1. This appeal arises out of the order of the CIT(Appeals)-II, New Delhi, passed on 03.02.2006. The corresponding order of assessment was passed by the Dy. Commissioner of Income-tax, Central Circle -III, New Delhi (hereinafter called the Assessing Officer) under the provisions of Section 15 8BC read with Section 15 8BD of the Income-tax Act, 1961.
The assessee has taken up four substantive grounds of appeal, the fifth being residuary in nature. Ground Nos. 1 and 2 are against the findings of the learned CIT(Appeals) in which he confirmed the action of the Assessing Officer by which a sum of Rs. 1,50,30,137/- was determined as the undisclosed income (hereinafter called the UDI), when the aforesaid income was disclosed in the return of income. Therefore, it was mentioned that the action of the Assessing Officer was bad in law and against the facts of the case. Ground No. 3 is against the findings of the learned CIT(A)m which he confirmed an addition of Rs. 1,78,204/-, made by the Assessing Officer, for commission paid by the assessee for obtaining accommodation entries aggregating to Rs. 1,78,20,411/- from M/s Friends Portfolio Pvt. Ltd. (hereinafter called Friends Portfolio).
Ground No. 4 is against confirmation of the findings of the Assessing Officer regarding the charging of interest Under Section 158BFA.2. On perusal of the assessment order, it is seen that the genesis of issue of notice Under Section 158BC read with Section 158BD of the act was search and seizure operation conducted at the premises of Friends Portfolio. In the course of the search, statements of Shri Manoj Agarwal and other persons were recorded and thereafter assessment was completed in their cases. It was found that all the transactions undertaken by Shri Manoj Agarwal through Friends Portfolio and his other concerns were bogus transactions, in the nature of merely providing entries without any real physical transactions relatable to those entries. Such entries were taken by a number of persons, namely, S/Shri C.P. Khanna, Puneet Khanna, Rajiv Aggarwal, Dhanraj Singh, Harjoot Singh, M/s Ramco Steel (P) Ltd. etc. The last named company filed petition to the Settlement Commission for settlement of its case in respect of entries taken from Shri Manoj Agarwal. In the statement Shri Manoj Agarwal admitted that all the entries given by him through Friends Portfolio and his other companies were in the nature of accommodation entries, which could be grouped into six categories as under: i) Long-term capital gain, short-term capital gain, speculation profit, loss on sale and purchase of shares; ii) Bogus share profits through Friends Portfolio and M/s NITS Softech Ltd. vi) Bogus sale and purchase of jewellery through M/s Bemco Jewellers (P) Ltd. 2.1 It was further deposed by him that in so far as he is concerned, no distinction was made between various kinds of entries and, therefore, he was not aware about the corresponding entries made by the beneficiaries in their accounts. It was also deposited that such entries were provided by charging commission and with a view to help the beneficiaries reduce their income for the purpose of payment of tax. It was also found that entries were also provided to the assessee through an intermediary, Shri Bhushan, as evidenced by the fact that this name appeared on all cheques issued to the parties where he was the intermediary. The cheques issued to the assessee also contained this name.
2.2 In view of the aforesaid information, requisite note was recorded in the case of the assessee Under Section 158BDand notice Under Section 158BC was issued on 7.10.2003. The assessee filed the return on 12.11.2003, declaring the UDI of Rs. 27,90,274/-, as against aggregate amount of Rs. 1,78,20,431/- received from Friends Portfolio. In the course of hearing, the assessee explained to the Assessing Officer that a sum of Rs. 1,50,30,137/- was offered by him for taxation in the return of income for assessment year 2000-01 as evidence regarding this income could not be obtained by the assessee. A sum of Rs. 27,90,274/- was offered for taxation in the assessment of the block period due to lack of evidence. He was required to explain the basis of the aforesaid bifurcation and state why the whole of the amount should not be brought to tax in the assessment of the block period. It was explained that the assessee has dealt in shares through Friends Portfolio, for which he received aggregate amount of Rs. 1,78,20,431/-. The facts regarding the amount disclosed in the return for assessment year 2000-01 and in the return for the block period were reiterated. It was also explained that the amount of about Rs. 28 lakh was offered for taxation in the assessment of block period as the assessee could not collect the details subsequently. It was also explained that income of Rs. 1,50,30,137/-was declared in the return for A.Y. 2000-01 as 'Income from other sources', the details of which were recorded in the books of account. Therefore, it was agitated that the income declared in the return for assessment year 2000-01 could not be brought to tax as the UDI of the block period. It was also explained that the assessee had no connection with either Shri Manoj Aggarwal or Shri Bhushan. The transactions with Friends Portfolio were conducted through the employees of the assessee. No commission was paid either to Shri Manoj Aggarwal, Shri bhushan or Friends Portfolio. On the basis of the facts and after considering the arguments of the assessee, the Assessing Officer came to the conclusion that the impugned receipts were not backed by any share transactions. In any case no evidence was produced by the assessee in respect of actual transactions. Shri Manoj Aggarwal had clearly deposed that he had given accommodation entries for a consideration and there was no physical transaction behind any entry given by him or his concerns. The assessee was given an opportunity to cross-examine Shri Manoj Aggarwal or any other person connected with the transaction, which was not availed of by the assessee. Therefore, he came to the conclusion that the entries received from Friends Portfolio through intermediary Shri Bhushan were nothing but accommodation entries, the import of which was not known, in the sense that these could be profit entries, loan entries, gift entries or entry of any other nature, falling into one of the six categories enumerated above. The assessee also did not provide any rational basis for offering a part of the income in the return for assessment year 2000-01 and the balance in the return for the block period. Therefore, his conclusion was that after conduct of search and seizure operation in case of Friends Portfolio on 3.8.2000, the assessee tried to show a substantial part of the income in the return for A. Y. 2000-01, with a view to reduce the tax liability from rate of 60% to maximum marginal rate of 30%. In absence of any rational explanation or any distinction between the entries, he came to the conclusion that the whole of the income of Rs. 1,78,50,431/- was taxable in the proceedings of block assessment, liable to be taxed @ 60%.
