payee were in different ink and the name of the companies on whose behalf money orders were allegedly received were in different ink a few cases which was very unusual as the person receiving the money order is likely to use the same pen while acknowledging the receipt. But even then in order to verify the genuineness of evidence submitted by the assessee, commissions were issued by the AO on 19th Aug., 1996 under Section 131 of the IT Act in favour of ADIT (Inv.), Unit-III, New Delhi, for examining the directors of the said 11 companies but the summons were returned unserved by the postal authorities in 6 cases as mentioned by the AO in paras 68 and 69, pp. 64 and 65 of the assessment order. The AO came to the conclusion that when the summons have been returned by the postal authorities in respect of 6 companies out of 11 companies the evidence of remittance of money order submitted by the assessee was not genuine in 6 cases. In case of other 5 companies, summons were issued by the ADIT (Inv.), New Delhi but no compliance was made by those companies. Thus, survey under Section 133A of the IT Act, 1961 by the ADIT (Inv.), New Delhi, on 10th Sept., 1996 on the 2 concerns was done as mentioned in para 71 p. 67 of the assessment order. During the course of survey it was found that no records were being maintained or kept at the office. No books of account, stock or cash was found to have been kept. It was rather revealed by 2 directors of 2 companies namely, Sh. Kamal Kishore Aggarwal, director of Mohak Trading Company (P) Ltd. and Sh. Vimal Kishore Aggrawal, director of Profen Finance Investment Ltd. that the books of account and other records were kept with chartered accountants only. These directors did not know number of shareholders, subscribed/paid up capital, etc. The AO came to the conclusion that the said 2 companies existed only on paper without any actual operation. The details gathered by the AO were furnished to the assessee vide letter dt. 1st Oct., 1996. It seems earlier reply by the assessee-company to the AO was repeated. For the reasons mentioned in paras 74 to 78 pp. 63 to 75, the AO was not satisfied about the identity of the companies in whose name receipt of share application money has been shown by the assessee-company and he, therefore, made addition of Rs. 1,10,60,000 to the total income.

28.4 The learned counsel of the assessee-company during the course of hearing particularly referred to certain names of the companies which have applied for shares. Learned counsel referred to the names of Bankey Bihari Company and it was stated by the learned counsel that this company was incorporated in 1988. Address of this company as given by the assessee, has been mentioned by the AO at p. 65 para 68 of the assessment order as under : In order to verify the genuineness and creditworthiness of transaction of shares, the AO issued commission in favour of DIT (Inv.), Unit-III, New Delhi. The ADIT issued summons to the company but postal authorities returned the same with the remark that no such person resides at this place. Therefore, the whereabouts of this company could not be located. What is material is not the incorporation of the Company but whether the company M/s Bankey Bihari Growth Fund (P) Ltd., has acquired shares of the assessee-company. When on inquiry by the AO the company is not traceable at the address given by the assessee, it is not possible to presume that Bankey Bihari Growth Fund (P) Ltd. has acquired shares of the company.

The learned counsel also referred to name of Ram Lal Garments (P) Ltd. This company is also not traceable at the address given by the assessee-company. As per the remarks of the postal authorities, as mentioned in para 69 of the assessment order.

Learned counsel also referred to the name of Mohak Trading (P) Ltd. The AO has mentioned the result of inquiry in the case of this company, in para 72 (p. 67 of the assessment order) which shows that Shri Kamal Kishore Agarwal, director of this company knows nothing about the operation and activities of the company and stated that records of the company are kept with the chartered accountant (whose name was also not mentioned). The learned counsel also referred to the name of Bansal Consultant (P) Ltd. as mentioned by the AO (in para 68) pp. 64 and 65 of the assessment order) summons issued to this company at the address given by the assessee-company were returned unserved by the postal authorities because the company was also not found at the address given by the assessee-company.

In view of the facts that the assessee has failed to establish the genuineness of transaction of issue of shares in the case of these companies as well as other companies, the AO found incriminating material during search and subsequent inquiries revealed that these companies are also not traceable and therefore, it cannot be stated that the conclusion of the AO that the companies exist only on paper is wrong.

29. It is argued by the assessee's counsel that assessee-company has disclosed share capital in the balance sheet filed with the return of income and the same cannot be treated as undisclosed income of the assessee-company.

The argument of assessee's counsel in my humble opinion has no force.

The assessee has not disclosed the true character of receipts. The material found during the course of search i.e., share application forms and other material (mentioned in para 44 and other paras of assessment order) revealed unusual features. The material found during the course of search was never produced before the AO. Subsequent inquiries made by the AO revealed that shareholders are not traceable, and therefore, in the absence of examination of shareholders by the AO it cannot be said that they have subscribed to the share capital of the assessee-company. The assessee-company produced most unreliable evidence in the form of affidavits, money orders before the AO which the AO established as false. There is no evidence about the issue of allotment letters or issue of share certificates by the assessee-company to shareholders. When the shareholders are not traceable and there was no issue of shares to the public, it cannot be stated that the receipt of share application money shown by the assessee-company in the name of shareholders is genuine. True character of nature of receipt came to the knowledge of the AO as a result of search on the basis of material found during the course of search and subsequent inquiries made by the AO. As the shareholders are not traceable, the share capital shown in these names does not represent the true character of receipt. If the true character of the receipt is found out after search as a result of material found during search, then such receipt can be treated as undisclosed income under Section 68 of the IT Act. The assessee has failed to prove the nature, source and genuineness of the amount shown by the assessee-company as share application money.

30. Briefly stated, the following facts shows that transaction of issue of shares and receipt of share application money is not genuine as mentioned by the AO in para 44 of assessment order and these facts have not been controverted by the assessee-company : (a) There is no letter of offer for subscription to the share capital by the assessee-company.

(b) In many cases the number of share application has not been mentioned in the share application form.

(c) There is no Board resolution in the case of share application in the name of private limited companies.

(d) It is not known how the share application forms came on record as there is no correspondence and no receipt and despatch register of the assessee-company.

(e) There is no evidence to show that either the share allotment letter or share certificates have been issued and served on the shareholders.

(f) Despite efforts made by the AO, shareholders were not traceable or did not appear before the AO The assessee-company also did not produce even a single shareholder before the AO for confirmation of receipt of share certificates If an assessee shows receipt of money in the name of existing persons, such receipt of money shown by the assessee even in the name of existing persons cannot be considered as genuine receipt until and unless the person, in whose name receipt of money has been shown by the assessee confirms before the AO that he has paid the money to the assessee and the AO is satisfied about the creditworthiness of the payer, cash creditor. In the case of assessee-company before us, neither the AO is able to trace the individual shareholders and company shareholders nor the assessee-company is able to produce the shareholders before the AO In the absence of verification by the AO from the shareholders about the genuineness of share application money shown in the books of account of the assessee-company, it cannot be said the assessee has proved the genuineness of receipt of money shown as share application money. Similarly, in absence of verification from shareholders, it cannot be said that the return of income filed in their name or bank account maintained in their name is genuine.

31. It is clear from the facts mentioned in preceding paras that the AO made various inquiries at various stages but could not locate the companies or their directors who have been shown as the shareholders in the case of assessee-company. The assessee-company also failed to prove the creditworthiness and genuineness of the transaction relating to issue of shares and contribution towards subscription to shares of the assessee. Their identity have only been proved on paper but real identity about the existence and creditworthiness of those companies has not been proved. It is not a case where the burden has been placed on the assessee by the AO without making enquiries. AO made various enquiries at various stages on the basis of material found during search but could not locate the companies who are having shares in the assessee-company or their directors. Under these circumstances, the assessee has also failed to discharge the onus to prove the identity of the company shareholders, creditworthiness of the shareholders and genuineness of the transaction. Simply because the companies have been registered with the Registrar of Companies, it cannot be stated that the companies are really functioning because whereabouts of the companies and their activities are not known. The creditworthiness of the companies is also not proved because it seems that someone has filed return of income in the name of companies and such returns have been accepted under Section 143(1)(a) of IT Act. The share application money might have been forwarded through the bank but unless the corporate shareholder proves that they have sufficient funds to contribute to subscribe to the shares of the assessee-company, it cannot be stated that the transaction is genuine because payment through banks seems to be manipulated. Under these circumstance there is no ground to interfere with the order of the AO and order of AO on the ground relating to addition of Rs. 1,10,60,000 and 37,09,000 to undisclosed issue is confirmed.

32. The AO also treated cash credit of Rs. 5,11,000 on account of shares held by the following persons in financial year 1994-95 : The AO issued summons to these persons under Section 131 of IT Act which were returned unserved by the postal authorities. The AO considered the identity and creditworthiness of these persons were not established. The AO asked the assessee to prove the identity and creditworthiness of these persons. These persons were shareholders of the assessee-company also. The assessee filed affidavits of these persons but since the persons were not traceable, the AO made addition of Rs. 5,11,000 to the total income.

33. We have heard the learned counsel of the assessee as well as learned Departmental Representative. These 3 persons are shareholders also who have applied for shares of the assessee-company. These 3 persons mentioned by the AO on p. 78 of the para 82 of the assessment order, are not traceable. Therefore, there is no evidence about the identity of the persons concerned. Though the assessee has filed affidavits but in the absence of availability of the creditors who have been shown as shareholders also, it cannot be stated that the assessee has proved the identity, creditworthiness and genuineness of the shareholders. Therefore, ground of appeal relating to addition of Rs. 5,11,000 to total issue is dismissed.

34. The learned counsel has referred to certain decisions of the Hon'ble High Court and Tribunals. Some of these decisions are considered in the following paras : In this case the material relied on by the ITO was not communicated to the assessee. It was found that the assessment was not based on facts and therefore, the assessment was annulled. But in the case of the assessee-company before us the results of inquiry made by the AO have been communicated to the assessee. Hence, this decision is not applicable in the case of the assessee.

(ii) CIT v. Bharat Engineering & Construction Co. (1972) 83 ITR 187 (SC) : In this case, the assessee, an engineering construction company, commenced business in May, 1943. In its accounts there were several cash credit entries in the first year of its business totalling to Rs. 2,50,000. Though the explanation regarding the cash credit entry was found to be false, the Tribunal held that these cash credits could not represent the income or profits of the company as they were all made very soon after the company commenced its activities.

The Hon'ble High Court came to the conclusion that the Tribunal's findings are findings of fact and the Hon'ble Supreme Court agreed with the conclusion. This decision was under the old IT Act, 1922 and not applicable to this case by assessee-company in view of the express wordings of Section 68 of the IT Act, 1961.

