Express Movers P Ltd Vs Deputy Commissioner of Income Tax - Citation 706305 - Court Judgment

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- divorce by mutual consent personal presence of parties exempted power of attorney to dissolve the marriage the special power of attorney in favour of one mr. lal babu tiwari was executed by the petitioner (husband) to appear before the court and testify about the contents of the petition. the petitioner has signed the petition before indian consulate high commission of india in uk under section 3(2) of the diplomatic and consular officers (oaths and fees) act, 1947 under which the documents do not require any further evidence.[para 3] if both the parties, by way of affidavits or through counsel, state that they are married, and are able to produce proof of the marriage and that they have been living separately and have not been able to live together for the prescribed period, then there can be no reason as to why the court should not record its satisfaction as envisaged under section 13-b(2) of hindu marriage act, despite the fact that parties had not appeared in person and pass a decree for divorce.[para 6] where the parties are living far away from the jurisdiction of the court competent to dissolve the marriage, the parties after filing their affidavits can appoint attorneys to act on their behalf. attorney is competent to act on behalf of the principal on the basis of power of attorney executed by the principal. the courts have been allowing attorneys to file the petition, to withdraw the petition, to carry on proceedings in the court on behalf of their principal in all other cases. the attorney can also act in matrimonial cases as per instructions of their principle. the court can take necessary precautions to prevent frauds being perpetuated on it but unless the court smells some kind of fraud being played with it, the court should normally recognize the act of the attorneys. i therefore allow this petition. the order of the trial court insisting on the personal appearance of the parties is set aside.[para 8] - 7. that the order framed is against the fact of the case and bad in law. the determination of undisclosed income on the basis of entries and transactions recorded in the regular books of accounts is clearly beyond the scope of definition of undisclosed income given in s. 53 to 59 of the paper-book) as well as towards a detailed letter dt. 76 of the paper-book) explaining the nature of entries in the relevant bank account of the appellant as well as of rubina. all such transactions are fully verifiable from the books of accounts as well as from the bank statements of both these companies. 3.6 as regards the disallowance out of expenses in financial year 1994-95 is concerned, the learned counsel submitted that such an ad hoc disallowance out of expenses duly recorded in the books of accounts clearly fall outside the definition of undisclosed income under s. 4.1 the learned departmental representative further submitted that the newly inserted chapter xiv-b which prescribes the special procedure for assessment of search cases clearly applies in all cases where action for search has been initiated after 30th june, 1995. 4.2 the learned departmental representative also contended that the assessed has not raised any specific ground challenging the validity of the search in the grounds of appeal. the same, thereforee, clearly comes within the ambit of undisclosed income defined in s. 158ba(3) starts with the words that 'where the assessed proves to the satisfaction of the ao',which clearly indicates that the onus lies on the assessed to prove transactions relating to income have duly been recorded in the books of accounts maintained in the normal course relating to such previous year, where the date of filing the return of income under s. 158ba(3) as well as s. chhabra, director of the appellant company as well as director of rubina submitted a note dt. as well that of express movers (p) ltd. chhabra, director of the appellant company were supported by various documents found during the course of search as well as further documents submitted in the course of assessment proceedings. the learned departmental representative could not point out any discrepancy or mistake in the aforesaid date wise details submitted on behalf of the assessed before the departmental authorities as well as submitted in the compilation before the tribunal. the said chart clearly indicates that each and every entry of cash deposit made in the bank account of rubina is clearly and fully explained by the withdrawals of an equivalent amount by the assessed from their respective bank account on the same date except that the amount withdrawn on 28th january, 1994, from assessees bank account was deposited in the bank account of rubina on 31st january, 1994, and the amount withdrawn on 4th august, 1994, from bank of madura was deposited on 6th august, 1994. the small difference of rs. the entire relevant material in the form of books of accounts, copies of bank statements of the appellant company as well as of rubina were produced before the ao. 7.3 the last ground taken by the ao is that the assessed company was not able to reconcile the cash balances with the cash deposits running into lakhs of rupees made in the bank account in the month of september, 1995 and september, 1994. the assessed submitted summary of the cash book for the month of september, 1994, as well as september, 1995 which are also reproduced hereunder :sept. it was claimed on behalf of the assessed before the ao that it is very difficult to keep the small vouchers like loading and unloading expenses, which are very petty expenses incurred on day-to-day basis. 158ba(3) clearly indicates that if income or the transactions relating to income are recorded before the date of the search in the books of accounts maintained in the normal course relating to such previous year, the said income shall not be included in the block period. 158bc of the it act, 1961, we do not consider it necessary to give our findings on various legal objections raised in the grounds of appeal as well as during the course of hearing before us.orderb. m. kothari, a.m. :this appeal by the assessed is directed against the assessment order passed by the dy. cit special range-26, new delhi under s. 158bc of the it act, 1961, for the block period 1986-87 to 1995-96 plus the current period 1st april, 1995, to 15th september, 1995, up to the date of search.2. the assessed has raised the following grounds in this appeal :'1. that the authorities below were not justified to pass the order under s. 158bc of the it act without compliance of provisions of chapter xiv-b of the income-tax act and the assessment framed is illegal and deserves to be quashed.that the learned cit has granted the approval under s. 158bc of the it act in a mechanical manner and without application of his mind and ignoring the detailed submission and explanationn furnished before him during the course of personal hearing granted by him to the appellant.2. that the authorities below were not justified to make an addition of rs. 51,91,000 in the block assessment as alleged undisclosed income without any basis and without even referring to the section or provision of it act under which the same has been brought to tax.that the authorities below were not justified to treat these credits as undisclosed income since these were duly accounted for in the regular books of accounts and these could not be treated as income which has not been disclosed or would not have been disclosed to the department. hence, it is not the subject-matter of block assessment.3. that in the alternative, the addition if at all called for, should be on peak basis and not on cumulative and multiple basis, in respect of alleged transactions with rubina leasing and credits (p) ltd. for which addition of rs. 51,91,000 has been made.'4. that the authorities below were not justified to make addition of rs. 51,91,000 against the factual and legal position and ignoring the detailed submissions and explanationns furnished.5. that the authorities below were not justified to treat a sum of rs. 3,50,000 as disallowable items whereas in working out undisclosed income by the ao a sum of rs. 3,14,993 has been added.that the disallowance of expenditure relating to a particular business will not result in an additional income, as relevant business is not part of block assessment. that even otherwise all these expenses are part of regular books of accounts and are fully verifiable and supported.6. that the assessing authority have not applied their mind to the correct facts and additions are merely on the ground of presumptions and surmises and the same are not sustainable under the facts and law.7. that the order framed is against the fact of the case and bad in law.'3. the learned counsel for the assessed submitted that the proceedings of search under s. 132 of the it act, 1961 (hereinafter referred to as the act) was conducted in this case on 15th september, 1995, and concluded on 16th september, 1995. during the course of search no unaccounted money, ornaments or any other valuables were found and seized. the books of accounts found during the search, as inventoried in the inventory prepared during search (copy placed at p. 39 of the paper-book) shows that those were the regular books of accounts maintained by the assessed in the normal course of its business.3.1 the learned counsel submitted that the ao has determined the undisclosed income of rs. 51,91,000 in respect of transaction recorded in the account of rubina leasing and credits (p) ltd. (for short called rubina) in the regular books of account. the ao has further made a disallowance of rs. 3,50,000 in an ad hoc manner out of total expenses of rs. 8,59,074 claimed by the assessed in the year ended on 31st march, 1995 as per its books of accounts. he submitted that the ao has not given the year wise break-up of undisclosed income of rs. 55,05,993 in the impugned order. but on the basis of facts and material existing on records and as per discussions made by the ao in the impugned order, the bifurcation of undisclosed income determined by the ao is as under :financial yearaddition in respect of entries in the a/c of rubinadisallowance and expenses claimedtotal1993-9413,67,000 13,67,0001994-9538,24,0003,14,99341,38,993 