1. This appeal preferred by the Revenue is directed against the order passed by the ld. CIT.(A), Central-II, Kolkata dated 20^th February, 2003 for the block period 1.4.90 to 20.7.2000.
2. Brief facts are that the assessee-Company is engaged in the business of execution of Civil Engineering and construction job throughout the country on a very large scale for a long time. A search & seizure operation under Section 132 of the Income Tax Act was conducted on 20.7.2000 and on subsequent dates, wherein its Office, work sites, godowns and other premises were covered. In response to notice dated 5.2.01 under Section 158BC served to the assessee on the same date, the assessee filed the return in Form No. 2B on 14.6.01 showing NIL undisclosed income. Thereafter the assessment was completed by the A O.on the basis of books of accounts and seized documents and submission made by the assessee alongwith the supporting evidences.
3. During the course of assessment proceedings, the A.O. observed that the assessee-Company has created an amalgamation reserve of Rs. 5,47,42,677/- on account of amalgamation of six transferor companies and such amalgamation was made with effect from 1.4.97 vide the Hon'ble High Court's order on 21.4.98.
4. The A.O. further observed that there was issue of shares of Rs. 3,87,70,000/- to eight Companies on direct share application made by them in the financial year 1998-99, whereas the addition of Rs. 2,50,00,000/- made to the share capital in financial year 1999-2000 is again on account of direct share application money received from other five Companies.
5. The A.O. accordingly had observed that the assessee-Company has shown a sum of Rs. l 1,85,12,677/- as amount received from nineteen Companies out of which Rs. 5,47,42,677/- was treated as an amalgamation reserve on account of six transferor Companies, whereas Rs. 3,87,70,000/- was said to have been received from eight Companies on account of direct share application in financial year 1998-99 and Rs. 2,50,00,000/- in 1999-2000 from five different Companies.
6. The A.O. has also recorded the statement of Shri Surendra Kr.
Tulsyan, Shri Krishna Kr. Jajodia and Shri Pradip Kr. Jajodia and on the basis of the statement of the above persons, the A.O. has concluded that all the above nineteen Companies from whom so-called amalgamation reserve was created and share application money received, were not genuine and the sole purpose for the formation of these Companies appear to use them as device to introduce black money in the business of the assessee without paying any tax. The A.O. while making such conclusion has basically relied on the fact that Registered Offices of eleven Companies were shifted to 88/1, Ashutosh Mukherjee Road, Kolkata-25 in the month of March, 2000 only and such place was actually godown of the assessee-Company which was used for keeping old records/ books of accounts. The A.O. has further observed that all these Companies are being controlled by the assessee-Company as evident from the fact that these Companies have invested all their available funds with the assessee-Company. The A.O. has also observed that his above presumption doubting the genuineness of the investments made by the above nineteen Companies in assessee's Company is further strengthened by the statement from Shri S.K. Tulsyan, K.K. Jajodia and P.K. Jajodia, who have admitted that such Companies were existing for the namesake only and were actually benami Companies of the assessee 7. The A.O., based on his above observation and in view of the statement given by three witnesses, has treated the above amalgamation reserve obtained by the assessee-Company from six transferor Companies to the tune of Rs. 5,47,42,677/- and the share application money of Rs. 3,87,70,000/- and Rs. 2,50,00,000/- as undisclosed income of the assessee and has thereafter added the same in the undisclosed income of the assessee for the block period.
8. In appeal, the ld. CIT(A) has deleted the entire addition basically observing the fact that amalgamation reserve and share application money were disclosed by the assessee to the Department before the date of search vide filing regular return of income and were also recorded in the books of accounts and, therefore, could not be considered as undisclosed income in the hands of the assessee.
9. The Revenue is aggrieved with such order of ld. CIT(A) and has now come in appeal before us and has taken following grounds of appeal :- (i) That on the facts and in the circumstances of the case the order appeal order containing 293 pages passed by the Ld. CIT(A) is perverse and given without proper application of mind being passed on 20.2.03 within one day from the last date fixed for hearing on 19.2.03.
(ii) That on the facts and. in the circumstances of the case, the Ld. CIT(A) erred, in passing the order without giving reasonable opportunity to (he Department to represent the case.
(iii) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in passing the order on 20.2.03 when he himself had allowed the time for filing the remand, report by 24.2.03.
(iv) That on the facts and in the circumstances of the case in the order passed by the ld. CIT(A) there was violation of principle of natural justice in as much as the time given to the department to submit the Remand Report was suo-moto curtailed by him from 24.2.03 to 19.2.03.
