| SooperKanoon Citation | sooperkanoon.com/69130 |
| Court | Income Tax Appellate Tribunal ITAT Madras |
| Decided On | Aug-27-1997 |
| Reported in | (1998)65ITD188(Chennai) |
| Appellant | T.S. Kumarasamy |
| Respondent | Assistant Commissioner of |
2. The appellant-assessee is proprietor of M/s. Christy Fried Gram and engaged in manufacturing and supplying weaning food under TINP for which he obtained contracts. Search operations on 17-10-1995 were conducted on the assessee and continued upto 3-11-1995. During the course of search operations a statement on oath from the assessee was recorded under section 132(4) of the Act. In answer to question No. 16 the assessee submitted that he has invested Rs. 15,85,000 in purchase of immovable properties and Rs. 10,15,000 in purchase of movables. He also stated that contract expenses to the extent of Rs. 50 lakhs have not been written in accounts and that he will declare Rs. 1.11 crore for the assessment years 1995-96 and 1996-97 by filing the returns and paying income-tax also. The Assistant Director of Inspection also took an oath statement from the assessee on 4-12-1995. The copies of oath statements translated in English have been placed in the paper book filed on 25-6-1997 from pages 2 to 11.
3. On the basis of search operations, the Assessing Officer issued a notice on 24-7-1996 under section 158-BC of the Act directing him to file a return for the block period of 10 years giving 15 day's time in respect of undisclosed income. After the issue of notice under section 158BC read with section 142(1) of the Act, the Assessing Officer conducted enquiries on the basis of seized materials and also called for certain other documents and papers and other related information to enable him to complete the block period assessment of undisclosed income of the assessee. The assessee filed the block period return on 7-10-1996 returning undisclosed income of Rs. 1,06,92,950 the details of which are as under :Undisclosed assets 16,18,725Unexplained expenses 50,00,000Profit for the year as 40,74,221declared by assessee The Assessing Officer discussing various aspects of the case in his lengthy order running to 15 typed pages has stated in more than one place that the account books recovered during the course of search operations were not maintained in the normal course and therefore, the undisclosed income cannot be computed on the basis of the seized accounts. At page 11 in para 9 of the impugned order the Assessing Officer has stated that the sales figures available from 1-4-1990 to 17-10-1995 are to the tune of Rs. 28,59,37,287. In the same para 9 at page 11 of the impugned order the Assessing Officer has stated that it is not possible to rely on the books of account and documents filed by the assessee and as discussed earlier in the impugned order the account books are not complete and are irregular and cannot be relied upon for making the block period assessment. The Assessing Officer has further stated at page 11 of the impugned order that the profit and loss account and balance-sheet also cannot be accepted as correct. Taking all these facts and circumstances into account the Assessing Officer computed undisclosed income for the period from 1-4-1995 to 17-10-1995 in a sum of Rs. 1,05,74,253. The detailed working of which has been given at page 13 of the impugned order and which we deem it fit to reproduce as below :-Opening Balance as on 1-4-1994 (-) 3,20,597Profit for assessment year 1995-96 8,50,000 ------------Capital as on 1-4-1995 5,29,403Capital as on 17-10-1995 61,03,656 ------------for the period 1-4-1995 to 17-10-1995 55,74,253Add : Unexplained expenses, partly admitted as income (originally admitted) 50,00,000 ------------ 1-4-1995 to 17-10-1995 1,05,74,253 ------------ The Assessing Officer during the course of enquiry noticed that there were sundry creditors of Rs. 93,98,819 as on 31-3-1994 and Rs. 2,95,65,706 as on 17-10-1995. According to the Assessing Officer no balance-sheet was filed alongwith the return filed for the assessment year 1995-96 and therefore, the figure of sundry creditors as on 31-3-1995 was not known. This is mentioned by the Assessing Officer in para 7 at page 8 of the impugned order. The assessee while filing the return of income for the period 1-4-1995 to 17-10-1995 did not attach the profit and loss account and balance-sheet as on that period. Though the return was filed on 7-10-1996 the details of sundry creditors were given much later and some confirmation letters were filed on 25-10-1996 when the assessment was getting time barred on 31-10-1996. According to the Assessing Officer since the time was short only a test check was made of the sundry creditors for finding the genuineness and therefore Inspectors were deputed on 30-10-1996, and they enquire with 4 creditors aggregating to Rs. 41,05,857, the names and addresses of which have been given by the Assessing Officer in pages 8 & 9 of para 7 of the impugned order. The Assessing Officer has stated in page 9 of the impugned order that the Inspectors who were deputed to enquire about the genuineness of the loans reported that the four creditors were agriculturists and did not have business activities and that their standard of living was average. The Inspectors reported to the Assessing Officer that the 4 persons voluntarily had given in writing to them that they have not given any money or supplied any goods to the assessee. The Assessing Officer, therefore, concluded that the entire loan amount of Rs. 41,05,857 in the said four cases were bogus. The Assessing Officer has stated further in the said para 7 of page 9 that further enquiry could not be made on account of shortage of time and it was his opinion that the remaining creditors appearing in the balance-sheet filed may also be not genuine. The Assessing Officer has made out a case by stating that the assessee delayed the filing of the returns and submitting the details to deny the Department enough time for making fruitful enquiries with a view to make a fair assessment. As the Assessing Officer could not conduct valid and proper enquiries in relation to the whole of the sundry creditors he was of the opinion that the fair estimate should be made of bogus sundry credits out of the balance amount of Rs. 2.55 crores and the Assessing Officer was of the view that 50 per cent. estimate of the balance amount of Rs. 2.55 crores which works out to Rs. 1,275 crore was bogus. The Assessing Officer, therefore, added a sum of Rs. 1.68 crore (0.41 + 1.275 crore) as bogus credit and brought to tax as undisclosed income of the block period of 10 years. Thus, the total undisclosed income of the block period of 10 years computed by the Assessing Officer was Rs. 2,73,74,250 in the below given manner :-"A" total undisclosed Rs. 1,05,74,253income estimated as discussed Rs. 1,68,00,000 ---------------- Total Income Rs. 2,73,74,253 or As provided in section 158BC of the Act, he charged the tax at 60 per cent. on the undisclosed income computed by him in a sum of Rs. 2,73,74,250. The tax worked out to Rs. 1,64,24,550 and after giving credit of tax paid in advance of Rs. 40,00,000, balance tax payable was worked out at Rs. 1,24,24,550.
