ACIT Central Circle-6, v. M/s Mid East India Ltd. H-1 Zamudpur,

ITSSA 5/DEL/2004 | misc
Pronouncement Date: 31-10-2013 | Result: Dismissed

Appeal Details

RSA Number 520116 RSA 2004
Assessee PAN UGUST1990F
Bench Delhi
Appeal Number ITSSA 5/DEL/2004
Duration Of Justice 9 year(s) 9 month(s) 22 day(s)
Appellant ACIT Central Circle-6,
Respondent M/s Mid East India Ltd. H-1 Zamudpur,
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 31-10-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 31-10-2013
Date Of Final Hearing 22-05-2013
Next Hearing Date 22-05-2013
Assessment Year misc
Appeal Filed On 08-01-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A: NEW DELHI BEFORE SHRI G.D. AGRAWAL VICE PRESIDENT AND SHRI I. C. SUDHIR JUDICIAL MEMBER IT(SS) NO. 5/DEL/2004 BLOCK PERIOD: 1.4.87 TO 26.2.97 ASSTT. C.I.T. VS. M/S MID EAST INDIA LIMITED CENTRAL CIRCLE-6 H-1 ZAMRUDPUR COMMUNITY NEW DELHI. CENTRE K AILASH COLONY NEW DELHI. (APPELLANT) (RESPONDENT ) AND IT(SS) NO. 10/DEL/2004 BLOCK PERIOD: 1.4.87 TO 20.2.97 M/S MID EAST INDIA LIMITED VS. DCIT CEN TRAL CIRCLE-6 MESCO TOWER NEW DELHI. H-1 ZAMRUDPUR COMMUNITY CENTER KAILASH COLONY NEW DELHI. ASSESSEE BY : SHRI SALIL AG GARWAL ADVOCATE SHRI GA UTAM JAIN CA SHRI SH AILASH GUPTA CA DEPARTMENT BY : SMT. ANURADHA MI SHRA CIT DR ORDER PER I.C. SUDHIR JUDICIAL MEMBER IT(SS)A NO. 5/DEL/2004 THE REVENUE HAS QUESTIONED THE FIRST AP PELLATE ORDER ON THE FOLLOWING GROUNDS :- IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 2 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED DELETED THE ADDITION OFRS.33 5 3 613/- MADE U1S 43B.' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS.62 45 OO 850/- MADE ON ACCOUNT OF FOREIGN INCOME WHICH WAS EARNED THROUGH ITS PERMANENT ESTABLISHMENTS IN RUSSIA AND GERMANY.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED 1HE ADDITION OF RS.94 52 40 000/- MADE ON ACCOUNT OF UNDISCLOSED PR OFIT OF M/S MARITA MESCO. THIS ADDITION WAS RECTIFIED U1S 1 54 AND ADDITION REMAINED RS.44 28 82 000/- ' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 36 00 000/- MADE ON ACCOUNT OF DIFFERENCE IN INVESTMENT IN MESC O MAURITIUS BY IGNORING THE FACTS THAT THE ADDITION W AS MADE ON THE BASIS OF DOCUMENTS SEIZED AS PER ANNEXURE-B-81 AA-4 AND B-8/AA-69.' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS.L 37 62 600/- MADE ON ACCOUNT OF LOAN FROM KESOR AM REFRACTORY. ' 6. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW D EP. OF RS.3 93 368/- AND RS.6 88 392/-.' 7. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN HAS RESTRICTED THE ADDITION OUT OF RS.52 90 682/- AT RS.21 43 000/- MADE ON ACCOUNT OF UNDISCLOSED INVESTMENT IN THE CONSTRUCTION OF SATBA RI FARM ON THE BASIS OF VALUATION REPORT FOUND DURING THE COUR SE OF SEARCH OPERATION.' 8. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 6 29 000/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE DA DAR FARM HOUSE ON 1HE BASIS OF SEIZED DOCUMENTS. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 3 9. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS.2 35 00 000/- MADE ON ACCOUNT OF UNEXPLAINED INV ESTMENT UNDER THE HEAD 'OTHER SOURCES'. 10. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETED THE DISALLOWANCE OF RS.7 33 600/- AND RS. 11 19 044/- MADE ON ACCOUNT O F GUEST HOUSE EXPENSES U1S 37(2). 11. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS.24 99 94 306/- BEING DIFFERENCE BETWEEN THE BAL ANCES OF THE ASSESSEE COMPANY AND VARIOUS OTHER COMPANIES OF MESCO GROUP WHICH IS AS UNDER: A. ADDITION DELETED ON A/C DIFF. IN BALANCE SHEE T MESCO AIRLINES AY. 94-95 RS. L 34 99 568/-. B. ADDITION DELETED ON A/C DIFF.: IN BALANCE SHEE T MISL INDIA LTD. AY. 94-95 RS.23 33 92 551/- C. ADDITION DELETED ON A/C DIFF. IN BALANCE SHEE T MESCO INDIA LTD. A Y. 96-97 RS.16 17 527/-. D. ADDITION DELETED ON A/E DIFF. IN BALANCE SHE ET MESCO AIRLINES & DIV. AY. 97-98 RS.14 84 560/-. 12. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 35 000/- & RS.9 31 925/- MADE ON ACCOUNT OF UNEXPLAINED IN 21 ST CENTURY LD. AND M/S MESCO LABORATORIES LTD. MADE ON THE BASIS OF SEIZED DOCUMENTS. 13. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 61 00 000/- & RS.13 50 000/- MADE ON ACCOUNT OF ARTIFICIAL BILL ING AND ALSO DELETED THE ADDITION OF RS.L 77 00 000/- MADE ON AC COUNT OF GIFT COUPONS TO THE IDBI OFFICIALS. 14. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 9 32 709/- MADE ON ACCOUNT OF EXPENSES ARE WHICH BILLS WERE NO T FURNISHED. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 4 15. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. LL 440/- MADE ON ACCOUNT OF EXPENDITURE CLAIMED TWICE. 16. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 20 07 075/- MADE U/S 40(A)(3).' 17. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 19 10 000/- MADE ON ACCOUNT OF INFLATION IN PURCHASES.' 18. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 29 000 MADE U/S 40(A) (3).' 19. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN DELETED THE ADDITION OF RS. 95 000/- MADE U/S 40(A)(3).' 20. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN REDUCING THE ADDITION OF RS .35 520/- TO RS.3 614/- MADE ON ACCOUNT OF SALE OF SCRAPED OUTSI DE BOOKS.' 21. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .8 33 185/- MADE ON ACCOUNT OF SALES NOT ENTERED IN THE BOOKS O F ACCOUNTS.' 22. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.L 18 74 860/- MADE ON ACCOUNT OF UNACCOUNTED SAL ES BY IGNORING THE FACT THAT THE ADDITION WAS MADE ON THE BASIS OF SEIZED PAPERS.' 23. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .L 33 700/- MADE U/S 40(A)(3).' 24. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .LL 59 407/- MADE ON ACCOUNT OF PAYMENT MADE TO INDIA TRADE PROM OTION ORGANIZATION FOR WHICH NO BILLS WERE PRODUCED.:' IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 5 25. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW D EDUCTION U/S 80HHC FOR THE A.Y. 1994-95 95-96 AND 96 -97 OF RS.68 92 723/- RS.L 00 82 183/- & RS.46 27 929/- RESPECTIVELY. ' 26. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .55 000/- MADE U/S 40(A)(3).' 27. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .6400/- MADE ON ACCOUNT OF NON-BILLING OF SHOES AT AHEMDABA D BRANCH.' 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS A DVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW MATERIA L AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. GROUND NO.1:- 2.1 THE RELEVANT FACTS ARE THAT THE ASSESSEE WA S SUBJECTED TO SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT AT ITS DIFFERE NT PREMISES AND ASSESSMENT U/S 158BC READ WITH SECTION 143(3) WAS F RAMED. OUT OF SEVERAL ADDITIONS ADDITION OF RS. 33 53 613/- BY WAY OF DI SALLOWANCE U/S 43B FOR THE ASSESSMENT YEAR 1996-97 WAS MADE AS UNDISCLOSED INCOME OF THE ASSESSEE. THE ASSESSEE CONTENDED THAT MISTAKENLY T HE SAME INCOME WAS DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME A S UNDISCLOSED INCOME AND THE ASSESSING OFFICER WITHOUT EXAMINING THE COMPUTA TION FILED BY THE ASSESSEE AND MAKING NECESSARY ADJUSTMENTS TO THE SA ME HAS MADE ADDITION OF THE SAID AMOUNT OF RS.33 53 613/-. IT WAS CONTE NDED THAT THE CONCLUSION OF THE ASSESSING OFFICER IN PROCEEDING TO ASSESS TH E DECLARED SUM OF RS.33 53 613/- IS BASED ON MISAPPRECIATION OF THE P ROVISIONS OF LAW. IT WAS SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAD ERRO NEOUSLY OFFERED THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 6 INCOME FOR TAXATION THE SAME CANNOT BE ASSESSED AS SUCH. RELIANCE WAS PLACED ON SEVERAL DECISIONS INCLUDING DECISIONS OF HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASES OF CIT VS. BHARAT GEN ERAL INSURANCE COMPANY LTD. 81 ITR 303 (DELHI) AND CIT VS. RAVI KANT JAIN 250 ITR 141 (DELHI). THE LD. CIT(A) CALLED FOR REMAND REPORT FROM THE ASSESS ING OFFICER (IN SHORT AO) ON THE SUBMISSION OF THE ASSESSEE AND THEREAFTER RE JOINDER BY THE ASSESSEE THERETO AND BEING CONVINCED WITH THE CONTENTIONS OF THE ASSESSEE HE HAS DELETED THE ADDITION IN QUESTION WHICH HAS BEEN IM PUGNED BY THE REVENUE IN THE GROUND UNDER CONSIDERATION. 2.2 IN SUPPORT OF GROUND THE LEARNED CIT DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED AR O N THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE. 2.3 CONSIDERING THE ABOVE SUBMISSION ESPECIALL Y HAVING GONE THROUGH THE ABOVE CITED DECISIONS OF HONBLE JURISDICTIONAL DELHI HIGH COURT WE HOLD THAT IT IS AN ESTABLISHED PROPOSITION OF LAW THAT I T IS INCUMBENT ON THE INCOME TAX DEPARTMENT TO FIND OUT WHETHER A PARTICU LAR INCOME WAS ASSESSABLE IN THE PARTICULAR YEAR OR NOT. MERELY B ECAUSE THE ASSESSEE HAS WRONGLY SHOWN AN INCOME IN ITS RETURN FOR A PARTICU LAR YEAR IT CANNOT BE CONFERRED ON THE DEPARTMENT TO TAX THAT INCOME IN T HAT YEAR EVEN THOUGH LEGALLY SUCH INCOME DID NOT PERTAIN TO THAT YEAR; [ CIT VS. BHARAT GENERAL INSURANCE COMPANY LTD. 81 ITR 303 (307) ]. IT IS A LSO AN ESTABLISHED POSITION OF LAW AND IT HAS BEEN HELD AS SUCH BY THE HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. RAVI KANT J AIN (SUPRA) THAT THE ASSESSING OFFICER WAS REQUIRED TO COMPUTE THE INCOM E OF AN ASSESSEE ACCORDING TO LAW AND MERELY BECAUSE THE ASSESSEE HA D ERRONEOUSLY OFFERED THE INCOME FOR TAXATION THE SAME CANNOT BE ASSESSE D AS SUCH AND HENCE THE ASSESSING OFFICER HAD FAILED TO APPRECIATE THAT DISALLOWANCES U/S 43B OF IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 7 THE ACT COULD NOT BE MADE IN BLOCK ASSESSMENT BUT O NLY IN REGULAR ASSESSMENTS AS THE DISALLOWANCE IS ON THE BASIS OF ENTRIES RECORDED IN BOOKS OF ACCOUNTS. RESPECTFULLY FOLLOWING THESE DECISION S OF THE HONBLE JURISDICTIONAL DELHI HIGH COURT AS WELL AS PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF JANTA TIMES VS. ACIT; 66 TTJ 695 (PUNE) AND OF COCHIN BENCH OF THE TRIBUNAL IN THE EASTERN RETREADS (P) LTD. VS. AC IT 66 TTJ 839 (COCHIN) THE LEARNED CIT(A) IN OUR OPINION HAS RIGHTLY COME TO THE CONCLUSION THAT AN ADDITION CANNOT BE MADE U/S 43B OF THE ACT IN A BLOCK ASSESSMENT AND ACCORDINGLY THE AMOUNT OF `33 53 613/- IN QUESTION CANNOT BE INCLUDED IN THE COMPUTATION OF INCOME AS UNDISCLOSED INCOME OF THE ASSESSEE. THE LEARNED CIT(A) WAS THUS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE AMOUNT FROM THE BLOCK ASSESSMENT FRAMED U/S 158BC/143(3) OF THE ACT. THE SAME IS UPHELD. GROUND NO.1 IS ACCOR DINGLY REJECTED. GROUND NO.2:- 3. THIS GROUND IS AGAINST THE RELIEF OF RS. 62 4 5 00 850/- GRANTED BY THE LEARNED CIT(A) BY DELETING THE SAME WHICH WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FOREIGN INCOME EARNED BY THE ASSESSEE. 