Section 68 of IT Act, 1961 lays down that unexplained cash credits may be treated as income of the same previous year. Such unexplained cash credit has to be assessed under the head "Income from other sources" and not "Profit and gains of business" (Basantipur Tea Co.

(P) Ltd. v. CIT (1989) 180 ITR 261 (Cal) and CIT v. Maduri Rajaiahgari Kistaiah (1979) 120 ITR 294 (AP).Basantipur Tea Co. (P) Ltd. v. CIT (supra) the facts of the case were that out of the amount of the total unexplained cash credit of Rs. 4 lacs, the sum of Rs. 1,50,000 was credited on the day of incorporation of the assessee-company. It was held by the Hon'ble Calcutta High Court that in the absence of evidence or explanation, the Tribunal was right in treating the income as "income from undisclosed sources".CIT v. Smt. P.K. Noorjehan In this case the assessee was a Muslim lady aged about 20 years. The AO made addition of Rs. 32,628 to the total income as income from other sources for the year 1968-69 and a similar addition of Rs. 29,902 in the year 1969-70. The additions were made by the AO under Section 69 of IT Act, 1961 on account of investment in the properties which was not satisfactorily explained. The Tribunal held that though the explanation about the nature and source of investment by the assessee in the properties was unsatisfactory and the assessee being a Muslim lady aged 20 years, who had no other source of income, it was impossible for her to have earned the amount invested in the properties. The Tribunal held that although the explanation of the assessee was liable to be rejected, Section 69 of the Act conferred only discretion on the ITO to deal with the investments as income of the assessee and that it did not make it mandatory on his part to deal with the investment as income of the assessee, as the assessee's explanation happened to be rejected. The Tribunal allowed the appeal and deleted the addition made by the ITO. In this case, the Tribunal took into account complete absence of resources of the assessee and also the fact that having regard to her age and the circumstances in which she was placed, she could not be credited with having made any income of her own. The Hon'ble Kerala High Court, therefore, held the Tribunal was right in holding that Section 69 of the IT Act, could not be invoked in respect of the investments of the assessee.

In this case of assessee-company before us, the facts are distinguishable from the facts in the case of CIT v. Smt P.K. Noorjehan (supra) and it cannot be stated that the AO has exercised his discretion arbitrarily, while considering the explanation of the assessee. In this case of CIT v. Smt P.K. Noorjehan, there was no evidence to show receipt of any amount from any source. But in this case of assessee-company before us there are cash credits in the form of share application money, in the books of account. The AO has made enquiries and found that the so-called shareholders are not traceable at the address furnished by the assessee-company. The assessee-company is also not able to produce the shareholders before the AO Under these circumstances the facts in the case of CIT v. Smt. P.K. Noorjehan (supra), are totally different from the facts in the case of assessee-company before us.N.R. Paper & Board Ltd. and Ors. v. Dy. CIT (1998) 234 ITR 733 (Guj) In this case, the only issue involved was the difference between regular assessment under Section 143(3) and block assessment under Section 158BC in case of search.

The AO issued notice under Section 143(2) in respect of regular assessment. In the writ petition it was contended by the assessee that the total income for the asst. yr. 1995-96 was already completed in the assessment order for the block period under Section 158BC and therefore, no regular assessment for the asst. yr. 1995-96 could be completed. The Hon'ble Gujarat High Court held that the notice issued under Section 143(2) were in respect of regular assessment and the AO was within his jurisdiction to proceed with the same as per Section 143(3) and made regular assessment of the total income notwithstanding the fact that said previous year was included in the block period for the purpose of assessment of the undisclosed income. This issue of regular assessment is not at all involved in the case of the assessee-company before us.

In this case, the AO made addition of Rs. 1.68 crores representing 50 per cent of the aggregate of loans presumed by him to be bogus on the basis of Inspector's report in four cases. The AO made inquiries through Inspector only in respect of 4 cases out of 43 creditors and made addition of cash credit without giving opportunity of hearing in respect of evidence gathered by AO to the assessee on the issue involved. It was held that the assessment order was unjust and arbitrary and the additions have to be deleted. But in the case of the assessee-company before us the AO has made inquiries and given opportunity to the assessee by intimating in respect of enquiries made by the AO Similarly, in other cases cited by the assessee's counsel, the facts were totally different and not applicable to the case of the assessee.

35. The next ground of appeal is against addition of Rs. 13,46,000 for alleged income from undisclosed sources as unexplained cash credits.

The AO made addition of Rs. 13,46,000 on ground of cash credits appearing in the books of account in financial year 1992-93 and 1993-94, as under : Some of cash credits mentioned on p. 76 of the assessment order were shown shareholders of the assessee-company. As already mentioned, the original income-tax files in respect of said 34 shareholders were recovered during the course of search from the premises of M/s Jalan enterprises. There were credits of Rs. 25,000 in the name of Nilender Jalan, Gorakhpur and cash credit of Rs. 90,000 in the name of Shri Ram Preet, Gorakhpur. These cash creditors form part of 34 individual shareholders whose original income-tax files were found from the premises of M/s Jalan Enterprises during the course of search and who were not traceable by the AO. The AO asked the assessee to produce the evidence regarding the identity and creditworthiness of various loan creditors appearing in the books of account during the financial year 1992-93, 1993-94 and 1994-95. Since the assessee failed to prove the genuineness of the transaction, creditworthiness of the creditors, the AO considered the income of Rs. 13,46,000 as undisclosed income of the assessee.

36. We have heard rival submissions and considered the facts of the case. Income-tax files and other materials relating to 34 shareholders was found from the premises of M/s Jalan Enterprises. Sh. Neelinder Singh and Sh. Ram Preet "in whose names cash credits of Rs. 25,000 and Rs. 90,000, respectively, have been shown are also shown as shareholders. AO made inquiries but these 2 persons were not traceable, and their whereabouts and existence is not known as mentioned by the AO in para 81 p. 77 of the assessment order. AO has made inquiries about these 2 persons on the basis of material found during the search and there is no reliable evidence about the identity and creditworthiness of these two persons. The assessee-company has also failed to prove the genuineness of transaction and identity and creditworthiness of these two persons and the AO was justified in making addition of Rs. 25,000 and Rs. 90,000, respectively, on account of cash credits in their names.

As regards other 13 persons in whose names cash credit has been shown, the AO has not mentioned in the assessment order any material or document found during the course of search and any inquiry made by the AO relating to papers found during search. AO has made general observation in para 79 of the assessment order such as : "Since the papers found during the search showed modus operandi of the assessee was to introduce its own unaccounted money in the name of various bogus creditors." In letter dt. 31st May, 1996 to assessee also, the AO inter alia observed as under (para 79 of the assessment order).

"Papers found during the search show that bogus creditors have been introduced in the name of various creditors." The AO did not mention the nature of papers found during the search on the basis of which he came to the conclusion about the bogus nature of the cash credits. AO also did not make any inquiry to find out the genuineness of 13 cash creditors on the basis of any paper found during search. As the AO has not mentioned any material or any inquiry based on material found during search, the cash credits in the name of 13 other cash creditors cannot be treated as undisclosed income of the assessee-company. Only such income can be treated as undisclosed income which is determined on the basis of material found during search or subsequent inquiries relating to material found during search.

Therefore, addition of cash credits based on material found during search and inquiries made by the AO on the basis, of material is confirmed in the following cases : Other cash credits of Rs. 1,13,000 in financial year 1992-93 and cash credit of Rs. 11,68,000 for financial year 1993-94 are deleted as they cannot be treated as undisclosed income in block assessment as the AO has not mentioned any material found during search in respect of 13 cash credits. This ground of appeal is partly allowed.

37. Another ground of appeal is that the AO has erred in law and on the facts while coming to the conclusion that shortage of 21,476 litres of raw material (burnt oil) represented sale outside the books of account.

On this issue I agree with the conclusion of my learned brother in para 26 p. 72 of his order.

With reference to the abovementioned appeal, after discussion, we differ in our opinion on the following points for adjudication. We refer to the Hon'ble President of the Tribunal, for the hearing by one or more other Members of the Tribunal to be constituted by him as Third Member the following points in the abovementioned appeal: (1) Whether, on the facts and in the circumstances of the case, the AO was justified in treating the following share application money as undisclosed income of the assessee for the following years : (b) 12,33,000 1993-94 (para 43 of the assessment order) (b) 46,50,000 1994-95 (para 78.2 of the assessment order) 3. Vishwanath Pd.

1,70,000 1994-95 ________ Financial year 1992-93 Neelinder Jalan Rs. 10,000 Ram Preet Rs. 90,000 (2) Whether the notice issued by the AO under Section 158BC is valid? (3) Whether the service of notice issued by the AO under Section 158BC is proper 1. The Hon'ble President of the Tribunal exercising his powers under Section 255(4) of the IT Act, 1961 (hereinafter referred to as the Act), has referred the following points of difference which were referred to by the Members constituting Bench seized with the above referred to appeal : "(1) Whether, on the facts and in the circumstances of the case, the AO was justified in treating the following share application money as undisclosed income of the assessee for the following years :(a) 24,32,000 1992-93 (para 43 of the(b) 12,33,000 1993-94 assessment order)(c) 44,000 1994-95(a) 1,26,000 1993-94 (para 78.2 of the(b) 46,50,000 1994-95 assessment order)(c) 51,50,000 1995-96 1 Pawan Kumar Bindal 1,61,000 1993-94 2 Deepak Bindal 1,80,000 1994-95 3 Vishwanath Pd.

1,70,000 1995-96 ________ Financial year 1992-93 Neelinder Jalan Rs. 10,000 Ram Preet Rs. 90,000 (2) Whether the notice issued by the AO under Section 158BC is valid (3) Whether the service of notice issued by the AO under Section 158BC is proper ?" 2. Both the Members have given a detailed factual matrix of the case in their respective orders, but it will be in the fitness of things to recapitulate the factual position in a summarized manner.

3. Assessee is a public limited company which was incorporated under the Companies Act, 1956, on 3rd March, 1992 for retail business of refining "used oils" (petroleum products) as its main business and manufacturing unit was set tip by the assessee-company at Bargadwa, Gorakhpur. The assessee-company has got its registered office at Faizabad.