51,91,0003,14,99355,05,993 total income rounded to 55,06,000the ao has, however, computed the total undisclosed income in the impugned order without giving year wise bifurcation, as below :'total undisclosed income 51,91,000 income as disclosed above 3,14,993 total income 55,05,993 rounded off to 55,06,000 it is also not clear from the impugned order, as to how the income of rs. 3,14,993 has been determined, as the discussion in the impugned order, inter alia, shows that the ao had disallowed a sum of rs. 3,50,000 out of the expenses claimed in the year ended on 31st march, 1995.3.2 the learned counsel submitted that the proceedings of search conducted under s. 132 in the case of the assessed was itself invalid, as the conditions precedent for authorising the search and for issue of search warrants are not fulfillled on the facts of the present case. he placed reliance on the judgment reported in l. r. gupta & ors. vs . union of india & ors. : [1992]194itr32(delhi) , dr. nand lal tahiliani : [1988]170itr592(all) and ito vs . seth bros. & ors. : [1969]74itr836(sc) .the learned counsel further submitted that the entire undisclosed income has been determined by the ao on the basis of transactions and entries recorded in the regular books of accounts in the normal course. the determination of undisclosed income on the basis of entries and transactions recorded in the regular books of accounts is clearly beyond the scope of definition of undisclosed income given in s. 158b(b) of the act. he further drew our attention towards ss. 158ba(3) and s. 158bb(1) (d) of the act to support his contention that income relating to financial year based on entries and transactions recorded in the regular books of accounts cannot be included in the assessment for the block period, as the date for filing the return of income under s. 139(1) had not expired till the date of search. the learned counsel also submitted that return for asst. yr. 1994-95 and asst. yr. 1995-96 were filed on 27th august, 1995, and 30th november, 1995, respectively. notices under s. 143(2) for asst. yr. 1994-95 and asst. yr. 1995-96 were issued on 10th november, 1995, and 15th november, 1996, (copies placed at pp. 126 and 127 of the paper-book) respectively. the regular assessments for these two years are pending. any addition or disallowances based on entries and transactions recorded in the regular books of accounts in the normal course prior to date of search, can be made only in the regular assessment and not in the assessment for the block period under chapter xiv-b of the act prescribing the special procedure for assessment of search cases. the learned counsel submitted that on the facts and circumstances of the present case, the provisions of s. 158b are not applicable. he placed reliance on judgments reported in cit vs . sayed faquir rehman : [1991]189itr476(patna) ; (1969) 74 itr 403 and geudalal rai vs. asstt. cit (1994) 51 itd 378 (ind).3.3 the learned counsel further submitted that even on merits, the determination of undisclosed income made by the ao is patently wrong and unjustified.as regards addition of rs. 51,91,000 made in respect of entries in the account of rubina is concerned, the learned counsel invited our attention towards the elaborate reply submitted to the ao vide letter dt. 4th september, 1996 (copy at pp. 53 to 59 of the paper-book) as well as towards a detailed letter dt. 25th september, 1996, submitted to the cit (copy at pp. 68 to 75 of the paper-book). the learned counsel also drew our attention towards a note dt. 19th september, 1996 submitted by shri g. s. chhabra, a common director of the appellant company (express movers (p) ltd. and rubina leasing and credits (p) ltd. (copy placed at p. 76 of the paper-book) explaining the nature of entries in the relevant bank account of the appellant as well as of rubina. our attention was also drawn towards copies of accounts of rubina placed at pp. 77 to 79 of the paper-book, copies of bank statement of rubina in respect of their current a/c no. 5864 with canara bank (copies placed at pp. 80 to 87 of the paper-book), cash flow statement showing sources of amount deposited in bank account of rubina (at p. 88 of the paper-book), copies of bank of the appellant company in respect of their account no. 2789 with canara bank (copies at pp. 89 to 121 of the paper-book), copy of bank statement of appellants bank a/c with bank of madura ltd. (copy at pp. 122 to 124 of the paper-book) towards a summary of cash book for the month of september, 1994 and september, 1995, placed at pp. 129 and 130 of the paper-book, and towards other relevant documents submitted in the compilation.3.4 the learned counsel submitted that the appellant company is engaged in the business of cargo agents. it suffered losses in asst. yr. 1994-95 and asst. yr. 1995-96. they were required to make timely payments to the airline companies. sometimes, the company did not have adequate bank balances and to meet the deficit, they used, their sister concern rubina as a conduit to cover the short-fall in the bank balance at the time of such urgent needs, so that the cheques issued to various airline companies are not dishonoured. the assessed adopted the modus operandi of obtaining cheques from rubina, which were deposited in the bank account of the appellant. the bankers of the appellant gave instant credit for such cheque and charged requisite bank charges. rubina in fact had no bank balance at the time of issue of such cheques in favor of the appellant. before the cheques of rubina could reach its bankers through clearing, the appellant had withdrawn funds from their bank account and deposited the equivalent amount in the bank account of rubina, so that cheques issued by rubina could be cleared by their bankers. thus, all these transactions were in the nature of accommodation transactions between the two sister companies. all such transactions are fully verifiable from the books of accounts as well as from the bank statements of both these companies. the documents referred to in preceding para were shown by the authorised representative to prove the correctness of this contention.3.5 the learned counsel further submitted that the assessed submitted application dt. 1st october, 1996, to the ao for making necessary rectification in the impugned order, as the entire relevant information regarding transactions in the account of rubina were duly furnished before him. however, no order has been passed by the ao.3.6 as regards the disallowance out of expenses in financial year 1994-95 is concerned, the learned counsel submitted that such an ad hoc disallowance out of expenses duly recorded in the books of accounts clearly fall outside the definition of undisclosed income under s. 158b(b) and it has to be excluded in view of specific provision contained in s. 158ba(3) of the act. even otherwise, he submitted that expenses are supported by entries in the regular books of accounts and no such ad hoc disallowance is permissible. in any case, the regular assessment for this year is pending and such a question can be more appropriately decided in the regular assessment.the learned counsel thus strongly urged that the impugned order passed by the ao should be cancelled and the entire demand created by him should be quashed.4. the learned departmental representative submitted that legality of search cannot be challenged before the tribunal. the tribunal has no jurisdiction to decide the question relating to validity of the proceedings of search.4.1 the learned departmental representative further submitted that the newly inserted chapter xiv-b which prescribes the special procedure for assessment of search cases clearly applies in all cases where action for search has been initiated after 30th june, 1995.4.2 the learned departmental representative also contended that the assessed has not raised any specific ground challenging the validity of the search in the grounds of appeal. even if such a ground is considered to be implicit in the general ground raised by the assessee, the reasons recorded by the concerned authorities for authorising the search will have to be called for.4.3 on merits, the learned departmental representative submitted that the transactions in the account of rubina have been shown as loan, while they in fact represent income liable to tax in view of the elaborate reasons given in the assessment made for the block period. the same, thereforee, clearly comes within the ambit of undisclosed income defined in s. 158b of the act. she further submitted that s. 158ba(3) starts with the words that 'where the assessed proves to the satisfaction of the ao', which clearly indicates that the onus lies on the assessed to prove transactions relating to income have duly been recorded in the books of accounts maintained in the normal course relating to such previous year, where the date of filing the return of income under s. 139(1) has not expired. if a transaction of income has been shown as a liability in the books of accounts, it cannot be excluded from income of the block period under s. 158ba(3) of the act.the learned departmental representative thus strongly supported the order of the ao.5. we have carefully considered the submission made by the learned representatives of the parties and have also gone through all other documents to which our attention was drawn during the course of hearing. we have also examined the relevant provisions of law and have also gone through the various judgments cited by the learned counsel for the assessee.5.1 in order to properly appreciate the rival contentions made by the learned representatives of both sides, it may be imperative to reproduce the relevant provisions of the act :sec. 158b(b) reads as under :'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 property which has not been or would not have been disclosed for the purposes of this act.'sec. 158ba(1), (2), (3) read as under :158ba(1) : notwithstanding anything contained in any other provisions of this act, where after the 30th day of june, 1995 a search is initiated under s. 132 or books of account, other documents or any assets are requisitioned under s. 132a in the case of any person, then, the ao shall proceed to assess the undisclosed income in accordance with the provisions of this chapter.(2) the total undisclosed income relating to the block period shall be charged to tax, at the rate specified in s. 