2.3 Shri Manoj Aggarwal had deposed that he used to furnish entries for consideration of commission, being 50 paise per Rs. 100/- of the amount involved in the entry. The intermediary also used to charge similar commission. Therefore, the Assessing Officer estimate commission paid by the assessee to both these parties @ 1% of the amount involved in the entries, being Rs. 1,78,204/-. This amount was brought to tax as income, being unexplained expenditure incurred by the assessee. Thus, the total UDI of the block period was worked out at Rs. 1,79,98,635/-.
3. Aggrieved by the aforesaid order, the assessee moved an appeal before the CIT(A). It was mentioned by him that one of the findings of the Assessing Officer was that the assessee paid cash plus commission for getting accommodation entries by way of cheques of the total amount of Rs. 1,78,20,431/-. He also added a sum of Rs. 1,78,204/- as estimated commission paid for the services rendered by Shri Manoj Aggarwal and others. In this connection it was represented before him that the impugned amount represented profit on share of shares, the details of which were not traceable. Therefore, a sum fo Rs. 1,50,30,137/-was shown as income from other sources in the return of assessment year 2000-01, on which tax was paid. Since the details in support of the cheques were not traceable, the assessee bifurcated the amount as aforesaid on the basis of his memory. Therefore, his case was that since the sum of Rs. 1,50,30,137/- had been entered into the books of account, declared in the return for A.Y. 2000-01 and tax was paid thereon, therefore, the finding of the Assessing Officer that this was done to reduce the rate of tax from 60% to the maximum marginal rate on this amount was at best only a conjecture as there was no evidence in support of the aforesaid finding. In any case, the assessee's case was covered Under Section 158BB(1)(c)(A), which provides that where the due date for filing of the return of income has expired, but no return of income has been filed, then, the aggregate of the income of the block period will be reduced by the income computed 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 search or requisition.
Obviously there is some error in quoting the section either by the assessee or in recording of the learned CIT(Appeals), as the aforesaid section does not apply to the facts of the case. It appears that the assessee wanted to refer to Section 158BB(1)(d), to which we shall revert to later on.
3.1 The learned CIT(Appeals) considered the facts of the case and submissions made before him. He referred to the definition of the term "undisclosed income" given in Section 15 8B(b) of the Act, and pointed out that income or property which has not been or would not have been disclosed, wholly or partly, constitutes the UDI. He further mentioned that it was very surprising that the details of profit on share transactions aggregating to Rs. 1,50,30,137/- were not traceable at the end of the assessee. If the transactions had been recorded in the books of account in the regular course of business, there would have been no question of non-availability of the details of the transactions.
Therefore, he concluded that the disclosure of aforesaid income in the return for assessment year 2000-01 was prompted by search in the case of Friends Portfolio conducted on 3.8.2000, but for which the assessee would not have shown this income for the purposes of the Act. In view thereof, he confirmed that the aforesaid amount of Rs. 1,50,30,137/-was includible in the UDI of the block period.
3.2 In regard to unexplained expenditure by way of commission amounting to Rs. 1,78,204/-, he referred to the statement of Shri Manoj Aggarwal that he was charging commission @ 50 paise per Rs. 100/-from the clients for providing accommodation entries and out of this commission he was paying certain amount to the intermediary also. Therefore, he confirmed the addition made by the Assessing Officer on this count also.
4. Before us, the learned Counsel filed written synopsis, furnishing inter-alia chronology of events, which was important according to him, for determination of the issues in this case. These events in tabular form are reproduced below:2.
31.3.2000 ended in which assessee received cheques from Friends3.