4. Assessee-company was subjected to a search operation carried out under Section 132(1) of the Act on 9th Nov., 1995. It is also admitted fact that a partnership firm styled as M/s Jalan Enterprises was also subjected to search operation on 9th Nov., 1995 itself and that firm was having its business place at Dharmshala Bazar, Gorakhpur. During the search operation carried out at the business premises of the assessee-company, the following cash, documents and raw material were found and seized : (i) As per Annexure B1 to the Panchnama, the appellant's regular books of account, RG-1, RG-23 and some loose papers were found and seized.

(ii) As per Annexure C-1, cash of Rs. 2,23,150 was found out of which cash of Rs. 2,00,000 was seized.

(iii) As per Annexure C-2, cash of Rs. 60,000 was found but was not seized.

(iv) The Annexure J, S-1, S-2 and S-3 contains the details of material, raw material and finished goods found at the time of search.

5. It is also on record that there is no controversy regarding cash and regarding addition in respect of shortage of raw material detected during the search operation for which some addition was made by the AO and the learned JM restricted the addition in respect of shortage of raw material to 11,476 Litres. It is again to be noted that during the search operation carried out at the business premises of M/s Jalan Enterprises, income-tax files of 30 persons listed in Annexure-I to the block assessment order showing a total investment of 37,09,000 as share capital in financial years 1992-93 to financial year 1994-95 (Rs. 24,32,000 in financial year 1992-93, Rs. 12,33,000 in financial year 1993-94 and Rs. 44,000 in financial year 1994-95) were found and seized. The AO proceeded to complete the block assessment and issued a notice on 5th Dec., 1995 calling upon the assessee to furnish its return of undisclosed income for the block period of 1st April, 1985 to 9th Nov., 1995. It is also admitted fact that this notice, copy of which has been reproduced by the learned JM at p. 11 of his order, was addressed to M/s Gorakhpur Petro Oils Ltd., C/o Agarwal Forwarding Agency, Fatehganj, Faizabad, and the same was received by some advocate on 13th Dec., 1995 for M/s Gorakhpur Petro Oils Ltd., Faizabad. As assessee did not file return in time as prescribed in the said notice, the AO proceeded to complete block assessment under Section 144 of the Act. While doing so, the AO has taken note of all the explanations/replies furnished by the assessee during the assessment proceedings and completed the assessment at an undisclosed income of Rs. 1,68,04,856 for the block period. The yearwise details of share capital and cash credit as well as business income which has been considered as undisclosed income had been reproduced by the learned JM in para 8.5 of his order which is as under :___________________________________________________________________Sl.

Description of Assessment yearsNo undisclosed income 1993-94 1994-95 1995-96 1996-97___________________________________________________________________ (a) Companies Nil 12,60,000 46,50,000 51.50,000 (b) Non-Company 24,32,000 12,33,00 0 44,000 Nil3. Business income Nil Nil Nil 1,28,856___________________________________________________________________ Total 26.45,000 36,76,000 52,05,000 52,78,856___________________________________________________________________ 6. While computing the undisclosed income, the AO had proceeded on the basis of search materials found and seized at the business premises of M/s Jalan Enterprises which are 30 income-tax files of 30 persons, pass books of these persons and other related documents by which those persons have contributed to the share application money and share capital of the assessee-company. The AO proceeded to examine the seized materials and made detailed enquiries and his conclusion was that these income-tax files were maintained by the directors of the assessee-company and by person connected with Jalan group, a firm for the purposes of introduction of unaccounted money of the assessee-company in the names of these various bogus name-lenders and ultimately he treated an amount of Rs. 37,09,000 which was total investment in shares in these bogus names for financial years 1992-93 to 1994-95, as the total income of the assessee-company after rejecting the explanation of the assessee which were found not satisfactory. The AO also treated the amount of cash credits appearing in the books of assessee as unexplained and treated the amounts of such cash credits as undisclosed money of assessee-company and added accordingly.

7. The gist of the findings of the AO was that provisions of Section 68 of the Act were applicable and assessee had failed to prove the identity of those persons who allegedly contributed to share application money/share capital in the books of account of the assessee and further they were not having sufficient sources to contribute such huge amounts. In other words, the AO also doubted the creditworthiness of these persons.

8. Later on the AO also noted that assessee had shown names of various companies located in and around Delhi which have also subscribed share capital of the assessee-company and he noted that there was no correspondence in respect of share transaction other than share application which was available with the assessee-company. No letter of offer for subscribing to the share capital has been made by the assessee-company. The companies which allegedly have subscribed share capital have not given their GIR/PAN numbers in their share application form though applications were for amount exceeding Rs. 25,000. The assessee-company was not maintaining any receipt and dispatch register.

There was no copy of resolution passed by the respective board of directors of each company for investment in the assessee-company.

Addresses of many of the companies were the same. Share application forms were addressed to the director at Delhi, which were found as bogus address after necessary enquiries. From the above, the AO was of the view that very existence of the companies, who allegedly have subscribed to the share capital of the assessee, was in doubt and he proceeded to carry out necessary investigation/enquiry and he has called for necessary information from the authorities at Delhi and reproduced the gist of all the enquiries which were confronted to the assessee. The assessee tried to explain that each of the company was registered with the Registrar of the Companies and each of them was income-tax assessee. The other pleas were also raised, but the AO, after discussing the issue in detail, did not agree with the contention of the assessee, but placed reliance particularly on the report of the A.D.I.T., Delhi, who has submitted a detailed report doubting the very existence of those companies and which were not found at the addresses given by them. Accordingly, the AO treated all the amounts of share capital and share application money of these companies as undisclosed income of the assessee-company and made addition and assessment was completed which were challenged before the Bench.

9. Several pleas were raised before the Bench by respective representatives of the parties and the learned JM placing reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v.Stellar Investment Ltd. (1991) 192 ITR 287 (Del) which stands approved by the Hon'ble Supreme Court of India vide order dt. 20th July, 2000 in Civil Appeal No. 7968 of 1996 reported as CIT v. Stellar Investment Ltd. (2001) 251 ITR 263 (SC) was of the view that assessee being a public limited company was fully covered by the decision of the Hon'ble Supreme Court of India in the case of CIT v. Stellar Investment Ltd. (supra) and amounts found credited in the heads "share capital" or "share application money" in the regular books of the account being maintained by the assessee-company cannot be added to the income of the assessee-company under the Act nor the same can be treated as undisclosed income. While doing so, the learned JM has also taken note of the subsequent decision of the Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) (FB) and was of the view that in spite of this decision, the ratio of the case of CIT v. Stellar Investment Ltd. (supra) which stands affirmed by the Hon'ble Supreme Court of India still holds good. The learned JM also took note of this fact that genuineness of the "share capital"/"share application money" and "cash credit" had been investigated and accepted during the regular assessment proceedings for asst. yr. 1994-95 and the same cannot be treated as undisclosed income because all these were duly recorded in the books of account and had already been disclosed to the Department and that cannot be subject-matter of undisclosed income for the purposes of Chapter XIV-B of the Act. The learned JM also opined that none of the documents found and seized from the business premises of the assessee-company or premises of the director contain any transactions or details which were not found recorded in the regular books of account and the same cannot be made basis for making addition on account of undisclosed income.

10. For additions in asst. yrs. 1995-96 and 1996-97, the learned JM noted that already share capital/share application money and cash credit have been recorded in the books of account being maintained by the assessee and return for asst. yr. 1995-96 was not due till the date of search and for asst. yr. 1996-97 even the accounting period has not come to an end and in view of these facts, no addition is warranted in respect of share capital/share application money, etc which was already found recorded in the books of account and thus he deleted all the additions made by the AO, as the same was found duly recorded in the books of account.

11. As against it, the learned AM had considered the detailed enquiries and investigation carried out by the Department in respect of 30 income-tax files found and seized at the business premises of M/s Jalan Enterprises as well as in respect of companies who allegedly have contributed to share capital of the assessee-company and on the basis of finding recorded by the AO, the learned AM concluded that assessee has not been able to prove the very identity of individuals who have allegedly contributed to share capital of the assessee-company nor the very existence of the companies who allegedly have subscribed to the share capital of the assessee-company. For this, the learned AM has reproduced the relevant portion of the order of the AO and findings recorded by him. About the disclosure in the books of account in respect of share capital and share application money as well as cash credit, the learned AM opined that necessary enquiries and investigation made by the Department on the basis of seized material go to prove that the individuals and the companies have not contributed to share capital, but the amount was unaccounted money invested by the assessee-company in the garb of name-lenders, individuals and companies. Accordingly, the learned AM concluded against the assessee and confirmed the action of the AO.12. At the time of hearing, the learned representatives of the parties have virtually placed reliance on respective orders of the Bench and the respective arguments placed by each of them before the Bench.

13. The learned standing counsel, Shri Shambhoo Chopra had extensively read over the relevant portion of the order of the AO and submitted that the issue in question had been dealt at length by the learned AM in his order, which is based on the categorical finding recorded by the AO The main plank of the argument of the learned standing counsel, Shri Shambhoo Chopra, is that on the basis of material seized during the search operation, the AO had proceeded to verify the identity of the shareholders who have applied for allocation of shares by depositing amount through cheque. In this connection, the learned standing counsel pointed out that 30 income-tax files along with related documents were found at the premises of M/s Jalan Enterprises and the AO made specific enquiries and failed to locate the identity of the shareholders. The assessee has not been able to produce any of those persons whose income-tax files were recovered during the search operation. Once the identity of the shareholders is not established, then the decision of Full Bench of the Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. (supra) is fully applicable, as their Lordships have opined in that case that it is incumbent on the part of the assessee to prove on record the identity of the persons who subscribed to the share capital if not more. This decision has been held to be good law and the learned JM was not justified in placing reliance on the earlier decision of the same Court laid down in the case of CIT v. Stellar Investment Ltd. (supra). The learned standing counsel further pointed out that the Hon'ble Calcutta High Court has occasion to discuss this point and in the case of Hindustan Tea Trading Co. Ltd. v. CIT (2003) 263 ITR 289 (Cal) have observed that decision in the case of CIT v.Stellar Investment Ltd. (supra) is no longer a good law in view of the decision in the case of CIT v. Sophia Finance Ltd. (supra) in spite of the fact that the decision of CIT v. Stellar Investment Ltd. (supra) has been affirmed by the Hon'ble Supreme Court of India. Their Lordships have also laid down that the apex Court had not entered into the question involved nor decided the ratio laid down, but it had plainly held that it was a question of fact and thus the decision in the case of CIT v. Stellar Investment Ltd. (supra) cannot be treated as good law. This ratio was followed in the case of CIT v. Ruby Traders & Exporters Ltd. (2003) 263 ITR 300 (Cal) and it was laid down that in case of subscription received by a company from the shareholders, it is obligatory on the part of the company to prove the genuineness of the transaction and the creditworthiness of the subscribers and the AO can enquire into the real nature of the transaction. Again the same decision was followed in the case of CIT v. Kamdhenu Vyapar Co. Ltd (2003) 263 ITR 692 (Cal). On the basis of the above, the learned standing counsel pointed out that the AO has made extensive enquiries/investigation and had recorded categorical finding to the effect that assessee has not been able to prove the identity of the individuals who have subscribed allegedly in the share capital and also failed to prove on record the real existence of the companies who allegedly have subscribed to share capital of the assessee-company and thus the AO was justified to treat the alleged amount of share capital and share application money on behalf of the individuals and the companies who were not traceable at the addresses given by the assessee as not genuine and the learned AM has appreciated the factual position in the correct perspective and rightly confirmed the view taken by the AO.14. As against it, Shri S.K. Garg, senior advocate, on behalf of the assessee, had extensively relied upon the order of the learned JM and submitted further that the issue involved in the case in hand relates to share capital money received by individuals and companies. This is a case of block assessment and provisions of Chapter XIV-B are to be applied which had been a special provision for assessment of such cases. The learned counsel for the assessee pointed out that nothing was recovered from the possession of the assessee-company during the search operation in respect of amount of share capital and share application money. 30 income-tax files, which were recovered from M/s Jalan Enterprises, were in respect of amount as contributed by them during financial years 1992-93 and 1993-94 relevant to asst. yrs.