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.(3) where the assessed proves to the satisfaction of the ao that any part of income referred to in sub-s. (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period.'sec. 158bb(1) and sub-cl. (d) thereof, reads as under :'158bb(1) : the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of chapter iv, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with ao, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined -(d) where the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years;'sec. 158bb(3) reads as under :'(3) the burden of proving to the satisfaction of the ao that any undisclosed income had already been disclosed in any return of income filed by the assessed before the commencement of search or of the requisition as the case may be, shall be on the assessee.'5.2 the ao has not passed the impugned order under s. 158bc in the manner laid down in s. 158bb of the act. the ao has not determined the total undisclosed income by computing the aggregate of the total income of the previous years falling within the block period in accordance with the provisions of chapter iv of the act and has also not reduced such aggregate of the total income as provided in cl. (a) to (f) of sub-s. (1) of s. 158bb. the ao has simply determined the total undisclosed income, as narrated hereinbefore at rs. 55,06,000 without giving the year wise details of total income of each year falling within the block period nor he has excluded the disclosed income as provided in cls. (a) to (f) of sub-s. (1) of s. 158bb of the act.5.3 the definition of undisclosed income given in s. 158b(b) is an inclusive definition and has a very wide connotation. it would, inter alia, include any income based on any entry in the books of accounts, or other documents or transactions, where such entry in the books of accounts, or other documents or transactions, represents wholly or partly income or property, which has not been or would not have been disclosed for the purposes of this act. thus, if an entry or transaction representing income has been shown as a liability or a loan, and not as income, it will come within the ambit of the definition of undisclosed income given in s. 158(b). sec. 158bb(3) further provides that the burden of proving to the satisfaction of the ao that any undisclosed income has already been disclosed in any return of income filed by the assessed before the commencement of search shall be on the assessee.5.4 the provisions of s. 158ba(3) as well as s. 158bb(1)(d) also provides for exclusion from the aggregate of the undisclosed income of the block period of only that amount of income of the previous year for which the date of filing the return of income under s. 139(1) has not expired, which has shown in the books of accounts as income. the entries or transactions representing wholly or partly the income, must have been recorded in the books of accounts in the normal course relating to such previous year reflecting the true and correct amount of income arising out of such transactions. but if an income is entered or recorded in the books of accounts as loan or liability, the same will not fall outside the ambit and scope of undisclosed income for the purposes of assessment of the block period under chapter xiv-b of the act.5.5 we will now examine the facts of the present case in the light of the aforesaid provisions of law.shri g. s. chhabra, director of the appellant company as well as director of rubina submitted a note dt. 19th september, 1996, explaining the transactions recorded in the account of rubina leasing & credits (p) ltd. which reads as under :'1. this is to confirm that i, g. s. chhabra and the director of rubina leasing and credits (p) ltd. as well that of express movers (p) ltd.2. that express movers is engaged in the business of cargo agents, was required to make timely payments to the airline companies and some times the payments required to be made exceeded the bank balance of the company.3. that in order to safeguard the business interests of express movers, rubina leasing acted as conduit to arrange funds temporarily for few days to cover the shortfall in the bank account of express movers, by adopting the following modus operandi.(a) rubina leasing issued certain cheques in favor of express movers, although there was no balance in the bank account of the rubina.(b) the cheques of rubina were purchased by the bankers of express movers and instant credit was allowed to them to enable them to meet their immediate requirement of funds.(c) before the cheque of rubina could reach its banker in clearing, the cash was withdrawn by express movers from their bank account and deposited in the bank account of rubina so that the cheque issued by rubina could be cleared by their bankers.4. that the above transactions were in the nature of self-accommodation between the two companies were not in the nature of loan or deposit, since at the time of issue of cheques by rubina, it never had any balance in its bank account and the cheques so issued were always cleared out of the cash deposited by express movers in the bank account of rubina.5. that the bank account of rubina was used only for the above purpose after january, 1994 when the first accommodation was made and all the subsequent transactions were of this nature.'place : new delhi for rubina leasing & credits (p) ltd.dated : 19th september, 1996 sd/-(g. s. chhabra)director'6. the facts stated in the aforesaid note submitted by shri g. s. chhabra, director of the appellant company were supported by various documents found during the course of search as well as further documents submitted in the course of assessment proceedings.6.1 a perusal of the statement of account of rubina reveals that the appellant company received cheques from the rubina on various dates throughout the accounting period from 28th january, 1994, to 30th march, 1994. the aggregate total of such cheques received from rubina on different dates comes to rs. 17,52,000. the assessed after a gap of couple of days of receiving each such deposit by way of cheque made repayment in cash with the narration that such cash has been deposited in bank account of rubina leasing. the aggregate payment debited in their account between january, 1994 to 31st march, 1994 comes to rs. 13,67,000. a balance of rs. 3,85,000 was carried forward as opening balance in the next year. in the subsequent year covering the period from 1st april, 1994 to 11th august, 1994, the assessed received further cheques throughout the said period from rubina which were credited in their account. after a gap of 3/4 days, an equivalent amount of cash was deposited in the bank account of rubina leasing which was debited in the account of rubina in the books of accounts of the appellant company. the totals of debits and credits in the account of rubina for the period from 1st april, 1994 to 11th august, 1994, comes to rs. 62,49,000. this includes contra entries on account of reversal of certain cheques credited in their account. the total of the entries made in respect of reversal of cheques comes to rs. 24,25,000. thus the total cash payments made by the appellant company in the bank account of rubina during this period comes to rs. 38,24,000. the addition of rs. 51,91,000 made in the assessment order in relation to entries in the account of rubina thus consists of the cash deposits made by the assessed in the bank account of rubina leasing pertaining to the following periods :(a) deposits made in bank account of rubina in financial year 1993-94 13,67,000(b) deposits made in bank account of rubina in financial year 1994-95 38,24,000 51,91,000 6.2 the assessed submitted a chart showing date wise details of sources of amount deposited in the bank account of rubina. the said chart is reproduced hereunder :particulars of bank a/c of appellantdate of withdrawals from bank a/c of appellantdate of deposit in runina bank a/camount withdrawn from bank a/c of appellantamount deposited in bank a/c of rubinacanara bank 28-1-9431-1-941,05,0001,05,000canara bank 10-2-9410-2-942,10,0002,05,000canara bank 8-3-948-3-943,85,0003,71,000canara bank 10-3-9410-3-943,65,0001,10,000canara bank 23-3-9423-3-942,20,0002,05,000canara bank 26-3-9426-3-942,55,0002,51,000canara bank 30-3-9430-3-941,25,0001,20,000canara bank 15-4-9415-4-941,15,0001,00,000canara bank 23-3-9423-3-943,15,0002,50,000canara bank 26-4-9426-4-943,80,00060,000canara bank 28-4-9428-4-941,15,0001,10,000canara bank 7-5-949-5-942,25,0002,00,000canara bank 9-5-949-5-942,20,0002,10,000canara bank 13-5-9414-5-942,50,0002,30,000canara bank 21-5-9421-5-942,20,0002,15,000canara bank 24-5-9424-5-943,20,0003,10,000canara bank 27-5-9427-5-9460,00024,000canara bank 6-6-946-6-943,15,0003,00,000canara bank 8-6-948-6-943,70,0003,20,000canara bank 10-6-9410-6-943,05,0003,00,000canara bank 8-7-948-7-944,40,0003,350,00canara bank 22-7-9422-7-945,20,0004,60,000canara bank 29-7-9429-7-943,10,0003,00,000bank of madura 4-8-946-8-9485,0001,00,000* 51,91,000*balance of rs. 15,000 deposited out of cash in hand.6.3 the assessed has also submitted copies of bank statements of canara bank and bank of madura to prove the correctness of the fact that the amount as stated in the aforesaid chart were duly withdrawn by the assessed from their bank account. the appellant company has also submitted copies of bank statements of rubina with canara bank showing that such cash was deposited on the dates mentioned in the aforesaid chart. the learned departmental representative could not point out any discrepancy or mistake in the aforesaid date wise details submitted on behalf of the assessed before the departmental authorities as well as submitted in the compilation before the tribunal. the said chart clearly indicates that each and every entry of cash deposit made in the bank account of rubina is clearly and fully explained by the withdrawals of an equivalent amount by the assessed from their respective bank account on the same date except that the amount withdrawn on 28th january, 1994, from assessees bank account was deposited in the bank account of rubina on 31st january, 1994, and the amount withdrawn on 4th august, 1994, from bank of madura was deposited on 6th august, 1994. the small difference of rs. 15,000 in the amount deposited on 6th august, 1994 is stated to have been deposited