3.8.2000 Search at the premises of Friends Portfolio4.
31.8.2000 Due date of filing return Under Section 139(1) for A.Y. 2000-015.
5.11.2000 Filing of return Under Section 139(4) showing income of about Rs. 1.506.
17.10.2003 Notice issued to the assessee Under Section 158BD(It should be readasl58BC) 4.1 It was pointed out by the learned Counsel that Friends Portfolio or Shri Manoj Aggarwal was not connected with the assessee in any manner and the assessee had no interest in the aforesaid company. However, the assessee received certain amounts by way of cheques from Friends Portfolio, the details of which are furnished on page 7 of the paper book. These cheques were credited in the accounts as "Income from other sources" and the cheques were deposited in the Citi Bank or the Central Bank of India. On perusal of page 7 of the paper book, it is seen that this is an account from the books of the assessee with heading "Income from other sources", in which various amounts were credited from 20.9.1999 to 6.3.2000, aggregating to Rs. 1,50,30,156.75. The City Bank or the Central Bank of India, as the case may be, were debited in respect of all the entries in this account. Thereafter, the learned Counsel referred to page 14 of the paper book, which contains a list of various bank accounts operated by the assessee, and this list includes the names of Central Bank of India and Citi bank as well. On the basis of this paper, his case was that the aforesaid amount, aggregating to Rs. 1,50,30,156.75 was credited in the bank account maintained by the assessee. Thereafter, he referred to page 3 of the paper book, which is a part of computation of income for assessment year 2000-01, which shows interest income of Rs. 4,65,699.78. On the basis of the declaration of this income, his case was that interest earned on credit balances in various bank accounts, including Central Bank of India and Citi Bank, was offered for taxation and, therefore, the bank accounts had been disclosed to the department in the return of income. He again referred to this very page, which shows that advance-tax of Rs. 53.00 lakh was paid by the assessee and on this basis, his case was that the aforesaid transactions, leading to income of Rs. 1,50,30,137/-, had been disclosed in the return of income. At this incurrence, we may also refer to page 6 of the paper book, which shows receipts of other amounts of Rs. 27,90,447/- from Friends Portfolio, which was credited to the account of Odiswi and debited to ICICI Bank and ANZ Grindlays Bank between 19.6.1999 to 10.8.1999. Both these bank accounts do not find any mention in the list of bank accounts operated by the assessee and placed at page 14 of the paper book. It may also be pointed out that in the statement of income, on page 3, after deducting TDS, the assessee had shown liability of Rs. 97,65,048/-. After deducting advance-tax paid of Rs. 53.00 lakh, a sum of Rs. 44,65,048/-was still payable, which was paid on 31.10.2000 as per copy of the challan placed in the paper book on page 10. The date of this payment is after the date of search in the case of Friends Portfolio and the due date of filing the return Under Section 139(1) in the case of the assessee. The tax payable on the impugned income of about Rs. 1.50 crore amounts to about Rs. 49.50 lakh. Therefore, it transpires that in respect of the impugned income of about Rs. 1.50 crores, advance-tax was not paid and the liability was satisfied by making payment of Rs. 50.00 lakh on 30.10.2000.
4.2 Coming to the legal arguments, the learned Counsel referred to the provisions contained in Section 158B(b), which has been reproduced by the learned CIT(A) on page 6 of his order. For the sake of ready reference the definition of undisclosed income is reproduced below: 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 (or any expenses, deduction or allowance claimed under this Act which is found to be false).
In the context of the aforesaid definition, it was pointed out that the income had been disclosed in the return of income for assessment year 2000-01, as evidenced by page 2 of the paper book. This income had also been credited to profit & loss account for the year ended on 31.3.2000 as other income, as evidenced by profit & loss account, placed on page 4 of the paper book. Therefore, it was argued that the income does not fall in the ambit of "undisclosed income", as defined in Section 158B(b). When it was pointed out that while the income was earned over a period of time and advance-tax payable by the assessee fell short by an amount roughly equal to the tax on impugned income, it was clarified that advance-tax paid by the assessee cannot be allocated to this or that part of the total income. The income subject to advance-tax was estimated at lower figure as the assessee chose to pay interest Under Section 234B and 234C.4.3 The learned Counsel took up a number of arguments to support his case and the first argument was that since the amounts had been credited in the bank accounts, interest from which was offered for taxation, the entries appeared in the books of account, and advance-tax was partly paid on the income liable to be taxed in assessment year 2000-01, therefore, the income could not be termed as UDI of the block period.
4.4 The second argument was based upon the provisions contained in Section 158BA(3). This Sub-section, inter-alia, provides that in a casein which the due date for filing of the return of income under Sub-section (1) of Section 139 for any previous year has not expired and such income or the transactions relating to such income have been recorded on or before the date of the search in the books of account or other documents maintained in the normal course relating to such previous year, the said income shall not be included in the block period subject to the satisfaction of the Assessing Officer on the proof furnished by the assessee. On the basis of this Sub-section, the case of the learned Counsel was that the income of the block period has to be computed in accordance with the provisions of Chapter XIVB, as provided in Sub-section (1) of Section 158BA. Sub-section (3) provides that where the due date of filing the return has not expired and the income has been recorded in the books of account maintained in the normal course relating to such previous year, then, such income shall not be included in the block period. Since all the ingredients of this Sub-section stand satisfied, the Assessing Officer ought to have excluded the impugned income in the assessment of the UDI of the block period. It was pointed out that the income had been recorded in the books of account as well as in the bank pass books. The latter should be held to be other documents maintained in the normal course relating to the previous year.
4.5 The third argument of the learned Counsel was that in any case, machinery section relating to the computation of the UDI fails in respect of the impugned income, as provided in Section 158BB(1)(d) and, therefore, it could not have been included in the assessment of the block period. It may be pointed out that Sub-section (1) of Section 158BB provides for the machinery regarding computation of the UDI.According to this Sub-section, aggregate of the total income of the previous year falling within the block period has to be computed in accordance with the provisions of this Act and on the basis of evidence found as a result of search and such other materials or information as are available with the Assessing Officer and relating to such evidence.
Thereafter, the amounts mentioned in Clause (a) to (f) have to be reduced if such amounts are incomes and added in case such amounts are losses from or to the total income computed earlier. Clause (d) provides that where the due date of filing of the return of income under Sub-section (1) of Section 139 has not expired on the date of search, then, the income 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 search has to be reduced from the aggregate of the total income mentioned above. The case of the learned Counsel was that the due date of filing the return in the case of the assessee was 31.8.2000, and the search had taken place on 3.8.2000. Therefore, on the date of search, the due date for filing the return had not expired. The impugned income had been recorded in the books of account and also in the bank pass books maintained in the normal course. Therefore, the impugned income had to be deducted from the aggregate of die total income of the previous year for working out UDI of the block period. If the same is done, the inference will be that the UDI is nil in so far as the impugned income is concerned.