1993-94 and 1994-95. No other material was recovered during the search operation even from M/s Jalan Enterprises. The amount in respect of 30 income-tax files of 30 individuals stood recorded under the head "share capital'/"share application money" and related balance sheet formed part of the assessment record for asst. yr. 1994-95, for which regular assessment order has been passed as early as on 25th Jan., 1995, and that date is prior to the date of search. Once assessment has been made in respect of those share capital/share application money after due investigation by the AO under Section 143(3) of the Act, then the said assessment cannot be reopened in the case of assessee-company unless some material was found from the premises of the assessee-company in the search carried out under Section 132 of the Act. The contention of the learned counsel for the assessee is that there was no material found during the search from the business premises of the assessee-company or from the residence of its directors and thus question of any undisclosed income in respect of asst. yr. 1994-95 does not arise nor it can be made.

15. The learned counsel for the assessee also submitted that scope of block assessment is restricted to undisclosed income as per provisions of Section 158B of the Act and their Lordships of Hon'ble Delhi High Court in the case of CIT v. Ravi Kant Jain (2001) 250 ITR 141 (Del) has laid down that block assessment under Chapter XIV-B of the Act is not intended to be a substitute for regular assessment and its scope and ambit is limited in that sense to materials unearthed during search or requisition of books of account or documents and such other materials or information as are available with the AO The other decisions in the case of CIT v. Vinod Danchand Ghodawat (2001) 247 ITR 448 (Bom) and CIT v. Rajendra Prasad Gupta (2001) 248 ITR 350 (Raj) were also referred to.

16. The learned counsel for the assessee relying upon the decision of CIT v. Shambhulal C. Bachkaniwala (2000) 245 ITR 488 (Guj), in which the Hon'ble Gujarat High Court upheld the view of the Tribunal that only undisclosed income as defined in Section 158B of the Act has to be assessed under Chapter XIV-B and consequently income other than undisclosed income has to be assessed under Chapter XIV, submitted that assessee has already disclosed share capital/share application money relating to previous year of asst. yr. 1994-95 and once that stand assessed under Section 143(3) of the Act, then the said amount cannot be treated as undisclosed income of the assessee.

17. The next plea of the assessee was that scope of block assessment had been discussed by Tribunal Mumbai Bench, in the case of Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai), in which it was held that headnote of Section 158BA of the Act indicates that it relates to assessment of undisclosed income as a result of search and such assessment could be made only in respect of undisclosed income and such undisclosed income must come as a result of search. It has also been observed in the said decision of the Bench that Section 158BA of the Act does not provide license to the Revenue for making roving enquiries connected with completed assessment and it is beyond power of the AO to review the assessments completed unless some direct evidence comes to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. The learned counsel for the assessee submitted that there was no material seized from the premises of the assessee during the search and even if the material seized from the premises of M/s Jalan Enterprises, a separate income-tax assessee, is taken into consideration, then the same does not provide direct evidence indicating clearly the factum of undisclosed income. The AO has also not made addition on the basis of that material alone, but he has conducted roving enquiries in respect of that material and that is prohibited as observed by the Bench referred to above in the case of Sunder Agencies v. Dy. CIT (supra) and Department cannot be allowed to review the assessment completed for asst. yr. 1994-95.

18. The another decision referred to by the learned counsel for the assessee is that of Ravi Kant Jain v. Asstt. CIT (2000) 67 TTJ (Del) 797 which stand approved by the Hon'ble Delhi High Court as reported in (2001) 250 ITR 141 (Del) (supra).

19. The other decisions are that of Smt. Usha Tripathi v. Asstt. CIT (2000) 66 TTJ (All) 508, Dr. R.M.L. Mehrotra v. Asstt. CIT (1999) 64 TTJ (All) 259 : (1999) 68 ITD 288 (All) and P.K. Ganeshwar v. Dy. CIT (2004) 91 TTJ (Chennai) 970 : (2002) 80 ITD 429 (Chennai).

20. On the basis of the above case law, the learned counsel for the assessee submitted that there was no justification for the AO to utilize the material seized from the premises of another assessee and further no justification to conduct enquiries in respect of that seized material and to review the earlier completed assessment for asst. yr.

1994-95 under Section 143(3) of the Act and further there was no undisclosed income, as already assessee has shown the share capital/share application money for asst. yr. 1994-95 which stand accepted by the Department.

21. In respect of the additions made by the AO for asst. yrs. 1995-96 and 1996-97, the learned counsel for the assessee submitted that for asst. yr. 1995-96, assessee has to file return by 31st Oct., 1995. On the date of search i.e., on 9th Nov., 1995, the return was not due for asst. yr. 1995-96 and assessee had filed the return showing increase in the share capital/share application money in the said return, which was filed within the statutory period. Further, accounting year for asst.

yr. 1996-97 was not over and return for that asst. yr. 1996-97 was filed subsequently and in that return assessee has also disclosed all the facts including the increase in the share capital/share application money. Not only this, the books of account of the assessee found during the search contain all the entries regarding share application money and share capital received from different sources during previous year relating to asst. yrs. 1995-96 and 1996-97. It is also submitted that once the books of account were containing all the entries, then it can easily be presumed that assessee will be submitting all these details in the return and assessee in fact did so while filing the return for asst. yrs. 1995-96 and 1996-97. Assessee cannot avoid showing receipts of such share capital and share application money because all the amounts were received through cheque/D.D. and duly entered in the books of account and thus as per provisions of Section 158BB of the Act, the AO was not justified to treat the amounts of share capital and share application money of asst. yrs. 1995-96 and 1996-97 as undisclosed. For this, the learned counsel for the assessee has referred to the decision of Smt. Hemalatha D. Shah v. Dy. CIT (2003) 79 TTJ (Bang) 188, in which it was laid down that where previous year has not ended or due date for filing of return of income for any previous year has not expired, income or the transaction recorded on or before the date of search or requisition in the books of account or other documents maintained in the normal course of business shall not be included in the block assessment. The latest decision on this point referred to by the learned counsel for the assessee is that of M.S. Aggarwal v. Dy. CIT (2004) 83 TTJ (Del) 692 : (2004) 90 ITD 80 (Del) in which it was laid down that where any asset or any income recorded in books or document had been disclosed or intended to be disclosed to income-tax authorities, that would not be treated as undisclosed income under Clause (b) of Section 158B of the Act. The learned counsel for the assessee also referred to the latest decision of the Hon'ble M.P. High Court in the case of CIT v. Nitin Munje (2003) 264 ITR 628 (MP) in which facts were somewhat identical and assessee undertook to declare amount found recorded in diary in the return to be furnished within the statutory period and the Hon'ble High Court confirmed the view of Tribunal that there cannot be addition on undisclosed income in respect of amount noted in diary which was to be disclosed by the assessee. The learned counsel for the assessee contended that no addition for asst.

yrs. 1995-96 and 1996-97 is sustainable on the above referred to ratio.

22. On the basis of above arguments, the learned counsel for the assessee submitted that no addition was warranted in respect of undisclosed income for asst. yr. 1994-95, as already assessment was completed under Section 143(3) of the Act and further there was no material seized from the premises of the assessee nor the material seized from other assessee was prima facie going to show the factum of undisclosed income and AO was not justified to conduct enquiries.

23. For asst. yrs. 1995-96 and 1996-97, the learned counsel for the assessee summarized that assessee had entered all the amounts of share capital/share application money in the books of account which is not disputed one by the Department and due date for filing of return for asst. yr. 1995-96 was not due till the date of search and even accounting year for asst. yr. 1996-97 was not yet over. The additions for these assessment years made by the AO treating all these amounts of share capital/share application money duly entered in the books of account, which assessee was bound to show, cannot be treated as undisclosed income. The learned counsel for the assessee, therefore, supported the order of the learned JM who has appreciated all these points of the assessee in correct perspective and he contended that the said order be upheld.24. I have considered the submissions of the representatives of the parties as well as gone through the material on record and case law cited by them. Undisputed facts are that assessee is a public limited company and was subjected to search carried out under Section 132 of the Act on 9th Nov., 1995. It is admitted by both the Members of the Bench that no material relating to additions was found and seized from the business premises of the assessee-company as well as directors.

During the course of hearing, I specifically enquired from the learned standing counsel and he was fair enough to admit that there were two separate search operations -- one in the case of the assessee-company and the other in the case of M/s Jalan Enterprises, a firm. It is on record and not under challenge from the Department that there were two separate Panchnamas prepared. It is also on record that M/s Jalan Enterprises is a separate assessee and two different AOs have assessed the assessee-company and M/s Jalan Enterprises. Copy of assessment order of the present assessee reveal that it was framed by Addl. CIT (Asst.), Special Range, Allahabad, and copy of assessment order of M/s Jalan Enterprises has been filed by the assessee which is appearing at pp. 108 to 117 of the paper book and the same is framed by Shri. R.N.Gupta, Asstt. CIT (Inv.), Circle, Allahabad. It is also on record that 30 files of income-tax of 30 individuals along with pass books, order of assessment completed under Section 143(1) of the Act of these 30 individuals and other related documents were recovered from the premises of M/s Jalan Enterprises, a firm and admittedly a separate assessee.