3.1 IN SUPPORT OF THE GROUND LEARNED CIT-DR HAS B ASICALLY PLACED RELIANCE ON THE CONTENTS OF PAGE NO. 3 TO 5; PARA NO.4 OF TH E ASSESSMENT ORDER. SHE SUBMITTED THAT MERELY STATING THAT INCOME WAS E XEMPT FROM TAX U/S 90 OF THE INCOME-TAX ACT 1961 IS NOT SUFFICIENT ON TH E PART OF THE ASSESSEE TO CLAIM BENEFIT AVAILABLE UNDER THE PROVISIONS OF THA T SECTION. THE ASSESSEE NEEDS TO SPECIFY THE SPECIFIC PROVISION AND THE NAT URE OF RELIEF BEING CLAIMED BY IT TO WHICH IT FAILED TO. THUS THE ASSESSING OFFICER WAS HAVING NO OPTION BUT TO MAKE ADDITION OF RS.62 45 00 845/- ON ACCOUN T OF FOREIGN INCOME EARNED THROUGH ITS PERMANENT ESTABLISHMENT IN RUSSI A AND GERMANY. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 8 3.2 LEARNED AR ON THE OTHER HAND PLACED RELIAN CE ON THE FIRST APPELLATE ORDER. HE SUBMITTED THAT ISSUE RAISED IN THE GROUN D IS FULLY COVERED BY THE ORDER OF THE TRIBUNAL DATED 12.06.1998 IN THE CASE OF ASSESSEE ITSELF IN I.T.A. NOS. 4541/D/95 2840/D/96 AND 3086/D/97 FOR THE ASSESSMENT YEARS 1991-92 TO 1993-94; COPIES WHEREOF HAVE BEEN MADE A VAILABLE AT PAGES 65 TO 76 OF PAPER BOOK NO. I. HE SUBMITTED FURTHER TH AT SIMILAR VIEW ON THE ISSUE HAS BEEN EXPRESSED BY TRIBUNAL IN THE CASE OF ASSESSEE ITSELF VIDE ITS ORDER DATED 09.01.2009 FOR THE ASSESSMENT YEAR 1998 -99 IN I.T.A. NO. 638/D/07 A COPY WHEREOF HAS BEEN MADE AVAILABLE AT PAGE NOS. 1081 TO 1092 OF PAPER BOOK-III. THE LEARNED AR POINTED OUT FURTHER THAT THE ORDER OF THE TRIBUNAL ON THE ISSUE IN THE CASE OF ASSESSE E FOR ASSESSMENT YEAR 1998-99 HAS BEEN AFFIRMED BY THE HONBLE JURISDICTI ONAL DELHI HIGH COURT VIDE ITS JUDGMENT DATED 15.12.2009 IN I.T.A. NO.638 /D/07. THE LEARNED AR SUBMITTED THAT IN THAT JUDGMENT THE HONBLE DELHI HIGH COURT IN ITS ORDER HAS RECORDED A FINDING THAT REFERENCE PETITIONS FIL ED BY THE DEPARTMENT AGAINST THE DECISION OF THE TRIBUNAL DATED 12.06.19 98 FOR THE ASSESSMENT YEARS 1991-92 TO 1993-94 HAS BEEN RETURNED UN-ANSWE RED. LEARNED AR ALSO DREW OUR ATTENTION TO THE COMPARABLE CHART SH OWING STATEMENTS OF YEARWISE ASSESSMENT OF THE FOREIGN INCOME FOR THE A SSESSMENT YEARS 1990- 91 TO 1998-99 (PAGE NO.978 PB-II) AGREEMENT ENTER ED BETWEEN INDIA AND USSR (PAGE NOS.610 TO 625 - PB-II) AND AGREEMENT EN TERED BETWEEN INDIA AND GERMANY (PAGE NOS.626 TO 642 PB-II). THESE DOC UMENTS HAVE BEEN REFERRED TO BY THE LEARNED AR IN SUPPORT OF HIS SUB MISSION THAT SINCE ASSESSEE HAS A PERMANENT ESTABLISHMENT ( IN SHORT PE) IN USSR; AS SUCH INCOME EARNED BY THE ASSESSEE IN USSR WOULD NOT BE TAXABLE IN INDIA BY VIRTUE OF ARTICLE 7 OF DOUBLE TAXATION AVOIDANCE AG REEMENT (DTAA). HIS FURTHER CONTENTION REMAINED THAT THERE IS NO REQUIR EMENT IN LAW TO FURNISH PROOF OF FILING THE RETURN OR OF THE PAYMENT OF TAX ATION IN RUSSIA AND GERMANY. HE SUBMITTED THAT WHEN THE INCOME HAS NOT ACCRUED IN INDIA IN IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 9 LAW AND IS NOT TAXABLE THERE IS NO JUSTIFICATION T O DENY THE CLAIM MADE BY THE ASSESSEE. HE PLACED RELIANCE ON THE JUDGMENT O F HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. R.M. MUTHAIH; 202 ITR 508 (KARNATAKA) AND OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S.R.M. FIRMS 205 ITR 400 (MADRAS). HIS FURTHER CONTENTION REMAINED THAT THE ASSESSEE COMPANY HAD DULY DISCLOSED THE FOREIGN INCOME IN TH E RETURN OF INCOME FILED FOR VARIOUS YEARS IN THE PAST IN THE REGULAR COURSE . UNDER CHAPTER-XIVB ONLY UNDISCLOSED INCOME CAN BE BROUGHT TO TAX AND S UCH UNDISCLOSED INCOME MUST COME AS A RESULT OF SEARCH. IN SUPPORT HE CITED DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. RAVI KANT JAIN 250 ITR 141 (DELHI AND OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF SUNDER AGENCIES VS. DCIT 63 ITD 245 (MUMBAI). HE ALSO PLA CED RELIANCE ON THE LATER DECISIONS OF HONBLE JURISDICTIONAL DELHI HIG H COURT IN THE CASES OF COMMISSIONER OF INCOME-TAX V. VISHAL AGGARWAL [2006 ] 283 ITR 326 (DEL) AND NATIONAL AGRICULTURAL CO-OPERATIVE FEDERATION O F INDIA LTD. VS. JCIT 304 ITR (AT) 303 (DELHI). 3.3 CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE ISSUE RAISED IN THE GROUND UNDER CONSIDERATION IS FULLY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSM ENT YEARS 1991-92 TO 1993-94 (SUPRA) WHICH HAS BEEN AFFIRMED BY THE HON BLE JURISDICTIONAL DELHI HIGH COURT VIDE ITS JUDGMENT DATED 15.12.2009 (SUPR A). THE ASSESSING OFFICER MADE ADDITION OF RS.62 45 00 850/- I.E. FO REIGN INCOME EARNED BY THE ASSESSEE FROM RUSSIA AND GERMANY ON THE GROUND THAT THE ASSESSEE HAD NOT SPECIFIED THE SPECIFIC PROVISION U/S 90 UND ER WHICH THE EXEMPTION WAS CLAIMED AND THE NATURE OF RELIEF CLAIMED BY IT. THE CONTENTION OF THE ASSESSEE BASICALLY REMAINED THAT THERE WAS NO JUSTI FICATION TO BRING TO TAX THE FOREIGN INCOME EARNED BY THE ASSESSEE FROM PERM ANENT ESTABLISHMENT IN RUSSIA AND THAT IN THE BLOCK ASSESSMENT SUCH IN COME WHICH HAS NOT IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 10 BEEN DISCLOSED AND WHICH HAS BEEN DETECTED AS A RES ULT OF SEARCH CAN ONLY BE ASSESSED TO TAX. IN SUPPORT RELIANCE WAS PLACED ON SEVERAL DECISIONS AND ASSESSEE COMPANY HAD ALSO FILED THE FOLLOWING DOCUM ENTS:- S.NO. DOCUMENTS 1. DETAILS OF ITS FOREIGN OFFICES ALONG WITH THE PERMISSIONS/CERTIFICATES FROM VARIOUS INDIA GOVT. A GENCIES AND RUSSIAN GOVT. AGENCIES. 2. WRITTEN SUBMISSIONS CLAIMING THE EXEMPTION OF TH E FOREIGN INCOME. 3. ORDER OF HONBLE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1991-92 1992-93 & 1993-94. 4. STATEMENT OF YEAR-WISE PROFIT EARNED ABROAD AND S EGREGATION OF THE CONSOLIDATED PROFIT OF THE ASSESSEE COMPANY. 5. STATEMENT OF TAXES PAID ABROAD ALONG WITH COPIES OF PROOFS OF TAX PAYMENT. 6. COPY OF NECESSARY RESOLUTIONS. 7. COPY OF THE PROTOCOL OF THE NEGOTIATIONS WITH RU SSIAN COMPANY M/S MARI AGRO BUSINESS ENTERPRISES. 8. COPY OF RULES & REGULATIONS OF THE JOINT VENTURE . 9. COPY OF CERTIFICATE ISSUED BY MINISTRY OF FINANC E USSR 3.4 THE CONTENTION OF THE ASSESSEE ALSO REMAINED THAT THERE IS NO REQUIREMENT IN LAW TO FURNISH PROOF OF FILING THE R ETURN OR OF THE PAYMENT OF TAXES IN RUSSIA AND GERMANY AND IT IS NOT THE REQUI REMENT OF LAW THAT BEFORE CLAIMING THE AMOUNT AS NOT TAXABLE THE ASS ESSEE MUST ESTABLISH THAT IT HAD PAID THE TAX AND FILED THE RETURN OF IN COME IN RUSSIA AND GERMANY. WE FULLY AGREE WITH THIS CONTENTION OF TH E ASSESSEE THAT WHEN THE INCOME HAS NOT ACCRUED IN INDIA AND IS NOT TAXA BLE THERE IS NO JUSTIFICATION TO DENY THE CLAIM MADE BY THE ASSESSE E AS THE SAME IS FULLY SUPPORTED BY THE DECISIONS OF HONBLE KARNATAKA HIG H COURT IN THE CASE OF CIT VS. R.M. MUTHAIH (SUPRA) AND HONBLE MADRAS HIG H COURT IN THE CASE OF IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 11 CIT VS. S.R. FARMS (SUPRA). WE ALSO CONCUR WITH THE CONTENTION OF LD. AR THAT IT IS NOT REQUIRED FOR THE ASSESSEE TO PAY TAX IN FOREIGN COUNTRY IF IT WAS SHOWN THAT INCOME OF COMPANY WAS EXEMPTED UNDER DTA A. IN OTHER WORDS IN CASE WHERE SUBJECT IS ASSESSABLE TO TAX I N INDIA AND IS ALSO ASSESSABLE TO TAX IN ANY OTHER COUNTRY IN WHICH COU NTRY IT CARRIES ITS BUSINESS THROUGH A PERMANENT ESTABLISHMENT THE SUB JECT WOULD ONLY BE TAXABLE IN THAT COUNTRY UNLESS IT OPTS OTHERWISE. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE COMPANY HAD DULY DISCLOSED THE FO REIGN INCOME IN THE RETURNS OF INCOME FILED FOR VARIOUS ASSESSMENTS IN THE PAST IN THE REGULAR COURSE. THUS BEING NOT AN UNDISCLOSED INCOME THE SAME CANNOT BE BROUGHT TO TAX UNDER CHAPTER-XIV-B OF THE ACT. IN THIS REGARD WE FIND STRENGTH FROM THE ABOVE CITED DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. RAVI KANT JAIN (SUPRA) AND OTHERS WHEREIN THE RATIO HAS BEEN LAID DOWN THAT UNDER CHAPTER-XIV-B ONLY AN UNDISCLOSED INCOME CAN BE BROUGHT TO TAX AND SUCH UNDISCLOSED INCOME M UST COME AS A RESULT OF SEARCH. BESIDES AS DISCUSSED ABOVE THE ISSUE RAISED IN THE GROUND UNDER THE SIMILAR SET OF FACTS HAD ALREADY BEEN DEC IDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE CASE OF ASSESSEE IT SELF FOR THE ASSESSMENT YEARS 1991-92 TO 1993-94 AND 1998-99 (SUPRA) WHICH HAS BEEN APPROVED BY THE HONBLE JURISDICTIONAL DELHI HIGH COURT VIDE ITS JUDGMENT DATED 15.12.2009 (SUPRA). THE TRIBUNAL IN THOSE ASSESSME NT YEARS HAS HELD THAT SUCH FOREIGN INCOME IS NOT TAXABLE IN INDIA WHICH W AS EARNED BY THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 12 ASSESSEE FROM ITS PERMANENT ESTABLISHMENT IN RUSSIA KNOWN AS MARITA MESCO. IN ITS COMPUTATION OF INCOME FOR VARIOUS AS SESSMENT YEARS THE AMOUNT OF FOREIGN INCOME EARNED BY THE ASSESSEE WAS DULY SHOWN WITH A FOOT NOTE AS THE ASSESSEE COMPANY HAS EARNED INCOM E FROM ITS TRADING AND OTHER OPERATIONS AT ITS FOREIGN OFFICE ABROAD. THE INCOME FROM ITS BRANCH ABROAD IS TAXABLE IN TERMS OF TAX LAWS OF THAT COUN TRY. THE ASSESSEE COMPANY IS ENTITLED TO FOR RELIEF IN VIEW OF DOUBLE TAXATION AGREEMENT U/S 90 OF THE INCOME-TAX ACT 1961. THE RELEVANT EXTR ACTS OF THE ORDER DATED 12.6.1998 OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1991-92 TO 1993-94 (SUPRA) IS BEING REPRODUCED HEREUNDER :- 7. THE ASSESSEE IN THIS CASE IS A COMPANY RESIDENT IN INDIA. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS A BRANCH IN GER MANY AS WELL AS IN RUSSIA. THE DEFINITION OF PERMANENT ESTABLISHMENT UNDER BOTH THE AGREEMENTS INCLUDES A PLACE OF MANAGEMENT A BRANCH AN OFFICE AND A FACTORY ETC. THEREFORE THE ASSESSEE IS HAVING A PE RMANENT ESTABLISHMENT IN BOTH THE OTHER CONTRACTING STATES NAMELY GERMANY AN D RUSSIA. THESE BRANCH OFFICES FUNCTIONED INDEPENDENTLY AT THE RESP ECTIVE COUNTRIES AND THERE IS NO BUSINESS CONNECTION ON THE BASIS OF WHI CH IT CAN BE SAID THAT PART OF THE INCOME IS ATTRIBUTABLE TO THE INDIAN CO NNECTION. THE TURNOVER AND THE PROFIT OF THE BRANCH OFFICES ARE SEPARATELY ACCOUNTED FOR. THERE IS NO DISPUTE ABOUT THE AMOUNT OF INCOME OF BOTH THE F OREIGN BRANCHES. IN SUCH A CASE WE HAVE TO FOLLOW THE DECISION OF THE S PECIAL BENCH OF THE TRIBUNAL IN THE CASE OF P.A.V.L. KULANDAGAN CHETTIA R VS. ITO REFERRED TO ABOVE. AS THE PROVISIONS OF THE DTAA WITH THE FEDER AL REPUBLIC OF GERMAN AND THE RUSSIAN FEDERATION ARE EXACTLY THE SAME AS IN THE CASE OF MALAYSIA THIS VIEW WHICH WE ARE TAKING IS FORTIFIED BY THE D ECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. VR S.R.M. AND OTHERS (SUPRA) AND THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF R.M . MUTHAIAH (SUPRA). WE ACCORDINGLY DIRECT THE AO TO EXCLUDE THE FOREIGN IN COME OF THE ASSESSEE FOR BOTH THE YEARS. KEEPING IN VIEW OF THESE RELEVANT FACTS IN MIND WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 62 45 00 850/- IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 13 QUESTIONED IN THE GROUND UNDER CONSIDERATION. THE SAME IS UPHELD. THE GROUND NO.2 IS ACCORDINGLY REJECTED. GROUND NO.3:- 4. ON THE BASIS OF BALANCE SHEET AND PROFIT AN D LOSS ACCOUNT OF JOINT VENTURE OF ASSESSEE COMPANY AND ITS FOREIGN PARTNER M/S MARITA MESCO FOR THE FINANCIAL YEARS 1991-92 TO 1994-95 THE ASSESSI NG OFFICER MADE ADDITION OF RS.94 52 40 000/- AS UNDISCLOSED INCOME OF THE A SSESSEE. THE ASSESSING OFFICER MADE ADDITION WITH THIS FINDING THAT ASSESS EE WAS UNABLE TO EXPLAIN THE ALLEGED DIFFERENCE BETWEEN THE PROFITS ENTERED IN SEIZED DOCUMENT AND THE PROFITS DISCLOSED IN RETURN FROM M/S MARITA MES CO I.E. PE IN RUSSIA. DURING THE SEARCH ALLEGED BALANCE SHEETS AND PROFI T AND LOSS ACCOUNTS OF JOINT VENTURE BETWEEN THE ASSESSEE COMPANY AND ITS FOREIGN PARTNERS IN THE NAME OF MARITA MESCO FOR FINANCIAL YEARS 1992-93 TO 1995-96 WERE FOUND AND SEIZED. THE DETAILS OF ADDITION MADE IN DIFFER ENT ASSESSMENT YEAR ARE AS UNDER:- (` IN LACS) A.Y. PROFITS FROM MESCO MARITA AS PER ALLEGED SEIZED RECORDS. 50% SHARE OF ASSESSEE PROFIT AS SHOWN IN THE RUSSIAN OPERATION ADDITION MADE IN BLOCK ASSESSMENT 92-03 898.94 449.47 159.29 290.78 93-94 1753.90 876.95 143.41 733.54 94-95 2600.01 1300.01 23.74 1276.26 95-96 14594.94 7297.47 145.50 7151.82 TOTAL - - 9452.40 4.1 THE ASSESSING OFFICER NOTED THAT AUDITED BALANCE SHEET WAS SIGNED BY MS. RITA SINGH AUDITOR SHRI ANIL ROHATGI AND AU DITOR OF JOINT VENTURE. AGAINST THIS ADDITION THE CONTENTION OF THE ASSESS EE REMAINED THAT THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 14 FOREIGN INCOME EARNED FROM THE PERMANENT ESTABLISHM ENT IN RUSSIA WAS WRONGLY SHOWN UNDER THE HEAD GERMANY AND VICE-VER SA. WHEREAS WHILE MAKING THE ADDITION IN QUESTION ON ACCOUNT OF ALLEG ED DIFFERENCE INCOME SHOWN IN THE SEIZED DOCUMENT WAS ACTUALLY COMPARED WITH THE FOREIGN INCOME EARNED FROM GERMANY INSTEAD OF M/S MARITA ME SCO RUSSIA. AN APPLICATION U/S 154 WAS MOVED BEFORE THE ASSESSING OFFICER TO THIS EFFECT AND BEING SATISFIED WITH THE CONTENTION OF THE ASSE SSEE THE ASSESSING OFFICER VIDE HIS ORDER DATED 30.7.99 U/S 154 HAS RE CTIFIED THE MISTAKE. AS A RESULT OF THIS RECTIFICATION U/S 154 OF THE ACT TH E UNDISCLOSED INCOME OF THE ASSESSEE ON ACCOUNT OF UNDISCLOSED PROFITS OF M/S M ARITA MESCO HAS BEEN COMPUTED AND DISPUTED ADDITION HAS BEEN ACCORDINGLY RESTRICTED TO RS. 44 28 82 000/- AS AGAINST INITIAL ADDITION OF RS. 9 4 52 40 000/-. AGAINST THIS ADDITION THE CONTENTION OF THE ASSESSEE BEFORE THE LEARNED CIT(A) REMAINED AS UNDER:- A) IT WAS SUBMITTED THAT THE ADDITION IF ANY SHOU LD HAVE BEEN MADE OF RS.4427.82 LACS INSTEAD OF RS.4428.82 LACS SINCE THE ADDITION FOR ASSESSMENT YEAR 1993-94 SHOULD HAVE BEEN 364.77 LAC S INSTEAD OF RS.365.77 LACS. B) IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMP ANY HAD ENTERED INTO A JOINT VENTURE VIZ. 'MARITA MESCO' WI TH M/S MARI AGRO BUSINESS ENTERPRISE YOSHKAR-OLA CITY MARI ASSR (USSR) IN AUGUST 1990 FOR MANUFACTURING AND TRADING IN LEATHER PRODUCTS. THE COPIES OF NECESSARY RESOLUTIONS PASSED ALONG WITH THE PERMISSION OF THE MINISTRY OF COMMERCE FOR SETTING UP THE JOINT VENTURE ARE PLACED AT PAGE S 34-37 OF THE PAPER BOOK AND THE PROTOCOL OF NEGOTIATIONS WERE ALSO FIL ED. IT WAS SUBMITTED THAT THE VENTURE 'MARITA MESCO' IS REGISTERED AS ' ENTERPRISE' IN THE STATE REGISTER OF ENTERPRISES WITH FOREIGN INVESTMENTS ES TABLISHED IN RUSSIAN FEDERATION AND IS A LEGAL BODY AS PER RUSSIAN LAW CERTIFICATES TO THIS EFFECT WAS ISSUED BY THE MINISTRY OF FINANCE RUSSI A FEDERATION AND THE SHARE OF THE ASSESSEE COMPANY IN THE JOINT VENTURE WAS 50% AS HAS BEEN ADOPTED BY LEARNED DCIT. IT WAS FURTHER SUBMITTED T HAT OPERATIONS IN MARITA MESCO WAS CARRIED THROUGH A PERMANENT ESTABL ISHMENT IN RUSSIA INCOME OF WHICH IS NOT TAXABLE IN INDIA AND THEREF ORE THE ADDITION OF INCOME OF MARITA MESCO IN INDIA BECOME TOTALLY UTE1 EVANT AND UNSUSTAINABLE. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 15 C) IT WAS SUBMITTED THAT SINCE THE COPIES OF ALLEG ED SEIZED RECORDS ARE NOT AVAILABLE WITH THE ASSESSEE THE AS SESSEE IS NOT UNABLE TO MAKE DETAILED SUBMISSION IN SPITE OF THE FACT THAT THE ASSESSEE HAD FILED A LETTER DATED 20.05.2002 FOR OBTAINING A COPY OF SUC H DOCUMENTS. D) HOWEVER IT WAS SUBMITTED THAT SUCH SEIZED RECOR DS ONLY SHOW PROJECTION OF PROFITS EARNED ARE NOT THE CORRE CT PROFITS EARNED BY APPELLANT COMPANY. IT WAS SUBMITTED THAT THERE WAS NO JUSTIFICATION FOR THE ASSESSEE AT ANY STAGE TO UNDER STATE ITS PROFIT S PARTICULARLY IN VIEW OR THE FACT THAT ENTIRE INCOME. EARNED BY THE JOINT VE NTURE MARITA MECSCO WAS EXEMPTED AND HAS BEEN CLAIMED AS EXEMPT IN VIEW OF DTAA ENTERED INTO RUSSIAN GOVERNMENT. IN FACT HON'BLE TRIBUNAL HAS HELD THE SAME EXEMPT FOR ASSESSMENT YEAR 199192 1992-93 AND 199 3-94. FURTHER IT WAS STATED THAT THE PROFIT SHOWN IS NOTHING BUT PROJECT IONS IS EVIDENT FROM THE FACT THAT FIGURES FOR ASSESSMENT YEAR 1994-95 A RE HIGHER THAN PROFIT DISCLOSED. E) IT WAS FURTHER SUBMITTED THAT THE LEARNED DCIT' HIMSELF HAD NOT ADDED THE FOREIGN INCOME FOR THE ASSESSMENT YEA RS 1991-92 1992-93 AND 1993-94 WHILE FRAMING THE IMPUGNED ASSESSMENT O RDER IN VIEW OF THE IT AT ORDER AND HENCE IN ANY CASE THERE WAS NO JU STIFICATION TO INCLUDE SUM OF RS.750.95 LACS [RS.385.18 + RS.365.77] FOR ASSESSMENT YEAR 1991- 92 AND ASSESSMENT YEAR 1992-93 AS UNDISCLOSED INCOM E OF THE ASSESSEE. F) IN RESPECT OF ADDITION OF RS.3677.87 LACS FOR A SSESSMENT YEAR 1995-96 IT WAS SUBMITTED THAT THE SAID ADDITIO N HAS BEEN MADE FOR THE ASSESSMENT YEAR 1995-96. IN THIS CONNECTION IT WAS SUBMITTED THAT THE FOREIGN INCOME IN RESPECT OF THIS ASSESSMENT YEAR W AS DULY DISCLOSED BY ASSESSEE IN ITS REGULAR RETURN FOR ASSESSMENT YEAR 1995-96 WHEREIN INCOME FROM M/S MARITA MESCO HAS CLAIMED AS EXEMPT IN VIEW OF DTAA. THIS CLAIM WAS ACCEPTED BY DEPARTMENT VIDE AN ORDER OF A SSESSMENT U/S 143(3) OF THE ACT DATED 30.03.1998 AND AS A RESULT THEREOF THE ENTIRE INCOME DISC1OSED BY ASSESSEE OF RS.36.19 CRORE WAS ALLOWED AND EXEMPTED. IN VIEW THEREOF IT WAS SUBMITTED THAT IN THE REGULAR A SSESSMENT PROCEEDINGS THE CLAIM AS TO WHETHER SUCH INCOME FROM JOINT VENT URE RUSSIA IS TAXABLE OR NOT STOOD DECIDED IN AS MUCH AS THE INCOME DECLA RED TO THE EXTENT OF RS.3619.50 LACS WAS HELD AS INCOME NOT TAXABLE UNDE R THE PROVISIONS OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE INSTANT ADDITION OF RS.3677.87 LACS REPRESENTS DIFFERENCE BETWEEN THE PROFITS ALLE GEDLY DISCLOSED AS PER THE SEIZED RECORDS I.E RS.7297.32 LACS AND PROFIT DULY DISCLOSED IN RETURN OF INCOME I.E. RS.3619.50 LACS WHICH IS EQUIVALENT TO RS.3677.87 LACS. IT WAS THUS SUBMITTED THAT ONCE IT IS HELD IN REGULAR ASSESSMENT PROCEEDINGS THE INCOME OF PARTICULAR NATURE IS EXEMPTED THEN IR RESPECTIVE OF SUCH INCOME THE LEARNED DCIT HAS NO JURISDICTION TO ASSE SS THE AMOUNT IN THE BLOCK ASSESSMENT PROCEEDINGS WHERE BY ONLY UNDISCLO SED INCOME FOUND AND DETECTED AS A RESULT OF SEARCH CAN BE EXAMINED. RELIANCE IS PLACED ON IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 16 THE DECISION OF HON'BLE BOMBAY BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF SUNDER AGENCIES VS. DCIT REP ORTED IN 63 ITD 245 WHEREIN AT PAGE 257 IT HAS BEEN HELD AS UNDER: 'UNDER THE PROVISIONS OF THIS CHAPTER THE UNDISCLOS ED INCOME DETECTED AS A RESULT OF SEARCH INITIATED OR REQUISI TION MADE AFTER 30.06.1995 BE ASSESSED SEPARATELY AS INCOME O F THAT BLOCK OF 10 PREVIOUS YEARS. THE PROVISION WAS INTRO DUCED TO STREAMLINE THE PROCEDURE CONCERNING THE SEARCH MATT ERS. IT IS ABUNDANTLY CLEAR FROM THE PERUSAL OF THE PRESCRI PTION OF SECTION 158BA THAT WITHIN THE PALE OF CHAPTER XIV-B THE ASSESSMENT COULD BE MADE ONLY IN RESPECT OF THE DIS CLOSED INCOME. SUCH DISCLOSED INCOME MUST COME AS A RESULT OF SEARCH. THIS SECTION DOES NOT PROVIDE A LICENSE TO THE REVENUE FOR MAKING ROVING ENQUIRIES CONNECTED WITH THE COMPLETED ASSESSMENTS. IT IS BEYOND THE POWER OF TH E ASSESSING OFFICER TO REVIEW THE ASSESSMENT COMPLETE D UNLESS SOME DIRECT EVIDENCE COME TO THE KNOWLEDGE OF THE DEPARTMENT AS RESULT OF SEARCH WHICH INDICATE CLEA RLY THE FACTUM OF UNDISCLOSED INCOME. WITHOUT SUCH EVIDENCE OR MATERIAL THE ASSESSING OFFICER IS NOT EMPOWERED TO DRAW ANY PRESUMPTION AS TO THE EXISTENCE OF DISCLOSED INCOME .' IT WAS SUBMITTED THAT IN THE SAME VERY JUDGMENT IN PARA 19 THE H0I1'HLE TRIBUNAL HAS FURTHER OBSERVED THAT IT IS NOT ANY AN D EVERY INCOME WHICH CAN BE CALLED TO BE THE UNDISCLOSED INCOME AND RELY ING UPON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF L.R. GUPTA REPORTED IN 194 ITR 32 IT HAS HELD THAT THE INCOME WHICH IS HIDDEN FROM THE DEPARTMENT IS UNDISCLOSED INCOME. SUBMITTED THAT IT HAS BEEN H ELD IN THE CASE OF PARKASH FOOD LTD VS. DCIT REPORTED AT 64 ITD 396 A T PAGE 398 THAT: 'REPETITION IT IS CLARIFIED IF THE ASSESSEE HAS DIS CLOSED THE PARTICULARS OF INCOME BEFORE THE DATE OF SEARCH AND THE A.O. DRAWN AN ADVERSE INFERENCE AND INTENDS TO ASSESS TH E SAME AS INCOME THEN SUCH INCOME CANNOT BE TREATED AS UNDISCLOSED INCOME. FOR EXAMPLE THE ASSESSEE MAY C LAIM A PARTICULAR RECEIPT IS NOT TAXABLE OF MAY CLAIM PART ICULAR EXPENDITURE AS ALLOWABLE DEDUCTION UNDER THE PROVIS IONS OF INCOME TAX ACT 1961. IN SUCH CASES IF THE ASSESSE E HAS DISCLOSED THE PARTICULARS OF SUCH INCOME OR EXPENDI TURE AND THE ASSESSING OFFICER INTENDS TO TAKE A DIFFERENT V IEW THEN SUCH INCOME CAN NOT BE TERMED AS UNDISCLOSED INCOME THOUGH THE SAME MAY BE CONSIDERED FOR INCLUSION IN THE TOTAL INCOME DURING THE COURSE OF REGULAR ASSESSMENT OR R E- ASSESSMENT AS THE CASE MAY BE IN ACCORDANCE WITH L AW.' IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 17 ON THE BASIS OF AFORESAID THE APPELLANT SUBMITTED T HAT ONCE THE REVENUE HAD HELD THAT NATURE OF INCOME FROM M/S MARITA MESC O HAS BEEN HELD TO BE EXEMPT IN REGULAR ASSESSMENT PROCEEDINGS THEN TH ERE IS NO BASIS UNDER THE CHAPTER XIV B OF THE ACT TO CHANGE AN OPINION WHICH WAS ONCE HELD BY THE ASSESSING OFFICER. THEREFORE THE ENTIRE INCOM E EARNED FROM M/S MARITA MESCO FOR ASSESSMENT YEAR 1995-96 SHOULD ALS O BE HELD AS EXEMPTED WHETHER THE QUANTUM OF SUCH PROFIT BE RS.7 297.32 LACS OR RS.3619.50 LACS. IN VIEW OF THE AFORESAID BASIS TH E ADDITION MADE WAS PRAYED TO BE DELETED. 