(v) That on the facts and in the circumstances of the case the ld. CIT(A) erred in not appreciating the fact that his letter suo-moto curtailing the time allowed to the department was given to the department on 17.2.03 thereby giving the department only one day to submit the report.
(vi) That on the facts and in the circumstances of the case the ld. CIT(A) erred in suo-moto rejecting the Addl. CIT's request contained in his letter dated 18.2.03, not to curtailed the time allowed by the ld. CIT(A) himself for submission of the remand report.
(vii) That on the facts and. in the circumstances of the case the ld. CIT(A) erred in observing that "by merely submission the aforementioned letter dated 18.2.03 the Addl. CIT cannot presume that further adjournment would be granted" when no adjournment had been sought and the department's plea as evidenced by the Addl.
CIT's letter was only for allowance o the time ld. CIT(A) himself granted.
(viii) 'That on the facts and in the circumstances of the case, the ld. CAT (A) erred in suo moto curtailing the time to the Department submit the remand report from 24.2.02 to 19.2.03 on the alleged ground that the Shri Jog Mohon Dalmiya, a Director of the assessee Company would be out of Kolkata from 19.2.03 when the presence of Shri Dalmiya was not at all essential for conduct of appeal proceedings.
(ix) That on the facts and in the circumstances of the case, the ld CIT(A) erred in not allowing proper opportunity to the department to represent the case on the basis of written arguments from the assessee.
(x) That on the facts and in the circumstances of the case, the ld. CIT(A) was not correct in observing that by not examining Shri Jog Mohon Dalmiya the affidavit filed by him remain uncontroverted and cannot be challenged.
(xi) That on the facts and in the circumstances of the case, the ld. CAT (A) erred in holding that the amalgamation reserve amounting to Rs. 5',47,42,677/- created on amalgamation of six transfer companies during the financial year 1998-99 cannot be taxed as undisclosed income without discussing anything about the merits of addition.
(xii) That the ld. CIT(A) erred in observing that the amalgamation reserve of Rs. 5,47,42,677/- created on amalgamation of six transferor companies during the financial year 1998-99 cannot be taxed as undisclosed income as the transactions concerned were revealed in the regular books of accounts without appreciating the facts and mere entries in the regular books of accounts do not exclude the transaction being considered as undisclosed income to be computed Under Section 158B(b) and 158BB of the I.T. Act.
(xiii) That on the facts and in the circumstances of the case, the Ld. CTT(A) erred in holding that the share application money amounting to Rs. 3,87,70,000/- from eight companies during the financial year 1998-99 cannot be taxed as undisclosed income without discussing anything about the merits of addition.
(xiv) That the ld. CIT(A) erred in observing that the share application money amounting to Rs. 3,87,70,000/- from eight companies during the financial year 1 998-99 cannot be taxed as undisclosed income as the transactions concerned were revealed in the regular books of accounts without appreciating the facts that mere entries in the regular books of accounts do not exclude the transaction being considered as undisclosed income to be computed Under Section 158B(b) and 158BB of the I.T. Act.
(xv) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that the share application money amounting to Rs. 2,50,00,000/- from five companies during the financial, year 1999-2000 cannot be taxed as undisclosed income without discussing anything about the merits of addition.
(xvi) That the ld. CAT (A) erred in observing that, thee share application money amounting to Rs. 2,50,00,000/- from five companies during the financial year 1999-2000 cannot be taxed as undisclosed income as the transactions concerned were revealed in the regular books of accounts do not exclude the transaction being considered as undisclosed income to be computed Under Section 158B(b) and 158BB of the I.T. Act.
(xvii) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that no evidence would found on the basis of which it could be held that the 19 companies referred, to in grounds nos. 1, 2 & 3 of the assessee 's grounds of appeal were found to introduce black money of the assessee company.
(xviii) That on the facts and in the circumstances of the case, the ld. CIT(A) erred, in holding that no opportunity was given to the assessee company to cross-examine three departmental witnesses and no adverse inference can be drawn on the basis of statements recorded from those persons.
(xix)That on the facts and in the circumstances of the case, the ld. CTT(A) erred in holding that Late J.S. Chowdhury, Accountant of Shri Jog Mohon Dalmiya, had not introduced assessee company's black money.
(xx) That on the facts and in the circumstances of the case, the ld. CAT(A) erred, in holding that since each of the 19 companies were income tax assessees, no addition of the share capital can be made in the hands of the assessee.
(xxi)That on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that since the impugned transactions with the said 19 companies were recorded in the regular books of accounts and in the return filed before the date of search no addition of share capital contribution from the said companies can be made in the hands of the assessee in the block assessment.