out of cash in hand lying with the assessee. the assessed has thus fully proved the sources of deposits made in the bank account of rubina. the addition made by the ao to the tune of rs. 51,91,000 is, thereforee, patently invalid, unjustified and is contrary to facts, material and evidence brought on record by the assessee.7. let us also examine the reasons given by the ao in the assessment order for supporting the aforesaid addition of rs. 51,91,000. the ao has mentioned that the assessed is in this line of business for last more than 15 years. the assessed has not clarified what was the modus operandi which was being adopted in the earlier years. this cannot be a ground for holding that the deposits made by the assessed in the bank account of rubina out of withdrawal of equivalent amount made by the assessed from their bank accounts should be treated as unexplained deposits. the learned counsel for the assessed had explained that such a temporary accommodation of funds became necessary in view of the fact that the appellant company suffered losses in the financial years 1993-94 and 1994-95, which compelled the assessed to resort to such a practice for making temporary arrangement of funds urgently required for business purposes. such a ground taken by the ao does not in any manner support the addition made by him.7.1 the other ground taken by the ao in that rubina is not being assessed to tax. this also cannot be valid ground for making an addition of the said sum of rs. 51,91,000 in the hands of the assessed as its income. the assessed has categorically submitted that rubina had no bank balance at the time when the cheques were issued in favor of the assessed company. the assessed deposited the cheques in their bank account and on the security of such cheques, the bankers allowed encashment of the cheques issued by the assessed company to outside parties. the assessed thus took the advantage of the clearing period of 3/4 days. the assessee, in the meantime, arranged funds and it had withdrawn the equivalent amount of cash from its bank account and deposited the same in the bank account of rubina so that the cheques issued by rubina in favor of the assessed company could be cleared. it was purely an arrangement in the nature of temporary accommodation of funds by obtaining the cheque of a sister company. since rubina did not have any taxable income, it was not necessary for them to file any return of income. even assuming that rubina had taxable income and they did not file their returns of income, this fact by itself cannot justify the addition of the said amount as income in the hands of the assessee, particularly when the sources have been fully and properly explained.7.2 the third ground mentioned by the ao in the assessment order is that mr. g. s. chhabra, the director of the company in spite of repeated reminders has not confirmed any entry concerning the transactions recorded in the account of rubina. this fact is apparently incorrect in view of the fact that the assessed had submitted copies of accounts of rubina as appearing in its books of accounts. the assessed also produced copies of their bank accounts, pay-in-slips in respect of the deposits and withdrawals made from these bank accounts. the assessed also submitted confirmation from rubina. the entire relevant material in the form of books of accounts, copies of bank statements of the appellant company as well as of rubina were produced before the ao. all the transactions entered in the account of rubina are fully verifiable from such bank statements. hence, this ground mentioned by the ao does not in any manner support the conclusions arrived at by the ao.7.3 the last ground taken by the ao is that the assessed company was not able to reconcile the cash balances with the cash deposits running into lakhs of rupees made in the bank account in the month of september, 1995 and september, 1994. the assessed submitted summary of the cash book for the month of september, 1994, as well as september, 1995 which are also reproduced hereunder :sept., 1994sept., 1995sept., 1994sept., 1995opening balance 3,24,255.891,32,940.14add : deposits withdrawals from banks bank of madura 4,97,0001,55,500 syndicate bank 26,000 1,1,23,000 (punjab & sind bank) canara bank 5,65,000 2,65,000 10,88,000.00 15,43,500.00recd. from parties 3,11,807.0083,762.00 17,24,062.8917,60,202.14less : withdrawals 1. deposited in banks bank of madura 61,40,0001,08,000 syndicate bank 1,01,0003,60,000 (punjab & sind bank) canara bank 3,55,0001,60,000 union bank of india 1,000 10,71,000.00 6,28,000.00expenses & other payments 3,94,533.0810,18,415.50 closing balance 2,58,529.811,13,786.74the learned departmental representative did not point out any mistake or discrepancy in the aforesaid charts submitted on behalf of the assessee.7.4 further more the deposits in the bank account of rubina have been made during the period from january, 1994, to august, 1994. the instances of cash deposits made in bank accounts given by the ao pertaining to the month of september, 1994 and september, 1995, do not in any manner relate to any of the entries in the bank account of rubina. the entries of deposits made in bank account of rubina have been properly accounted for in the books of accounts maintained by the appellant. the sources for such deposits have been properly explained and all such entries are verifiable from the cash book, ledger and bank statements produced by the assessee. it is, thereforee, beyond comprehension as to how the ao has relied upon these two instances of september, 1994, and september, 1995, for supporting the aforesaid addition of rs. 51,91,000.7.5 thus all the reasons given by the ao in the assessment order while making the aforesaid addition do not in any manner support the erroneous conclusion arrived at by him for supporting the said addition.7.6 on a careful consideration of the entire relevant facts and material existing on record and in view of the foregoing discussions, we are of the considered opinion that the addition of rs. 51,91,000 made by the ao is patently invalid and unjustified. we, thereforee, direct the ao to delete the same.8. the next addition relates to disallowance of a sum of rs. 3,50,000 out of expenses incurred by the assessed for movement of cargo and documentation etc., in customs house. the ao has observed that the assessed claimed such expenses to the tune of rs. 8,59,074 against the gross receipts of commission of rs. 29.99 lakhs + services charges of rs. 1.49 lakhs. the ao has observed that the assessed could not produce complete details and vouchers. it was claimed on behalf of the assessed before the ao that it is very difficult to keep the small vouchers like loading and unloading expenses, which are very petty expenses incurred on day-to-day basis. the ao made an ad hoc disallowable of rs. 3,50,000 without pointing out a single instance of any such expenditure of a disallowance nature. while computing the total undisclosed income, the ao has made an addition of rs. 3,14,993 instead of rs. 3,50,000 discussed in the assessment order. the learned departmental representative could not explain the reason of difference between the figure of rs. 3,50,000 and rs. 3,14,993.8.1 it is an undisputed fact that the entire expenses claimed by the assessed were duly recorded in the regular books of accounts. the ao has himself allowed a major part of such expenses claimed by the assessee. the ao has not given any instance of any specific items of expenditure, which according to him, are of a disallowable nature. the ao has also not given comparative figures of such expenses incurred in past several years. the ao has also not established by bringing any material on record to show that such expenses claimed by the assessed are unreasonable or excessive as compared to any other comparable case or as compared to the past history of assessees own case. such disallowance has been made by the ao out of the expenses incurred in the year ended on 31st march, 1995. the search was conducted on 15th september, 1995, and the same was concluded on 16th september, 1995. the date for filing the return of income under s. 139(1) for the aforesaid year had not expired on the date of search. the provisions of s. 158ba(3) clearly indicates that if income or the transactions relating to income are recorded before the date of the search in the books of accounts maintained in the normal course relating to such previous year, the said income shall not be included in the block period. the question relating to disallowance of a part amount out of expenditure recorded in the books of accounts in the normal course cannot be equated with an entry in the books of accounts establishing the existence of undisclosed income. the entries of expenses incurred by the assessed are duly verifiable from the regular books of accounts maintained by the assessee. no incriminating documents were found during the course of search indicating that the assessed has in any manner inflated the expenditure in question. on the other hand, a perusal of the order passed by the ao reveals that cash amounting to rs. 17,900 was found during the course of search, which has been accepted as fully explained and verifiable from the books of accounts. the ao has also observed at p. 4 of the assessment order that certain loose papers marked as annexure a4 found during the course of search were verifiable from the entries recorded in the regular books of accounts. no unaccounted money and any other unverifiable assets were found during the course of search so far as the appellant company is concerned. all these facts revealed as a result of search also supports the assessees contention that expenses verifiable from the regular books of accounts are true and correct. we are, thereforee, of the considered opinion that no such ad hoc disallowance out of expenditure recorded in the regular books of accounts can be validly made in an assessment made under s. 158bc of the it act, 1961. the ao is, thereforee, directed to delete the same.9. since we have deleted the entire addition of undisclosed income made in the impugned order under s. 158bc of the it act, 1961, we do not consider it necessary to give our findings on various legal objections raised in the grounds of appeal as well as during the course of hearing before us.10. in the result, the assessees appeal is allowed.