4.2 BEING CONVINCED WITH THE ABOVE SUBMISSIONS OF THE ASSESSEE THE LEARNED CIT(A) HAS DELETED THE ADDITION. 4.3 IN SUPPORT OF THE GROUND LEARNED DR HAS BA SICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE RELIEF GIVEN BY THE LEARNED CIT(A). HE ALSO RE ITERATED SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BE LOW. THE LEARNED AR ALSO REFERRED PAGE NOS. 831 OF PB-II I.E. COPY OF THE L ETTER TO THE ASSESSEE REQUESTING FOR SUPPLYING THE BALANCE SHEET AND PROF IT AND LOSS ACCOUNT ETC.; PAGE NO.3 TO 5 PB-I I.E. COPY OF THE ORDER DATED 3 0.7.99 PASSED BY THE ASSESSING OFFICER; PAGE NOS. 581 TO 582/PB-II I.E. COPIES OF NECESSARY RESOLUTIONS PASSED BY THE ASSESSEE FOR ENTERING INT O JOINT VENTURE; PAGE NO.37 PB-I I.E. PERMISSION OF MINISTRY OF COMMERCE FOR SETTING UP THE JOINT VENTURE; PAGE NOS. 583 TO 605/PB-II I.E. COPY OF PROTOCOL OF NEGOTIATION ALONG WITH THE RULES AND REGULATIONS; PAGE NO.16/PB -I; COPY OF QUESTION NO.13 OF DETAILED QUESTIONNAIRE DATED 15.7.98; PAGE NOS. 60 TO 64/PB-I COPY OF LETTER DATED 14.12.98 AND PAGE NOS. 78 TO 8 3/PB-I I.E COPY OF COMPLETE BREAK UP OF THE PROFIT AS SHOWN IN ANNUAL RETURN. 4.4 HAVING GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW IN VIEW OF ABOVE SUBMISSION WE FIND THAT THE ASSESSEE HAD CAR RIED ON THE BUSINESS IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 18 OPERATION THROUGH THE JOINT VENTURE M/S. MARITA MES CO IN RUSSIA. THE FOREIGN INCOME AS SUCH WAS HELD TO BE EXEMPT IN ASS ESSMENT YEARS 1992-93 AND 1993-94 BY THE AO IN THE CASE OF THE PRESENT AS SESSEE ITSELF WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL HENCE THE LEARNED CIT(A) HELD THAT THERE WAS NO JUSTIFICATION IN BRINGING TO TAX ANY AMOUNT IRRESPECTIVE OF THE AMOUNT TO TAX AS UNDISCLOSED INCOME. WE DO NOT FIND ANY INFIRMITY IN THIS FINDING OF LEARNED CIT(A). THE ADDITION FOR T HE ASSESSMENT YEAR 1994- 95 AS DISCUSSED ABOVE HAS BEEN RECTIFIED AS NIL IN THE ORDER PASSED U/S 154 BY THE ASSESSING OFFICER ON 30.7.99. LIKEWISE THE OBSERVATION OF THE LEARNED CIT(A) THAT IN THE ASSESSMENT YEAR 1995-96 THE FOREIGN INCOME EARNED THROUGH M/S MARITA MESCO HAS BEEN ACCEPTED A S EXEMPT IN THE REGULAR ASSESSMENT FRAMED U/S 143(3). THUS THE LEA RNED CIT(A) HAS RIGHTLY HELD THAT IN MAKING ADDITION OF FOREIGN INCOME FOR THE ASSESSMENT YEAR 1995-96 WOULD CONSTITUTE A CHANGE OF OPINION AND SU CH ADDITION WOULD BE IMPERMISSIBLE UNDER CHAPTER-XIV-B OF THE ACT. WE F ULLY CONCUR WITH THE VIEW OF THE LEARNED CIT(A) THAT UNLESS IT IS ESTABL ISHED THAT FOREIGN INCOME WAS UNDISCLOSED AND THE SAME WAS TAXABLE ADDITION ON THIS ACCOUNT CANNOT BE MADE IN THE PROCEEDINGS UNDER CHAPTER-XIV-B OF T HE ACT. CONSIDERING THESE RELEVANT ASPECTS OF THE MATTER WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 44 28 82 000/-. THE ACTION OF THE LEARNED CIT(A) IN THIS REGARD IS UPHELD. IN RE SULT GROUND NO.3 IS REJECTED. GROUND NO.4:- 5. THE DELETION OF ADDITION OF RS. 36 00 000 /- BY THE LEARNED CIT(A) HAS BEEN QUESTIONED BY THE REVENUE IN THIS GROUND. THE ASSESSING OFFICER MADE ADDITION OF RS. 36 00 000/- LACS ON ACCOUNT OF DIFFERENCE IN INVESTMENT IN MESCO MAURITIUS IN ASSESSMENT YEAR 19 95-96. THE ASSESSING IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 19 OFFICER MADE THE ADDITION ON ACCOUNT OF DIFFERENCE IN INVESTMENT IN MESCO MAURITIUS ON THE BASIS OF DOCUMENTS SEIZED AS PER A NNEXURE B-8/AA-4 AND B-8/AA-69 ALLEGED TO BE WRITTEN BY MR. ANIL ROHATGI PARTNER THE AUDITORS OF THE ASSESSEE COMPANY M/S A.R. AND ASSOCIATES. THE FINANCIAL STATEMENTS OF M/S MESCO MAURITIUS LTD. WERE PREPARED BY M/S BA CHA & BACHA CAS (AUDITORS) 21 JULES KOENIG STREET PORT LOUIS AND W ERE ALSO UNSIGNED. NOTING FINANCIAL FIGURES SHOWN IN THE FINANCIAL STA TEMENTS OF M/S MESCO MAURITIUS LTD. AND THE POSITION AS PER ANNUAL REPOR TS FURNISHED AND THE ACCOUNTS SUBMITTED AS PER THE RETURN OF INCOMES OF THE ASSESSEE GIVEN A DIFFERENT PICTURE AS REGARDS TO FUNDING OF THE INVE STMENT ACTIVITY AT M/S MESCO MAURITIUS LTD. THE ASSESSING OFFICER ALSO TA BULATED THE FIGURES SHOWN IN THE ANNUAL REPORTS OF THE ASSESSEE COMPANY . THE ASSESSING OFFICER FURTHER EXTRACTED THE CONTENTS OF THE SEIZE D LETTER ALLEGED TO BE WRITTEN BY MR. ROHTAGI AND NOTED THAT AS ON 30.09.1 994 AN INVESTMENT OF RS.57.2 LACS (MAURITIUS `) HAD BEEN SHOWN IN THE AC COUNT OF M/S MESCO MAURITIUS LTD. FROM THE ASSESSEE COMPANY BUT ONLY R S. 3.17 LACS (MAURITIUS ` APPEAR IN THE ACCOUNTS OF THE ASSESSEE COMPANY). ON THESE BASIS THE ASSESSING OFFICER PROCEEDED TO CONCLUDE THAT CERTAI N ADJUSTMENT HAD BEEN CARRIED OUT IN THE BALANCE SHEET OF ASSESSEE SHOWIN G SUCH AMOUNT TO BE EARNED OUT OF THE TRADING CARRIED OUT AT MAURITIUS. THE ASSESSING OFFICER HELD FURTHER THAT NO SUCH DETAILS OR TRADING ARE AV AILABLE FOR THE REASON THAT NO SUCH TRADING HAS TAKEN PLACE AND THEREFORE THE AMOUNT OF INVESTMENT HAD APPARENTLY BEEN INVESTED OUTSIDE THE BOOKS AT M AURITIUS. HE ACCORDINGLY MADE AN ADDITION TO THE UNDISCLOSED INC OME OF THE ASSESSEE OF THE AMOUNT OF MAURITIUS RS.54.04 LACS EQUIVALENT TO RS.36 LACS (CONVERTED AT THE EXCHANGE RATE PREVALENT AT THAT TIME AS ON 3 1.03.1995) FOR THE FINANCIAL YEAR 1994-95 RELEVANT TO ASSESSMENT YEAR 1995-96. THIS ACTION OF THE ASSESSING OFFICER WAS QUESTIONED BY THE ASSESSE E BEFORE THE LEARNED IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 20 CIT(A) AND BEING CONVINCED WITH THE SUBMISSION OF T HE ASSESSEE IN THIS REGARD THE LEARNED CIT(A) HAS DELETED THE ADDITION . 5.1 IN SUPPORT OF THE GROUND THE LEARNED DR HAS PLACED RELIANCE ON THE ASSESSMENT ORDER WHEREAS THE LEARNED AR HAS TR IED TO JUSTIFY FIRST APPELLATE ORDER ON THE ISSUE. HE ALSO REFERRED COP IES OF APPROVAL LETTERS FROM RBI AND FROM DEPARTMENT OF COMPANIES AFFAIRS MADE AVAILABLE AT PAGE NOS. 88 TO 94 OF PB-I ; COPIES OF SEIZED DOCUM ENTS MADE AVAILABLE AT PAGE NOS. 645 TO 665 OF PB-II; COPY OF LETTER DATED 14.12.98 OF THE ASSESSEE COMPANY MADE AVAILABLE AT PAGE NO.62 OF P B-I COPIES OF DOCUMENTS REGARDING THE FURNISHING DETAILS OF THE I NVESTMENTS MADE IN MESCO MAURITIUS LTD. BY WAY OF PLANT AND MACHINERY ALONG WITH RBI PERMISSION FOR OPENING THE SUBSIDIARY COMPANY (PAGE NOS. 88 TO 94 OF PB- I) AND COPY OF RELEVANT PART OF PAGE NO.2 OF THE L ETTER DATED 19.3.96 MADE AVAILABLE AT PAGE NO.646 OF PB-II. 5.2 HAVING GONE THROUGH THE ORDERS OF THE AUT HORITIES BELOW WE FIND THAT AGAINST THE ADDITION IN QUESTION THE EXPLANAT ION OF THE ASSESSEE REMAINED THAT M/S MESCO MAURITIUS LTD. IS A SUBSIDI ARY COMPANY OF THE ASSESSEE INCORPORATED AND REGISTERED IN 1992 IN MAU RITIUS UNDER THE COMPANIES ACT 1984 OF MAURITIUS. UNDER THE AGREEM ENT APPROVED BY THE RBI THE ASSESSEE COMPANY WAS TO CONTRIBUTE 95% OF THE EQUITY WHEREAS THE BALANCE AGAINST 5% WAS TO BE CONTRIBUTED BY THE FOREIGN PARTNER THAT IS GOVERNMENT OF MAURITIUS. THE EQUITY WAS TO BE CONT RIBUTED BY THE ASSESSEE COMPANY EITHER IN THE SHAPE OF MACHINERY SERVICES OR ANY OTHER KIND AS EVIDENT FROM THE AGREEMENT APPROVED BY RBI. THE FI NANCIAL YEAR ADOPTED BY M/S MESCO MAURITIUS LTD. FOR THE PREPARATION OF BALANCE SHEET AND CLOSURE OF BOOKS OF ACCOUNTS WAS 1 ST OCTOBER TO 30 TH SEPTEMBER OF EACH YEAR. WITH THE ASSISTANCE OF BALANCE SHEET OF M/S MESCO MAURITIUS LTD. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 21 MADE AVAILABLE AT PAGE NOS. 645 TO 665 PB-II AND O THER SEIZED DOCUMENTS THE ASSESSEE SUBMITTED THAT THESE PAGES ARE UNSIGNE D AND AS SUCH NO RELIANCE CAN BE PLACED ON IT. THE FURTHER CONTENTI ON OF THE ASSESSEE REMAINED THAT THERE WAS NO UNEXPLAINED INVESTMENT I N SUCH COMPANY AS THERE WERE ONLY DIFFERENCE BETWEEN BALANCES. IN TH IS REGARD ATTENTION WAS DRAWN TO PARA NO.3 OF PAGE 64 B-8/AA-56 MADE AVAILA BLE AT PAGE NO.645 OF PB-II RELEVANT EXTRACTS OF WHICH ARE PRODUCED HERE UNDER:- 3. WE TRIED TO RECONCILE THE FIGURES OF BALA NCE SHEET AS ON 30.09.1994 YOU WILL OBSERVE THAT ASSETS AND LIAB ILITIES AS SUBMITTED IN YOUR BALANCE SHEET AND AS ANNEXED TO T HE BALANCE OF MIL THE ASSETS AND LIABILITIES ARE THE S AME. WE HAVE IN ORDER TO RECONCILE TO ALL FIGURES MADE CERT AIN ADJUSTMENTS. A) THE INTANGIBLE ASSETS ARE ADDED TO THE PREOPERATIONAL EXPENSES WE COULD NOT UNDERSTAND THE NATURE OF INTANGIBLE ASSETS IN THE ABSENCE OF ANY EXPLANATION WE HAVE ADDED TO THE PREOPERATIVE EXPENSES. B) THE CAPITAL CONTRIBUTION AS PER THE MIL NEW DELHI RECORDS WAS RS.3.17 LACS IN ORDER TO RECONCILE THE AMOUNT OF FINANCE OF TOTAL OF RS. 57.20 LACS WE HAD SHOWN A PROFIT OF RS.54.03 LACS IN THE TRADING OPERATIONS WHICH WE ASSUME THAT WHATEVER THE AMOUNT WAS INDUCTED OTHER THAN THE PART OF SHARE CAPITAL AS PER MIL RECORD IS OUT OF THE PROFIT OF THE TRADING OPERATIONS 3. WE STILL TRY TO RECONCILE THE FIGURES AS S HOWN IN YOUR BALANCE SHEET AS ON 30.09.1995. THE TOTAL SHARE CAPITAL CONTRIBUTION AS PER MIL RECORD IS CORRECTLY SHOWN AS 246.31. THE PROFIT OF RS.54.04 LACS WHICH WE EARNED DURING THE YEAR 1993-94 WAS ALSO SHOWN AS INVESTMENT IN ASSET. 