4. It is pertinent to mention here that the Assessing Officer has been approaching and contacting the Commissioner of Income-tax, Coimbatore for seeking instructions from her for the purpose of making block period assessment of undisclosed income of the assessee. The Assessing Officer and the Range Dy. Commissioner of the Income-tax Department, Salem met the Commissioner on 28-8-1996 and the Commissioner was unhappy with the investigation and enquiry being done by the Assessing Officer. She, therefore, prepared a note in file C. No. 1429(16)/95-96 dated 29-10-1996 directing, in para 2(iv) of the said note, the Assessing Officer to conduct enquiries and investigations in the manner directed by her. We think the entire contents of the note of the Commissioner of Income-tax, Coimbatore are very important and require to be incorporated so as to make it part of this order. We reproduce the same as under :-C. No. 1429(16)/95-96 Shri T. S. Kumarasamy, Tiruchengode.
Shri M. Maniyandi, Assistant Commissioner of Income-tax, Special Investigation Circle, Salem who is the Assessing Officer in the present case, was directed vide this office D.O. letter dated 1-10-1996 to submit the draft block assessment order in the above case, which is getting barred by limitation on the 31st of November, 1996, on or before 11-10-1996 positively and to come for a personal discussion on the same date. The Assessing Officer and Shri Artabandhu Patra, Deputy Commissioner of IT, Salem were present in this office on 11-10-1996. The unsigned draft block assessment order, together with the six page note, brought by the Assessing Officer was sketchy and did not cover any of the major points raised in the appraisal report. Detailed oral instructions as to how to proceed with the case were issued to the Assessing Officer in the presence of the Deputy Commissioner of Income Tax, and he was asked to keep the draft assessment order ready for approval on 23-10-1996, on which date I had proposed to camp at Salem. Due to the strike resorted to by the staff members of the Department, the trip to Salem was postponed. However, on 23-10-1996, the Assessing Officer and the Deputy Commissioner of IT, Salem were telephonically directed to come to Coimbatore on 28-10-1996 with the draft assessment order for approval. The Assessing Officer did not come on this date. He is present today, along with the draft block assessment order. The DCIT, Salem is also present.
2. After perusing the draft assessment order, the appraisal report and a few of the seized materials brought by the Assessing Officer, the following observations are made :- (i) The present draft assessment order prepared by the Assessing Officer appears to be nothing but a note justifying the assessment of the amount declared earlier by the assessee at the time of the proceedings under section 132(4).
(ii) None of the points covered in the appraisal report or the specific suggestions regarding follow up of investigations made in the appraisal report have been either considered or discussed in the present draft.
(iii) Though the case was notified to the Assessing Officer long back, he has not taken steps to ensure that the assessee has filed the return of income under the new scheme well within time to undertaken necessary investigations. The return of income has been filed only on 7-10-1996 and the connected details have been filed by the assessee even much later. The late filing of the return and necessary details by the assessee makes it almost impossible for the department to conduct the necessary investigation/enquiries which are required to be done in a search case. This lapse on the part of the Assessing Officer in not obtaining the return and details earlier from the assessee has resulted in making a hurried assessment on the last day, without making any (iv) The Assessing Officer had been specifically directed on 11-10-1996 to examine the following aspects :- (b) Verification of bank accounts in the name of the assessee and his family members; (c) Whether the Fixed Deposits of Rs. 1.72 crore have been made by transfer entries from any other bank account, or they have been made in cash; and source of income for the deposits.
(d) The correctness of the turnover reported by the assessee obtaining the original contract award from the TNIP, as there is a possibility that a few of the cheque received from TNIP could have been encashed at some other bank/place.
(e) Complete details of the various immovable properties purchased by the assessee in his name and in the names of his family members to see whether on-money was paid over and above the documents prices; (f) The adequacy of the valuation of Immovable Properties reported by the assessee to be checked, if necessary with a reference to the Departmental Valuation Cell.
The above significant points were required to be examined in great detail by the Assessing Officer, in addition to the specific suggestions mentioned by the ADI in his appraisal report regarding follow up action.
3. A perusal of the draft assessment order brought now by the Assessing Officer indicates that the Assessing Officer has not carried out any of the instructions mentioned above. He has not made even the basic enquiries required in a scrutiny case and more so in a search and seizure case. The following aspects have been totally overlooked by the Assessing Officer :- (ii) The trade Creditors have not been examined. Confirmation letters produced are in the assessee's letter-head signed by some people allegedly brokers, without complete addresses. These are only self-serving documents. Even these confirmation letters have not been filed in respect of all the trade creditors, by the assessee.
In two cases, where the Assessing Officer has recorded sworn statements, the few questions put to the parties by the Assessing Officer do not cover the issue and are totally irrelevant.
(iii) Details of the Bank accounts maintained by the assessee have not been obtained.
(iv) Copies of the statements of the Bank accounts of the assessee and his family members have not been obtained from the Bank/Banks for cross verification.
(v) The directions regarding the verification of the Fixed Deposits of Rs. 1.72 crore vis-a-vis the corresponding entries in other Bank accounts have not been carried out.
(vi) Details of Immovable Properties and their correct valuation have not been collected and examined as directed.
4. In view of the gross negligence on the part of the Assessing Officer and the resultant deficiencies in the draft block assessment order, the Assessing Officer had been directed to prepare and bring a fresh proper draft assessment order for approval on 31-10-1996 on the following lines :- (i) As the few books of account brought by the Assessing Officer and the details available in the block assessment, Misc. records contain various defect/deficiencies, the quantification of income cannot be done basing on the transactions contained therein. The incomplete books of account do not reflect the correct and full picture of the assessee's business and his income and these have therefore to be rejected. The only other alternative course left before the Department within the short time available for completing the assessment is to proceed to compute the undisclosed income on the basis of details available regarding the investments made by the assessee and the expenditure incurred by him during the block period.