25. In view of all these facts, let us go to the relevant provisions of Chapter XIV-B of the Act. It is undisputed fact that it was a special procedure enacted for assessment of search cases and title of this Chapter is also to that effect. It is also settled proposition of law that interpretation of special provisions have to be strictly construed and particularly of this Chapter because it provides special rate of taxation which is 60 per cent as against ordinary rate of 30 per cent, etc. At the cost of repetition, I am reproducing the relevant portion of Section 158B of the Act and relevant portion of Section 158BB which provide definitions and mode of computation of undisclosed income and the same are as under : "158B. Definitions.--In this Chapter, unless the context otherwise requires,-- (a) 'block period' means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A and also includes the period up to the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made : Provided that where the search is initiated or the requisition is made before the 1st day of June, 2001, the provisions of this clause shall have effect as if for the words six assessment years, the words ten assessment years had been substituted; (b) "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false." 158BB. Computation of undisclosed income of the block period.--(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,-- (a) where assessments under Section 143 or Section 144 or Section 147 have been concluded prior to the date of commencement of the search or the date of requisition, on the basis of such assessments; (b) where returns of income have been filed under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c) where the due date for filing a return of income has expired, but no return of income has been filed, (A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; (ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under Clause (c); (d) where the previous year has not ended or the date of filing the return of income under Sub-section (1) of Section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under Sub-section (4) of Section 245D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under Clause (c) of Section 158BC, on the basis of such assessment.

(2) In computing the undisclosed income of the block period, the provisions of Sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition.

(3) The burden of proving to the satisfaction of the AO that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee.

(4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under Sub-section (2) of Section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments." 26. A perusal of the above provisions shall show that assessment of undisclosed income is to be made in those cases where search is initiated under Section 132 of the Act or books of account, other document or any assets are requisitioned under Section 132A of the Act in case of any person, then only the AO shall proceed to assess the undisclosed income. Certain cases have been referred by the learned counsel for the assessee which are also on the same pattern that assessment of undisclosed income is to be made on the basis of material recovered during the search or on the basis of books of account, other document or any asset which are requisitioned under Section 132A of the Act. If we apply the above to the factual position of the case, then admittedly there was no material recovered from the possession of the assessee during the search. The AO has proceeded to complete the assessment and made the addition in respect of undisclosed income on the basis of materials seized from the business premises of M/s Jalan Enterprises, a firm and a separate assessee. The question arises as to whether material found and seized during the search operation of another assessee can be utilized while completing assessment on the basis of material seized from the possession of a separate assessee.

The legislature was wise enough to consider this situation and provisions of Section 158BD of the Act was also made which reads as under : "158BD. Undisclosed income of any other person--Where the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 or whose books of account or other documents or any assets were requisitioned under Section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed under Section 158BC against such other person and the provisions of this Chapter shall apply accordingly." 27. As discussed above, the seized materials, which were admittedly 30 income-tax files and other related documents to these files were recovered from M/s Jalan Enterprises and a different AO was having jurisdiction over that firm, M/s Jalan Enterprises. In such situation, the provisions of Section 158BD of the Act assume significance and the AO having jurisdiction over M/s Jalan Enterprises was under obligation to examine the recovered material and after scrutiny of the seized material recovered from M/s Jalan Enterprises, he has to satisfy himself that seized material revealed undisclosed income of third party viz., assessee-company and then he should hand over all the seized materials to the concerned AO who was having jurisdiction over third party viz., assessee-company. This provision of Section 158BD of the Act is not a mere formality but a statutory requirement of the special procedure of assessment of such cases and Departmental authorities are bound to follow it. It is well-settled proposition of law that if statute provides a special procedure to be followed, then authorities are under statutory obligation to follow the same as prescribed and no deviation therefrom can be permitted. There is nothing on record to suggest that AO who was seized with the assessment of M/s Jalan Enterprises examined the record and satisfied himself that the said materials disclose the undisclosed income of assessee-company or after that he had handed over the seized materials to the AO having jurisdiction over the assessee-company. The learned standing counsel appearing for the Department was apprised of this fact and he was not in a position to assert specifically that provisions of Section 158BD of the Act were invoked by the AO having jurisdiction over M/s Jalan Enterprises. Apart from it, it is also apparent from the record that assessment order of the assessee-company had been completed under Section 158BC/144 of the Act and AO nowhere has referred to the provisions of Section 158BD of the Act nor notice under Section 158BC of the Act has been issued to the assessee-company.

28. The significance of satisfaction to be arrived at by the AO having jurisdiction over M/s Jalan Enterprises was of much importance in the present case as there were special circumstances. A perusal of the assessment order of assessee-company shall show that AO in the assessment order itself has made observation at pp. 12 and 13 that it was the director of the assessee-company and person connected with M/s Jalan Enterprises who were introducing their unaccounted money in the shape of share capital/share application money. If this observation of the AO is correct, then the AO having jurisdiction over M/s Jalan Enterprises should have examined the material seized from M/s Jalan Enterprises and should have recorded satisfaction as to whether the persons of M/s Jalan Enterprises have invested their unaccounted money in the shape of share capital/share application money in the case of assessee-company or it was directors of the assessee-company or their relatives who introduced their unaccounted money in the garb of share capital/share application money in the case of assessee-company. In case he was of the view that partners of M/s Jalan Enterprises have invested their unaccounted money in the garb of share capital of assessee-company, he should have completed assessment in the case of M/s Jalan Enterprises under Chapter XIV-B treating the amount of such investment as undisclosed income of the firm. If on scrutiny of seized material, he was satisfied that seized material recovered from M/s Jalan Enterprises was going to establish undisclosed income of assessee-company, then after recording his reasons of satisfaction, he should have complied with the provisions of Section 158BD of the Act and handed over the material to AO of assessee-company. As AO of M/s Jalan Enterprises has not recorded such satisfaction nor there is anything on record to show that the said AO of M/s Jalan Enterprises handed over the documents as required under Section 158BD of the Act, then it was obligatory on the part of the Department to explain as to how AO of the assessee-company have utilized the seized material of M/s Jalan Enterprises in the case of assessee-company. Nothing has come on record from Department nor the learned standing counsel for Department was able to explain anything on this point.

29. A perusal of Section 158BB of the Act reproduced above shall show that fundamental statutory requirement for computation of total undisclosed income of previous years falling during the block period are that : (2) some incriminating material/asset should have been unearthed in such search enabling the AO to work out the undisclosed income.

(3) or, there is requisition of books of account or other documents under Section 132A of the Act on the basis of which undisclosed income can be worked out.

(4) or, there should be such other material or information as are available with the AO and relatable to such evidence for working out the undisclosed income.

30. If we examine the case of the assessee-company to find out as to all requirements of Section 158BB of the Act were available or not, then, admittedly there was a search in the case of assessee-company.

Secondly, as per admission of both the representatives of the parties, there was no material seized from the premises of the assessee-company or from its directors. Thirdly, it has been concluded earlier that AO of the assessee-company has not requisitioned the seized material or other material from the AO of M/s Jalan Enterprises under Section 132A of the Act. So far as fourth situation is concerned, the words used in Section 158BB by the legislature are "such other material or information as are available with the AO and relatable to search".

These words postulate to two different situations and the one will be relating to those materials, which AO can receive from other AO under the provisions of Section 158BD of the Act. The second situation will relate to the material which might have been collected by the AO on the basis of seized material during the assessment proceedings because words "relatable to such evidence" is again significant and that refers to those evidence--documentary or otherwise, which AO must have collected in connection with the seized material.

31. In the case in hand, the AO without compliance of provisions of Section 158BD of the Act has come into possession over the seized material recovered from the possession of third party and completed assessment after making enquiries relating to the income-tax files which admittedly were recovered from the possession of M/s Jalan Enterprises, a separate assessee. As such material was recovered from the premises of M/s Jalan Enterprises, a separate assessee, and it was not handed over by the AO of M/s Jalan Enterprises to the AO of the present assessee-company by following the procedure prescribed under Section 158BD of the Act, the AO of the assessee-company was having no material with it on the basis of which block assessment in relation to share capital/share application money in connection with income-tax files could have been made in the hands of the assessee-company. The material which was seized from M/s Jalan Enterprises should have been routed through proper channel as prescribed under Section 158BD of the Act and in the absence of anything available on record that the said procedure was followed, particularly that assessment has not been completed under Section 158BC/158BD of the Act, the conclusion will be that AO of the assessee-company cannot be said to be in possession of seized material. Secondly, AO has not requisitioned the seized material as per requirement of Section 132A of the Act. In the absence of these, AO of assessee-company cannot be permitted to utilize the seized material recovered from third party. All materials collected by AO in relation to those seized materials, in the eye of law cannot be treated in possession of the AO and can be utilized against the present assessee for working out undisclosed income for block period.

32. As this being an important flaw in completing the block assessment by the AO and both the learned Members have not addressed themselves to this legal issue in their respective orders nor the learned counsel for the assessee argued on this line, this issue was brought to the knowledge of the representatives of both the parties during the course of hearing by me. The learned standing counsel for the Department was having no explanation about this infirmity committed by the AO in completing the block assessment on the basis of material which in the eye of law cannot be called in his possession. So all additions made on the basis of seized materials not recovered from the possession of assessee-company nor came into possession of present AO by following prescribed legal procedure and on the basis of enquiry made on the basis of that seized material cannot be allowed to sustain and is liable to be struck off.