5.3 FURTHER SUBMISSION OF THE ASSESSEE REMAINED T HAT FINANCIAL YEAR OF THE ASSESSEE COMPANY IS YEAR ENDING ON 31 ST MARCH EACH YEAR BUT THAT OF M/S MESCO MAURITIUS LTD. IS YEAR ENDING ON 30 TH SEPTEMBER. THE BALANCE SHEET OF M/S MESCO MAURITIUS LTD. FOR THE YEAR ENDING 30 TH SEPTEMBER IS INCORPORATED IN THE ANNUAL REPORT OF THE ASSESSEE C OMPANY FOR THE FINANCIAL IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 22 YEAR ENDING ON 31 ST MARCH OF THE NEXT CALENDAR YEAR. IT WAS SUBMITTED THAT DUE TO DIFFERENT FINANCIAL YEARS OF THE TWO COMPANI ES THE ASSESSEE COMPANY WAS NOT ABLE TO RECONCILE THE INVESTMENT IN M/S MESCO MAURITIUS LTD. AS APPEARED IN THE BOOKS OF ACCOUNT OF THE ASS ESSEE COMPANY AND THE AMOUNT OF SHARE CAPITAL HAS SHOWN IN THE BALANCE SH EET OF M/S MESCO MAURITIUS LTD. AUDITED BY M/S BACHA & BACHA CAS A S ON 30.09.1994. THE DIFFERENCE OF MAURITIUS RS. 54.04 LACS SO ARISEN WA S INADVERTENTLY TAKEN AS PROFIT EARNED IN MAURITIUS FOR THE PURPOSE OF DISCL OSING THE RESULTS OF M/S MESCO MAURITIUS LTD. IN THE ANNUAL REPORT OF THE AS SESSEE. HOWEVER THERE WAS NO DIFFERENCE IN THE INVESTMENT MADE BY THE ASS ESSEE COMPANY IN M/S MESCO MAURITIUS LTD. AND THE SHARE CAPITAL OF M/S M ESCO MAURITIUS LTD. SUBMITTED BY THE ASSESSEE. THIS FACT WAS SUPPORTED WITH THE EVIDENCE FROM THE FOLLOWING TABLES PREPARED BY THE ASSESSING OFFI CER:- THE FINANCIAL STATEMENT OF M/S MESCO MAURITIUS LTD . (FIGURES IN MAURITIUS RUPEES) F.Y. FIXED ASSETS NET CURRENT ASSETS TOTAL ASSETS FINANCED SHARE CAPITAL BY PROFITS 30.9.92 24 124/- 25 000/- 49 140/- 49 140/- NIL 30.9.93 21 57 247/- (-)83 089/- 20 74 158/- 20 74 1 58/- NIL 30.9.94 41 57 290/- 15 63 191/- 57 20 481/- 57 20 4 81/- NIL 30.9.95 2 42 86 901/- 3 44 180/- 2 46 31 081/- 2 46 31 081/- NIL THE FINANCIAL STATEMENT OF M/S MESCO MAURITIUS LTD . (FIGURES IN MAURITIUS RUPEES -LACS) F.Y. FIXED ASSETS NET CURRENT ASSETS TOTAL ASSETS FINANCED SHARE CAPITAL BY PROFITS 30.9.92 0.24 0.25 0.49 0.49 NIL 30.9.93 0.66 (-)0.41 0.25 0.25 NIL 30.9.94 41.57 15.63 57.20 3.16 54.03 30.9.95 296.91 3.44 300.35 246.31 54.03 5.4 WITH THE ASSISTANCE OF ABOVE TABLE IT WAS S UBMITTED THAT AS ON 30.09.1995 THE AMOUNT OF SHARE CAPITAL IN THE BALAN CE SHEET OF M/S MESCO IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 23 MAURITIUS LTD. AUDITED BY M/S BACHA & BACHA CAS IS THE SAME AS THE INVESTMENT MADE BY THE ASSESSEE COMPANY AND AMOUNT OF SHARE CAPITAL SHOWN IN THE BALANCE SHEET OF M/S MESCO MAURITIUS L TD. IN THE ANNUAL RETURN OF THE ASSESSEE COMPANY. THE FURTHER SUBMISSION OF THE ASSESSEE COMPANY REMAINED THAT EVEN THE LETTER ALLEGEDLY WRITTEN BY MR. ANIL ROHTAGI (THOUGH THE SAID IS SERIOUSLY DISPUTED) AND AS EXTRACTED AB OVE SUBSTANTIATE THE SUBMISSION OF THE ASSESSEE. IT WAS SUBMITTED THAT THE PROFIT OF MAURITIUS RS.54.03 LACS EARNED BY M/S MESCO MAURITIUS LTD. IN MAURITIUS AS SHOWN IN THE ANNUAL REPORT OF THE ASSESSEE COMPANY WAS ACTUA LLY THE DIFFERENCE ON ACCOUNT OF RECONCILIATION BETWEEN THE ASSESSEES RE CORD AND THE SHARE CAPITAL OF M/S MESCO MAURITIUS LTD. WHICH WAS INADV ERTENTLY ASSUMED AS PROFIT. IT WAS SUBMITTED FURTHER THAT THERE WAS AC TUALLY NO DIFFERENCE IN THE SHARE CAPITAL CONTRIBUTION AS PER ASSESSEES RECORD AND THAT OF M/S MESCO MAURITIUS LTD. AS ON 30.09.1995 THEREFORE THERE W AS NO INVESTMENT IN M/S MESCO MAURITIUS LTD. OUTSIDE THE BOOKS BUT THERE WA S SOME DIFFERENCE ON ACCOUNT OF PENDING RECONCILIATION AS ON 30.09.1994 WHICH WAS SUBSEQUENTLY RECONCILED. THE CONTENTION OF ASSESSEE ACCORDINGLY REMAINED THAT THE ADDITION WAS MADE WITHOUT APPRECIATION OF THE FACTS. 5.5 CONSIDERING THE ABOVE SUBMISSION WE A RE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY COME TO THE CONCLUSION T HAT THE ADDITION CANNOT BE SUSTAINED MERELY ON THE BASIS OF THE DOCUMENTS R ELIED UPON BY THE ASSESSING OFFICER AND THE LETTER FROM SHRI ANIL ROH TAGI WHICH WAS UNSIGNED AND WHICH CLARIFICATION ON THE SUBJECT WAS NOT OBTA INED. THE OBSERVATION OF THE LEARNED CIT(A) THAT DIFFERENCE BETWEEN THE FIGU RES OF SHARE CAPITAL AS ON 30.09.1995 AS PER THE STATEMENTS AND AS PER THE BALANCE SHEET OF THE ASSESSEE HAS NOT BEEN REBUTTED BY THE REVENUE BEFOR E US. WE NOTED FURTHER THAT IN THE ABSENCE OF RECONCILIATION FIGU RES WERE ADOPTED IN THE STATEMENTS BUT THAT IN ITSELF DOES NOT LEAD TO ANY CONCLUSION OF INVESTMENT IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 24 OUTSIDE THE BOOKS MAINTAINED BY THE ASSESSEE. THE DIFFERENCE OF MAURITIUS RS.54.3 LACS IN ANY CASE HAS BEEN SHOWN AS PROFIT. UNDER THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY COME TO THE CONCLUSION THAT NO ADDITION IS WARRANTED AND WAS JUSTIFIED IN DELETING THE ADDITION OF RS.36 LACS IN THIS REGARD. GROUND NO.4 IS ACCORDINGLY REJECTED. 6.GROUND NO.5:- THE REVENUE HAS QUESTIONED ACTION OF LEAR NED CIT(A) WHEREBY HE HAS GIVEN A RELIEF OF RS.1 37 62 600/- TO THE ASSES SEE WHICH WAS ADDED BY THE ASSESSING OFFICER ON ACCOUNT OF LOAN FROM M/S K ERSORAM REFRACTORY. THE RELEVANT FACTS ARE THAT THE ASSESSING OFFICER N OTED THAT M/S KERSORAM REFRACTORY A PROPRIETORSHIP CONCERN OF SHRI DEEPAK SINGH NEPHEW OF THE DIRECTOR/CHAIRMAN OF THE ASSESSEE COMPANY HAD GIVEN A LOAN OF RS.1 37 62 600/- TO THE ASSESSEE COMPANY. THE ASSE SSING OFFICER NOTED FURTHER THAT MID EAST INTEGRATED STEAL LTD. (MISL) W AS SANCTIONED A LOAN OF RS.1 68 41 547/- FROM M/S ASHOK LEYLAND AGAINST PUR CHASE OF MACHINERY FROM M/S KERSORAM REFRACTORY AND THE AMOUNT WAS DI SBURSED BY M/S ASHOK LEYLAND TO M/S KERSORAM REFRACTORY. HOWEVER NO MACHINERY WAS SUBSEQUENTLY PURCHASED BY THE MISL. THE FUND THUS AVAILABLE WITH M/S KERSORAM REFRACTORY WAS FURTHER DISTRIBUTED WITH CA SH TO SHRI J.K. SINGH OF RS.15 72 600/- AND BY GIVING A LOAN TO THE ASSESSEE COMPANY OF RS.1 37 62 600/-. THE ASSESSING OFFICER ALSO NOTED THAT RS.15 72 600/- HAS BEEN SURRENDERED BY SHRI J.K. SINGH IN HIS BLOCK RE TURN AS UNDISCLOSED INCOME. THE ASSESSING OFFICER THEREFORE PROCEEDE D TO ADD THIS AMOUNT TO THE UNDISCLOSED INCOME OF THE ASSESSEE COMPANY ON T HE BASIS THAT NO AMOUNT WAS INTENDED TO BE PAID BACK TO M/S KERSORAM REFRACTORY AND BY M/S KERSORAM REFRACTORY TO M/S ASHOK LEYLAND. THE LEARNED CIT(A) HAS IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 25 HOWEVER DELETED THE ADDITION BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. THIS ACTION OF THE LEARNED CIT(A) HAS BE EN QUESTIONED BY THE REVENUE BEFORE THE TRIBUNAL. 6.1 IN SUPPORT OF THE GROUND THE LEARNED DR HAS BA SICALLY PLACED RELIANCE ON THE ASSESSMENT YEAR. HE HAS REFERRED CONTENTS O F PARA NO.9 OF THE ASSESSMENT ORDER WITH THIS SUBMISSION THAT THE ASSE SSEE WAS HAVING NO INTENTION TO PAY BACK THE AMOUNT OF RS.37 62 600/- IN QUESTION TO M/S KERSORAM REFRACTORY HENCE THE ASSESSING OFFICER W AS JUSTIFIED IN MAKING THE ADDITION OF THE AMOUNT IN THE INCOME OF THE ASS ESSEE. 6.2 THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE. HE REFERRED CONTENTS OF PARA NOS. 9 9.1 AND 9.2 OF THE FIRST APPELLATE ORDER. HE REITERATED THE SUBMISSIO NS MADE BEFORE THE AUTHORITIES BELOW IN THIS REGARD WITH THIS ASSERTIO N THAT A LOAN CANNOT BE TREATED AS INCOME. HE ALSO REFERRED CONTENTS OF T HE APPLICATION FILED BY ASHOK LEYLAND FINANCE LTD. BEFORE HONBLE DELHI HIG H COURT COPY OF WHICH HAS BEEN MADE AVAILABLE AT PAGE NOS. 674 TO 682 OF THE PAPER BOOK-II. HE SUBMITTED THAT AT PAGE NO.674 TO 682 OF THE PAPER B OOK-II HAS BEEN PLACED A COPY OF COMPANY APPLICATION NO.1585 OF 1997 IN CO MPANY PETITION NO.2011 OF 1997 MOVED BY THE PETITIONER ASHOK LEYLA ND FINANCE LTD. IN THE MATTER OF ASHOK LEYLAND FINANCE LTD. (PETITIONER) V S. MID EAST INTEGRATED STEEL LTD. (RESPONDENT) FOR AMENDMENT IN THE PETITI ON. IN PARA NO.7 OF THE APPLICATION IT HAS BEEN MENTIONED THAT THE RESPOND ENT HAD SENT A PROPOSED REPAYMENT SCHEDULE TO THE PETITIONER TO PAY AN AMOU NT OF RS. 1 55 00 000/- TO THE PETITIONER IN THE MANNER SET OUT THEREIN AND AS ON DATE I.E. 29 TH JULY IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 26 1997 THE RESPONDENT HAD PAID AN AMOUNT OF RS.16 LA CS TO THE PETITIONER AND AN AMOUNT OF RS.1 82 06 714/- IS IMMEDIATELY DU E AND PAYABLE FROM THE RESPONDENT COMPANY TO THE PETITIONER. 6.4 CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE LEARNED CIT(A) HAS DELETED THE ADDITION IN QUESTION ON THE BASIS T HAT THERE IS NO MATERIAL ON RECORD TO HOLD THAT THE AMOUNT IN QUESTION HAD B ECOME NON REFUNDABLE AND COULD BE REGARDED AS INCOME. HE HAS NOTED THAT THE AMOUNT HAD INITIALLY BEEN RECEIVED AS A LOAN BY THE ASSESSEE A ND THERE HAD BEEN NO SUBSEQUENT CHANGE IN THE CIRCUMSTANCES TO ALTER THE CHARACTER OF RECEIPT IN THE HANDS OF THE ASSESSEE. HE NOTED THAT NO FACTS OR EVIDENCE HAS BEEN PLACED ON RECORD TO SHOW THAT THE LOAN HAD SEIZED T O BE AS SUCH AND HAD ACQUIRED THE CHARACTER AND NATURE OF INCOME. THE EXPLANATION OF THE ASSESSEE REMAINED THAT THE A MOUNT OF RS.1 37 62 600/- RECEIVED AS LOAN WAS DULY SHOWN IN THE BOOKS OF ACCOUNTS AND THERE WAS NO BASIS TO TREAT THE SAID SUM AS NON RETURNABLE FOR THE ASSESSING OFFICER PARTICULARLY WHEN THE SOURCE OF R ECEIPT WAS NOT DOUBTED. IT WAS SUBMITTED THAT SOURCE OF NATURE OF RECEIPT W AS FULLY EXPLAINED AND HAD BEEN ACCEPTED IN THE REGULAR ASSESSMENT PROCEED INGS. DECISION OF HONBLE SUPREME COURT IN THE CASE OF PARAM SETHI SI TARAMA VS. CIT 57 ITR 532(S.C.) HOLDING THAT ALL RECEIPTS ARE NOT INCOME. IT WAS ARGUED THAT IN ABSENCE OF ANY EXPRESS INVOCATION OF PROVISIONS OF SECTION 68 OF THE ACT THIS SUM OF RS.1 37 62 600/- CANNOT BE REGARDED AS INCOME OF THE ASSESSEE MUCH LESS AS UNDISCLOSED INCOME. IT WAS SUBMITTED THAT MERELY BECAUSE THERE WAS A SURRENDER MADE BY MR. J.K. SINGH OF A S UM OF RS.15 72 600/- CANNOT BE VALID AND PROPER GROUND TO CONTEND AND HO LD THAT THE LOAN RECEIVED BY THE ASSESSEE HAD BECOME NON REFUNDABLE. THE ASSESSEE CONTENDED FURTHER THAT SINCE THE RECEIPT WAS AT THE OUT SET IN THE NATURE OF IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 27 LOAN AND THERE WAS NO EVENT RESULTING IN THE ALTERA TION OF THE NATURE OF THE SUM THE AMOUNT RECEIVED AS LOAN COULD NOT BY ANY S TRETCH OF IMAGINATION BE HELD AS UNDISCLOSED INCOME OF THE ASSESSEE. CONS IDERING THESE MATERIAL FACTS IN TOTALITY AND IN ABSENCE OF REBUTTAL OF THE FINDINGS OF THE LEARNED CIT(A) THAT THERE WAS NO MATERIAL ON RECORD TO HOLD THAT THE AMOUNT IN QUESTION HAD BECOME NON RETURNABLE WE ARE OF THE V IEW THAT THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION IN QUESTION . THE SAME IS UPHELD. THE GROUND NO.5 IS ACCORDINGLY REJECTED. 7. GROUND NO.6 :- THE ASSESSING OFFICER DISALLOWED RS. 10 81 760/- BEING DEPRECIATION CLAIMED IN RESPECT OF THE ASSESSEE COMPANY. THE AS SESSING OFFICER NOTED IN THE ASSESSMENT ORDER THAT DURING THE COURSE OF SEAR CH OPERATIONS 70 IMPORTED MACHINES WERE FOUND LYING AT D-3/4 SECTOR -6 NOIDA AND AS SUCH HAS HELD THAT SINCE THE NUMBER OF MACHINES BEING PU T TO USE AFTER IMPORT WAS NOT FURNISHED DEPRECIATION FOR THE ASSESSMENT YEAR 1995-96 AT RS.3 93 368/- AND FOR THE ASSESSMENT YEAR 1996-97 R S.6 88 392/- IS DISALLOWED. THE LEARNED CIT(A) HAS HOWEVER DELET ED THE DISALLOWANCE WHICH HAS BEEN QUESTIONED BY THE REVENUE BEFORE THE TRIBUNAL. 7.1 THE LD. DR HAS RELIED UPON THE ASSESSMENT ORD ER. THE LEARNED AR HAS HOWEVER REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND HAS TRIED TO JUSTIFY THE FIRST APPELLATE ORDER IN T HIS REGARD. HE ALSO DREW OUR ATTENTION AT PAGE NOS. 26 TO 30 OF THE PAPER BOOK-I THE COPY OF IMPORT BILL OF THE MACHINES FILED VIDE LETTER DATED 22.10.1998. HE SUBMITTED THAT THESE MACHINES WERE IN USE AND WERE TEMPORARILY KEPT AT T HE PREMISES AT NOIDA. 