(xxii) That on the facts and in the circumstances of the case, the Ld. CAT (A) erred in holding that no addition of the reserve amounting to Rs. 5,47,42,677/- received from six amalgamated companies can be made in the block assessment in the hands of the assessee since the impugned transactions with the said six companies wee recorded in the regular books of accounts and in the return filed before the date of search.
(xxiii) That on the facts and in the circumstances of the case, the ld. CTT(A) erred in holding that the A.O. had examined issue of raising share capital of Rs. 3,87,70,000/- received during the financial year 1998-99 from the eight companies in the regular assessment and no additions were made, it is implied that the share capital of Rs. 3,87,70,000/- was found to be explained and genuine and no addition can be made treating the same amount as undisclosed income in the hands of the assessee company.
(xxiv) That on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that in absence of any material or evidence found during the course of search indicating that the share capital of raised from the 13 companies and amalgamation reserve cannot be taxed as undisclosed income.
(xxv)'That on the facts and. in the circumstances of the case, the ld. CIT(A) erred in deciding that no addition of share capital can be made in the block assessment in absence of any material or evidence found during the course of search pointing to share capital without appreciating the fact that the addition was made on the basis of evidence gathered in course of search and materials and informations collected relalable to such evidence in course post-search enquiries.
(xxvi) That on the facts and in the circumstances of the case, the ld. CAT (A) erred in holding that amalgamation reserve not being revenue receipt of income in nature cannot be taxed as assessee company's since such receipt was disclosed to the department in the return filed before the date of search.
(xxvii) That Department craves that leave to amend or alter or add that grounds of appeal.
10. The Revenue though has taken as many as twenty-seven grounds of appeal, but at the outset of appellate proceedings it was submitted by the ld. D.R. that vide all the 27 grounds, the Revenue has basically disputed the order of ld. C1T(A) on the two effective grounds i.e. vide first ten grounds disputing the order of ld. CIT(A) in passing the order on 20.2.03 without giving adequate time to the Department and secondly disputing the order of ld C1T(A) vide rest seventeen grounds in deleting the addition made by the A.O on account of amalgamation reserve and share application money.
11. The ld. Departmental Representative for the Revenue while arguing for the first ten grounds has submitted that the order of ld. CIT(A) containing 293 pages is perverse and is given without proper application of mind as such order was passed on 20.2.03 i.e. within one day from the last day fixed for hearing on 19.2.03. The ld. D.R. has further submitted that the ld. C1T(A) has not been justified in preponing the case from 24.2.03 to 19.2.03 at the request of the assessee. Though he fairly conceded that such notice of preponement of date of hearing was duly communicated to the Department on 17.2.03. The ld. D.R. has argued that it is not possible to pass such a lengthy order within one day from the last date of hearing and, therefore, the order of ld. CIT(A) is totally perverse as same is given without proper application of mind.
12. Arguing on merit, the ld. D.R. has submitted that since 11 out of 19 Companies from whom amalgamation reserve and share application money were received had their Office at 88/1, Ashutosh Mukherjee Road, Kolkata-25, which was actually used by the assessee-Company as godown and, therefore, presumption drawn by A.O. doubting the genuineness of these Companies was justified. The ld. DR. contended that such Companies were in fact used by the assessee as device to introduce black money in the business and such Companies were in existence for the namesake only as they were in the total control of assessee-company and, therefore, the amount received from such Companies on account of amalgamation reserve and share application money was rightly treated as undisclosed income of the assessee. The ld. D.R. has further relied on the statement of witnesses i.e. Shri S.K. Tulsyan, K.K. Jajodia and Shri P.K. Jajodia recorded by the A.O. wherein they have admitted that such Companies were actually in control of the assessee-Company and transactions between these Companies and the assessee-Company were not genuine as these do not involve any physical movement of shares, etc.
The ld. D.R., however, fairly admitted that such witnesses could not be cross examined by the assessee.
13. The ld. DR has further contended that even otherwise Section 68 is applicable in this case as the assessee has not been able to prove regarding the identity, creditworthiness and genuineness of transactions with above 19 Companies as held by the Hon'ble Calcutta High Court and relied on the following judgments :- (i) Hindusthan Tea Trading Co. Ltd. v. CIT reported in 263 ITR 289 (Calcutta High Court), (ii) CIT v. Nivedan Vanijya Niyojan Ltd. reported in 263 ITR 623 (Calcutta High Court), (iii) CIT v. Ruby Traders And Exporters Ltd. reported in 263 ITR 300 (Calcutta High Court).