Judgment:
ORDER

B. M. KOTHARI, A.M. :

This appeal by the assessed is directed against the assessment order passed by the Dy. CIT Special Range-26, New Delhi under s. 158BC of the IT Act, 1961, for the block period 1986-87 to 1995-96 plus the current period 1st April, 1995, to 15th September, 1995, up to the date of search.

2. The assessed has raised the following grounds in this appeal :

'1. That the authorities below were not justified to pass the order under s. 158BC of the IT Act without compliance of provisions of Chapter XIV-B of the Income-tax Act and the assessment framed is illegal and deserves to be quashed.

That the learned CIT has granted the approval under s. 158BC of the IT Act in a mechanical manner and without application of his mind and ignoring the detailed submission and Explanationn furnished before him during the course of personal hearing granted by him to the appellant.

2. That the authorities below were not justified to make an addition of Rs. 51,91,000 in the block assessment as alleged undisclosed income without any basis and without even referring to the section or provision of IT Act under which the same has been brought to tax.

That the authorities below were not justified to treat these credits as undisclosed income since these were duly accounted for in the regular books of accounts and these could not be treated as income which has not been disclosed or would not have been disclosed to the Department. Hence, it is not the subject-matter of block assessment.

3. That in the alternative, the addition if at all called for, should be on peak basis and not on cumulative and multiple basis, in respect of alleged transactions with Rubina Leasing and Credits (P) Ltd. for which addition of Rs. 51,91,000 has been made.'

4. That the authorities below were not justified to make addition of Rs. 51,91,000 against the factual and legal position and ignoring the detailed submissions and Explanationns furnished.

5. That the authorities below were not justified to treat a sum of Rs. 3,50,000 as disallowable items whereas in working out undisclosed income by the AO a sum of Rs. 3,14,993 has been added.

That the disallowance of expenditure relating to a particular business will not result in an additional income, as relevant business is not part of block assessment. That even otherwise all these expenses are part of regular books of accounts and are fully verifiable and supported.

6. That the assessing authority have not applied their mind to the correct facts and additions are merely on the ground of presumptions and surmises and the same are not sustainable under the facts and law.

7. That the order framed is against the fact of the case and bad in law.'

3. The learned counsel for the assessed submitted that the proceedings of search under s. 132 of the IT Act, 1961 (hereinafter referred to as the Act) was conducted in this case on 15th September, 1995, and concluded on 16th September, 1995. During the course of search no unaccounted money, ornaments or any other valuables were found and seized. The books of accounts found during the search, as inventoried in the inventory prepared during search (copy placed at p. 39 of the paper-book) shows that those were the regular books of accounts maintained by the assessed in the normal course of its business.

3.1 The learned counsel submitted that the AO has determined the undisclosed income of Rs. 51,91,000 in respect of transaction recorded in the account of Rubina Leasing and credits (P) Ltd. (For short called Rubina) in the regular books of account. The AO has further made a disallowance of Rs. 3,50,000 in an ad hoc manner out of total expenses of Rs. 8,59,074 claimed by the assessed in the year ended on 31st March, 1995 as per its books of accounts. He submitted that the AO has not given the year wise break-up of undisclosed income of Rs. 55,05,993 in the impugned order. But on the basis of facts and material existing on records and as per discussions made by the AO in the impugned order, the bifurcation of undisclosed income determined by the AO is as under :

Financial Year

Addition in respect of entries in the a/c of Rubina

Disallowance and expenses claimed

Total

1993-94

13,67,000

1994-95

38,24,000

3,14,993

41,38,993

51,91,000

3,14,993

55,05,993

Total income rounded to

55,06,000

The AO has, however, computed the total undisclosed income in the impugned order without giving year wise bifurcation, as below :

'Total undisclosed income

51,91,000

Income as disclosed above

3,14,993

Total income

55,05,993

Rounded off to

55,06,000

It is also not clear from the impugned order, as to how the income of Rs. 3,14,993 has been determined, as the discussion in the impugned order, inter alia, shows that the AO had disallowed a sum of Rs. 3,50,000 out of the expenses claimed in the year ended on 31st March, 1995.

3.2 The learned counsel submitted that the proceedings of search conducted under s. 132 in the case of the assessed was itself invalid, as the conditions precedent for authorising the search and for issue of search warrants are not fulfillled on the facts of the present case. He placed reliance on the judgment reported in L. R. Gupta & Ors. vs . Union of India & Ors. : [1992]194ITR32(Delhi) , Dr. Nand Lal Tahiliani : [1988]170ITR592(All) and ITO vs . Seth Bros. & Ors. : [1969]74ITR836(SC) .

The learned counsel further submitted that the entire undisclosed income has been determined by the AO on the basis of transactions and entries recorded in the regular books of accounts in the normal course. The determination of undisclosed income on the basis of entries and transactions recorded in the regular books of accounts is clearly beyond the scope of definition of undisclosed income given in s. 158B(b) of the Act. He further drew our attention towards ss. 158BA(3) and s. 158BB(1) (d) of the Act to support his contention that income relating to financial year based on entries and transactions recorded in the regular books of accounts cannot be included in the assessment for the block period, as the date for filing the return of income under s. 139(1) had not expired till the date of search. The learned counsel also submitted that return for asst. yr. 1994-95 and asst. yr. 1995-96 were filed on 27th August, 1995, and 30th November, 1995, respectively. Notices under s. 143(2) for asst. yr. 1994-95 and asst. yr. 1995-96 were issued on 10th November, 1995, and 15th November, 1996, (copies placed at pp. 126 and 127 of the paper-book) respectively. The regular assessments for these two years are pending. Any addition or disallowances based on entries and transactions recorded in the regular books of accounts in the normal course prior to date of search, can be made only in the regular assessment and not in the assessment for the block period under Chapter XIV-B of the Act prescribing the special procedure for assessment of search cases. The learned counsel submitted that on the facts and circumstances of the present case, the provisions of s. 158B are not applicable. He placed reliance on judgments reported in CIT vs . Sayed Faquir Rehman : [1991]189ITR476(Patna) ; (1969) 74 ITR 403 and Geudalal Rai vs. Asstt. CIT (1994) 51 ITD 378 (Ind).