(ii) The Assessing Officer should collect details regarding the comparative figures in the case of a similar trader viz., Karnataka Agro Corn Products, Bangalore, who earlier supplied the product to the Government of Tamil Nadu, who is assessed by Company Circle. IV (4), Bangalore. These figures will give a basis for estimating the undisclosed income after taking into account the investments made/expenditure incurred by the assessee. [The D.C. (H.Q.), Bangalore was contacted and requested to fax the P&L Account and the Balance Sheet of this company for the Y.E. 31-3-1993, 31-3-1994 & 31-3-1995, to this office to help the Assessing Officer] (iii) The creditors balance as on 31-3-1994 is Rs. 98 lakhs. The accretion in the creditors balance for the period 1-4-1995 to 17-10-1995 is Rs. 34 lakhs. For the year ended 31-3-1995, where the turnover is as high as Rs. 13 crores, the income has been estimated and assessed at a figure of Rs. 8 lakhs. The Assessing Officer has been directed to ascertain the correct figure of trade creditors as on 31-3-1995 to consider the genuineness of the total of trade creditors reported as on 17-10-1995 at Rs. 2.92 crores. Since the trade creditors are reported to be essentially vendors in the shandy who do not even have proper address, this claim requires a detailed scrutiny.
(iv) Copies of statements from various bank accounts to be collected quickly. (The ADI, Erode was contacted over telephone today to help the Assessing Officer in this regard).
5. With proper compliance of the above directions, the Assessing Officer/DC should report on 31-10-1996, with fresh proposals for approval. On account of the gross negligence and indifference of the assessing officer as pointed out earlier, to carry out the investigations in time, the assessee cannot be given much time to consider the additions proposed to be made in the block assessment.
However, the DCIT has been directed to request the assessee's representative to be present in my office on 31-10-1996 so that the case is discussed with him before approval is given for the block assessment.
As per the directions given by the Commissioner in her note dated 29-10-1996 which we have extracted above, the Assessing Officer deputed Inspectors on 30-10-1996 for enquiring the genuineness or otherwise of the sundry creditors as on 17-10-1995 aggregating Rs. 2,95,65,706.
After making out a draft order on 31-10-1996 the Assessing Officer alongwith the assessee appeared before the Commissioner of Income-tax, Coimbatore on which date the case was discussed and another note was prepared in file C. No. 1429 (16)/95-96 on 31-10-1996. The contents of the said note are also very important and we deem it fit to reproduce the same and make it part of this order, as under :- Shri T. S. Kumarasamy, the assessee and Shri K. Sundaram, F.C.A., Chartered Accountant, assessee's representative appeared. Case discussed with them.
The assessee explained in detail the background of his business and the circumstances in which he had earlier made the offer of Rs. 1.11 crores under section 132(4) of the Income-tax Act.
The various defects in the account books seized during the proceedings under section 132 have been explained to the assessee and his representative. It was also pointed out to the assessee that there was no co-operation from his side during the assessment proceedings. Though the search was conducted in October 1995, the assessee has filed the return of income with only a Receipt and Payments Account under the block assessment scheme, only on 7-10-1996, in response to the notice issued under section 158BC as early as July, 1996. Relevant details like Profit and Loss Account and the Statement of Affairs were filed by him only subsequently.
Some of the confirmation letters from creditors etc., have been filed even as late as 24-10-1996. The assessee appears to have deliberately filed the return of income and the details in the last minute of the assessment proceedings, so as to thwart any further enquiry/investigation by the department in respect of the details furnished by him.
As per his own statement, the assessee makes mainly cash purchases in shandy and from agriculturists through brokers. The balance of trade creditors as on 17-10-1995 is reportedly Rs. 2.95 crores. The assessee does not have any evidence in support of this very huge figure of trade credits. From a few of these alleged creditors the assessee had filed confirmation letters. However, all of these typed letters are in the assessee's letter heads and do not appear genuine. Due to paucity of time, when the Deputy Commissioner of Income-tax caused to make a test-check of these credits in four cases, by sending Inspectors to the creditors, all of them have turned out to be bogus balances. The so called creditors have given it in writing that they are not capable of giving such huge credits running into several lakhs. The assessee was repeatedly asked to furnish any evidence in support of his claim of genuineness of the credits. The assessee stated that he does not have any evidence in support of trade credits totalling Rs. 2.95 crores. When asked how much of the credits could be genuine he claimed that credits to the extent of approximately Rs. 2.75 crores would be genuine and the balance would be not genuine.
The assessee was asked to give the correct payment made for the properties purchased by him in his name and in the name of his family members. Though originally he said that the value reflected for the various properties are correct, her later admitted to have paid some on-money while purchasing the immovable properties.
Regarding the agricultural lands, it was found by the department from the seized books that as against the real price of Rs. 27 lakhs, the document price was only Rs. 3 lakhs. This clearly shows that the assessee was in the habit of purchasing properties by paying on-money. In respect of the properties at Madras, the assessee admitted finally that he would have paid on-money but it was in the range of Rs. 50,000 to Rs. 1 lakh in respect of each property.
When questioned about the quantum of net profit that would have been earned by him during the block period, the assessee stated that the net profit, after all expenditure including the secret commission paid to certain persons, will be around 3 per cent. of the turnover.
He claimed that the margin of profit in respect of similar dealers in Karnataka and Andhra would be the same. However, details of the comparative data was not furnished by him.
The total turnover during the block period is roughly Rs. 31 crores.
The net profit on this turnover at the admitted rate of 3 per cent.
by the assessee roughly works out to Rs. 93 lakhs, as against the disclosure made under section 132(4) amounting to Rs. 1.1 crores.
However, as there is no basis or evidence for the net profit rate of 3 per cent. admitted by the assessee now orally, I am of the view that considering the nature of business and the circumstances of the case, the net profit, after deducting all expenditure including secret commission to certain persons would not be less than 8 per cent., especially when the State Government has made substantial increase in the contract payments to him during the relevant period.