The ld. D.R. has further relied on the judgment of the Hon'ble Rajasthan High Court in case of Elegant Home Pvt. Ltd. reported in 259 ITR 232, wherein it was held that cash credit can be included in block assessment provided no satisfactory explanation regarding such credit is being given by the assessee. He has also relied on the judgment of the Hon'ble Rajasthan High Court in case of CIT v. Ajoy Kr. Sharma reported in 232 ITR 240. It has been concluded by the ld. D.R. that since all the 19 Companies from whom amalgamation reserve was created and share application were recorded, were in fact benami Companies of assessee-Company to accommodate the black money earned by the assessee-Company. Therefore, the A.O. was justified in treating above amalgamation reserve and share application money as undisclosed income of the assessee and the order of ld. CIT(A) in deleting the addition was not justified. It was, therefore, pleaded by the ld. D.R. that such order of ld. CIT(A) be set aside and that of A.O. be restored.
14. In his rival submission, the ld. Counsel for the assessee has relied heavily on the order of ld. CIT(A) and has submitted that there was not a single piece of evidence found at the time of search which could suggest that the assessee has any undisclosed income. The ld.Counsel first rebutting the submission of the ld. D.R. in calling the order of ld. CIT(A) as perverse, has submitted that such statement of ld. D.R. only shows his apprehension regarding the integrity and competency of ld. CIT(A) and rather tantamount to a complain against him and pointed out that such C1T(A) is still rendering services for the Department. It has further been pointed out by the ld. Counsel that the ld. CIT(A) has completed the order after giving due opportunity to the both sides and considering the material facts of the case and, therefore, the objection raised by the Revenue on such order of Ld.
C1T(A) is not justified.
15. Arguing on merits, the Ld. Counsel for the assessee has submitted that the addition made by the A.O. is not based on seized material and is-rather based on mere suspicion and assumption which is not permissible in block assessment. It has been submitted by the Ld.
Counsel that not a single argument has been submitted by the Ld. D.R.that any of the income belonging to the assessee was unaccounted or undisclosed as no Bank account was found which was undisclosed and no undisclosed bullion or article was possessed by the assessee to justify the addition made by the A.O.16. The Ld. Counsel has strongly relied on the definition of undisclosed income as given in Section 158B(b) and Section 158BB, which reads as under :_ Section 158B(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 for any expense deduction or allowance claimed under this Act which is found to be false.
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 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 Assessing Officer and relalable 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.
It has, therefore, been submitted by the Ld. Counsel that from the perusal of above definition of undisclosed income, it is absolutely apparent that only those money, bullion, jewellery or other valuable articles can be treated as undisclosed income of the assessee which has not been disclosed by the assessee, whereas 158BB suggests that the undisclosed income shall be computed on the basis of evidence found as a result of search or requisition of books of accounts.
17. The Ld. Counsel has stated that in the present case not a single incriminating document has been found in the course of search which could suggest that the assessee has not recorded such amalgamation reserve or share application money in its regular books of accounts and has submitted that all the six Companies' were amalgamated with the assessee-company only in terms of the order of the Hon'ble Calcutta High Court dated 31.4.98 w.e.f. 1.4.97 i.e. well prior to the date of search and, therefore, there was no occasion for the Revenue to treat such amalgamation reserve available to the assessee-Company on account of such amalgamation effected vide the Hon'ble High Court's order, as undisclosed income of the assessee. The Ld. Counsel further pointed out that all the details regarding such amalgamation, amalgamation reserve and share capital were submitted before the Department well before the date of search and such accounts submitted before the Department were duly audited.
18. The Ld. Counsel has further contended that all the share application money received by the assessee-Company were vide A/c. payee cheques and all the applicants were assessed to tax. It has further been submitted that the assessee-company has duly disclosed such acceptance of share application money by filing its return of income for the assessment years 1998-99, 1999-2000 and 2000-01, assessments of which were completed after the search and nothing wrong was found by the Department. Ld. D.R. further submitted that though provision of Section 68 applies to the block assessment proceedings also but same is not applicable in the present case as all the details pertaining to such credit has duly been shown by the assessee in its regular return of income filed prior to the date of search.
19. The Ld. Counsel has also filed VIII Volume of paper book running into 1049 pages in support of his claim that all the nineteen Companies, on account of which share amalgamation reserve was obtained, and share application money were received during the financial years 1998-90 and 1999-2000, were genuine and were assessed to tax well prior to the date of search. The Ld. Counsel vide the above VIII Volume of paper book has filed details of the order of Hon'ble High Court effecting such amalgamation of six Companies with the assessee-Company and details of application money received by it from thirteen various independent Companies. He has also filed the certificate of incorporation of such Companies issued by the, Registrar of Companies with the name and address of its subscribers The Ld. Counsel has also filed the audited copy of accounts of all the above nineteen companies which were also with the Income Tax Department and Registrar of Companies in support of its claim that such Companies were well in existence prior to the date of search and had their independent identity and were incorporated by virtue of certificate issued by the Registrar of Companies. It has, therefore, been contended by the Ld.