3.3 The learned counsel further submitted that even on merits, the determination of undisclosed income made by the AO is patently wrong and unjustified.

As regards addition of Rs. 51,91,000 made in respect of entries in the account of Rubina is concerned, the learned counsel invited our attention towards the elaborate reply submitted to the AO vide letter dt. 4th September, 1996 (copy at pp. 53 to 59 of the paper-book) as well as towards a detailed letter dt. 25th September, 1996, submitted to the CIT (copy at pp. 68 to 75 of the paper-book). The learned counsel also drew our attention towards a Note dt. 19th September, 1996 submitted by Shri G. S. Chhabra, a common director of the appellant company (Express Movers (P) Ltd. and Rubina Leasing and Credits (P) Ltd. (copy placed at p. 76 of the paper-book) explaining the nature of entries in the relevant bank account of the appellant as well as of Rubina. Our attention was also drawn towards copies of accounts of Rubina placed at pp. 77 to 79 of the paper-book, copies of bank statement of Rubina in respect of their current a/c No. 5864 with Canara Bank (copies placed at pp. 80 to 87 of the paper-book), cash flow statement showing sources of amount deposited in bank account of Rubina (at p. 88 of the paper-book), copies of bank of the appellant company in respect of their account No. 2789 with Canara Bank (copies at pp. 89 to 121 of the paper-book), copy of bank statement of appellants bank a/c with Bank of Madura Ltd. (copy at pp. 122 to 124 of the paper-book) towards a summary of cash book for the month of September, 1994 and September, 1995, placed at pp. 129 and 130 of the paper-book, and towards other relevant documents submitted in the compilation.

3.4 The learned counsel submitted that the appellant company is engaged in the business of cargo agents. It suffered losses in asst. yr. 1994-95 and asst. yr. 1995-96. They were required to make timely payments to the Airline companies. Sometimes, the company did not have adequate bank balances and to meet the deficit, they used, their sister concern Rubina as a conduit to cover the short-fall in the bank balance at the time of such urgent needs, so that the cheques issued to various Airline companies are not dishonoured. The assessed adopted the modus operandi of obtaining cheques from Rubina, which were deposited in the bank account of the appellant. The bankers of the appellant gave instant credit for such cheque and charged requisite bank charges. Rubina in fact had no bank balance at the time of issue of such cheques in favor of the appellant. Before the cheques of Rubina could reach its bankers through clearing, the appellant had withdrawn funds from their bank account and deposited the equivalent amount in the bank account of Rubina, so that cheques issued by Rubina could be cleared by their bankers. Thus, all these transactions were in the nature of accommodation transactions between the two sister companies. All such transactions are fully verifiable from the books of accounts as well as from the bank statements of both these companies. The documents referred to in preceding para were shown by the authorised representative to prove the correctness of this contention.

3.5 The learned counsel further submitted that the assessed submitted application dt. 1st October, 1996, to the AO for making necessary rectification in the impugned order, as the entire relevant information regarding transactions in the account of Rubina were duly furnished before him. However, no order has been passed by the AO.

3.6 As regards the disallowance out of expenses in financial year 1994-95 is concerned, the learned counsel submitted that such an ad hoc disallowance out of expenses duly recorded in the books of accounts clearly fall outside the definition of undisclosed income under s. 158B(b) and it has to be excluded in view of specific provision contained in s. 158BA(3) of the Act. Even otherwise, he submitted that expenses are supported by entries in the regular books of accounts and no such ad hoc disallowance is permissible. In any case, the regular assessment for this year is pending and such a question can be more appropriately decided in the regular assessment.

The learned counsel thus strongly urged that the impugned order passed by the AO should be cancelled and the entire demand created by him should be quashed.

4. The learned Departmental Representative submitted that legality of search cannot be challenged before the Tribunal. The Tribunal has no jurisdiction to decide the question relating to validity of the proceedings of search.

4.1 The learned Departmental Representative further submitted that the newly inserted Chapter XIV-B which prescribes the special procedure for assessment of search cases clearly applies in all cases where action for search has been initiated after 30th June, 1995.

4.2 The learned Departmental Representative also contended that the assessed has not raised any specific ground challenging the validity of the search in the grounds of appeal. Even if such a ground is considered to be implicit in the general ground raised by the assessee, the reasons recorded by the concerned authorities for authorising the search will have to be called for.

4.3 On merits, the learned Departmental Representative submitted that the transactions in the account of Rubina have been shown as loan, while they in fact represent income liable to tax in view of the elaborate reasons given in the assessment made for the block period. The same, thereforee, clearly comes within the ambit of undisclosed income defined in s. 158B of the Act. She further submitted that s. 158BA(3) starts with the words that 'where the assessed proves to the satisfaction of the AO', which clearly indicates that the onus lies on the assessed to prove transactions relating to income have duly been recorded in the books of accounts maintained in the normal course relating to such previous year, where the date of filing the return of income under s. 139(1) has not expired. If a transaction of income has been shown as a liability in the books of accounts, it cannot be excluded from income of the block period under s. 158BA(3) of the Act.

The learned Departmental Representative thus strongly supported the order of the AO.

5. We have carefully considered the submission made by the learned representatives of the parties and have also gone through all other documents to which our attention was drawn during the course of hearing. We have also examined the relevant provisions of law and have also gone through the various judgments cited by the learned counsel for the assessee.

5.1 In order to properly appreciate the rival contentions made by the learned representatives of both sides, it may be imperative to reproduce the relevant provisions of the Act :

Sec. 158B(b) reads as under :

'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 property which has not been or would not have been disclosed for the purposes of this Act.'

Sec. 158BA(1), (2), (3) read as under :

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

(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in s. 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.

(3) Where the assessed proves to the satisfaction of the AO that any part of income referred to in sub-s. (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period.'

Sec. 158BB(1) and sub-cl. (d) thereof, reads as under :

'158BB(1) : The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with AO, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined -

(d) where the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years;'

Sec. 158BB(3) reads as under :

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

5.2 The AO has not passed the impugned order under s. 158BC in the manner laid down in s. 158BB of the Act. The AO has not determined the total undisclosed income by computing the aggregate of the total income of the previous years falling within the block period in accordance with the provisions of Chapter IV of the Act and has also not reduced such aggregate of the total income as provided in cl. (a) to (f) of sub-s. (1) of s. 158BB. The AO has simply determined the total undisclosed income, as narrated hereinbefore at Rs. 55,06,000 without giving the year wise details of total income of each year falling within the block period nor he has excluded the disclosed income as provided in cls. (a) to (f) of sub-s. (1) of s. 158BB of the Act.

5.3 The definition of undisclosed income given in s. 158B(b) is an inclusive definition and has a very wide connotation. It would, inter alia, include any income based on any entry in the books of accounts, or other documents or transactions, where such entry in the books of accounts, or other documents or transactions, represents wholly or partly income or property, which has not been or would not have been disclosed for the purposes of this Act. Thus, if an entry or transaction representing income has been shown as a liability or a loan, and not as income, it will come within the ambit of the definition of undisclosed income given in s. 158(b). Sec. 158BB(3) further provides that the burden of proving to the satisfaction of the AO that any undisclosed income has already been disclosed in any return of income filed by the assessed before the commencement of search shall be on the assessee.

5.4 The provisions of s. 158BA(3) as well as s. 158BB(1)(d) also provides for exclusion from the aggregate of the undisclosed income of the block period of only that amount of income of the previous year for which the date of filing the return of income under s. 139(1) has not expired, which has shown in the books of accounts as income. The entries or transactions representing wholly or partly the income, must have been recorded in the books of accounts in the normal course relating to such previous year reflecting the true and correct amount of income arising out of such transactions. But if an income is entered or recorded in the books of accounts as loan or liability, the same will not fall outside the ambit and scope of undisclosed income for the purposes of assessment of the block period under Chapter XIV-B of the Act.