Sd/-Dated : 31-10-1996 Commissioner of Income-tax.Sd/- Sd. 31/10/1996DC/SIC/SLM (Representative) Sd. 31-10-1996 Fresh Draft assessment order recd. from Assessing Officer put up.
Sd Discussed and approved subject to the memo issued separately.
Sd 31-10-1996Sd 31-10-1996 Sd 31-10"ACIT 5. After getting the approval of the Commissioner on 31-10-1996 on the draft order dated 31-10-1996, final order was passed on the very same day viz., 31-10-1996 and this order was also served on the assessee on 31-10-1996.
6. We would like to record that the notes of the Commissioner of Income-tax, Coimbatore dated 29-10-1996 and 31-10-1996 in file C. No.1429(16)/95-96 were brought to our notice by the Senior Authorised Representative of the Department, Shri K. Satyanarayana, during the course of hearing of this appeal on 23rd and 25th June, 1997 and as directed by us copies of the above mentioned two notes of the Commissioner of Income-tax, Coimbatore were filed on 26-6-1997. It is on account of these reasons that the present appeal has been filed by the assessee as provided in section 253(1)(b) of the Income-tax Act, 1961.
7. The assessee's counsel, S/Shri K. Ramgopal & N. Santhanakrishnan, submitted as under :- (1) that the Assessing Officer had no jurisdiction to pass the impugned order under section 158BC as there was no recovery of any material demonstrating undisclosed income for the block period.
According to the assessee's counsel the assessment is vitiated and, therefore, liable to be quashed.
(2) The addition of Rs. 1.68 crores representing 50 per cent. of the creditors as on 17-10-1995 cannot constitute undisclosed income as defined in section 158B(b) of the Act. It was further contended that the creditors were all genuine and the amounts received from them were duly recorded in the account books maintained in the regular course of business and when the loans are accounted for and recorded in the account books it cannot be contended by the Assessing Officer that the same represents undisclosed income as defined in sub-section (b) of section 158B of the Act. The addition therefore was wholly illegal and required to be deleted.
(3) The impugned assessment has been made by the Assessing Officer not on his own acting independently but at the behest and upon directions and instructions from the Commissioner of Income-tax, Coimbatore who is a superior officer and further submitted that we should summon those notes of the Commissioner from the Assessing Officer through the Departmental Representative. According to the assessee's counsel, the assessment proceedings are judicial or quasi-judicial proceedings and the Officers cannot be influenced by other officers how superior he or she may be in the hierarchy of the Department. According to them, therefore, the assessment was bad in law and has to be declared as null and void.
(4) The assessment for the block period in search cases cannot be passed without the previous approval of the Commissioners of Income-tax, Coimbatore and in this case, the Commissioner has given the approval in a mechanical manner without giving fair, adequate and effective opportunities of hearing against the proposed order of the Assessing Officer made on 31-10-1996. It was further contended that by failure to give hearing by the Commissioner before giving approval to the proposed draft order by the Assessing Officer under Chapter XIV-B of the Act amounts to violation of principles of natural justice and the impugned order therefore requires to be annulled.
(5) The impugned order has been passed by the Assessing Officer without application of mind as he has taken into consideration irrelevant factors not germane to computation of undisclosed income as provided in section 158B of the Act. The assessment, therefore, impugned in the present appeal is illegal and requires to be quashed, submits assessee's counsel. Elaborating further, the assessee's counsel submitted that the draft order was prepared on 31-10-1996 running into 15 typed pages and the Assessing Officer on the very same day alongwith the assessee approached the Commissioner and the Commissioner making an ideal formality of hearing approved the draft order without application of mind and in a mechanical manner and the draft order was again fairly typed on the same day and it was served also on 31-10-1996. The assessee's counsel submitted that these factual events clearly go to establish that the block assessment under Chapter XIV-B has been made in a hurry and haste to complete the legal formalities and, therefore, the impugned assessment is wholly illegal and non-sustainable in law and, therefore, should be cancelled by this Tribunal.
(6) To buttress the assessee's case, the assessee's counsel further submitted that no proper opportunity was given to the assessee to convince him that there was no undisclosed income as defined in section 158B(b) of the Act and the Assessing Officer in order to justify his action in passing the impugned assessment has unnecessarily stated that the assessee has been fully non-cooperative. Since the assessment is arbitrary and contrary to the rules of natural justice the impugned order deserves to be vacated, he submitted.
(7) It was further argued that a sum of Rs. 50,00,000 was offered as undisclosed income by the assessee on 25-10-1995 when on the statements were recorded by the ADI and, therefore, the said sum of Rs. 50 lakhs should be deleted, from the income computed for the block period as the same does not represent the undisclosed income pursuant to search operations. Our attention was drawn to the letter dated 31-10-1996 by the assessee to the Assessing Officer withdrawing the offer of Rs. 50 lakhs for taxation purposes.
8. The learned Departmental Representative, Shri K. Satyanarayana, repelled the arguments made by the assessee and supported the impugned order passed by the Assessing Officer who was also present in the Court. The Assessing Officer submitted : (i) The return was filed very late by the assessee which is three weeks before the limitation period to expire and due to non co-operation by the assessee he was constrained to resort to assessment of the loans of Rs. 1.68 crores and the Inspectors also who were deputed did not have sufficient time to make proper enquiries contacting all the creditors as per the list and details given by the assessee.
(ii) On a query from us, the Assessing Officer clearly admitted that the matter was being disposed by him from time to time with the Commissioner of Income-tax, Coimbatore and that therefore, Range D.C. appeared before the Commissioner on 28-10-1996 and certain instructions were given to him as per the note dated 29-10-1996 of the Commissioner in file C. No. 1429(16)/95-96. It was the contention of the Assessing Officer that he completed the assessment without being influenced by the directions of the Commissioner and, therefore, the assessment is perfectly valid and does not require to be cancelled as contended by the assessee's counsel.