7.2 CONSIDERING THE ABOVE SUBMISSIONS WE FIND T HAT THE LEARNED CIT(A) AFTER DISCUSSING THE SUBMISSION OF THE ASSESSEE HAS DELETED THE DISALLOWANCE MAINLY ON THE BASIS THAT ASSESSING OFF ICER HAS NOT GIVEN ANY IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 28 CONCRETE BASIS FOR THE DISALLOWANCE MADE. THE CONT ENTION OF THE ASSESSEE AGAINST THE DISALLOWANCE REMAINED THAT DURING THE B LOCK ASSESSMENT PROCEEDINGS THE IMPORT BILL OF MACHINES WAS FILED V IDE LETTER DATED 22.10.1998 AND THE SAME WERE DULY VERIFIED. THE FU RTHER CONTENTION OF THE ASSESSEE REMAINED THAT THE MACHINES IN QUESTION WER E TEMPORARILY LAYING AT D-3/4 SECTOR-6 NOIDA AND HAD BEEN IN USE BUT HAD BEEN SHIFTED THERE JUST PRIOR TO SEARCH. THE FURTHER SUBMISSION OF THE ASS ESSEE IN SUPPORT REMAINED THAT IN THE ASSESSMENT YEAR 1997-98 CLAIME D DEPRECIATION AT RS.5 16 293/- HAS BEEN ALLOWED. THE DISALLOWANCE W AS ALSO OBJECTED ON THE BASIS THAT THERE WAS NO SPECIFIC MATERIAL FOUND DURING THE COURSE OF SEARCH ALLEGING NON USE OF SUCH MACHINERY AND SUCH DISALLOWANCE CANNOT BE MADE WITHIN THE MEANING OF CHAPTER-XIV-B OF THE ACT . RELIANCE WAS PLACED ON SEVERAL DECISIONS INCLUDING THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. N.R. PAPER AND BOARD LIMITED 24 8 ITR 526 (GUJARAT). THERE IS NO DISPUTE ON THIS WELL ESTABLISHED POSITI ON OF LAW THAT AN ADDITION WITHIN THE MEANING OF CHAPTER-XIV-B OF THE ACT CANN OT BE MADE IN ABSENCE OF SPECIFIC MATERIAL FOUND DURING THE COURSE OF THE SEARCH BUT IN THE PRESENT CASE MACHINES IN QUESTION WERE FOUND LAYING AT THE PREMISES SEARCHED HENCE THERE WAS REASON FOR THE ASSESSING OFFICER TO DOUBT USER OF THESE MACHINES BUT CONSIDERING THE ABOVE EXPLANA TION OF THE ASSESEE THAT MACHINES WERE IN USE AND WERE TEMPORARILY KEPT AT THE SEARCHED PREMISES AND ABOVE AL THAT SIMILAR CLAIM WAS ALLOWE D IN THE ASSESSMENT YEAR 1997-98 AS WELL AS THERE WAS NOTHING FOUND DUR ING SEARCH TO DOUBT THE EXPLANATION OF THE ASSESSEE WE ARE OF THE VIEW THA T THE LD. CIT(A) HAS RIGHTLY ALLOWED THE CLAIMED DEPRECIATION. THE SAME IS UPHELD. GROUND NO. 6 IS ACCORDINGLY REJECTED. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 29 8. GROUND NO.7: - THE REVENUE HAS QUESTIONED THE ACTION OF T HE LEARNED CIT(A) IN GIVING PART RELIEF OF RS. 31 47 000/- OUT OF THE AD DITION MADE BY THE ASSESSING OFFICER AT RS. 52 90 682/- ON ACCOUNT OF UNDISCLOSED INVESTMENT IN THE CONSTRUCTION OF SATBARI FARM FOR ASSESSMENT YEAR 1988-89. AN IDENTICAL ISSUE HAS BEEN DEALT WITH HEREINABOVE IN GROUND NO.9 OF THE APPEAL PREFERRED BY THE ASSESSEE WHEREIN ASSESSEE H AS QUESTIONED ACTION OF THE LEARNED CIT(A) IN SUSTAINING THE ADDITION IN PA RT. AFTER DISCUSSING THE CASE IN DETAIL WHILE ADJUDICATING GROUND NO.9 OF TH E APPEAL PREFERRED BY THE ASSESSEE WE HAVE DELETED THE ADDITION SUSTAINED BY THE FIRST APPELLATE AUTHORITY IN THIS REGARD. FOLLOWING THE DECISION TA KEN THEREIN GROUND NO.7 OF THE PRESENT APPEAL IS REJECTED. 9. GROUND NO.8 :- THE ASSESSING OFFICER MADE ADDITION OF RS. 6 2 9 000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE DAGAR FARM HOUSE. HE NOTED THAT ANNEXURE MES-144 SEIZED AT BHUVNESHWAR CONTENDS RENT AGREEMEN T DETAIL OF THE DAGAR FARM HOUSE TAKEN BY THE ASSESSEE COMPANY. HE HAS FURTHER NOTED THAT AS PER THE SEIZED DOCUMENT RENT WAS FIXED AT R S.1 50 000/- PER MONTH OUT OF WHICH RS. 75 000/- PER MONTH WAS TO BE PAID IN CASH ALONG WITH BROKERAGE OF RS. 25 000/- AND WATER CHARGES OF RS. 500/- PER MONTH. THE ASSESSEE COMPANY HOWEVER IN ITS BOOKS OF ACCOUNT HAS ONLY DEBITED RS.75 000/- PER MONTH ON ACCOUNT OF RENT PAID OF DA GAR FARM HOUSE NOTED THE ASSESSING OFFICER. BEING NOT SATISFIED WITH TH E EXPLANATION OF THE ASSESSEE THE ASSESSING OFFICER WORKED OUT THE ALLE GED UNEXPLAINED INVESTMENT AT RS.6 29 000/- CONSISTING OF RS.6 LACS RENT PAID FOR THE EIGHT MONTHS @RS.75 000/- PER MONTH WATER CHARGES AT RS. 4 000/- AND IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 30 BROKERAGE AT RS.25 000/-. THIS ACTION OF THE ASSES SING OFFICER WAS QUESTIONED BY THE ASSESSEE BEFORE THE LEARNED CIT(A ) AND THE LEARNED CIT(A) AFTER DISCUSSING THE CASE OF THE PARTIES HAS DELETED THE ADDITION. 8.1 IN SUPPORT OF THE GROUND THE LEARNED DR HA S PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED AR ON THE CONTRARY H AS REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A). 8.2 HAVING GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW WE FIND THAT THE EXPLANATION OF THE ASSESSEE REMAINED THAT THE ASSESSING OFFICER HAS NOT DISPUTED THAT A SUM OF RS.75 000/- PER MONT H WAS ELIGIBLE BUSINESS EXPENDITURE HENCE WHEN IF IT IS HELD THAT THE ASS ESSEE HAD MADE ANY PAYMENT OUTSIDE BOOKS OF ACCOUNT IT HAS TO BE NECE SSARILY ALLOWED AS BUSINESS EXPENDITURE. IT WAS CONTENDED THAT THE SE IZED DOCUMENT IS NOT AN AGREEMENT AND THERE WAS NO CORROBORATIVE EVIDENCE SO THAT ANY SUM WAS EXPENDED OUTSIDE BOOKS OF ACCOUNT. IT WAS CONTENDE D THAT SINCE THE AMOUNT PAID FOR THE DAGAR FARM HOUSE WAS DULY DISCL OSED IN THE BOOKS OF ACCOUNT AND THERE WAS NO OTHER EVIDENCE TO DRAW ANY ADVERSE VIEW EXCEPT THE ALLEGED PAPERS SHOWING THE DETAILS OF PROPOSED RENT IT COULD NOT BE SAID TO BE UNDISCLOSED INCOME. CONSIDERING THESE MATERI AL FACTS WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY COME TO TH E CONCLUSION THAT THERE IS NO CORROBORATIVE EVIDENCE IN SUPPORT OF THE DETAILS RECORDED IN THE RELEVANT SEIZED DOCUMENT AND EVEN IF THE AMOUNT WAS ACTUALLY PAID OUTSIDE THE BOOKS THE SAME WOULD BE COVERED U/S 69C OF THE ACT AND IN THAT EVENT DEDUCTION OF EQUIVALENT AMOUNT AS BUSINESS EXPENDIT URE WOULD HAVE TO BE ALLOWED AGAINST AMOUNT TREATED AS INCOME LEADING TO NIL ADDITION. WE THUS DO NOT FIND INFIRMITY IN THE FIRST APPELLATE ORDER ON THE ISSUE. THE SAME IS UPHELD. GROUND NO.8 IS ACCORDINGLY REJECTED. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 31 10. GROUND NO.9:- THE ASSESSING OFFICER MADE ADDITION OF RS. 2.35 CRORE ON ACCOUNT OF UNEXPLAINED INVESTMENT UNDER THE HEAD OTHER SOURCE S. HE HELD THAT THE ASSESSEE HAD ACQUIRED A FACTORY AT B-521 BIWADI H ARYANA. THE ASSESSING OFFICER NOTED THAT SHARES OF THE COMPANY SUMAN INTE RNATIONAL PVT. LTD. WHO OWNS THE SAID FACTORY AT BIWADI HAVE BEEN TRANSFER RED TO VARIOUS INDIVIDUALS. THE ASSESSING OFFICER DID NOT AGREE W ITH THE EXPLANATION OF THE ASSESSEE AND MADE ADDITION OF RS.2.35 CRORE. BEING CONVINCED WITH THE SUBMISSION OF THE ASSESSEE THE LEARNED CIT(A) HAS DELETED THE ADDITION WHICH HAS BEEN QUESTIONED BY THE REVENUE BEFORE THE TRIBUNAL. 10.1 IN SUPPORT OF THE GROUND THE LEARNED CIT DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. IN THIS REGARD HE HAS REFERRED CONTENTS OF PARA NO.3 OF THE ASSESSMENT ORDER. 10.2 THE LEARNED AR ON THE OTHER HAND REITERATE D THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED CONTENTS OF PARA NO.13 TO 13.2 OF THE FIRST APPELLATE ORDER. HE ALSO REFERRED PAGE N O.998 OF THE PAPER BOOK I.E. REMAND REPORT DATED 29.10.2002 BY THE ASSESSIN G OFFICER. HE SUBMITTED THAT IT WAS A MERE PROPOSAL AND ASSESSEE HAD NEVER PURCHASED THE SHARES OF SUMAN INTERNATIONAL PVT. LTD. NOR THE RE IS ANY EVIDENCE OR MATERIAL TO ESTABLISH THAT THE ASSESSEE HAD PURCHAS ED THE SHARES. THE SHARES WERE ACQUIRED BY THE PROMOTERS I.E. SMT. RIT A SINGH SMT. NATASHA SINGH SH. J.K. SINGH AND TWENTY FIRST CENTURY FINA NCE LTD. AND SAME WAS DISCLOSED IN THEIR RESPECTIVE RETURNS WHICH WAS DUL Y ACCEPTED BY THE REVENUE. THE LEARNED AR SUBMITTED FURTHER THAT THE ASSESSEE HAS PLACED ON RECORD A COPY OF STATEMENT OF AFFAIRS AS ON 31.3.19 98 IN THE CASE OF SMT. RITA SINGH SMT. NATASHA SINGH AND SHRI J.K. SINGH AND ALSO THE ORDER OF IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 32 ASSESSMENTS IN THEIR CASES FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99 HAVE BEEN MADE AVAILABLE AT PAGE NOS. 832 TO 855 OF THE PAPER BOOK-II. THE LEARNED AR SUBMITTED THAT THE AUDITED BALANCE S HEET FOR THE ASSESSMENT YEAR 1998-99 IN THE CASE OF TWENTY FIRST CENTURY FINANCE LTD. AND THE ORDER OF ASSESSMENT FOR THE ASSESSMENT YEAR 1997-98 HAS BEEN MADE AVAILABLE AT PAGE NOS. 856 TO 867 OF THE PAPER BOOK-II. THE LEARNED AR POINTED OUT THAT ANNEXURE A/1-A-55 HAS BEEN SUPP LIED TO THE ASSESSEE BY THE LEARNED CIT DR ONLY BEFORE THE TRIBUNAL. 10.3 HAVING GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW AND MATERIAL AVAILABLE ON RECORD WE FIND THAT THE ASSE SSING OFFICER IN PARA NO.13 OF THE ASSESSMENT ORDER HAS NOTED THAT THE AS SESSEE HAD ACQUIRED A FACTORY AT B-521 BIWADI HARYANA WHICH WAS OWNED B Y SUMAN INTERNATIONAL PVT. LTD. HE HAS NOTED THAT SHARES WERE TRANSFERRE D IN INDIVIDUAL NAMES AT THE RATE OF `10 PER SHARE. DURING THE COURSE OF SE ARCH OPERATION ANNEXURE A-1/A-55 WAS SEIZED. PAGE NOS. 10 & 11 OF THE SAID ANNEXURE CONTAINED CORRESPONDENCE RELATING TO THE PROPOSED ACQUISITION OF THE AFORESAID FACTORY. COPIES OF THESE DOCUMENTS HAVE BEEN SUPPL IED BY THE LEARNED CIT- DR BEFORE THE TRIBUNAL. ON THE BASIS OF THESE CORR ESPONDENCES THE ASSESSING OFFICER HAS CONCLUDED THAT THE DEALING WA S FINALIZED FOR APPROXIMATE AMOUNT OF RS.2.35 CRORE. THE ASSESSING OFFICER HAS NOTED FURTHER THAT THE ASSETS AND LIABILITIES OF SUMAN IN TERNATIONAL WERE ACQUIRED BY THE ASSESSEE BUT NO AMOUNT WAS DEBITED IN THE BO OKS OF ACCOUNT FOR ACQUIRING THESE ASSETS AND LIABILITIES WHILE THE PA PERS CLEARLY STATE THAT THE DELAY WAS STRUCK AT RS.2.35 CRORE. THE ASSESSING OF FICER ACCORDINGLY MADE ADDITION OF RS.2.35 CRORE AS UNEXPLAINED INVESTMENT . THE CONTENTION OF THE ASSESSEE REMAINED TH AT THE ADDITION IS BASED ON MIS-FOUNDING ASSUMPTION UNSUPPORTED BY ANY MATER IAL MUCH LESS A VALID IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 33 MATERIAL ON RECORD. IT WAS SUBMITTED THAT THERE AR E APPARENT CONTRADICTION IN THE FINDING OF THE ASSESSING OFFICER AS HE HOLDS THAT THE ASSESSEE HAS ACQUIRED A FACTORY AT B-521 BIWADI AND AT THE SAME TIME HE HOLDS THAT NO ASSETS/LIABILITIES HAVE BEEN SHOWN IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER FURTHER RECORDS THAT SHARES OF THE COMPANY SUMAN INTERNATIONAL PVT. LTD. WHO OWNS THIS FACTORY HAVE BEEN TRANSFE RRED TO VARIOUS INDIVIDUALS. THUS IN VIEW THEREOF IT IS EVIDENT THAT IT IS UNDISPUTED BY THE ASSESSING OFFICER THAT THERE IS NO ACQUISITION OF E ITHER ANY ASSETS/LIABILITIES OF SUMAN INTERNATIONAL PVT. LTD. OR SHARES OF SUMAN INTERNATIONAL PVT. LTD. IT WAS CONTENDED BY THE ASSESSEE THAT THE ABOVE FIN DING OF THE ASSESSING OFFICER