5.5 We will now examine the facts of the present case in the light of the aforesaid provisions of law.

Shri G. S. Chhabra, director of the appellant company as well as director of Rubina submitted a Note dt. 19th September, 1996, explaining the transactions recorded in the account of Rubina Leasing & Credits (P) Ltd. which reads as under :

'1. This is to confirm that I, G. S. Chhabra and the director of Rubina Leasing and Credits (P) Ltd. as well that of Express Movers (P) Ltd.

2. That Express Movers is engaged in the business of Cargo Agents, was required to make timely payments to the Airline companies and some times the payments required to be made exceeded the bank balance of the company.

3. That in order to safeguard the business interests of Express Movers, Rubina Leasing acted as conduit to arrange funds temporarily for few days to cover the shortfall in the bank account of Express Movers, by adopting the following modus operandi.

(a) Rubina Leasing issued certain cheques in favor of Express Movers, although there was no balance in the bank account of the Rubina.

(b) The cheques of Rubina were purchased by the bankers of Express Movers and instant credit was allowed to them to enable them to meet their immediate requirement of funds.

(c) Before the cheque of Rubina could reach its banker in clearing, the cash was withdrawn by Express Movers from their bank account and deposited in the bank account of Rubina so that the cheque issued by Rubina could be cleared by their bankers.

4. That the above transactions were in the nature of self-accommodation between the two companies were not in the nature of loan or deposit, since at the time of issue of cheques by Rubina, it never had any balance in its bank account and the cheques so issued were always cleared out of the cash deposited by Express Movers in the bank account of Rubina.

5. That the bank account of Rubina was used only for the above purpose after January, 1994 when the first accommodation was made and all the subsequent transactions were of this nature.'

Place : New Delhi For Rubina Leasing & Credits (P) Ltd.

Dated : 19th September, 1996 Sd/-

(G. S. Chhabra)

Director'

6. The facts stated in the aforesaid note submitted by Shri G. S. Chhabra, director of the appellant company were supported by various documents found during the course of search as well as further documents submitted in the course of assessment proceedings.

6.1 A perusal of the statement of account of Rubina reveals that the appellant company received cheques from the Rubina on various dates throughout the accounting period from 28th January, 1994, to 30th March, 1994. The aggregate total of such cheques received from Rubina on different dates comes to Rs. 17,52,000. The assessed after a gap of couple of days of receiving each such deposit by way of cheque made repayment in cash with the narration that such cash has been deposited in bank account of Rubina Leasing. The aggregate payment debited in their account between January, 1994 to 31st March, 1994 comes to Rs. 13,67,000. A balance of Rs. 3,85,000 was carried forward as opening balance in the next year. In the subsequent year covering the period from 1st April, 1994 to 11th August, 1994, the assessed received further cheques throughout the said period from Rubina which were credited in their account. After a gap of 3/4 days, an equivalent amount of cash was deposited in the bank account of Rubina Leasing which was debited in the account of Rubina in the books of accounts of the appellant company. The totals of debits and credits in the account of Rubina for the period from 1st April, 1994 to 11th August, 1994, comes to Rs. 62,49,000. This includes contra entries on account of reversal of certain cheques credited in their account. The total of the entries made in respect of reversal of cheques comes to Rs. 24,25,000. Thus the total cash payments made by the appellant company in the bank account of Rubina during this period comes to Rs. 38,24,000. The addition of Rs. 51,91,000 made in the assessment order in relation to entries in the account of Rubina thus consists of the cash deposits made by the assessed in the bank account of Rubina Leasing pertaining to the following periods :

(a) Deposits made in bank account of Rubina in financial year 1993-94

13,67,000

(b) Deposits made in bank account of Rubina in financial year 1994-95

38,24,000

51,91,000

6.2 The assessed submitted a chart showing date wise details of sources of amount deposited in the bank account of Rubina. The said chart is reproduced hereunder :

Particulars of bank a/c of Appellant

Date of Withdrawals from Bank a/c of appellant

Date of Deposit in Runina Bank a/c

Amount withdrawn from bank a/c of appellant

Amount Deposited in bank a/c of Rubina

Canara Bank

28-1-94

31-1-94

1,05,000

Canara Bank

10-2-94

2,10,000

2,05,000

Canara Bank

8-3-94

3,85,000

3,71,000

Canara Bank

10-3-94

3,65,000

1,10,000

Canara Bank

23-3-94

2,20,000

2,05,000

Canara Bank

26-3-94

2,55,000

2,51,000

Canara Bank

30-3-94

1,25,000

1,20,000

Canara Bank

15-4-94

1,15,000

1,00,000

Canara Bank

23-3-94

3,15,000

2,50,000

Canara Bank

26-4-94

3,80,000

60,000

Canara Bank

28-4-94

1,15,000

1,10,000

Canara Bank

7-5-94

9-5-94

2,25,000

2,00,000

Canara Bank

9-5-94

2,20,000

2,10,000

Canara Bank

13-5-94

14-5-94

2,50,000

2,30,000

Canara Bank

21-5-94

2,20,000

2,15,000

Canara Bank

24-5-94

3,20,000

3,10,000

Canara Bank

27-5-94

60,000

24,000

Canara Bank

6-6-94

3,15,000

3,00,000

Canara Bank

8-6-94

3,70,000

3,20,000

Canara Bank

10-6-94

3,05,000

3,00,000

Canara Bank

8-7-94

4,40,000

3,350,00

Canara Bank

22-7-94

5,20,000

4,60,000

Canara Bank

29-7-94

3,10,000

3,00,000

Bank of Madura

4-8-94

6-8-94

85,000

1,00,000*

51,91,000

*Balance of Rs. 15,000 deposited out of cash in hand.

6.3 The assessed has also submitted copies of bank statements of Canara Bank and Bank of Madura to prove the correctness of the fact that the amount as stated in the aforesaid chart were duly withdrawn by the assessed from their bank account. The appellant company has also submitted copies of bank statements of Rubina with Canara Bank showing that such cash was deposited on the dates mentioned in the aforesaid chart. The learned Departmental Representative could not point out any discrepancy or mistake in the aforesaid date wise details submitted on behalf of the assessed before the Departmental authorities as well as submitted in the compilation before the Tribunal. The said chart clearly indicates that each and every entry of cash deposit made in the bank account of Rubina is clearly and fully explained by the withdrawals of an equivalent amount by the assessed from their respective bank account on the same date except that the amount withdrawn on 28th January, 1994, from assessees bank account was deposited in the bank account of Rubina on 31st January, 1994, and the amount withdrawn on 4th August, 1994, from Bank of Madura was deposited on 6th August, 1994. The small difference of Rs. 15,000 in the amount deposited on 6th August, 1994 is stated to have been deposited out of cash in hand lying with the assessee. The assessed has thus fully proved the sources of deposits made in the bank account of Rubina. The addition made by the AO to the tune of Rs. 51,91,000 is, thereforee, patently invalid, unjustified and is contrary to facts, material and evidence brought on record by the assessee.

7. Let us also examine the reasons given by the AO in the assessment order for supporting the aforesaid addition of Rs. 51,91,000. The AO has mentioned that the assessed is in this line of business for last more than 15 years. The assessed has not clarified what was the modus operandi which was being adopted in the earlier years. This cannot be a ground for holding that the deposits made by the assessed in the bank account of Rubina out of withdrawal of equivalent amount made by the assessed from their bank accounts should be treated as unexplained deposits. The learned counsel for the assessed had explained that such a temporary accommodation of funds became necessary in view of the fact that the appellant company suffered losses in the financial years 1993-94 and 1994-95, which compelled the assessed to resort to such a practice for making temporary arrangement of funds urgently required for business purposes. Such a ground taken by the AO does not in any manner support the addition made by him.