(iii) Regarding the hearing to be given by the Commissioner before giving approval to the draft order, the Sr. Departmental Representative submitted that it was merely on administrative act and the law also did not postulate giving of any hearing to the assessee before giving approval to the draft order passed by the Assessing Officer. According to the Sr. Departmental Representative, impugned order was therefore perfectly valid and no case made out by the assessee's counsel for cancellation of the assessment or even for the deletion of addition of Rs. 1.68 crores. The Sr.
Departmental Representative wanted the dismissal of the assessee's appeal upholding the impugned order.
9. Upon our directions, the Sr. Departmental Representative, Shri Satyanarayana through letter dated 26-6-1997 filed the notes of the Commissioner of Income-tax, Coimbatore dated 29-10-1996 and 31-10-1996 in file C. No. 1429(16)/95-96 and they have been placed on record.
After the completion of hearing, the Sr. Departmental Representative also through letter dated 21-7-1997 filed xerox copy of letter dated 8-7-1997 of the CIT, Coimbatore addressed to him justifying the assessment of bogus credits of Rs. 50 lakhs by the Assessing Officer and the computation of the income of the block period in a sum of Rs. 2,73,74,250. The said documents are placed on record.
9A. After hearing both sides and perusing the materials on record including two notes of the CIT., Coimbatore dated 29-10-1996 and 31-10-1996 and relevant case laws we are of the view that there are many good reasons for allowing the assessee's appeal which we advert to in the following paragraphs : 10. As per the provisions of section 158BB the undisclosed income of the block period in search cases shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer, 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. The undisclosed income has been defined by sub-clause (b) of section 158B and which we extract below :- "(b) 'Undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act." Analysis of the facts of this case which we have elaborately recorded elsewhere above do not reveal the detection of any undisclosed income (for short UDI) pursuant to search operations under section 132 of the Act conducted on 17-10-1995. The assessee filed the return of the block period on 7-10-1996 declaring UDI of Rs. 1,06,92,950 which also included the sum of Rs. 50 lakhs as unexplained expenses on the basis of his own admission in answer to question No. 16 recorded in the oath statement by the ADI on 25-10-1995, copy of the English translation of the said oath statement of the assessee has been placed at pages 2 to 11 of the paper book, filed by the assessee's counsel as 25-6-1997. The UDI declared by the assessee in the return was inclusive of Rs. 50 lakhs from out of the expenditure of the block period aggregating to Rs. 1.70 crores. We do not know how the expenditure recorded in the account books though not supported by proper evidence can be UDI as defined in section 158B(b) of the Act. However, we refrain from expressing any opinion in this regard as the assessee himself had admitted in his oath statement on 25-10-1995 under section 132(4) before the ADI that the same is UDI and even in the return filed after the issue of notice to him under section 158BC read with section 142(1) declared the sum of Rs. 50 lakhs as UDI. Though the assessee has retracted from the admission through his letter dated 31-10-1996, he has not given enough good reasons for retracting from the voluntary admission and confession made on 25-10-1995 in oath statement rendered on that day before the ADI under section 132(4) of the Act. In the absence of any cogent reasons with credible evidence we are unable to believe that the admission was involunatary or under coercion or duress so as to be eligible for deduction of Rs. 50 lakhs from the UDI of Rs. 1,06,92,950 declared by the assessee in the block period return.
11. Though the assessee filed block period return admitting and declaring UDI of Rs. 1,06,92,950, the Assessing Officer adopted it at Rs. 1,05,74,253 as per working given at page 13 of the impugned order which we have extracted elsewhere above. The Assessing Officer added to this reworked UDI of Rs. 1,05,74,523 a sum of Rs. 1.68 crores representing estimated 50 per cent. of the aggregate loans of Rs. 2,95,65,706 presumed by him to be bogus. The addition of Rs. 1.68 crores has been made for the reason that as per the report of the IT Inspectors who enquired and reported on 30-10-1996 that 4 creditors from out of 43 creditors (as per the list found from the pages 17 to 20 in the assessee's paper book filed on 23-6-1997) have denied having given loans to the assessee and having no substantial income to give huge loans to the assessee. One more reason which weighed with the Assessing Officer for making the impugned addition was that the assessee filed list of lenders on 30-10-1996 which is a day prior to the last date of limitation period for making block assessment as prescribed under section 158BE of the Act. The Assessing Officer has put the blame on the assessee that he filed the return very late on 7-10-1996 knowing fully well that the assessment was getting time barred on 31-10-1996, as per section 158BE of the act and that even the details/list of creditors/lenders was filed few days before the outer limit for making the block period assessment.
12. We do not approve making such a huge addition of Rs. 1.68 crores on such pretence. The search operations commenced from 17-10-1995 and ended on 3-11-1995 as mentioned in the impugned order. The notice under section 158BC read with section 142(1) of the Act calling upon the assessee to file the return of the UDI of the block period was issued on 24-7-1996, that is to say; after nearly 8 months of the conclusion of the search operations. The Assessing Officer instead of waiting till the last date of the limitation period (31-10-1996) ought to have completed the assessment of the UDI of the block period after the expiry of 15 days period as prescribed in section 158BC of the Act. The Assessing Officer could have acted diligently conducting enquiry by issuing further notice under section 143(2) and completed the block period assessment, even under section 144 of the Act as provided in section 158BC(b) of the Act. But he did not do so and waited till the fag end of the limitation period prescribed in section 158BE of the Act. The addition of Rs. 1.68 crores in the impugned order is thus wholly arbitrary and preposterous addition purely based on assumptions and inferences on the basis of the report given by the I.T. Inspectors after making enquiries with the 4 creditors only from out of 43 creditors, without putting the report of I.T. Inspectors and the evidence gathered by them to the assessee for answer and rebuttal.
13. If the Assessing Officer had less time at his disposal for making valid and proper enquiries for making assessment he cannot be unfair to the assessee and make unjust and arbitrary addition of Rs. 1.68 crores.
In our view, the impugned addition of Rs. 1.68 crores is vitiated on this count and can be declared as illegal.
14. There is one more reason why the addition of Rs. 1.68 crores cannot be sustained. The provisions of Chapter XIV-B have been brought on the statute book by the Finance Act, 1995 for assessing UDI of a person searched under section 132 of the Act for the block period of 10 years.