Counsel that from the perusal of all the evidences and certificate annexed thereto in the paper book, it is apparent that all the Companies, from whom amalgamation reserve and share application money were received, were independent one and were in existence prior to the date of search and, therefore, there was no occasion for the Revenue to treat such Company as being controlled by the assessee on the basis of presumptions and statement of third parties. It has further been stated by the Ld. Counsel that the Revenue has at no stage rebutted or doubted the above papers filed by these independent nineteen Companies either with the Registrar of Companies or with the Income Tax Department and, therefore, the action of AO in treating such amalgamation reserve and share application money as undisclosed income of the assessee, was not justified.
20. The Ld. Counsel has submitted that the objection raised by the A.O.while making the addition is on the availability of books of accounts at the place of the assessee but the same cannot be made basis for making huge addition in the hands of the assessee. Referring to the statement of three persons recorded by the A.O.. The Ld. Counsel submitted that such information was gathered by the Department at the back of the assessee and even otherwise the statement of third party cannot be made the basis for addition in the hands of the assessee, particularly in a situation where all the transactions were duly recorded in the books of accounts of the assessee-company and were fully audited and were also disclosed to the Department vide regular return well prior to the date of search.
21. The Ld. Counsel has relied on the judgment of ITAT, Mumbai in case of M.B. Eduljee Cassinath, Sons v. DCIT in I.T.(S.S.)A. No.153/Mum./2002 dated 27.12.2004, wherein it has been held by the Tribunal that bills and vouchers which have been duly incorporated in the books of accounts and already presented before the Department and assessments have been completed then the same will be outside the scope of block assessment to be computed under special provisions of Chapter-XIV-B of the Income Tax Act, 1961.
22. Concluding his argument, it has been submitted by the Ld. Counsel that the entire addition made by the A.O. was based on presumption and assumption and without any material evidence on record and no addition was based upon the material and evidences found at the time of search and submitted that all the transactions, on the basis of which additions were made by A.O., had rather been disclosed by the assessee vide regular return of income well prior to the date of search and, therefore, the Ld. CIT(A) was justified in deleting such addition. It has, therefore, been pleaded that the order of Ld. CIT(A) be upheld.23. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the case laws relied by both the parties and all the VIII Volume of paper book filed by the Ld. Counsel for the assessee.
24. The Revenue has basically disputed the order of Ld. CIT(A) on two grounds, i.e. firstly on the technical ground that the Ld. CIT(A) has passed the order in haste without giving proper opportunity to the Revenue, and secondly on merit that while deleting the addition made by A O on account of share amalgamation reserve and share application money, the Ld. CIT(A) has not appreciated the observation of A.O.25. So far as the first objection of Revenue regarding the order of Ld.
C1T(A) is concerned, we find that the objection raised by the Revenue that it was not afforded proper opportunity of being heard, is not correct. As from the perusal of order-sheet filed before us, it is evident that the A.O. has also participated in the course of hearing before the Ld. C1T(A). Regarding the preponement of last date of hearing, we find that such notice of preponement was duly served on the Revenue on 17.12.03 and hence, the grievance of A.O. that it was not given opportunity of being heard, is not correct.
26. Regarding the length of order i.e. upto 293 pages passed just after one day of hearing i.e. on 20.2.03 is concerned, we find that such objection raised by the Revenue is without any basis and rather seems to be in form of a complain against the Ld. C1T(A). Since the concerned Ld. C1T(A) is still working with Department such doubt and presumptions regarding preparation of 293 pages order in a single day is without any basis. We, therefore, find such allegation by the Department rather absurd and without any basis and, therefore, do not find any merit in such objection raised by the Revenue and accordingly reject the grounds raised in this regard.
27. Coming to the merit of the case, we find that the Ld. C1T(A) has deleted the addition observing that the addition made by the A.O. on account of undisclosed income was not justified as all the transactions pertaining to share amalgamation reserve and share application money were duly recorded in the books of accounts and were filed before the Income Tax Department well before the date of search in form of audited account and, therefore, the same cannot be taxed as undisclosed income of the assessee.