4.6 The fourth ground taken up by the learned Counsel to support his argument was that order Under Section 143(3) read with Section 147 was passed in this case on 31.3.2006, in which the impugned amount was taxed. In this connection, he referred to the provision contained in Explanation (b) below Sub-section (2) of Section 158BA, which provides that the UDI shall not include the income assessed in any regular assessment. It maybe mentioned here that Explanation (c) of the same Sub-section further provides that the income assessed under Chapter XIVB, being the UDI, shall not be included in the regular assessment of any previous year of the block period.
5. Coming to the decided cases, reliance was placed on the decision of Hon'ble ITAT, Jaipur Bench in the case of Om Prakash Sharma v. Dy. CIT (2004) 83 TTJ 246. In that case search and seizure operation was carried out on 25.2.2000 and, therefore, the previous year consisting of the period 1.4.1999 to 31.3.2000 had not expired. Consequently return for the relevant assessment year had not become due. The Assessing Officer presumed that the assessee would not have filed the return but for the search, for which there was no evidence on record.
The assessee had maintained the record of the transactions in a diary in a crude manner and such record had been maintained for a long time.
The return of income was filed disclosing interest income of Rs. 1,31,900/- on loans advanced by the assessee. The Hon'ble Tribunal came to the conclusion that since there was no basis for the presumption of the Assessing Officer and the assessee had been maintaining diary over a number of years, there was no material on the basis of which it could be said that the assessee would not have filed the return of income if the search had not taken place. It may be added that the facts of our case are different from the facts of that case. The reason is that question here is whether the assessee would have disclosed the impugned income in the return of income for the relevant previous year if search had not been conducted, particularly in a situation where the impugned income was not a part of regular income. It may also be added that the impugned income was entered in the books of account and the material question before us is whether such income was recorded in the books prior to the date of search or after the date of search.
5.1 The learned Counsel also relied on the decision of Hon'ble ITAT, Jodhpur Bench in the case of Dy. CIT v. M.L. Jain (2005) 96 TTJ 362. In that case, the assessee was found in possession of certain shares in the course of search and seizure operation. It was explained that all the shares were recorded in the books of account of the respective persons. However, the assessee made a surrender of Rs. 2.50 lakh on this account and the Assessing Officer added the aforesaid amount to the UDI. The learned CIT(A) deleted the aforesaid addition. The Hon'ble Tribunal came to the conclusion that since the shares were fully verifiable from the books of account, the surrender was made under a misconception of facts. Therefore, the order of the learned CIT(Appeals) was upheld. We have considered the facts of our case in the light of the ratio of that case. In that case, the shares standing in the names of a number of persons, were duly disclosed in their books of account. The shares were purchased much earlier than the conducting of search and seizure operation. Therefore, the Hon'ble ITAT came to the conclusion that the surrender was made on misconception of facts and consequently deleted the addition. As mentioned earlier, the material question before us would be whether the impugned income had been recorded in the books of account or not before the date of search even though it was shown in the return of income filed Under Section 139(4).
5.2 The learned Counsel also furnished brief synopsis, in which a number of other cases were relied upon. A mention was made regarding the decision of Hon'ble Gauhati High Court in the case of Dr. (Mrs.) Alka Goswami and Anr. v. CIT . In that case, the Assessing Officer included the income for A.Y. 1995-96, for which the previous year had not ended on the date of search, and which was covered by the advance-tax paid by the assessee. The Hon'ble court held that the income covered by payment of advance-tax would be an income disclosed to the revenue and it could not be said to be the UDI of the block period. In this case, the impugned income was not covered by the payment of advance-tax and, therefore, the learned Counsel fairly conceded that the ratio of that case is not applicable in this case.
However, it was argued that the assessee had paid advance-tax, which could not be referred to this or that income and, therefore, the impugned income should be deemed to have been covered by payment of advance-tax, meaning thereby that the self-assessment tax should be taken as paid in respect of other income, which was the regular income of the assessee. On consideration of the aforesaid judgment of Hon'ble Gauhati High Court, we are of the view that the aforesaid argument of the assessee cannot be accepted for the simple reason that the tax payable on the impugned income was roughly the same amount as the self-assessment tax paid by him at the time of filing belated return.
Therefore, on a rational consideration of the facts, it will have to be held that advance-tax was not paid in respect of the impugned income.
5.3 A mention was also made of the decision of Hon'ble IT AT, Delhi Bench "E" in the case of M.S. Aggarwal v. Dy. CIT (2004) 90 ITD 80. The facts of that case were that during the course of search on 25.11.1999 at the residential as well as business premises, some documents and records were seized. Prior to commencement of the search, the assessee admitted in a statement that gifts received by him and his HUF, aggregating to Rs. 60 lakh, were bogus as they were arranged through a chartered accountant against payment of cash. This statement was affirmed again on 06.01.2000. The assessee filed the return for the block period in which aforesaid gifts were not included. The Assessing Officer added the aforesaid gifts in the UDI. Hon'ble Tribunal pointed out that assessment under Chapter XIVB was not in substitution of regular assessment. The assessment was limited to material unearthed during the course of search. Therefore, it emerges that if any asset or income etc, is recorded in the books or documents and has been disclosed or is intended to be disclosed to the revenue, then, such income will not form the UDI, as defined under Section 158B(b). As no evidence was found in the course of search, which might impeach genuineness of the gifts received by the assessee and his HUF, the same cannot form part of the UDI or subject matter of its computation Under Section 158BB. On consideration of ratio of that case, we find that if no material is found in the course of search, then, there could be no question of the computation of the UDI. However, in the instant case substantial evidence was found in the course of search of Friends Portfolio, which led to a conclusion that the transactions of the assessee with it were bogus. Therefore, the question here is materially different from the question in the case of M.S. Aggarwal.