What is UDI has been clearly stated and defined in sub-section (b) of section 158B of the Act which we have extracted above. A plain reading of the definition of UDI does not mean or lay down that the loans obtained and recorded in the account books can be termed or equated as undisclosed income of a searched person of the block period for bringing to tax at the maximum rate of 60 per cent. under section 113 read with sub-section (2) of section 158BA of the Act. As per the provisions of section 132(4A) of the Act the entries of loans recorded in the account books found in search operations under section 132 have to be accepted as true by the revenue authorities. Thus, by the provisions of section 132(4A) of Act, it is to be presumed by the revenue authorities that the contents of such account books and other documents are true, and it is not open to the Assessing Officer to turn around and say in making the block period assessment of UDI that the entries relating to the loans in the account books are un-true or false warranting addition of Rs. 1.68 crores, for the block period. According to us such an addition is wholly illegal and unsustainable in law.
15. If we look at the addition of Rs. 1.68 crores from the Assessing Officer's angle also we find no justification for sustaining the same.
The Assessing Officer at more than one place in the impugned order has stated that the account books are not reliable as not being maintained in normal and regular course of business. Well, if that is the case of the Assessing Officer doubting the veracity and truthfulness of the accounts and the entries therein we fail to understand how and why the Assessing Officer can still proceed to make the impugned addition of Rs. 1.68 crores representing loans. The Assessing Officer by doing so is blowing hot and cold in same breadth. This itself is not only a good reason for deleting the impugned addition of Rs. 1.68 crores but even declaring the assessment illegal.
16. The enquiries by the Assessing Officer for making the assessment of income are quasi-judicial proceedings and the act of framing the assessment is quasi-judicial act. It is a trite law that a judicial or quasi-judicial authority should act independently and that there shall not be any interference, nor any advice, opinion, instructions, directions can be given to any IT authority in such proceedings etc. by any stranger/outsider even if such stranger/outsider is higher or highest authority in the hierarchy of the department. If an order is passed or a decision is rendered by an income-tax authority in such quasi-judicial proceeding at the behest of or upon the directions or instructions, of any superior officer or authority then such an order/decision is illegal and a nullity in law because it shall be deemed in law that such an order/decision is not of that quasi-judicial authority but of some other authority who directed or issued orders/instructions to the lower authority to act and thereafter pass an order/decision in a particular manner. Though there are several decided case laws on the subject we would only refer to and discuss few decisions in this regard as below : (i) The Hon'ble Supreme Court in the case of M. Chockalingam and M. Meyyappan v. CIT [1963] 48 ITR 34 at page 40 have laid down as under : "The authorities acting under the Indian Income-tax Act have to act judicially and one of the requirements of judicial action is to give a fair hearing to a person before deciding against him." (ii) As far back as in August 1967, the Hon'ble Andhra Pradesh High Court in the well-known case of Raja V.V.V.R.K. Yachendra Kumara Rajah of Venkatagiri v. ITO [1968] 70 ITR at pages 779 & 780) have laid down as under : "It is now well settled that the assessment proceedings before the Income-tax Officer are quasi-judicial in nature and while making assessments the Income-tax Officer has solely to be guided by the provisions of law. He cannot avail of any instruction or direction given by his higher authorities including the Central Board of Direct Taxes for making a particular assessment. While passing assessment orders he is only bound by what has been decided by the appellate authorities mentioned in the Income-tax Act and the opinion expressed by the High Court or the Supreme Court. It is also now well settled that, as far as the income-tax in concerned, the principle of res judicata is not applicable and the Income-tax Officer is not bound by the decision rendered by him in an earlier order in regard to the same assessee. When these principles are kept in view, it becomes clear that the orders, instructions or directions that can be issued under section 119(1) are administrative directions which cannot in any manner fetter the discretion of the Income-tax Officer in making the assessment. This becomes more clear from the proviso to sub-section (1) of section 119 which says that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate function. The Appellate Assistant Commissioner's functions are not executive. They are only judicial and this proviso has been enacted to make it clear that the orders, instructions or directions of the Board will not interfere with the judicial or quasi-judicial functions." (iii) The Hon'ble Supreme Court again in the case of Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 at pages 7 & 8 have clearly stated as under :- "The power conferred by section 25 is not administrative : it is quasi-judicial. The expression 'may make such inquiry and pass such order thereon' does not confer any absolute discretion on the Commissioner. In exercise of the power the Commissioner must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice : he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Section 13 of the Wealth-tax Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of the officers of the department in matters administrative but not quasi-judicial." 17. In the instant case, the Commissioner of Income-tax, Coimbatore had summoned the Assessing Officer and Range, Dy. CIT on 28-10-1996 and gave directions to the Assessing Officer through written note dated 29-10-1996 in file C. No. 1429(16)/95-96 to conduct enquiry and investigation in the manner desired by her. We have verbatim reproduced elsewhere above in this order the contentions of the said note dated 29-10-1996 of the Commissioner in the desired by her from which it is self evident that the Assessing Officer has not acted independently and on his own but has very faithfully and obediently carried out the orders and directions of his superior officer namely; the Commissioner.
We think that had the Commissioner not interfered in the quasi-judicial functioning of the Assessing Officer and given him a free hand to inquire and make assessment without giving any directions, as per the note dated 29-10-1996, the Assessing Officer would have surely passed a different order of assessment than what has been passed and impugned before us in this appeal and as rightly stated by the assessee's counsel with whom we agree there would not have been an addition of Rs. 1.68 crores. Lawfully speaking the entire assessment is vitiated in law requiring annulment. But we refrain from doing so because the assessee himself admitted UDI of Rs. 1,06,92,950 and filed the block period return in that direction pursuant to notice issued to him in terms of section 158BC of the Act. When the assessee himself honours his own commitment and admission it is not proper on the part of this. Tribunal to permit the assessee to go back and retract the oath admission. We are only inclined therefore to delete the addition of Rs. 1.68 crores.