28. We find in this case that additions made by the A.O. were based on mere assumption and presumption and on the basis of three outside witnesses which cannot be made basis for the addition in the block assessment keeping in view the fact that all such Companies from whom share application money was received and amalgamation reserve was created were existing Income Tax payee and were filing return of income with the Department which were audited and nothing adverse was found during the course of search which could suggest that the above Companies were actually benami Company of the assessee-company.
29. Apart from above, we find that so far as the amalgamation reserve of Rs. 5,47,42,677/- is concerned, the same were created by the assessee by virtue of amalgamation of six Companies vide order of the Hon'ble jurisdictional High Court dated 21.4.98 w.e.f. 1.4.97 and, therefore, there was no occasion for the Revenue to treat such amalgamation reserve available to the assessee by virtue of the order of amalgamation by the Hon'ble High Court, as undisclosed income of the assessee. We have also considered the fact that all the six amalgamating Companies were income-tax assessees and were duly incorporated by virtue of certificate issued by the Registrar of Companies.
30. So far as the share application money received from thirteen Companies in financial year 1998-99 and 1999-2000 is concerned, we find that the same above fact exists here also as all these companies were income-tax assessees and were incorporated by virtue of certificate issued by the Registrar of Companies, their accounts were audited and such receipts of share application money was duly shown by the assessee-company while filing regular return of income well before the date of search. We also find that all relevant details had been filed in form of paper book pertaining to such share application money and respective share applicants i.e. thirteen companies who were independent existing assessees and, therefore, there was no reason to treat the share application money received from these thirteen companies as undisclosed income of the assessee.
31. We have also considered the fact that this is a block assessment case and any addition is supposed to be made in the hands of the assessee on the basis of evidence material found as a result of search.
The action of A.O. in treating the above amalgamation reserve and share application money which were shown in the regular return of income as undisclosed income of the assessee, was not justified. As Section 158B(b) is a charging provision and this provision of Chapter-XIV-B applies only to those incomes which can be brought within the definition of undisclosed income. The method as to how undisclosed income is to be computed has been given under Section 158BB. The computation has to be on the' basis of books of account or documents or material found as a result of search. It is settled law that the computation provisions cannot be supersede the charging provisions. If some income cannot become undisclosed income within the definition under Section 158B(b), it cannot be brought to tax by way of computation under Section 158BB. The computation provisions are to be applied subsequent to the charging provisions. Chapter XIV-B is an independent Code. Object of the said Chapter is to bring to tax undisclosed income which the assessee has earned during a block year.
As to how this income is to be computed, the method has been given under Section 158BB. Thus, every income which can be regarded to be undisclosed income within the definition given under Section 158BB can be brought to tax under this Chapter by computing such undisclosed income on the basis of evidences, material or record found at the time of search. Thus, the income which is not based on the basis of evidence or material found at the time of search, i.e. based merely on hypothesis, surmises, conjectures or estimate, cannot be brought to tax under this Chapter. The income which is not undisclosed, i.e. income has been duly disclosed in the assesee's books maintained in the regular course of business can also not be brought to tax under this Chapter. Even an asset or transaction which is duly entered in the books maintained by the assessee regularly and disclosed to the department can also not be regarded to be undisclosed income. The assessment under this Chapter shall be in addition to regular assessment and income assessed will not be included in regular assessment.
32. The Hon'ble Tribunal in its celebrated case of M.B. Eduljee Cassinath Sons v. DCIT (supra) has discussed the scope of block assessment under Chapter XIV after amendment in the definition of undisclosed income under Section 158B(b) and 158BB(1). The Bench in which one of us is a party has observed as under :- 26.2. We shall now see the scope of ambit of block assessment in the definition of 'undisclosed income' Under Section 158B(b) with retrospective effect from I..7.1995. The amended provisions of Section 158B(b) read as under :- (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 properly which has not been or would not have been disclosed for the purpose of this Act [or any expense deduction or allowance claimed under this Act which is found to be false].
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 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 Assessing Officer 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.
Thus, the amended definition now include "any expense deduction or allowance claimed under this Act which is found to be false". Prior to the amendment the "undisclosed income" could only include income "detected as a result of search". In other words "undisclosed income" could only include the items like money, bullion, jewellery and other valuable articles, things or income / property not disclosed It may not include suppression of income resulting from any false claim by the assessee of any expense, deduction or allowance. This view was taken by various benches of ITAT in different cases like Bangalore Bench in the case of Kirloskar Investments Finance Ltd. v. ACIT 67 ITD 504, Bombay ITAT in the case of David Dhawan v. ACIT 71 ITD 1, Jabalpur Bench in the case of Agarwal Motors v. ACIT 68 ITD 408 and Patna Bench in the case of Kamkap India v. DCIT 67 ITD 237. There are other various decisions to the same effect. Under the circumstances, the amendment was considered necessary in Section 158B(b) and the scope of "undisclosed income " was enlarged. The amended definition of "undisclosed income" Under Section 158B(b) seeks to cover any expense, deduction or allowance claimed by the assessee and found to be false.