5.4 The learned Counsel had also relied on the decision of Hon'ble Madras High Court in the case of ACIT v. A.R. Enterprises . The issue in that case again was regarding the computation of UDI when the assessee had paid advance-tax. The Hon'ble court came to the conclusion that the income covered by the payment of advance-tax would be income disclosed to the revenue, which cannot be treated as the UDI for the relevant assessment year. However, as mentioned earlier, the facts of the instant case are somewhat different, as advance-tax was not paid on the UDI, computed by the Assessing Officer. Certain other cases were also cited on the same issue, which are not discussed as the ratio is the same as in the case of A.R. Enterprises and Dr. (Mrs.) Alka Goswami (supra).
6. As against the aforesaid, the learned DR pointed out that search and seizure operation was conducted in the case of Friends Portfolio on 3.8.2000. The due date for filing the return in the case of the assessee was 31.8.2000. The assessee filed the return of income on 30.11.2000. The question to be decided in this case is whether the impugned income declared by the assessee in the return filed on 30.11.2000 would have been disclosed to the revenue if search had not taken place in that case. He stressed that all surrounding circumstances lead to only one conclusion, namely, that this income was not intended to be shown to the revenue. In this connection, it was pointed out that the owner of Friends Portfolio was merely furnishing accommodation entries and he was not conducting any business whatsoever. In this connection, he referred to the detailed discussion in the assessment order regarding the background of the case, in which it was pointed out that Shri Manoj Aggarwal clearly deposed to the effect that he was carrying on the business of providing accommodation book entries regarding bogus long-term capital gain, short-term capital gain, profit, loans and advances, gifts, purchase bills, and sale and purchase bills of jewellery. Such entries are obviously taken with a view to evade income-tax. This was the key reason for holding that the income would not have been disclosed to the revenue. It was further pointed out that there is a peculiar position in this case, namely, that the assessee had taken entries aggregating to about Rs. 1.70 crore, out of which entries aggregating to Rs. 1.50 crore were entered in books of account and disclosed in the return of income, but entries aggregating to Rs. 20 lakh were declared in the block period return. In spite of repeated questioning about the aforesaid bifurcation and the basis thereof, no explanation was given. Therefore, it is clear that the impugned entries were made in the books after search and seizure operation to the extent those could be made with a view to reduce incidence of taxation from 60% to 30%. He also pointed out that the case of the assessee is that the impugned income was earned out of share transactions. If the explanation is taken on face value, then, the income should have been declared under the head "Profits and gains of business or profession" or under the head "Capital Gains", while it has been shown under the head "Income from other sources". The entries made in the books do not show the transactions on which profits were made under the specious plea that the details of transactions were not available. His case was that no actual transaction had taken place and, therefore, there was no question of any details of the transactions available with the assessee. Having learnt about the search and seizure operation in the case of Friends Portfolio, the assessee was cornered and, therefore, declared a part of the income in block return and a part in the return filed Under Section 139(4). The income returned in the latter return was not covered by the payment of advance-tax, which clearly leads to the inference that the income was not intended to be shown to the revenue. It was stressed that if the income had been included in the books of account on 31.3.2000, there could not have been such a huge gap between the income returned and the income covered by payment of advance-tax. Therefore, it was agitated that if totality of circumstances is taken into account along with the conduct of the assessee, there was inescapable conclusion that the impugned income was not intended to be shown to the revenue.
6.1 In the aforesaid connection, he relied on the decision of Hon'ble Bombay High Court in the case of Gordhandas Hargovandas and Anr. v.CIT, Bonmbay City-III . The question before the ITO, the AAC and the Tribunal was whether addition of the sum of Rs. 1,91,984/- in the case of Gordhan Das and Rs. 1,81,772/- in the case of Dharam Das was justified as income from other sources. A number of credits were found in the personal accounts of these two brothers.
Their case was that the credits represented sale proceeds of ornaments inherited by them. The ITO did not accept that the assessees had inherited ornaments or that such ornaments had actually been sold.Therefore, his conclusion was that unaccounted income was being shown in the guise of gold ornaments inherited by the assessee. This conclusion was confirmed by the AAC and the Tribunal. The Hon'ble High Court held that the two amounts represented assessee's income from undisclosed sources in absence of any proof that the amounts related to any earlier previous year. In this connection, it was pointed out that the assessee cannot be heard to say that it is for the revenue to bring some material or evidence on record to suggest affirmatively that the cash amount was the equivalent of some goods or gold and must be attributable to a particular year in question. If a sum is found to have been received by the assessee, the onus of proving the source is on him. Further if he disputes the liability to tax, it is for him to show that the receipt was not income or that it was exempt from tax under some provision of the Act. We find that the ratio of that case is not applicable to the facts of this case. In this case, the source of money is Friends Portfolio and the assessee is not disputing that the receipts are in the nature of income, although there is no evidence about nature of transactions with that party. The question before us is whether the impugned income is liable to be taxed as the UDI of the block period, as agitated by the revenue or as income liable to tax under other provisions of the Act, as agitated by the learned Counsel.