18. We are not convinced with the arguments of the assessee's counsel Shri Ramgopal that the sum of Rs. 50 lakhs from the UDI of Rs. 1,06,92,950 as returned by the assessee should be deleted as the assessee retracted from the admission made on 25-10-1995, through his letter dated 31-10-1995 issued to the Assessing Officer while camping at Coimbatore. We reiterate that the assessee made a clear and voluntary confession on 25-10-1995 before ADI admitting on oath that the sum of Rs. 50 lakhs representing the contract was his UDI for the block period and the assessee in order to honour and stand by his oath admission, filed the return in response to notice under section 158BC of the Act including in the sum of Rs. 1,06,92,950, the sum of Rs. 50 lakhs also as a UDI though it represented unvouched expenditure in relation to the contract activities. We once again say that the assessee has not been able to satisfy us by leading cogent legally acceptable evidence as to how and why he is not bound by his own oath statement and testimony though retracted subsequently on 31-10-1996. It is well known that the Income-tax Officers are not Police Officers and they do not use or resort to unfair means or third degree methods in recording oath statements and therefore whatever is confessed and admitted before them during the course of search operations or during the course of any proceedings before them then we think such statements, admissions and confessions are binding and cannot be retracted, unless and until, we repeat, unless and until it is proved by legally acceptable evidence that such admission, confession or oath statement was involuntary or tendered under coercion or duress. No such circumstances existed or proved to have existed. In saying so we are supported by the observation of their Lordships of the Supreme Court in the case of Surjeet Singh Chabra v. Union of India [1997] 1 SCC 508.
We, therefore, cannot come to the rescue of the assessee in ordering deletion of the sum of Rs. 50 lakhs from out of the UDI of Rs. 1,06,92,950, returned by the assessee himself.
19. Since we are holding that the impugned addition of Rs. 1.68 crores is illegal and unwarranted and directing the deletion of the same, we are not going into the finer arguments advanced by the assessee's counsel that hearing should have been given by the Commissioner before giving approval as provided in section 158BC of the Act. From the note prepared on 31-10-1996 by the Commissioner brought on record by the Sr.
Departmental Representative, it appears that the assessee and his Chartered Accountant, Mr. K. Sundaram did appear on 31-10-1996 before the Commissioner of Income-tax and she discussed the case with both of them. We think though not proper this discussion cannot be termed as a hearing given by the Commissioner of Income-tax before giving her approval. We are, therefore, not expressing any firm opinion on this aspect of the matter whether hearing was required to be given by the Commissioner before giving approval or whether appearance of the assessee and his C.A. before the Commissioner of Income-tax on 31-10-1996 can be deemed as fair and reasonable opportunity of hearing.
We shall deal with this and express our views on this line of arguments in some other appropriate case and if arising in future. For the disposal of this case it is sufficient if we hold that Rs. 1.68 crores addition made in the impugned order by the Assessing Officer was not UDI of the assessee for the block period for which the assessment has been made. We, therefore, order and direct deletion of the same. The UDI shall be computed in a sum of Rs. 1,06,92,950 as returned by the assessee in response to notice issued under section 158BC of the Act.
20. The assessee's representative had furnished the details of the income admitted in the return filed for the regular assessment for the year commencing from 1-4-1995 and ending on 31-3-1996 (assessment year 1996-1997) the computation of which is given at page 19 of the paper book. It was contended that cost of certain immovable movables acquired during this period has been considered in the return filed for the assessment year 1996-97 and that such cost was met by withdrawal of funds from the assessee's regular bank accounts. It is the arguments of the assessee's counsel that if such cost is to be included in the income of the block assessment then it will result in double assessment of the same amount, once in the block assessment upto 17-10-1995 and the other in the regular assessment upto 31-3-1996 on the same assessee. These aspects according to him find a place in the statement of affairs as on 17-10-1995 computed by the Assessing Officer at page 13 of the impugned order on the basis of which the undisclosed income was adopted in the block period as a method for working out the capital. We are sure that the Assessing Officer will in the interest of justice delete from the income to be assessed for the regular assessment for the assessment year 1996-97 the cost of such assets if the same have already been included in the statement of affairs as on 17-10-1995. We think that the assessee might not be fully conscious and wholly conversant with the new provisions of making of assessments in search cases enacted in Chapter XIV-B of the Income-tax Act and he might have agreed at the time of search of offer as income the cost of these assets and perhaps he did not distinguish between the income of the block period and the income of the regular assessment viz., 1996-97.
21. Before closing this case, we would like to mention that neither the Commissioner of Income-tax nor the Assessing Officer have understood in proper legal perspective the provisions of Chapter XIV-B brought on the statute book by Finance Act, 1995. These provisions have been enacted for speedy completion of assessment in search cases where undisclosed income is found or detected as defined in section 158B(b) of the Act.
Both the lower tax authorities have proceeded on the presumption that the block period assessment under Chapter XIV-B is like framing a normal regular assessment under section 143 or under section 144 of the Act, where they can call for bank accounts, vouchers for expenses etc.
etc. No, it is not so. The provisions of Chapter XIV-B have been enacted for the purpose of computing and assessing the UDI for the block period of 10 years on the basis of the materials found during the course of search and seizure operations and subject the UDI to tax at 60 per cent. rate as provided in section 113 of the Act read with section 158-BA(2) of the Act, and that too, within a short period of one year as laid down in section 158BE of the Act. We hope in future the Revenue authorities will bear this in mind in making search cases assessments under Chapter XIV-B of the Act.