26.3. The memorandum explaining the provisions of Finance Act, 2002 is contained in CBDT Circular No. 8 of 2002 dated 27^th August, 2002, reported in 258 ITR 13 - 57. The relevant portion of the same are reproduced below - "6.1. Rationalisation of the provisions of Chapter XIV-B relating to block assessments in cases of search and requisition.
6.11. The existing provisions contained in Chapter XTV-B of the Income Tax Act provide for a single assessment of undisclosed income of 3 block period of six years in cases of search under Section 132 or requisition under Section 132A and lay down the manner in which such income is to be computed and the interest or penalty which may be levied in certain circumstances.
6.12. The existing provisions of clause (b) of Section 158B define undisclosed income to include income or property which has not been or would not have been disclosed for the purposes of the Act, and which is represented by any money, bullion, jewellery or other valuable article or thing, or by any entry in the books of account or other document or any other transaction. It has been noticed that in some cases the appellate authorities have taken a view that this definition covers only property or receipts which have not been disclosed and does not cover income represented by entries in respect of false claims of expenses or deductions. Such view is contrary to the intention underlying the provision of bringing to lax the entire undisclosed income, including income which has been suppressed by making false claims of expenses or deduction, which have been discovered as a result of search, or requisition." From the Explanation to the amended definition, it will be clear that the evidence for false expense, deduction, allowance would, still have to be found in the course of search. For the proper appreciation of scope and ambit of the amended definition of "undisclosed income " it is necessary to see the meaning of two important words used by the legislature i.e. "found" and "false".
The ordinary meaning of the word "found" is "to discover" and the word "discover" has been defined by the Concise Oxford Dictionary as "find unexpectedly or in the course of search. As per Law Lexicon 13l Edition, the word "discover " (occurring in memorandum explaining the provisions of Finance Act, 2002) indicates a detection as result of uncovering, revealing and laying of open to view that was hidden, concealed or unknown. Now, we will see the meaning of word "false ". In the Law lexicon, Second Edition compiled and edited by P. Ramanath Iyer at page 704 the term "false " has been described as under :- "In the more important uses in jurisprudence the word implies something more than a mere untruth; it is an untruth coupled with a lying intent, or an intent to deceive or to perpetrate some treachery or fraud. In Webster's New Collegiate Dictionary some of the meaning ascribed to the term "false " are as under :- 26.4. Thus, it could be clear from the above definitions that a claim for expense, deduction or allowance can be considered as "false" if the same is not genuine or intentionally false or incorrect. Accordingly, in the context, it would appear that the amendment would cover only those expense, deduction, or allowance claimed which are found to be false, i.e. claimed as allowable with an intention to suppress income. Genuine and bonafide claim though found not to be in accordance with the provisions of law or debatable allowance, cannot be treated as undisclosed income. Thus, when in the course of search some material was found showing particular amount of expenditure which is less than what has been claimed in the books of account, the difference between two will constitute undisclosed income. Similarly when in the course of search it was found that an assessee which is allowance deduction, say, Under Section 80HH, was, in fact, not employing the minimum number of workers, thus the claim of deduction made was false, the deduction originally allowed would now be assessed as undisclosed income under the provisions of Chapter XIV-B. In the case of K.V. Abdul Nazer (supra), the ITAT, Bombay Bench 'C has held "even after the amendment, two conditions have to be satisfied, namely (1) that the expenses must be found to be false and (2) undisclosed income must be based on the evidence found during the search and or other information or material available with A.O. and relatable to (he evidence found.
Thus the income which has not been found on the basis of material or evidence found as a result of search cannot be treated undisclosed income under the above Section.
33. We also find that there are many judgment on the identical issue as apart from case laws relied by the Ld. A.R. and CIT(A), various Bench of Tribunals and High Courts has also held that under Chapter XIV-B the assessment could be made only in respect of undisclosed income detected as a result of search, and transactions already disclosed in regular return prior to date of search cannot be held to be undisclosed income of the assessee. In a recent judgment, the Jabalpur Bench of Tribunal in case of Sudhir Kumar Poddar v. Dy. CIT reported in (2003) SOT 495 held that where it was undisputed that the credits were duly recorded in the books of account maintained by the assessee in the regular course of business, the assessee had already filed the returns of income for respective years prior to search and no material was found during the course of search so as to establish that the credits as entered in the regular books of accounts are not genuine, the credit under consideration could not be said to be undisclosed income detected as a result of search and hence the same were out of the purview of the assessment under Chapter XIV-B.We find that facts in the present case is almost identical to the facts of the above case decided by the Jabalpur Bench as in the present case also all the above credit has duly been shown by the assessee while filing regular return of income for respective years prior to the date of search.