7.1 The other ground taken by the AO in that Rubina is not being assessed to tax. This also cannot be valid ground for making an addition of the said sum of Rs. 51,91,000 in the hands of the assessed as its income. The assessed has categorically submitted that Rubina had no bank balance at the time when the cheques were issued in favor of the assessed company. The assessed deposited the cheques in their bank account and on the security of such cheques, the bankers allowed encashment of the cheques issued by the assessed company to outside parties. The assessed thus took the advantage of the clearing period of 3/4 days. The assessee, in the meantime, arranged funds and it had withdrawn the equivalent amount of cash from its bank account and deposited the same in the bank account of Rubina so that the cheques issued by Rubina in favor of the assessed company could be cleared. It was purely an arrangement in the nature of temporary accommodation of funds by obtaining the cheque of a sister company. Since Rubina did not have any taxable income, it was not necessary for them to file any return of income. Even assuming that Rubina had taxable income and they did not file their returns of income, this fact by itself cannot justify the addition of the said amount as income in the hands of the assessee, particularly when the sources have been fully and properly explained.

7.2 The third ground mentioned by the AO in the assessment order is that Mr. G. S. Chhabra, the director of the company in spite of repeated reminders has not confirmed any entry concerning the transactions recorded in the account of Rubina. This fact is apparently incorrect in view of the fact that the assessed had submitted copies of accounts of Rubina as appearing in its books of accounts. The assessed also produced copies of their bank accounts, pay-in-slips in respect of the deposits and withdrawals made from these bank accounts. The assessed also submitted confirmation from Rubina. The entire relevant material in the form of books of accounts, copies of bank statements of the appellant company as well as of Rubina were produced before the AO. All the transactions entered in the account of Rubina are fully verifiable from such bank statements. Hence, this ground mentioned by the AO does not in any manner support the conclusions arrived at by the AO.

7.3 The last ground taken by the AO is that the assessed company was not able to reconcile the cash balances with the cash deposits running into lakhs of rupees made in the bank account in the month of September, 1995 and September, 1994. The assessed submitted summary of the cash book for the month of September, 1994, as well as September, 1995 which are also reproduced hereunder :

Sept., 1994

Sept., 1995

Sept., 1994

Sept., 1995

Opening Balance

3,24,255.89

1,32,940.14

Add : Deposits

Withdrawals from banks

Bank of Madura

4,97,000

1,55,500

Syndicate Bank

26,000

1,1,23,000 (Punjab & Sind Bank)

Canara Bank

5,65,000

2,65,000

10,88,000.00

15,43,500.00

Recd. from parties

3,11,807.00

83,762.00

17,24,062.89

17,60,202.14

Less :

Withdrawals

1. Deposited in Banks

Bank of Madura

61,40,000

1,08,000

Syndicate Bank

1,01,000

3,60,000 (Punjab & Sind Bank)

Canara Bank

3,55,000

1,60,000

Union Bank of India

1,000

10,71,000.00

6,28,000.00

Expenses & Other payments

3,94,533.08

10,18,415.50

Closing Balance

2,58,529.81

1,13,786.74

The learned Departmental Representative did not point out any mistake or discrepancy in the aforesaid charts submitted on behalf of the assessee.

7.4 Further more the deposits in the bank account of Rubina have been made during the period from January, 1994, to August, 1994. The instances of cash deposits made in bank accounts given by the AO pertaining to the month of September, 1994 and September, 1995, do not in any manner relate to any of the entries in the bank account of Rubina. The entries of deposits made in bank account of Rubina have been properly accounted for in the books of accounts maintained by the appellant. The sources for such deposits have been properly explained and all such entries are verifiable from the cash book, ledger and bank statements produced by the assessee. It is, thereforee, beyond comprehension as to how the AO has relied upon these two instances of September, 1994, and September, 1995, for supporting the aforesaid addition of Rs. 51,91,000.

7.5 Thus all the reasons given by the AO in the assessment order while making the aforesaid addition do not in any manner support the erroneous conclusion arrived at by him for supporting the said addition.

7.6 On a careful consideration of the entire relevant facts and material existing on record and in view of the foregoing discussions, we are of the considered opinion that the addition of Rs. 51,91,000 made by the AO is patently invalid and unjustified. We, thereforee, direct the AO to delete the same.

8. The next addition relates to disallowance of a sum of Rs. 3,50,000 out of expenses incurred by the assessed for movement of cargo and documentation etc., in customs house. The AO has observed that the assessed claimed such expenses to the tune of Rs. 8,59,074 against the gross receipts of commission of Rs. 29.99 lakhs + services charges of Rs. 1.49 lakhs. The AO has observed that the assessed could not produce complete details and vouchers. It was claimed on behalf of the assessed before the AO that it is very difficult to keep the small vouchers like loading and unloading expenses, which are very petty expenses incurred on day-to-day basis. The AO made an ad hoc disallowable of Rs. 3,50,000 without pointing out a single instance of any such expenditure of a disallowance nature. While computing the total undisclosed income, the AO has made an addition of Rs. 3,14,993 instead of Rs. 3,50,000 discussed in the assessment order. The learned Departmental Representative could not explain the reason of difference between the figure of Rs. 3,50,000 and Rs. 3,14,993.

8.1 It is an undisputed fact that the entire expenses claimed by the assessed were duly recorded in the regular books of accounts. The AO has himself allowed a major part of such expenses claimed by the assessee. The AO has not given any instance of any specific items of expenditure, which according to him, are of a disallowable nature. The AO has also not given comparative figures of such expenses incurred in past several years. The AO has also not established by bringing any material on record to show that such expenses claimed by the assessed are unreasonable or excessive as compared to any other comparable case or as compared to the past history of assessees own case. Such disallowance has been made by the AO out of the expenses incurred in the year ended on 31st March, 1995. The search was conducted on 15th September, 1995, and the same was concluded on 16th September, 1995. The date for filing the return of income under s. 139(1) for the aforesaid year had not expired on the date of search. The provisions of s. 158BA(3) clearly indicates that if income or the transactions relating to income are recorded before the date of the search in the books of accounts maintained in the normal course relating to such previous year, the said income shall not be included in the block period. The question relating to disallowance of a part amount out of expenditure recorded in the books of accounts in the normal course cannot be equated with an entry in the books of accounts establishing the existence of undisclosed income. The entries of expenses incurred by the assessed are duly verifiable from the regular books of accounts maintained by the assessee. No incriminating documents were found during the course of search indicating that the assessed has in any manner inflated the expenditure in question. On the other hand, a perusal of the order passed by the AO reveals that cash amounting to Rs. 17,900 was found during the course of search, which has been accepted as fully explained and verifiable from the books of accounts. The AO has also observed at p. 4 of the assessment order that certain loose papers marked as Annexure A4 found during the course of search were verifiable from the entries recorded in the regular books of accounts. No unaccounted money and any other unverifiable assets were found during the course of search so far as the appellant company is concerned. All these facts revealed as a result of search also supports the assessees contention that expenses verifiable from the regular books of accounts are true and correct. We are, thereforee, of the considered opinion that no such ad hoc disallowance out of expenditure recorded in the regular books of accounts can be validly made in an assessment made under s. 158BC of the IT Act, 1961. The AO is, thereforee, directed to delete the same.

9. Since we have deleted the entire addition of undisclosed income made in the impugned order under s. 158BC of the IT Act, 1961, we do not consider it necessary to give our findings on various legal objections raised in the grounds of appeal as well as during the course of hearing before us.

10. In the result, the assessees appeal is allowed.

Subject	Direct Taxation
Court	Delhi High Court
Decided On	Apr-03-1997
Case Number	ITA No. 5493/Del/1996 : Asst. yrs. 1986-87 to 1995-96
Reported in	(1997)59TTJ(Del)227
Appellant	Express Movers (P) Ltd.
Respondent	Deputy Commissioner of Income Tax.
Cases Referred	and Geudalal Rai vs. Asstt.

Express Movers (P) Ltd. Vs. Deputy Commissioner of Income Tax. - Court Judgment