22. We would also like to comment upon the conduct and manner in which the assessment has been framed by the Assessing Officer and the approval given by the Commissioner. The Assessing Officer initially prepared a draft order and placed it for approval before the Commissioner on 28-10-1996 perhaps without proposing any addition in respect of the creditors aggregating to Rs. 1.68 crores. The Commissioner gave directions to the Assessing Officer as per her note dated 29-10-1996 as to how and in what further manner the enquiry/investigation has to be done and conducted by him. The Commissioner of Income-tax has even recorded in the note dated 29-10-1996 that the Assessing Officer has been very negligent and indifferent in conducting enquiry in this case. The Assessing Officer to honour and comply the directions of the Commissioner of Income-tax given on 29-10-1996, deputed Inspectors on 30-10-1996 to contact few creditors and report about the genuineness or otherwise of the loans taken by the assessee. It is not known what report was submitted by the Inspectors. But one thing is sure and certain that the Assessing Officer prepared a draft assessment order on 31-10-1996 running into 15 typed pages and then went from Salem to Coimbatore, a distance of nearly 200 kmtrs. taking the assessee and his C.A. with him, placed the draft order prepared on 31-10-1996 before the Commissioner on 31-10-1996, got the approval from the Commissioner of Income-tax, Coimbatore on 31-10-1996, rushed back to Salem from Coimbatore covering 200 kmtrs., retyped the draft order on three different typewriters (as is evidence from the different types of the typewriters) prepared demand notice, challan and completed other formalities on 31-10-1996 itself and even served the impugned assessment order as well as the demand notice, challan etc. on the assessee on that very same day, that is to say, on 31-10-1996. Very strange and curious but it did happen in this case. As narrated to us by the Assessing Officer who was all along present in the Court Hall at the time of hearing of this appeal assisting the learned Departmental Representative of the Income-tax Department, we hope these strange happenings will not recur.
23. In the result, the appeal is partly allowed with the above directions.
24. I agree with the conclusion of my ld. Brother recorded in para-19 of the order proposed by him. But I differ from certain observations made by him on the following points : 1. In section 132(4A) there is a presumption that contents of the books of account and other documents found during the course of search in the possession and control of any person are true. This presumption is rebuttable. The assessee can rebut this presumption by producing such evidence which would prove that the entries in the books of account are not correct. Similarly if the Department has evidence in its possession to show the incorrectness of the entries in the books of account, then in the presence of evidence the relevant contents of the books of account found during the course of search in the possession or control of any person may not be considered as true. However, if neither the Department has any evidence to show that entries in the books of account are not true nor the concerned person is able to rebut the presumption, then the contents of the books of account and other documents found during the course of search in the possession or control of any person, will be considered as true.
2. Section 158BC(c) empowers the Assessing Officer to determine the undisclosed income of the Block period and the provisions of section 142(2) and (3), 143(3) and 144 shall apply. Under section 142(1)(ii) the Assessing Officer has power to issue a notice requiring the assessee to produce or cause to be produced such accounts or documents as the Assessing Officer may require. Similarly under section 142(1)(iii) the Assessing Officer, with the approval of the Dy. Commissioner can issue a notice to the assessee requiring him to furnish in writing and verified in the prescribed manner information in such form and on such point or matters, as the Assessing Officer may require. Similarly under section 142(2) the Assessing Officer may serve on the assessee a notice requiring him to produce or cause to be produced any evidence on which the assessee may rely in support of the return.
The provisions of section 142 and 143(2) and (3) are found applicable by virtue of provisions of section 158BC(b) for the purpose of enabling the Assessing Officer to determine the undisclosed income of the block period. In exercise of powers under section 142 and 143(2) and (3) the Assessing Officer, therefore, could call for such bank accounts, books of accounts, vouchers, etc.
which he considered necessary for the purpose of determining the undisclosed income of the assessee. There is no specific embargo on the powers of the Assessing Officer under Chapter XIV-B relating to special procedure for assessment of search cases which prohibits him to make enquiries and serve notice on the assessee under section 142 and 143(2) and 143(3) of the Income-tax Act, 1961.
3. Under section 158BG the order of assessment for the block period cannot be passed without the approval of the Commissioner. Though the Commissioner cannot interfere with the quasi-judicial functions of the Assessing Officer, but in order to satisfy himself before giving approval the Commissioner is entitled to look into the seized material and find out how that material has been utilised by the Assessing Officer. The Commissioner is not required to accord approval on the proposal submitted by the Assessing Officer in a mechanical or superficial manner, or refuse approval. The approval of the Commissioner is a statutory requirement and, therefore, when Commissioner is required to give approval to the order of assessment to be passed by the Assessing Officer, he is certainly entitled to look into the seized records and other material to find out whether the Assessing Officer has framed the assessment according to the provisions of law and has considered all the material. Otherwise how the Commissioner is going to give approval to the order of assessment to be passed by the Assessing Officer The power of approval to be given by the Commissioner to the order of assessment to be passed by the Assessing Officer imply that the Commissioner can ask clarification from the Assessing Officer on such points as he may like and the Commissioner in case not satisfied with the clarification given by the Assessing Officer could certainly ask the Assessing Officer to make further enquiries on such points as he may like. Unless and until an assessment is framed after taking into consideration the relevant records seized during the course of search and other material available on record, there is no reason for the Commissioner to give approval mechanically. Therefore, it is within the powers of the Commissioner to ask the Assessing Officer to consider the seized material and other relevant material on record to satisfy himself that the assessment has been framed by the Assessing Officer under section 158BC according to provisions of law and other evidence available on record. The purpose of inserting section 158BG regarding previous approval of the Commissioner is that the Assessing Officer should not frame high pitched assessments negligently or in utter disregard of the material available on record. This purpose could be served only if the Commissioner has power to guide and instruct the Assessing Officer to make such enquiry as the Commissioner feels necessary in the context of seized material and other relevant material on record. Such instructions by the Commissioner do not amount to interference in the quasi-judicial functions of the Assessing Officer because by guiding the Assessing Officer the Commissioner is not interfering with the conclusion to be arrived at by the Assessing Officer. Administrative activism is not repugnant to Judicial functions.
Therefore, in my opinion, the Commissioner can issue instructions to the Assessing Officer for making such enquiries as the Commissioner may feel necessary in respect of the seized material and other relevant material on record for the purpose of making assessment for the block period under sections 158BB and 158BC. 4. The observations of my ld. Brother in para-16 of the order proposed by him were in connection with assessments where approval of the Commissioner was not necessary. Therefore, in the context of provisions of sections 158BB, 158BC and 158BG these observations may not be applicable insofar as the Commissioner's power to issue instructions to make proper investigation in a particular case, are concerned because such instructions, as already stated, do not interfere with the quasi-judicial functions of the Assessing Officer.