34. The case law relied by the Ld. CIT(A) in case of CIT v. Ravi Kant Jain reported in 250 ITR 141 clearly says that block assessment under Chapter XIV-B of the Income Tax Act, 1961 is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search.
35. The case of Bhagwati Prasad Kedia v. CIT by jurisdictional Calcutta High Court reported in 248 ITR 562, as also relied by the Ld. CIT(A) is also directly on the issue wherein it was held that the Assessing Officer was not entitled to question in block assessment the loan which was a subject matter of the regular assessment. The Assessing Officer was wrong in holding that the said sum could be taxed in block assessment although the same featured in the regular books of account.
When the loan creditor was an assessee and in whose assessment the loan advanced had been accepted by the Revenue, the Assessing Officer was wrong in holding that the assessee was liable to pay tax on that loan money taken from that assessee.
36. In a recent judgment Hon'ble Delhi High Court in case of CIT v.Vishal Aggarwal reported in held that since no incriminating materials, documents or information found, a post-search enquiry conducted by A.O.during the block assessment proceedings could not form the basis for making an addition. Since the post-search inquiry was unconnected with the information or material recovered during the search, it was held that at best the A.O. could reopen the assessment Under Section 147 of the Act, but could not add the income Under Section 158BC thereof.
37. In case of Morarjee Gocaldas Spg. & Wvg. Co. Ltd. v. Dy. CIT reported in 95 ITD 1, Hon'ble Third Member while deciding an identical issue as involved in the present case held that the assessment made Under Section 158BC was to be vacated, since it was based on the material already collected and. appearing on record or on the material collected after the search proceedings were completed and it was not made on the basis of material and evidence found as a result of the search nor on the basis of other material or evidence available with the Assessing Officer and relatable to such evidence found as a result of the search. The Third Member noted as under :- The core thing to be seen is the evidence found, which will be the basis for making the assessment. If there is no evidence or the evidence has already come on record or has been disclosed by the assessee in the assessment proceedings, then that evidence cannot be said to have been found as a result of search and in that case, the material or information available with the Assessing Officer and relatable to such evidence cannot help in computing undisclosed income.
38. Delhi Bench of Tribunal has also held in case of M.S. Aggarwal v.Dy. CIT. reported in 90 ITD 80 that the scheme of block assessment enacted under Chapter XIV-B laying down procedure for block assessment proceedings is intended by the Legislature to operate simultaneously with the normal and regular scheme of assessment indicated under Chapter XIV. Both the tax schemes are independent of each other and they are not mutually exclusive. Block assessment under Chapter XIV-B is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to regular assessment already made or to be made. From the analysis of the definition of undisclosed income given in Section 158B(b), it clearly emerges that if any asset or any income as recorded in the books or documents has been disclosed or intended to be disclosed to the income-tax authorities, that would be outside the pale of undisclosed income as defined under clause (b) of Section 158B.39. We, therefore, considering the totallity of the facts and circumstances of the case and in the light of above discussion, are of the opinion that the action of A.O., in treating the share amalgamation reserve, share application money as undisclosed income in the hands of the assessee, was not justified as additions made by the A.O. were not based upon any material evidence found as a result of search and the ld CIT(A) was justified in deleting such addition made by the A.O.observing the fact that all such amalgamation reserve and share application money were duly shown by the assessee in its regular return of income well prior to the date of search and all the nineteen companies, from whom such amalgamation reserve was created and share application money was received, were independent assessees and had shown the above transactions in their books of accounts which were fully audited. We have also considered that the above facts has not been disputed by the revenue and is also evident from the perusal of documents, evidence and other paper filed by the assessee in form of 8 volume of paper book running into 1049 pages and, therefore, there was no occasion for the A.O. to treat such share amalgamation reserve and share application money as undisclosed income of the assessee on the basis of mere assumptions and presumptions and CIT(A) was justified in deleting such addition.
40. We, therefore, considering the totality of facts involved in this case taking support and relying on various judgments of Tribunal and Courts and in light of above discussion, are of the opinion that the ld. CIT(A), while deleting the addition made by the A.O. has passed a well reasoned and discussed order which, in our considered opinion, does not call for any interference from our side. We, therefore, uphold the same and reject the grounds raised by the Revenue.