33. Apart from these, it is to be noted that addition had been made in asst. yrs. 1993-94 to 1996-97 by the AO. It has come on record that assessment of asst. yr. 1994-95 was already completed by the AO and copy of assessment order dt. 25th Jan., 1995 for asst. yr. 1994-95 has been filed on record by the assessee and that is not in dispute. The share capital/share application money was shown by the assessee and the same was accepted in the assessment completed under Section 143(3) of the Act. It is settled proposition of law that whatever has been disclosed, cannot be treated as undisclosed. The share capital/share application money upto asst. yr. 1994-95 stand assessed and the same can be treated as already disclosed to the Department. The material seized, even for the sake of argument taken as available to the AO for completing the assessment, was not going to show prima facie that share capital/share application money, in respect of 30 persons whose income-tax files were recovered during the search, was bogus or their identity has not been proved. That material ipso facto is not going to prove that the amount invested by those 30 persons was in any way undisclosed income of the assessee-company. It is only after enquiries conducted by the AO that he recorded a finding that the investment by those persons was not genuine. The scope of block assessment is very narrow and in this connection, I may refer the decision of Tribunal Mumbai 'B' Bench in the case of Sunder Agencies (supra) in which it has been observed that Section 158BA of the Act does not provide license to the Revenue for making roving enquiries connected with completed assessment and it is beyond the power of the AO to review the assessments completed unless some direct evidence come to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. As discussed above, the availability of 30 income-tax files of those persons who allegedly have invested their amount in respective share application of the assessee-company was not going to prove the factum of undisclosed income unless enquiry as done by the AO was completed. It was beyond jurisdiction of the AO to go into lengthy enquiries to ascertain identity, creditworthiness and genuineness of these transactions in spite of the fact that provisions of Section 68 of the Act were applicable to block assessment proceedings. This is so because already assessment under Section 143(3) of the Act has been completed for asst. yr. 1994-95 and if Department wants to utilize the seized material, this may be ground for reopening of the completed assessment for asst. yr. 1994-95, but certainly it cannot be made basis for making roving enquiries as done by the AO for working out the undisclosed income. The income-tax files recovered were not such evidence which should have prima facie revealed undisclosed income and as discussed above, the AO made addition only after making roving enquiries which is beyond his power and the addition for asst.

yr. 1994-95 cannot be made, as making of roving enquiries was outside the jurisdiction of the AO and recovered material was not such which was going to reveal that share capital/share application money was the undisclosed income of the assessee-company. The amount of cash credit, appearing in the books of assessee upto asst. yr. 1994-95 stand accepted by the Department as assessments of those assessment years were already completed under Section 143(3) of the Act accepting the said cash credits and admittedly no material was found during the search which may be basis of treating the amount of cash credit as undisclosed income of the assessee.

34. Now come the additions, which AO has made for asst. yrs. 1995-96 and 1996-97. The admitted facts as on record are that search was conducted on 9th Nov., 1995 and date of filing of return for asst. yr.

1995-96 admittedly was not yet over as is the undisputed fact. It has also come on record that all the amount of share capital/share application money received by the assessee for asst. yrs. 1995-96 and 1996-97 was duly found recorded in the accounts book which were found at the time of search and it is also important to note that no material was found except those 30 income-tax files.

35. The other important aspect is that accounting year for asst. yr.

1996-97 was not yet over and date of filing of return for that assessment year was still far away. The question is as to whether AO can make addition in respect of share capital/share application money and cash credits, which were duly recorded by the assessee in its books of account Most of the additions for these two assessment years are in respect of share capital/share application money invested by different companies. It is also on record that no incriminating document was detected during the course of search which may go to show that investment made by different companies was fake or it is only assessee-company which has invested its own amount in the name of these companies which may be non-existing companies as concluded by the AO.The AO had made addition in respect of share capital/share application money of companies after completing roving enquiries and for that he had made correspondence and the assessment order is showing all the details of efforts made by the AO to arrive at the conclusion that these companies were not genuine companies. Once no incriminating document relating to existence or otherwise of these companies was found during the course of search as is the admitted position accepted by the representatives of both the parties, then question is whether the AO in the absence of any material seized during the search operation can be allowed to conduct enquiries, particularly when assessee had shown the amount of capital/share application money in its books of account and return of the assessee for asst. yrs. 1995-96 and 1996-97 was not yet due and even accounting year for asst. yr. 1996-97 was not over. The reply is in negative, because Section 158BB(1)(d) of the Act is very clear on this point and the learned JM has rightly appreciated that provision and concluded that AO cannot be allowed to make addition of undisclosed income in respect of those entries which are appearing in the books of account for asst. yrs. 1995-96 and 1996-97 in which date of filing of return was not yet over and even accounting year for asst. yr. 1996-97 was not over. I am in agreement with the view taken by the learned JM on this point. The AO was not justified to conduct enquiries in respect of capital/share application money appearing in the books of account of the assessee-company for asst. yr. 1995-96 and 1996-97 in the absence of any seized material indicating that companies were not in existence. Whatever exercise the AO has done in the absence of any material seized during the search in respect of these companies, can be permitted while completing assessment under Section 143(3) of the Act in respect of asst. yrs.

1995-96 and 1996-97, but as is the settled proposition of law that block assessment can be made only on the basis of seized material, the AO was not justified to conduct enquiries in the absence of any seized material. So the additions in respect of capital/share application money appearing in the name of different companies were not sustainable in the absence of any seized material and merely on the basis of enquiries conducted by the AO, the same was liable to be struck off.

36. The result of the above discussion is that additions for asst. yrs.

1993-94 to 1996-97 were not sustainable in respect of share capital/share application money as well as cash credit for the reasons recorded above as the same cannot be treated undisclosed income of assessee and I agree with the final view of the learned JM on this point but for the reasons recorded by me in the just preceding paras.

37. The remaining two points of difference relate to validity of the notice under Section 158BC of the Act and about its proper service. To appreciate the argument of the learned representatives of both the parties, it will be in the fitness of things to reproduce the relevant procedure for block assessment provided under Section 158BC of the Act which reads as under: "158BC. Procedure for block assessment--Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132A, in the case of any person, then,-- (i) in respect of search initiated or books of account or other documents or any assets requisitioned after 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under Clause (i) of Sub-section (1) of Section 142, setting forth his total income including the undisclosed income for the block period; Provided that no notice under Section 148 is required to be issued for the purposes of proceeding under this Chapter : Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return;" 38. The notice as is required under the above referred to section is to be served and Section 282 of the Act provides the mode of service of notice and relevant portion thereof is as under : "282. Service of notice generally.--(1) A notice or requisition under this Act may be served on the person therein named either by post or as if it were a summons issued by a Court under the CPC of, 1908 (5 of 1908).

(a) in the case of a firm or an HUF, to any member of the firm or to the manager or any adult member of the family; (b) in the case of a local authority or company, to the principal officer thereof" 39. The admitted facts from the record are that AO before proceeding to complete the block assessment of the assessee-company issued a notice to the assessee and the learned JM has reproduced copy of that notice at p. 11 of his order. A perusal thereof shall reveal that it is addressed to M/s Gorakhpur Petro Oils Ltd., C/o Agarwal Forwarding Agency, Fatehganj, Faizabad, and admittedly it is not addressed to the "Principal officer" as is required under Section 282(2)(b) of the Act.

It is also an admitted fact that this notice contains block period from 1st April, 1985 to 9th Nov., 1995 and it was received by an advocate who was found available at the address given in the above referred to notice. On the basis of above factual position, the learned counsel for the assessee had pointed out two infirmities in the notice. The first infirmity is that the notice contains block period from 1st April, 1985 to 9th Nov., 1995 while the assessee-company came into existence on 3rd March, 1992, the date of its incorporation under the Companies Act, 1956, and in view of it, the AO was not justified to mention block period commencing from 1st April, 1985. The plea raised by the learned counsel for the assessee is that it is not to be taken as proper notice because the AO failed to mention the correct period for block assessment and further goes to show that AO has not applied his mind.

The second infirmity pointed out by the learned counsel for the assessee is that notice in question is not addressed to the "Principal officer", but it is addressed to company itself and thus it is not as is required under Section 282(2)(b) of the Act The last point contended by the learned counsel for the assessee is that notice in question has not been served on the assessee but it was served on an advocate who had neither any valid authority to receive the same on behalf of the assessee-company nor that advocate ever represented the assessee-company before any IT authorities. The contention is that for want of valid and proper service, the AO cannot assume jurisdiction to complete the assessment and the assessment framed for want of service on the assessee is liable to be quashed.

40. As against it, the contention of the Department before the Bench had been that the firs two infirmities pointed out by the learned counsel for the assessee are procedural one and the same stand cured under provisions of Section 292B of the Act. The Department has taken the plea that provisions of Section 282 of the Act are not mandatory and if AO while issuing notice has not addressed the notice to the principal officer but merely addressed it to the assessee-company, the same cannot be termed as invalid notice. On other infirmity, the Department had pleaded that block period is for 10 years and if AO has mentioned that period in the impugned notice, no abnormality is committed by the AO nor any prejudice has been caused to the assessee-company. Lastly, the Department had contended the notice in question stands served on an advocate who was found available at the headquarter of the assessee-company and he has received the same on behalf of the assessee-company and that should be treated as proper service.

41. The learned counsel for the assessee as well as the learned standing counsel who appeared before me have virtually reiterated the same submissions as were put up before the Bench and also referred to the case laws which had been cited by them before the Bench seized with the issue.

42. To begin with the issue involved in these two points of difference, it will be seen that AO can assume jurisdiction to complete the block assessment only after valid service of a legal and valid notice on the assessee, which has been subjected to search. A perusal of Section 158BC of the Act will go to show that block assessment can be completed in respect of a person who is subjected to search under Section 132 of the Act and that too after a notice is served upon him.

43. Provisions of Section 147 to 149 of the Act and provisions of Section 158BC of the Act are having identical object to tax the income which, escaped assessment or the income which had been unearthed under search operation. The object of both the scheme is to tax income which has not already been taxed. In a case where income escaped assessment, the AO is supposed to issue a notice and to ensure service of the same on the assessee before he assumes jurisdiction to bring escaped income to assessment. In the same manner, the income which is found as undisclosed income as a result of search operation conducted under Section 132 of the Act, the AO before completing assessment is supposed to get the notice served on the assessee before assuming jurisdiction.

The crux of the above is that in both the situations, the AO can assume jurisdiction only after valid and proper service of a valid notice on the concerned assessee/person. It is a jurisdictional matter and AO cannot be allowed to assess the assessee without proper and valid service of a valid notice. In this connection, reference to the case of Y. Narayana Chetty and Anr. v. ITO and Ors. (1959) 35 ITR 388 (SC) can be made in which the Hon'ble Supreme Court of India has laid down that notice prescribed by Section 34 of the Act (now Section 147 of the Act) cannot be regarded as mere procedural requirement. It is only if the notice is served on the assessee as required that the ITO would be justified in taking proceedings against him. Their Lordships further laid down that if no notice is issued or if the notice issued is shown to be invalid, then the validity of the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void. The same ratio was confirmed by the apex Court in the case of CIT v. Thayaballi Mulla Jeevaji Kapasi, (Decd) (1967) 66 ITR 147 (SC).