6.2 The learned DR also relied on the decision of Hon'ble Supreme Court in the case of CTT, West Bengal-II v. Durga Prasad More . The facts of that case were that the assessee, acting as trustee of a trust created by his wife, purchased residential property for a sum of Rs. 1.85 lakh. It was claimed that the income from the property should not be taxed in his hands and for this purpose he relied on the deed of conveyance in his favour executed by his wife about a year ago. In the deed, it was inter-alia stated that a sum of Rs. 2 lakh was lying in the hands of her father-in-law as her Stri Dhan. There was no evidence regarding her independent source of income.
The ITO taxed the income from the property in his hands. This decision was affirmed by the Tribunal. Subsequently, after a lapse of about 16 years, the plea of the trust was revived again by the assessee, which was rejected by the Tribunal. On a reference, the High Court held that the finding of the Tribunal was not correct when it held that the property was not trust property. The Hon'ble Supreme Court, reversing the decision of Hon'ble High Court, pointed out that it could not be said that the finding of the Tribunal was devoid of reality or it was not based on evidence or it was otherwise vitiated. In this connection, it was pointed out that while apparent state of affairs may be considered as real until it was shown that there were reasons to believe that the apparent was not real, however, in a case where the party relies on self-serving recitals in the document, it was for him to establish the truth of the recital. The revenue can look into the surrounding circumstances to find out the reality of the recital. On the basis of this decision, the case of the learned DR was that the assessee cannot rely on mere entries made by him in his books of account to claim that the income was intended to be shown to the revenue. The Assessing Officer was well in his right to examine attendant circumstances and decide whether the income was intended to be shown to the revenue. If attendant circumstances are taken into account, it will be seen that there was no intention to declare the income and, therefore, the Assessing Officer rightly added the amount in the UDI. The learned CIT(A) also passed a very well reasoned order upholding the decision of the Assessing Officer. Therefore, it was agitated that the decision of the learned CIT(A) ought to be upheld on the facts and in the circumstances of the case.
7. In the rejoinder, the learned Counsel referred to page 1 of the paper book, being the belated return filed for assessment year 2000-01 on 30.11.2000. Thereafter, he referred to paragraph 1.2 of the order of the Assessing Officer, in which it was mentioned that proceedings of block assessment were completed in the case of Friends Portfolio on 29.8.2002, in which it was established that they were merely giving accommodation book entries to various parties. His case was that the return filed by the assessee was prior to completion of assessment in the case of Friends Portfolio as well as issue of notice Under Section 158BC to the assessee. The assessee had made entries in the books of account much earlier. There could be no presumption that the assessee came to know about the search in case of Friends Portfolio on or about the date of search. Therefore, the return was bona fide and a part of the income declared therein could not be assessed as the UDI of the block period. It was also mentioned by him that the learned DR had not made any comments about applicability of Section 158BA and 158BB.8. The burden of the argument of the learned Counsel was that the impugned income did not fall within the ambit of the definition of the term "undisclosed income", furnished in Section 158(b) of the Act.
Before proceeding with the argument, it may be pointed out that this section, regarding the definition of UDI, is similar to Section 5 of the Act regarding "scope of total income" in content in so far as the scope of UDI is concerned. Thus, it is clear that any income which falls beyond the ambit of the aforesaid definition, cannot be made a subject matter of assessment under chapter XIVB. This definition has been reproduced in paragraph 4.2 of this order (supra). The definition is inclusive and includes in its ambit inter-alia any income based on any entry in the books of account or other documents or transaction which has not been or would not have been disclosed for the purpose of this Act. Thus, any disclosed income or any income which was intended to be disclosed for the purpose of this Act cannot be included in the UDI. The case of the learned Counsel was that the income has been shown in the return of income for A. Y. 2000-01, As evidenced at page 2 of the paper book. It is seen that the return was filed on 30.11.2000, after the date of search in the case of Friends Portfolio on 3.8.2000.
Further case of the learned Counsel was that this income has been entered in the books of account in the ledger account with the head "Income from other sources". On perusal of this account, it is seen that the aforesaid account has been credited and the bank accounts have been debited. Numbers of various cheques received from Friends Portfolio have also been mentioned. The bank accounts were maintained with Citi Bank and Central Bank of India, interest from which was also included in the return of income. On perusal of page 14 of the paper book, it is seen that the assessee operated accounts with three banks, namely, Central Bank of India, Bank of Madura and Citi Bank, with more than one type of account with Central Bank of India and the Citi Bank, interest from which was disclosed in the return filed on 30.11.2000.
However, the learned Counsel did not clarify whether all these accounts were old accounts or the accounts in which the aforesaid cheques deposited were operated for the first time in the relevant previous year. It is also seen that there were other cheques received from Friends Portfolio, which were credited in ICICI bank and ANZ Grindlays bank between 19.6.1999 to 10.8.1999, which were not disclosed to the department as these names do not appear on page 14 of the paper book.