The other case law on the point is that of CIT v. Kurban Hussain Ibrahimji Mithiborwala (1971) 82 ITR 821 (SC). Our jurisdictional High Court in the case of CIT v. Ishwar Singh & Sons (1981) 131 ITR 480 (All) treated the assessment as invalid because notice under Section 148 of the Act was issued to an entity which was as a matter of fact, non-existent and was at any rate different from the entity which filed the return in response to that notice.

44. The following observation of the jurisdictional High Court in the case of Madan Lal Agarwal v. CIT (1983) 144 ITR 745 (All) will be relevant : "It is now well-settled, and we do not consider it necessary, to advert to numerous authorities in this regard cited at the Bar, that issuing of a valid notice to the assessee under Section 148 of the IT Act within the period specified under Section 149 of the Act is a condition precedent to the validity of any assessment to be made against such assessee under Section 147 of the Act. Accordingly, where no such notice has been issued or if the notice issued is not valid or the same has not been served on the assessee in accordance with law, it will not be possible to sustain the eventual assessment made under Section 147 on the basis of such notice. We may also take it that where the notice issued to an assessee is vague, it would not be possible to rely upon it to sustain an assessment made under Section 147 of the IT ActP.N. Sasikumar and Ors. v. CIT (1988) 170 ITR 80 (Ker) can also be referred in which their Lordships have laid down that if no such notice under Section 147 of the Act is issued or if the notice issued is invalid or not in accordance with the law or is not served on the proper person in accordance with the law, the assessment would be illegal and without jurisdiction.

45A. From the perusal of the ratio laid down by the apex Court as well as of different High Courts including the jurisdictional High Court, it is clear that AO cannot assume jurisdiction without issuing a proper and valid notice and after getting it served on proper person. In the case in hand, admittedly, the notice has not been served on the assessee but it has been received by one advocate on behalf of the assessee. The Department has not produced any documentary evidence to prove that the said advocate was having any written authority from the assessee-company to receive notice on behalf of the assessee. This had also been observed by learned AM at p. 12 of his order where he observed that it is an irregularity on the part of the AO to serve notice on an advocate without obtaining authority of the assessee from him. Now question before me to decide is as to whether notice received by advocate who had admittedly not been authorized by the assessee-company nor accredited agent of the assessee-company to receive such notice nor he was appearing on behalf of the assessee-company in income-tax proceedings as argued by the learned counsel for the assessee, can be said to be a proper and valid service of notice on the assessee or not In this connection, it is to be noted that procedure for service of notice is as given in Section 282 of the Act and that prescribes the mode how the notice shall be issued generally. It clearly provides that notice may be served on the person therein named either by post or as if it were summons issued by the Court under the CPC 1908. Several case laws are on the point and I may refer the decision of Hon'ble Madras High Court in the case of Jayanthi Talkies & Distributors v. CIT (1979) 120 ITR 576 (Mad) and relevant portion is reproduced as under : "Section 148 clearly contemplates service of notice on "the assessee". The assessee in this case is a firm consisting of 5 partners. Section 282 of the Act which corresponds to Section 63 of the 1922 Act says that a notice or a requisition under the Act may be served on the assessee either by post or as if it were summons issued by a Court under the CPC. Sub-section (2) of that section says that in the case of a firm the notice may be addressed to any member of the firm. Admittedly, none of the partners of the firm had been personally served with the notice, and the service of the notice was only on the manager of the firm. As the service of notice in this case was by the notice-server of the. Department and not by post, the procedure contemplated by the CPC for service of summons should have been followed, as per Section 282(1).

In the CPC, procedure for service of summons is provided in O. V. Rule 9(1) of O. V is as follows : 'Where the defendant resides within the jurisdiction of the Court in which the suit is instituted, or has an agent resident within that jurisdiction who is empowered to accept the service of the summons, the summons shall, unless the Court otherwise directs, be delivered or sent to the proper officer to be served by him or one of his subordinates.' 'Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on such agent shall be sufficient.' 'Where in any suit the defendant is absent and has no agent empowered to accept service of the summons on his behalf, service may be made on any adult male member of the family of the defendant who is residing with him.' Rule 6 of Order III is also relevant to find out as to who may be appointed as agents to accept service of processes and how. That provision is as follows : '(1) Besides the recognized agents described in Rule 2 any person residing within the jurisdiction of the Court may be appointed an agent to accept service of process.

(2) Such appointment may be special or general and shall be made by an instrument in writing signed by the principal, and such instrument, or, if the appointment is general, a certified copy thereto shall be filed in Court.' These provisions make it clear that the service of notice on a person can be effected by serving the notice on his agent who has been specifically empowered or authorised to receive the notice in writing by that person. It is not in dispute in this case that there is no personal service on the partners of the firm. It is also not disputed that the manager on whom the notice has been served had no specific or written authority to receive the notice. The contention of the Revenue is that the manager of the firm can be presumed to have the implied authority to receive the notice on behalf of the firm or on behalf of the partners and that such an authorization should be implied having regard to the nature of the duties he had to perform. However, no material has been placed before us to show that the powers of the manager included acceptance of the notice or summons addressed to the firm or the partners of the firm as their agent. The provisions of the CPC referred to above indicate that there should be a specific written authority given to the agent to receive the notice on behalf of the principal. That such a specific authority was given to Balakrishna Pillai, the manager of the firm, has not been established by the Revenue. The Revenue merely wants us to infer an implied power to receive the notice addressed to the firm or its partners from the factum that Balakrishna Pillai was functioning as a manager of the firm. The Revenue also wants to rely on the fact that subsequent to the service of notice, the manager applied for time for filing of the return and also appeared on behalf of the firm in connection with the assessments for the subsequent years. Though the assessee initially came forward with a case in his application under Section 146 that the services of Balakrishna Pillai had been terminated long before the service of the notice, that case has not been established. On the contrary, it has been shown that Balakrishna Pillai has been acting as manager even subsequent to the reassessment. Therefore, that Balakrishna Pillai was the manager cannot at all be disputed by the assessee.

According to the Revenue, the service of notice on the manager should be taken to be a proper or effective service as the notice had in some way or other reached the assessee. We are not inclined to agree. When the statute provides that a notice should be served in a particular mode, it is not possible to hold that there has been a proper service of notice merely from the fact that the person to whom the notice had been addressed had received the notice through some other source or that he has become aware of the contents of the notice. It has been held in Nagary Rasappa Setti v. Hamburi Venkataratnam (1913) MWN 1028 (Mad) that where the summons has not been personally served on the party but was served on his gumastha, it must be shown that the requirements of Order V, Rule 12 or Rule 13 have been complied with and that it cannot be assumed, without further enquiry, that service on the gumastha was sufficient. In Papamma Rao v. Revenue Divisional Officer, AIR 1918 Mad 589, a Division Bench of this Court while dealing with the manner of service contemplated by Section 45(2) of the Land Acquisition Act, which also attracts the provisions of the CPC, in the matter of service of notices, expressed the view that unless a person is appointed as agent to accept service of processes by an instrument in writing singed by the principal, the service on him cannot be said to be valid The view taken in that case was that an oral authority is not sufficient but there should be a written authority.

Similar view has been taken in CIT v. Baxiram Rodmal (1934) 2 ITR 438 (Nag), CIT v. Dey Brothers (1935) 3 ITR 213 (Rang) and C.N. Nataraj v. ITO (1965) 56 ITR 250 (Mys). In CIT v. Baxiram Rodmal (supra) it has been held that the mere fact that a person had accepted notices on behalf of the assessee on previous occasions and appeared for the assessee would not constitute him an agent on whom a notice or requisition under the Act would be validly served nor would any statement made by him bind the assessee. In C.N. Nataraj v. ITO (supra), the Mysore High Court took the view that the service of notice under Section 148 on a clerk of the assessee's father who was neither an agent of the assessee nor authorised by him to accept notices on his behalf was not valid and, therefore, the assessee could not be assessed under Section 147 in pursuance of such service of notice." 46. Another decision of the jurisdictional High Court is in the case of Addl. CIT v. Prem Kumar Rastogi (1980) 124 ITR 381 (All) which is on the same point as involved in the case in hand. Their Lordships have observed as under : "A person who is not an authorized agent of the assessee or an agent or manager personally carrying on the assessee's business or an adult member of his family but who has merely accepted notices in the past on his behalf cannot be deemed or treated to be an authorized agent of the assessee and service on him of the assessment order of the assessee is not valid." 47. The facts of the above referred to case before the jurisdictional High Court were better than to the factual position of the present case, as in that case the agent who received notice on behalf of the assessee received notice earlier also, but their Lordships concluded that that will not be proper service as he cannot be taken as authorised agent of the assessee. In the case in hand, it is not the case of the Department that advocate who received notice on behalf of the assessee-company acted as such even in the past or was authorized to receive notice on its behalf. The ratio of the above cases is fully applicable to the facts of the case and in the absence of any authorization issued by the assessee-company in favour of that advocate who received notice, the notice cannot be taken as served on the assessee-company.

48. The learned AM has treated this fact as mere irregularity and concluded that notice to be treated as served, as assessee has participated in the assessment proceedings and by doing so he has waived off the issue of valid service on the assessee. In this connection, I may refer that the proper service of notice before completing assessment of block period is jurisdictional point and statutory requirement. If notice is not taken as served on the assessee, jurisdiction on AO cannot be conferred by consent or acquiescence.

49. The jurisdictional High Court in the case of Banarasi Silk Palace v. CIT (1964) 52 ITR 220 (All) has observed as under : "Since jurisdiction is conferred upon an ITO to proceed under Section 34(1) (equivalent to Section 147 of the Act) only if he issues a notice; an assessee cannot confer jurisdiction upon him by waiving the requirement of a notice because jurisdiction cannot be conferred by consent or acquiescence. In CIT v. Ramsukh Motilal (1955) 27 ITR 54 (Bom), AR.PL.SPL Chidambaram Chettiar v. CIT (1956) 29 ITR 842 (Mad), R.K. Das & Co. v. CIT (1956) 30 ITR 439 (Cal) and CIT v. Maharaja Pratap Singh Bahadur (1956) 30 ITR 484 (Pat) it was held that the issue of a notice is a condition precedent to the exercise of jurisdiction under Section 34(1) and that there can be no waiver of it. This view was affirmed by the Supreme Court in Y. Narayana Chetty and Anr. v. ITO and Ors. (1959) 35 ITR 388 (SC)." 50. Again I may refer the decision of the jurisdictional High Court in the case of Laxmi Narain Anand v. CST 46 STC 71 in which their Lordships have laid down as under : "If the law says that no jurisdiction can be assumed without issue of notice and serving it on the assessee, it cannot be circumvented by invoking equitable principle of estoppel and participation of the assessee. It is not an error in exercise of jurisdiction but an error which debars the assessing authority from proceeding in the matter. In CST v. Haji Allah, it was held by this Court." 51. I may further refer the decision of Continental Commercial Corporation v. ITO (1975) 100 ITR 170 (Mad) in which their Lordships have opined that submission to the jurisdiction by the assessee will not confer any jurisdiction on any authority who has no jurisdiction at all and this view was followed by Tribunal, Madras Bench in the case of Urmila Chandak v. Asstt. CIT (1998) 60 TTJ (Mad) 758.