The entries in ledger account showing income from other sources starts from 20.9.1999, roughly 10 days after the last entry of credit of Rs. 2,55,834/- in the account of ANZ Grindlays bank. The learned Counsel has not thrown any light about the distinction between the entries relatable to the period from 19.06.1999 to 10.8.1999 on one hand and from the period 20.9.1999 to 6.3.2000 on the other. It is also seen that the assessee did not pay advance-tax on income credited under the head "Income from other sources" while such income was received periodically between 20.9.1999 to 6.3.2000. On the other hand, the burden of the argument of the learned DR is that all attendant circumstances lead to a conclusion that the impugned account was inserted in books after the search in the case of Friends Portfolio. In coming to the conclusion in the matter, the surrounding circumstances cannot be ignored in the light of the decision of Hon'ble Supreme Court in the case of Durga Prasad More (supra).
9. Having considered the rival submissions, we are of the view that the facts do not lead to the conclusion that on the date of search the income had been disclosed to the revenue or it was intended to be disclosed in the sense that either taxes relatable to the income were paid in advance on the prescribed dates or the transactions were entered in the books of account maintained in the normal course before the date of search. This view gets strengthened by the fact that details of the transactions were not entered in the books. If the transactions had been entered in the normal course, references would have made to the actual transactions, their nature and the amount of profit involved therein. The amounts were summarily entered as receipts in the impugned account. Further, similar receipts in the period 19.6.1999 to 10.8.1999 were not entered in the books of account and the cheques were deposited in the accounts which were not disclosed to the revenue. We also do not know whether the accounts of Central Bank of India and Citi Bank, in which cheques were deposited, had been disclosed to the revenue before the date of search. All these facts lead to a very clear conclusion that the impugned amounts were inserted in the books after the search in the case of Friends Portfolio. It was also pointed out by the learned Counsel that the assessee received notice Under Section 158BCoftheAct on 17.10.2003. Therefore, he came to know about the search in the case of Friends Portfolio only on that date. It was also argued that there is no presumption that the assessee came to know about the search in the case of Friends Portfolio on or about 3.8.2000. We have considered this matter also, but we do not find any force in these submissions and arguments. The reason is that the assessee had received cheques of substantial amounts aggregating to Rs. 1,78,20,411/-from Friends Portfolio. Such transactions could not have been conducted merely through the employees of the assessee without express authorization from the assessee. It is not a case where some minor amounts were received or expended by the assessee in the course of business through the employees, where a presumption 1 could be that he was not in the knowledge of such receipts or expenditure. First of all, the transactions were not in the normal course of business as clearly pointed out by Shri Manoj Aggarwal. The transactions were obviously undertaken either for laundering of money by making false entries in the books of account or for suppression of income. Such transactions could have been done only on the express directions of the assesseeand after discussing the matter with Shri Manoj Agarwal.
Therefore, there was a clear design in undertaking these transactions, the purpose of which could only be concealment of income or laundering of income. It is clear that the income or transactions had not been disclosed to the revenue on or before the date of search. It is also clear that the income or transactions would not have been disclosed but for the search. Thus, the case of the assesseeis clearly covered in the definition of "undisclosed income". It may be added that the whole situation has to be viewed as on the date of search and subsequent discussion, dealing with other provision will highlight the importance of the date of search.
9.1 Having come to the conclusion that the impugned income falls within the ambit of undisclosed income, we may now examine whether the case of the assessee is saved by Sub-section (3) of Section 158BA. The facts of the case are that on the date of search in the case of Friends Portfolio, the previous year relevant to assessment year 2000-01 had ended, but the return of income had not become due and it became due on 31.8.2000 i.e., after 28 days of the search of the premises of Friends Portfolio. The aforesaid Sub-section provides that if income or transactions relating to the income are recorded on or before the date of search in the books of account or other documents maintained in the normal course, and the assessee proves the aforesaid facts to the satisfaction of the Assessing Officer, then, the said income shall not be included in the UDL This Sub-section contains two pre-requisites, namely,-(i) transactions relating to such income are recorded on or before the date of search in the books of account or other documents maintained in the normal course, and (ii) the aforesaid fact is proved to the satisfaction of the Assessing Officer. The case of the learned Counsel was that all the ingredients of this Sub-section are satisfied and, therefore, the Assessing Officer ought to have excluded the impugned income in assessing the UDI of the block period. It has already been discussed that certain transactions were not recorded in the books of account. However, such transactions were shown as undisclosed income in the return of the block period. Certain other transactions were recorded in the books of account, but it is not proved that these transactions were recorded before the date of search.
We have also seen that the nature of entries made in the ledger account is such that the entries cannot be said to have been made in the normal course because the transactions leading to income have not been recorded therein. The entries are merely in the nature of credits and debits, unsupported by any bills or vouchers. It was the case of the assessee that advance-tax was paid, which also is not correct.
Therefore, it cannot be said that any of the ingredients of the section were proved by the assessee before the Assessing Officer. In view thereof, the Assessing Officer could not have recorded the satisfaction that such ingredients had been satisfied and thereby excluded the impugned income from the UDI. Thus, we are of the view that the provisions of the aforesaid Sub-section do not come to the aid of the assessee.
9.2 It was also argued that the case of the assessee is saved by the provision contained in Clause (d) of Sub-section (1) of Section 158BB.This clause, inter-alia, deals with a situation where the date of filing of the return under Sub-section (1) of Section 139 has not expired on the date of search. It is provided that the income on the basis of entries relating to such income or transactions, as recorded in books of account or other documents maintained in the normal course on or before the date of search, shall be deducted from the aggregate of total income computed under main Sub-section (1) of Section 158BB.The contents of this section are some what analogous to Sub-section (3) of Section 158BA. The pre-requisites for deducting the income from the total income are that the transactions are recorded in the books of account and other documents maintained in the normal course on or before the date of search. We have seen that overwhelming evidence regarding the recording of these transactions in the books of account is against the assessee and all circumstances lead to the only conclusion that the entries were inserted in the books after the date of search in the case of Friends Portfolio. Therefore, we are of the view that the provisions of this clause also do not come to the aid of the assessee.
9.3 The learned Counsel has also argued that the impugned income was included in the assessment order passed on 31.3.2006 Under Section 143(3) read with Section 147. In this connection, a reference was made to I Explanation (b) under Sub-section (2) of Section 158BA. The Explanation provides that total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period. In view of the fact that the impugned income was assessed Under Section 147, albeit after completing the block assessment on or about 31.10.2005, the same cannot be included in the UDI of the block period. It was pointed out in para 4.6 (supra) that Explanation (c) provides that the income assessed in this chapter shall not be included in the regular assessment of any previous year. Having considered the arguments of the learned Counsel on this issue, we are of the view that these two explanations have to be read harmoniously and Explanation (b) cannot be read in isolation of the other Explanation (c). If that is done, it will transpire that it will first have to be determined whether the income falls within the ambit of "undisclosed income" under chapter XIVB. The provisions of this chapter have overriding effect as Section 158BA contains a non-obstente clause. If that is done, on assessment of income under this chapter, the same shall not be assessed again in the regular assessment of any previous year. However, if the income does not fall within the ambit of the term "undisclosed income", then, it shall be assessed in the regular assessment and upon doing so, it shall not be included in the UDI under chapter XIVB. We have discussed cases earlier which lead to a clear inference that assessment under chapter XIVB and the regular assessment are two parallel proceedings, independent of each other.
What falls within the scope of chapter XIVB cannot be made subject matter of regular assessment and vice-versa. We have seen that the impugned income is a subject matter of assessment under Chapter XIVB and, therefore, it could not have been assessed in the regular assessment. However, that does not lead to an inference that the impugned income should not be assessed under chapter XIVB, as it has been assessed in the regular assessment. The proper course in such a case would be to exclude the UDI from the regular assessment.
Therefore, even these provisions do not advance the case of the assessee.
9.4 Having considered the rival arguments and the case laws on the issue, we are of the view that the Assessing Officer had rightly assessed the impugned income as the undisclosed income of the assessee.
Consequently, the learned CIT(A) had also rightly upheld the order of the Assessing Officer on this issue. Therefore, ground Nos. 1 and 2 of the appeal are dismissed. At the same time, we are also of the view that this income should not have been assessed in the regular assessment notwithstanding the fact that the assessee had disclosed the income voluntarily in the return for assessment year 2000-01. The Ld.
CIT(A) has given a finding that tax paid on this income in this assessment year should be considered as tax paid on the UDI. However, we are of the view that this income cannot be assessed in a regular assessment. Therefore, the Assessing Officer is also directed to exclude this income from the regular assessment.
10. Ground No. 3 is against the finding of the learned CIT(A) to the effect that the Assessing Officer was right in making an addition of Rs. 1,78,204/-, being the commission paid by the assessee for obtaining the accommodation entries. The case of the learned Counsel before us was that there is no evidence on record to support this finding of the learned CIT(Appeals). We have considered this matter also. Shri Manoj Aggarwal, the owner of Friends Portfolio, had clearly deposed to the effect that he was issuing cheques in lieu of the cash receipts from various parties, which could have been entered by them in any manner i.e., as gifts, loans, income etc. He had further deposed that he was charging commission @ 50 paise per Rs. 100/- involved in the entries.
He had also deposed that the commission was paid to the intermediary and in this case Shri Bhushan was the intermediary. The Assessing Officer had granted opportunity to the assessee to cross-examine Shri Aggarwal, Shri Bhushan or any other person involved in the impugned transactions. Surprisingly, the assessee chose not to cross-examine any of the persons involved in the transactions. Therefore, it cannot be said by any stretch of imagination that there was no evidence on record for making addition, albeit on estimated basis, in respect of expenditure incurred by way of commission on procuring the aforesaid entries amounting to Rs. 1,78,20,431/-. The Assessing Officer has made addition in respect of the expenditure @ 1% of the amount involved in all the entries. To our mind, the estimate is reasonable and, therefore, we do not see any reason to interfere with the findings of the learned CIT(A) in this matter. Thus, this ground is also dismissed.
11. Ground No. 4 is against the finding of the learned CIT(A) that the assessee was liable to pay interest Under Section 158BFA for the default of late filing of the return for the block period. No particular argument was made by the learned Counsel before us in this matter. The Assessing Officer has recorded that notice Under Section 158BC dated 7.10.2003 was served on the assessee, in response to which the return was filed on 12.11.2003. The return was required to be filed within 30 days of the receipt of the notice. Thus, there was a delay in filing the return. It was also mentioned in the order that interest be charged Under Section 158BFA(1). The learned CIT(A) confirmed the levy of the interest by pointing out that it is mandatory as per the statute and the Assessing Officer had no discretion in the matter. Looking to these facts and absence of any argument from the learned Counsel, we do not see any reason to interfere with the order of the learned CIT(Appeals) in this matter also.