52. Again reference to the decision of the same High Court in the case of Mariam Aysha v. Commr. of Agil. IT (1976) 104 ITR 381 (Mad) can be made in which their Lordships have laid down that consent cannot give jurisdiction is essential principle of law. The taxing authority can act only if there is power under the statute to do so.

53. Lastly I may refer the decision of CIT v. Ramshukh Motilal (1955) 27 ITR 54 (Bom) in which their Lordships have observed as under : "It is well-settled that no consent confers jurisdiction upon a Court if the Court has no jurisdiction, and if we take the view that the ITO can have jurisdiction only provided he complies with the conditions laid down under Section 34, then no consent by the assessee could give him a jurisdiction or no waiver on his part can confer such jurisdiction." 54. The ratio of the above decisions had been consistent that acquiescence is not going to confer jurisdiction which otherwise is lacking from the very beginning. As observed earlier, the AO can proceed to complete assessment for block period only when he issued notice and served the same on the assessee/person who was subjected to search. In the case in hand the assessee-company is admittedly subjected to search but as concluded earlier, the assessee was not served with notice. In view of these findings, the AO cannot assume jurisdiction to complete assessment for want of notice even though assessee had appeared before him and filed return belatedly and also participated in the assessment proceedings. I am in agreement with the observation of the learned AM that procedural irregularities can be waived off by the assessee, but at the same time the conduct of the assessee in participating in assessment proceedings will not be sufficient to confer the jurisdiction on the AO without service of notice on the assessee-company. It was fundamental requirement to get the notice served on the assessee before proceeding to complete the assessment and as it is lacking, this jurisdictional defect cannot be cured by conduct of persons on behalf of the assessee and thus assessment is liable to be quashed on this point.

55. So far as other two infirmities pointed out by the learned counsel for the assessee in the notice are concerned, I am in agreement with the view taken by the learned AM that mentioning of block period for 1st April, 1985 to 9th Nov., 1995 is not going to be ground for treating the notice as invalid because the AO rightly gave out block period as is defined under Chapter XIV-B of the Act. In the same way, the notice admittedly is not addressed to the principal officer but to assessee-company and these two defects are curable under Section 292B of the Act. Reliance of the learned JM on the decision of Tribunal, Allahabad Bench in the case of M/s Monga Metals (P) Ltd. which had extensively been quoted in his order cannot be applied straightway to the factual position of this case, as there were other relevant infirmities in the said notice which are not here except two alleged infirmities pointed out by the learned counsel for the assessee. Apart from this, these procedural infirmities can be waived off and not going to cause any prejudice to the assessee and notice in question cannot be termed as invalid or not proper on the above referred to alleged infirmities argued by the learned counsel for the assessee as the same are saved by provisions of Section 292B of the Act.

56. On the basis of what has been discussed above, my finding on the above two points are that notice under Section 158BC of the Act was not served on the assessee-company though notice itself was proper and valid.

57. With the above findings, matter may go back to the Bench for deciding the appeal as per law.

1. The appeal has been directed by the assessee against the order of the AO under Section 158BC of the Act dt. 27th Nov., 1996.

2. Briefly, the facts of the case are that in this case a search and seizure action under Section 132(1) of the Act was taken on 9th Nov., 1995. Simultaneously, the partnership firm styled as "Jalan Enterprises" as constituted by (i) Ravindra Kumar Jalan (HUF). (ii) Shri Radhey Shyam Jalan (since deceased), (iii) Smt. Rupa Devi Jalan, wife of Shri Madhav Jalan, having its principle place of business at Dharmasala Bazar. Gorakhpur, were also subjected to search operation on 9th Nov., 1995 itself. So far as the assessee is concerned, the search operation led to the recovery of some cash only. No other material was found during the course of said search, at the premises of the assessee.

3. The assessee, by virtue of its head office at Faizabad, was being assessed to tax there. However, in the wake of search operation as aforesaid, jurisdiction in its case was transferred to the Addl. CIT (Assessment), Special Range, Gorakhpur, and notice under Section 158BC as addressed to M/s Gorakhpur Petro Oils Ltd., C/o Agarwal Forwarding Agency, Fatehganj, Faizabad" was issued from his end. The said notice contained block period from 1st April, 1985 to 9th Nov., 1995 and it was received by some advocate, who was available at the said address but who had nothing to do with the income-tax proceedings in the case of the assessee. Neither before nor any time thereafter he ever attended to any income-tax proceedings of the assessee. The assessee complied with the notice and filed a return in prescribed form showing "undisclosed income" at NIL. As against this, the block assessment order was passed at an income of Rs. 1,68,04,856 made up as under :(a) Rs. 1,28,856 Addition in financial year 1995-96 for alleged unaccounted sales outside the books of account vide para 11 of the order.(b) Rs. 51,50,000 Addition in financial year 1995-96 for alleged income from undisclosed sources vide para 78.2 of the order.(c) Rs. 44,000 Addition in financial year 1994-95 for alleged income from undisclosed sources a s the unexplained cash credits vide para 43 of the order.(d) Rs. 46,50,000 Addition in financial year 1994-95 for alleged income from undisclosed income vide para 78.2 of the order.(e) Rs. 5,11,000 Addition in financial year 1994-95 for alleged income from undisclosed sources as the unexplained cash credits vide para 84 of the order.(f) Rs. 12,33,000 Addition in financial year 1993-94 for alleged income from undisclosed sources as the unexplained cash credits vide para 43 of the order.(g) Rs. 12,60,000 Addition in financial year 1993-94 for alleged income from undisclosed sources vide para 78.2 of the order.(h) Rs. 11,83,000 Addition in financial year 1993-94 for alleged income from undisclosed sources as the unexplained cash credits vide para 43 of the order.(i) Rs. 24,32,000 Addition in financial year 1992-93 for alleged income from undisclosed sources as the unexplained cash credits vide para 43 of the order.(j) Rs. 2,13,000 Addition in financial year 1992-93 for alleged income from undisclosed sources as the unexplained cash credits vide order.

4. In the block assessment order, computation of undisclosed income was based oil the material as found from the premises of M/s Jalan Enterprises (a partnership firm) and the enquiries conducted by the AO during the course of block assessment proceedings, on the basis of seizure made from the premises of M/s Jalan Enterprises, No addition is based on any material found from the business premises of the assessee except an addition of Rs. 1,28,856 on account of sales outside the books of account as mentioned at Sl. No. (a) above.

5. Aggrieved by the said block assessment order, the assessee filed appeal directly before the Tribunal, wherein additions made in the said block assessment order were challenged. Apart from this, the assessment order as a whole was assailed on the ground that the notice under Section 158BC itself was not valid, nor it had been served in accordance with the provisions of law. Whereas on some of the additions (as stood comprised in the block assessment order) there was a consensus between the Hon'ble Members, they differed on the substantial part of the additions as had been made in the assessment. They also differed on the issue of validity thereof. On quantum side, the area of disagreement related to the three heads : Headwise and yearwise break-up of the additions on which the Hon'ble Members differed are as under :____________________________________________________________________________ Year ending on Share Undisclosed income as assessed by capital/Application the AO31st March, 1993 57,42,600 24,32,000 -31st March, 1994 94,59,600 12,33,000 12,60,00031st March. 1995 1,82,29,600 44,000 46,50,00031st March, 1996 2,74,79,600 51,50,000____________________________________________________________________________ B. Share capital (as received from S/Shri Pawan Kumar Bindal, Vishwanath Prasad____________________________________________________________________________31st March, 1995 5,11,000________________________________________________________________________________________________________________________________________________________31st March, 1993 Neelendra Jalan 10,00031 March, 1993 Ram Preet 90,00031 March, 1994 Nelendra Jalan 15,000____________________________________________________________________________ They also differed on the validity of notice as well as service thereof.

6. On such a difference of opinion, the matter was referred to the Hon'ble President, who has referred the following question for being decided by the Third Member : "(1) Whether, on the facts and in the circumstances of the case, the AO was justified in treating the following share application money as undisclosed income of the assessee for the following years :(i) (a) 24,32,000 1992-93 (para 43 of the (b) 12,33,000 1993-94 assessment order) (c) 44,000 1994-95(ii) (a) 1,26,000 1993-94 (para 78.2 of the (b) 46,50,000 1994-95 assessment order) (c) 51,50,000 1995-96Pawan Kumar Bindal 1,61,000 1993-94Deepak Bindal 1,80,000 1994-95Vishwanath Pd.

1,70,000 1995-96(iv) Share credits in the name of : Financial year 1992-93 Neelinder Jalan Rs. 10,000 Financial year 1993-94 Ram Preet Rs. 90,000 Neelinder Jalan Rs. 15,000 (2) Whether the notice issued by the AO under Section 158BC is valid (3) Whether the service of notice issued by the AO under Section 158BC is proper?" 7. The Hon'ble Third Member has expressed his opinion through his order dt. 12th Oct., 2004. In nutshell, the Hon'ble Third. Member has agreed with the view expressed by the Judicial Member on the issues Nos. 1 and 3 and on the issue of validity of notice under Section 158BC, he has agreed with the AM. The result is that all the additions particulars of which have been given in para 4 above, stand deleted from the computation of undisclosed income.

8. The case was fixed for hearing at Allahabad, to give effect to the opinion expressed by the Hon'ble Third Member dt. 12th Oct., 2004. From the side of the assessee, Shri S.K. Garg appeared and the Department was represented by Shri Ashok Kumar, senior Departmental Representative.

9. In consequence of the opinion of the Hon'ble Third Member that there was no proper service of notice under Section 158BC and block assessment order dt. 27th Nov., 1990 itself was invalid, we hold the block assessment order dt. 27th Nov., 1990 itself is non est in the eye of law. Therefore, the assessment as a whole is liable to be quashed and we hold accordingly.

10. In the result, the appeal directed by the assessee is allowed in full.