IS FULLY VERIFIABLE FROM BOOKS OF ACCOUNTS OF THE ASSESSEE. IT WAS CONTENDED THAT ONCE IT IS HELD THAT NO INVESTMENT W AS MADE BY THE ASSESSEE IT CANNOT BE HAD ANY IMAGINATION BE HELD THAT THERE WAS ANY UNEXPLAINED INVESTMENT IN SUCH ASSETS. IT WAS ARGU ED THAT SECTION 69 OF THE ACT PLACES A HEAVIER BURDEN ON THE DEPARTMENT T O ESTABLISH WITH PROPER EVIDENCE THAT THERE WAS ANY INVESTMENT WHICH IS UNE XPLAINED IN THE NATURE MADE BY THE ASSESSEE COMPANY OUTSIDE BOOKS OF ACCOU NT. ON GOING THROUGH THE ABOVE MENTIONED CORRES PONDENCES WHICH ARE PART OF THE SEIZED MATERIAL MARKED AS ANNEXURE A-1 /A-55 WE FIND THAT THE FIRST LETTER DATED 03.05.1993 WAS ADDRESSED TO SHRI MEHRA BY SHRI J.K. SINGH CHAIRMAN OF THE ASSESSEE COMPANY AUTHORIZING SHRI R.T. TAYAL VICE PRESIDENT CLASSIC FINANCING LTD. TO NEGOTIATE AND F INALIZE THE DEAL FOR AN APPROXIMATE AMOUNT OF RS.2.35 CRORE. THE SECOND LE TTER DATED 03.05.1993 IS WRITTEN BY SHRI MEHRA CONFIRMING THE ACCEPTANCE OF THE ABOVE OFFER SUBJECT TO WORKING OF THE DETAILS AND MODALITIES OF THE TRANSFER IN A MOST TAX EFFICIENT MANNER. NOWHERE FROM THESE LETTERS IT IS APPARENT THAT IT WAS EXECUTION OF THE OFFER AS THE SAME WAS SUBJECT TO V ARIOUS CONDITIONS. AT THE MOST IT WAS AN ACCEPTANCE OF OFFER. THE CONTENTIO N OF THE ASSESSEE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 34 REMAINED THAT THE DEAL OF ACQUIRING OF ASSETS AND L IABILITIES OF SUMAN INTERNATIONAL PVT. LTD. BY THE ASSESSEE COMPANY WAS NEVER FINALIZED. IN ABSENCE OF EVIDENCE SUPPORTING THE EXECUTION OF THE OFFER WE ARE OF THE VIEW THAT THE ABOVE STATED LETTERS FOUND DURING THE COURSE OF SEARCH WERE NOT SUFFICIENT TO JUSTIFY THE ADDITION IN QUESTION MADE BY THE ASSESSING OFFICER. THE DETAILS FILED BY THE ASSESSEE TO SHOW THAT THE SHARES OF SUMAN INTERNATIONAL PVT. LTD. WHO OWNS THE FACTORY IN QUE STION WERE ACQUIRED BY OTHER PERSONS HAVE NOT BEEN REBUTTED BY THE REVENU E AS THE SAME HAS BEEN ACCEPTED BY THE REVENUE IN THE HANDS OF THESE PERSONS I.E. SMT. RITA SINGH SMT. NATASHA SINGH AND SHRI J.K. SINGH IN TH EIR ASSESSMENTS FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99. UNDER THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT IN ABSENCE OF ANY INCRIMINATIN G DOCUMENTS FOUND AS A RESULT OF SEARCH LEARNED CIT(A) HAS RIGHTLY DELETE D THE ADDITION IN QUESTION HOLDING THE SAME AS OUTSIDE THE SCOPE OF THE BLOCK ASSESSMENT UNDER CHAPTER-XIV-B OF THE ACT. THE SAME IS UPHELD. GROU ND NO.9 IS ACCORDINGLY REJECTED. 11.GROUND NO.10:- THE ASSESSING OFFICER MADE DISALLOWANCE O F RS.7 33 600/- AND RS.11 19 044/- ON ACCOUNT OF GUEST HOUSE EXPENSES U /S 37(2) OF THE ACT. THE LEARNED CIT(A) HAS DELETED THE SAME ON THE BASI S THAT IT IS OUTSIDE THE SCOPE OF THE BLOCK ASSESSMENT UNDER CHAPTER-XIV-B O F THE ACT AS THE SAME HAS BEEN DULY DISCLOSED IN THE BOOKS OF ACCOUNT AND REGULAR RETURN OF INCOME. 11.1 IN SUPPORT OF THE GROUND LEARNED CIT-DR HA S PLACED RELIANCE ON THE ASSESSMENT ORDER. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 35 11.2 LEARNED AR ON THE OTHER HAND HAS TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE. HE ALSO REFERRED REMAND REPORT DATED 29.10.2002 FILED BY THE ASSESSING OFFICER IN THIS REGARD BEFORE THE LEARNED CIT(A). 11.3 THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.7 33 600/- U/S 37(2) OF THE ACT FOR THE ASSESSMENT YEAR 1996-97 AND RS.1 1 19 044/- REPRESENTING THE GUEST HOUSE EXPENSES FOR THE ASSES SMENT YEARS 1993-94 TO 1997-98. THE CONTENTION OF THE ASSESSEE REMAINE D THAT THE DISALLOWANCE HAS BEEN MADE REGARDING EXPENDITURE DULY ACCOUNTING FOR IN THE BOOKS OF ACCOUNT AND IN THE REGULAR RETURN OF INCOME. IT WA S CONTENDED FURTHER THAT THE ASSESSING OFFICER HAS NOT REFERRED TO ANY SEIZE D DOCUMENT BEFORE MAKING THE DISALLOWANCES IN QUESTION HENCE THE AD DITIONS ARE BEYOND THE SCOPE OF PROVISIONS UNDER CHAPTER-XIV-B OF THE ACT. CONSIDERING THESE MATERIAL FACTS OF THE ISSUE WE ARE OF THE VIEW THA T THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION. THE SAME IS UPHELD. GROUND NO.10 IS ACCORDINGLY REJECTED. 12. GROUND NO.11 12.1. THE AO MADE ADDITION OF RS.24 99 94 306/- B EING DIFFERENCE BETWEEN THE BALANCE OF THE ASSESSEE COMPANY AND VAR IOUS OTHER COMPANIES OF MESCO GROUP. THE DETAILS OF THE ADDITION MADE A RE AS UNDER:- NATURE OF ADDITION AMOUNT (RS.) ALLEGED DIFFERENCE IN BALANCES WITH M/S MESCO AIRLINES LTD 1 34 99 568/- ALLEGED DIFFERENCE IN BALANCE WITH M/S MISL 23 33 92 551/- ALLEGED DIFFERENCE IN BALANCES WITH M/S MESCO INDIA LTD 18 17 527/- IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 36 ALLEGED DIFFERENCE IN BALANCE OF MESCOS DIVISION IN THE BALANCE SHEET 14 84 560/- 12.2. REGARDING DIFFERENCE OF RS.1 34 99 688/- THE AO HAS MADE FOLLOWING OBSERVATION IN PARA NO. 16 OF THE ASSESSM ENT ORDER AS UNDER:- IN RECONCILIATION FILED WITH OF M/S MESCO AIRLINE S LTD. FOR FINANCIAL YEAR 1994-95 RS.1 34 99 688/- (CR.) WAS ATTRIBUTED DIFFERENCE IN OPENING BALANCE WHICH ALSO FALLS IN BLOCK. TO WHIC H YEAR THESE DIFFERENCES PERTAIN AND WHAT IS THE NATURE OF THESE DIFFERENCE WERE NOT FILED. SINCE AS ON 1/4/94 M/S MESCO AIRLINES LTD. HAS A DEBIT BALANCE OF RS.12 67 374/- AGAINST MIL AND MIL HAS C REDIT BALANCE OF RS.1 47 67 062/- (THOUGH STATED AS RS.1 47 062/-) A GAINST MAL RS 1 34 99 668/- CREDIT BALANCE REMAINS UNEXPLAINED AND IS ADDED AS UNEXPLAINED LIABILITY IN A.YR. 1994-95. 12.3. THE ADDITION IN QUESTION WAS OBJECTED B Y THE ASSESSEE BEFORE THE LD. CIT(A) WITH THIS SUBMISSION THAT THE ASSESSEE H AD FURNISHED RECONCILIATION STATEMENT ON 17/4/1998 RECONCILING B ALANCE IN THE BOOKS OF THE TWO COMPANIES AS ON 31/3/1995 BEFORE THE AO DUR ING THE ASSESSMENT PROCEEDINGS. THUS THE ADDITION ON ACCOUNT OF ALLE GED DIFFERENCE AS ON 1/4/1994 WAS MADE WITHOUT GRANTING A SUFFICIENT AND FAIR OPPORTUNITY TO THE ASSESSEE COMPANY AND IGNORING THE RECONCILIATION FI LED BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THERE IS NO DIFFERENCE I N THE BALANCE OF THE ASSESSEE COMPANY WITH MESCO AIRLINES LTD AS ALLEGED BY THE A.O. REFERRING PAGE NO. 172 OF THE PAPER BOOK I.E RECONCILIATION W ITH MESCO AIRLINES LTD FOR THE FINANCIAL YEAR 1994-95 (A.Y 1995-96) THE ASSES SEE SUBMITTED THAT ON CAREFUL PERUSAL OF THE SAME IT IS APPARENT THAT TH ERE WAS DIFFERENCE OF RS.1 34 99 688.50 AS ON 31/3/1994 BEING AMOUNT CRED ITED BY THE ASSESSEE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 37 COMPANY IN F.Y 1993-94 BUT IT WAS NOT DEBITED BY ME SCO AIRLINES LTD. IT WAS SUBMITTED THAT THE SAME WAS RECTIFIED BY MESCO AIRLINES LTD ON 1/4/1994 BY DEBITING MIDEAST INDIA LTD WITH THE SAM E AMOUNT. COPIES OF THE RESPECTIVE LEDGER ACCOUNTS FOR THE A.Y 1994-95 WAS MADE AVAILABLE AND BEING SATISFIED WITH THESE SUBMISSION THE LD. CIT( A) HAS DELETED THE ADDITION. 12.4. IN SUPPORT OF THE GROUND THE LD. DR HAS PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LD. AR ON THE OTHER HAND TRI ED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE AND REFERRED SUBMISSIO NS MADE IN THIS REGARD BEFORE THE LD. CIT(A) MADE AVAILABLE AT PAGE NOS. 9 37 TO 938 OF THE PAPER BOOK II. HE SUBMITTED FURTHER THAT IN ABSENCE OF R EBUTTAL OF ABOVE SUBMISSION BY THE REVENUE NO INTERFERENCE WITH THE FIRST APPELLATE ORDER ON THE ADDITION IS CALLED FOR. 12.5. WE AGREE WITH THE SUBMISSION OF THE LD. A R THAT IN ABSENCE OF REBUTTAL OF ABOVE FINDING OF THE LD. CIT(A) ON FACT S NO INFERENCE IS CALLED FOR WITH THE FIRST APPELLATE ORDER ON THE ISSUE. THE SAME IS UPHELD. ] 12.6. SO FAR AS ADDITION OF RS.23 22 37 926/- REPRESENTING THE ALLEGED DIFFERENCE IN THE BALANCE OF THE ASSESSEE COMPANY A ND MIDEAST INTEGRATED STEEL LTD AS ON 31/3/1994 THE A.O HAS MADE FOLLOWI NG OBSERVATION:- IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 38 IN RECONCILIATION OF MIDEAST INTEGRATED STEEL LTD . FILED FOR FINANCIAL YEAR 1994-95 THE DIFFERENCE OF RS.23 72 37 926/- WAS ATTRIBUTED TO OPENING BALANCE WHICH ALSO FALLS IN BLOCK. IN WHICH YEAR THESE DIFFERENCES PERTAIN AND WHAT IS THE NATURE OF THESE DIFFERENCE WERE NOT FILED. SINCE A S ON 1/4/1994 MISL HAS A CREDIT BALANCE OF RS.38 45 368 /- AGAINST MIL AND MIL HAS CREDIT BALANCE OF RS.23 33 92 551/- AGAINST MISL. THE CREDIT BALANCE S IN BOTH THE HAND REMAINS UNEXPLAINED AND ARE ADDED IN THEIR RESPECTIVE HANDS AS UNEXPLAINED LIABILITY IN A.YR. 1994-95. 12.7. THE ADDITION WAS OBJECTED BY THE ASSESSE E ON THE BASIS THAT A SIMILAR ADDITION ON DIFFERENCE FALLING AS ON 1/4/19 94 WAS ALSO MADE IN THE BLOCK ASSESSMENT OF MIDEAST INTEGRATED STEEL LTD AN D THE LD. CIT(A) BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND AFTER VERIFYING THE SAME HAD DELETED THE ADDITION. IT WAS SUBMITTED FURTHER THAT THE OPENING BALANCE AS ON 1/4/1994 OF THE ASSESSEE COMPANY IN T HE BOOKS OF MIDEAST INTEGRATED STEEL IS RS.37 94 12 863/- AND NOT RS.38 35 368.94 AS ON 1/4/1994 THE BALANCE OF ASSESSEE COMPANY IN THE BOO KS OF MIDEAST INTEGRATED STEEL LTD WAS RS.38 35 368.94 BUT THE FI RST TRANSACTION WAS MADE ON 2/11/1994. IT WAS SUBMITTED THAT THE BALAN CE TAKEN AS ON 1/4/1994 WAS ACTUALLY BALANCE AS ON 1/11/1994 HENCE THERE IS ERROR. ACCOUNT OF THE ASSESSEE COMPANY IN THE BOOKS OF MID EAST INTEGRATED STEEL LTD WAS A SYSTEM AND PROGRAMME ERROR SUBMITTED THE ASSESSEE AND IN SUPPORT COMPUTER PRINT OUT STARTING FROM 1/4/1995 S INCE THE ACCOUNTS WERE COMPUTERIZED AS ON 1/11/1994 WAS FURNISHED. THIS A CCOUNT ACTUALLY GAVE BALANCE AS ON 1/11/1994 OF RS.38 35 368/-. COPY OF LEDGER ACCOUNT OF THE ASSESSEE COMPANY IN THE BOOKS OF MIDEAST INTEGRATED STEEL LTD FOR THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 39 PERIOD FROM 1/4/1994 TO 30/10/1994 ALSO FORMS PART OF THE RECORD. THE ASSESSEE COMPANY ALSO FURNISHED ON RECORD A RECONCI LIATION STATEMENT AS ON 31/3/1994 AND AS ON 31/3/1995 COPIES WHEREOF HAVE ALSO BEEN MADE AVAILABLE BEFORE THE TRIBUNAL AT PAGE NOS. 693 TO 7 23 OF THE PAPER BOOK. CONSIDERING THESE MATERIAL ASPECT OF THE ADDITION I N QUESTION THE LD. CIT(A) HAS DELETED THE ADDITION WITH THIS FINDING THAT THE RE IS NO DISCREPANCY AS ALLEGED BY THE A.O. IN ABSENCE OF REBUTTAL OF THE ABOVE FINDING OF THE LD. CIT(A) BY THE REVENUE WE ARE NOT INCLINED TO INTER FERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD . 12.8. THE A.O MADE FURTHER ADDITION OF RS.18 17 5 27/- ON ACCOUNT OF DIFFERENCE BETWEEN THE ASSESSEE AND MESCO INDIA LTD WITH THE FOLLOWING OBSERVATIONS:- WITH REGARD TO MIL B-12/A BALANCES RECONCILIATION WITH M/S MESCO INDIA LTD IT WAS SEEN THT ASSESSEE HAS CR EDIT BALANCE OF RS.1 51 11 845/- IN HIS BOOK WHILE MESCO INDIA HAS DEBIT BALANCE OF RS.1 32 94 318/-. HENCE THERE IS NO EXCESS CREDIT BALANCE OF RS.18 17 527/- IN ASSESSEES CASE WHICH IS ADDED IN ASSESSMENT YEAR 1 996- 97. THE LD. CIT(A) HAS DELETED THE ADDITION ACCEPTING THE SUBMISSION OF THE ASSESSEE AGAINST THE SAME. THE ASSESSEE POINTED OUT THAT THE AO HAS STATED THAT THE ASSESEE HAD IN MESCO INDIA LTD. DEB IT BALANCE OF RS. 1 32 94 318/- WHEREAS THE ASSESSEE HAD CREDIT BALAN CE OF RS. 1 15 11 845/- . IN VIEW THEREOF SINCE THERE WAS CREDIT BALANCE OF RS. 18 17 527/- IN IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 40 EXCESS THE SAME WAS ADDED IN ASSTT. YEAR 1996-97. THE ASSESEE CONTENDED THAT THERE IS APPARENT CONTRADICTION IN THE FINDING AS IT IS STATED THAT THERE IS NO EXCESS CREDIT BALANCE AND THE AO HAS NOT MENTION ED THE PARTICULAR DATE WHEN THESE WAS THE ALLEGED DIFFERENCE. IN ABSENCE O F REBUTTAL OF ABOVE SUBMISSION OF THE ASSESSEE WHICH HAS BEEN ACCEPTED BY THE LD. CIT(A) WE DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPE LLATE ORDER AS UNDER THE ABOVE FACTS WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. THIS ACTION OF THE LD. CIT(A) IS THUS UPH ELD. 12.9. REGARDING THE ADDITION OF RS.14 38 560/- M ADE ON THE BASIS OF CERTAIN DIFFERENCES IN BALANCES BETWEEN THE ASSESSE E COMPANY AND MIL MESCO THE SUBMISSION OF THE ASSESSEE REMAINED THAT NO PERSON CAN MAKE PROFIT OUT OF ITSELF AS MIL MESCO IS A DIVISIO N OF THE ASSESSEE COMPANY ITSELF. IT WAS FURTEHER SUBMITTED THAT THE ADDITIONS OF RS.24 99 94 306/- ARE WHOLLY UNTENABLE AND FALL OUT SIDE THE AMBIT OF THE PROVISIONS OF SECTION 158 BB OF THE ACT. IT WAS SU BMITTED THAT THE BALANCES HAD BEEN DULY DISCLOSED IN THE BOOKS OF AC COUNTS OF THE ASSESSEE COMPANY. THE RETURNS OF INCOME FOR A.YS 1 994-95 TO 1997-98 HAVE BEEN FILED BY THE ASSESSEE AND IN THE ASSESSME NT FRAMED U/S 143(3) SUCH BALANCES HAVE BEEN ACCEPTED AS SUCH. I T WAS CONTENDED THAT IN ABSENCE OF ANY MATERIAL EVIDENCE DEDUCTED D URING THE COURSE OF SEARCH ALLEGED DIFFERENCE CANNOT BE HELD AS UNDISCL OSED INCOME OF THE ASSESSEE. ACCEPTING THESE SUBMISSIONS THE LD. CIT( A) HAS DELETED THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 41 ADDITION. SINCE THE REVENUE HAS NOT BEEN ABLE TO R EBUT THE ABOVE FINDING OF THE LD. CIT(A) WE ARE NOT INCLINED TO I NTERFERE WITH THE FIRST APPELLATE ORDER WHICH AS DISCUSSED ABOVE IS REASON ED ONE. 12.10. IN RESULT GROUND NO- 11 IS REJECTED. 13. GROUND NOS. 12 13 TO 27 SINCE ADDITIONS INVOLVED IN THESE GROUN DS ARE BASED UPON THE SEIZED DOCUMENTS FROM THE PREMISES OF THE AUDITORS OF THE ASSESSEE AND COMMON ARGUMENTS HAVE BEEN ADVANCED BY THE PARTIES IN SUPPORT OF THEIR RESPECTIVE CASES THESE ARE BEING DISPOSED OFF SIMU LTANEOUSLY. 13.1. DIFFERENT ADDITIONS (IN QUESTION IN THE A BOVE GROUNDS) MADE BY THE A.O ON THE BASIS OF SEIZED DOCUMENT FROM THE PREMIS ES OF M/S AR ASSOCIATES THE AUDITORS OF THE ASSESSEE COMPANY DE LETED BY THE LD. CIT(A) HAS BEEN QUESTIONED BY THE REVENUE. THE LD. CIT(A) HAS DELETED THESE ADDITIONS MAINLY ON THE BASIS THAT THESE DOCUMENTS ARE UNSIGNED AND IT IS NOT KNOWN BY WHOM THESE ARE PREPARED. THESE DOCUME NTS CONTAINED CERTAIN CALCULATIONS WITHOUT ANY DETAILED DESCRIPTI ON REGARDING THE NATURE AND PURPOSE OF THE JOTTINGS MADE ON THESE LOOSE PAP ERS. 13.2. IN BROADER SUPPORT OF THESE GROUNDS THE LD. DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER SHE HAS RE FERRED CONTENTS OF THE RELATED PARAGRAPHS OF THE ASSESSMENT ORDER. THE LD . AR ON THE OTHER HAND IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 42 TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE I SSUES WITH THIS COMMON SUBMISSION THAT THE ADDITIONS IN QUESTION MADE ON T HE BASIS OF DOCUMENTS FOUND FROM THE AUDITORS PREMISES ARE BEYOND THE PUR VIEW OF CHAPTER XIV B OF THE ACT. HE REFERRED PAGE NOS. 1044 TO 1103 OF THE PAPER BOOK TO SUPPORT HIS CONTENTION THAT THE SEIZED DOCUMENTS AR E LOOSE PAPERS CONTAINING CERTAIN CALCULATIONS WITHOUT ANY DETAILE D DESCRIPTION REGARDING THE NATURE AND PURPOSE OF THE JOTTINGS MADE ON THES E LOOSE PAPERS WHICH ARE INCAPABLE OF SHOWING ANY INTERPRETATION MERELY BY THEMSELVES. HE ALSO PLACED RELIANCE ON THE FOLLOWING DECISION OF HONBL E SUPREME COURT AND OTHERS :- CIT VS. J. K. CHARITABLE TRUST 308 ITR 161 (SC) SHRI J. K. SINGH VS. DCIT & ORS IT(SS)A NO. 11 & 14 /DEL/2000 (BLOCK PERIOD 1987-88 TO 1997-98) ORDER DATED 5/7/2006 DCIT VS. LITTLE ROME LTD & ORS IT(SS)A NOS 55 & 60/ DEL/2000 (BLOCK PERIOD 1993-94 TO 1997-98) ORDER DATED 9/3/2007. DCIT VS. SMT. RITA SINGH AND ORS IT(SS)A NOS. 56 & 61/DEL (2000) (BLOCK ASSESSMENT YEARS 1987-88 TO 1997-98) ORDER D ATED 20/6/2005. WE ARE GOING TO DEAL WITH THIS ISSUE IN GROUND NO. 12 AS TO WHETHER OBSERVATIONS OF AN AUDITOR OF THE ASSESSEE WHILE FI NALIZING THE ACCOUNTS FOUND DURING THE COURSE OF SEARCH OF THE PREMISES OF THE AUDITOR CAN BE A BASIS TO ASSESS THE UNDISCLOSED I NCOME OF THE ASSESSEEE. FINDING ON THIS COMMON ISSUE WILL BE APP LICABLE ON ALL THESE RELATED GROUND NOS. 12 TO 24 & 26 AND 27 WHE REVER ADDITIONS HAVE BEEN MADE ON SUCH WORKING / OBSERVATIONS OF TH E AUDITORS. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 43 GROUND NO-12 13.3. IN GROUND NO-12 THE REVENUE HAS QUESTIO NED FIRST APPELLATE ORDER WHEREBY THE LD. CIT(A) HAS DELETED THE ADDITIONS OF RS.35 000/- AND RS.29 31 925/- MADE ON ACCOUNT OF UNEXPLAINED INVES TMENT IN M/S 21 ST CENTURY FINANCE LTD AND M/S MESCO LABORATORIES LTD. RESPECTIVELY IN THE ASSESSMENT YEAR 1994-95. THE RELEVANT FACTS ARE TH AT DURING THE SEARCH OPERATION ANNEXURE AA-12 OF PARTY B-8 (PAGE NO. 727 OF PB-1) WAS SEIZED FROM THE OFFICE OF SHRI A.R ROHTAGI STATUTORY AUDI TOR OF THE ASSESSEE COMPANY. THE AO MADE ADDITION OF RS.35 000/- ON TH E BASIS OF ROUGH CALCULATION DONE ON PAGE NO-63 OF THE SAID SEIZED A NNEXURE AND THE ADDITION OF RS.29 31 925/- WAS MADE ON THE BASIS OF ROUGH CALCULATION DONE ON PAGE NO. 34 OF THE ANNEXURE. THE CONTENTION OF THE ASSESSEE AGAINST THESE ADDITIONS WAS THAT THE DOCUMENTS CONTAINING A UDIT OBSERVATIONS SEIZED FROM THE PREMISES BELONGING TO M/S AR ASSOCI ATES CHARTERED ACCOUNTANTS THE AUDITORS OF THE ASSESSEE COMPANY A RE UNSIGNED AND IT IS NOT KNOWN BY WHOM THESE ARE PREPARED. A COPY OF TH E RELATED ANNEXURE HAS BEEN MADE AVAILABLE AT PAGE NO. 727 OF THE PAPE R BOOK-(I). THE GRIEVANCE OF THE ASSESSEE ALSO REMAINED THAT THE A. O HAS NOT CONSISTED THE AUDITORS TO VERIFY THE CONTENTS OF THE DOCUMENTS. THE SEIZED PAPER APPARENTLY SUGGEST THAT IT CONTAINS ONLY WORKING M AY BE BEFORE FINALIZING THE ACCOUNTS AND IN THE DOCUMENTS THE DATE AND AMO UNT HAVE BEEN IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 44 MENTIONED WITHOUT ANY FURTHER NARRATION. HOW AND F ROM WHERE THESE DETAILS HAVE BEEN PREPARED IS NOT CLEAR. THE CONTE NTION OF THE ASSESSEE ALSO REMAINED THAT THEY HAVE NOT GIVEN ANY CASH TO 21 ST CENTURY FINANCE LTD AND MESCO LABORATORIES LTD AND THEREFORE QUES TION OF EXPLAINING THE SOURCE DOES NOT ARISE. RELIANCE WAS PLACED ON THE DECISION OF ALLAHABAD BENCH OF THE TRIBUNAL IN THE CASE OF MONGA METALS ( P) LTD VS. ACIT 67 TTJ 247 (ALLA). THE RELEVANT EXTRACT THEREOF IS BEING REPRODUCED HEREUNDER:- FINDINGS OF THE QUASI JUDICIAL AUTHORITIES ARE FO UND TO HAVE BEEN INFLUENCED BY THE ADVICE/INFORMATION/EVID ENCE WHICH HAVE BEEN OBTAINED FROM THIRD PARTY AND BROUG HT ON RECORD WITHOUT THE KNOWLEDGE OF THE ASSESSEE OR WIT HOUT ALLOWING THE ASSESSEE AND OPPORTUNITY TO CONTROVERT OR DISAPPROVE THE INFORMATION EVIDENCE OR STATEMENT O F FACT CONTAINED IN SUCH INFORMATION OR WITHOUT ALLOWING T HE ASSESSEE TO CROSS-EXAMINE SUCH THIRD PARTY THE ORD ER HAS TO BE FOUND VIOLATIVE OF PRINCIPLE OF NATURAL JUSTI CE I.E SUCH AN ORDER IS AN ORDER IN VIOLATION OF NATURAL JUSTIC E. ONCE THE ASSESSMENT IS FOUND TO BE IN VIOLATION OF PRINC IPLE OF NATURAL JUSTICE IT HAS TO BE QUASHED AS BEING BAD I N LAW AND VOID OR A NULLITY. RELIANCE HAS ALSO PLACED ON SEVERAL DECISIONS WHI CH ARE AS UNDER:- A) CBI VS. V.C. SHUKLA 3 (1998) SCC 410 433. B) ASHWANI KUMAR VS. ITO 39 ITD 183 (DEL) C) KANTILAL & BORTHERS VS. ACIT 52 ITD 41 2 (PUNE) D) SILVER AND ARTS PALANCE VS. ACT 52 ITD JAIPUR E) ACIT VS. SHAILESH S SHAH 63 ITD 153(MU M) F) ITO VS. M.A CHAIDAMBARAM 63 ITD 203 (C HENNAI) G) AGARWAL MOTORS. VS. ACIT 68 ITD 407 (JA B) H) D.A PATEL VS. DCIT 72 ITD340 (MUM) I) T.S. VENKATSAN VS. ACIT 74 ITD 298 J) BRIJ LAL RUPCHAND VS. ITO 40 TTJ 668 (I ND) K) DHAN RAJ RESTAURANT VS. ACIT 55 TTJ 390 (MUM) L) S. K. GUPTA VS. DCIT 63 TTJ 532 AT 535 ( DELHI) M) ATUL KUMAR JAIN VS. DCIT 64 TTJ 786 (DELH I) IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 45 13.4. CONSIDERING ABOVE SUBMISSIONS OF THE ASS ESSEE WHICH HAVE BEEN UNREBUTTED EVEN BEFORE THE TRIBUNAL WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITIONS IN QUESTION IN AB SENCE OF SUFFICIENT EVIDENCE AS THE WORKING OF THE AUDITORS WITHOUT NAR RATION AND INDICATING NOTHING EXCEPT DATE AND AMOUNT DOES NOT LEAD ANYWHE RE IN ABSENCE OF CORROBORATIVE EVIDENCE. GROUND NO-12 IS ACCORDINGL Y REJECTED. GROUND NO-13 13.5. IN GROUND NO-13 THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITIONS OF RS. 61 00 000 AND RS. 13 50 000/- ON A CCOUNT OF ARTIFICIAL BILLING AND ALSO DELETING THE ADDITION OF RS.1 77 00 000/- MADE ON ACCOUNT OF GIFT COUPONS TO IDBI OFFICIALS HAS BEEN QUESTIONED. IN SUPPORT OF THE GROUNDS THE LD. DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LD. AR ON THE OTHER H AND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER AND REITERATED THE SUBMISSION S MADE BEFORE THE AUTHORITIES BELOW AND THE DECISIONS RELIED UPON THE FIRST APPELLATE ORDER. REGARDING THE ADDITION OF RS.61 00 0 00/- MADE ON ACCOUNT OF ARTIFICIAL BILLING AND GIFT COUPONS TO IDBI OFFICIA LS TO THE TUNE OF 1.77 CRORES IN MUMBAI BRANCH THE SUBMISSION OF THE ASSESSEE RE MAINED THAT THE DISCREPANCY ON ACCOUNT OF ARTIFICIAL BILLING WAS LA TER ON RECTIFIED AND THE ADDITION WAS TOTALLY VAGUE WITHOUT ANY DETAILS. IT WAS SUBMITTED THAT THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 46 AMOUNT OF RS.61 LAC WOULD BE IN THE FORM OF SALES A ND INCOME WOULD BE INCLUDED IN THE INCOME FOR THE A.Y 1996-97. REGARD ING GIFT COUPONS BASED ON OBSERVATION OF THE AUDITORS FOUND RECORDED ON SE IZED DOCUMENTS MARKED AT PAGES 109 TO 112 OF ANNEXURE A-3 OF PARTY A-1 (P AGE NOS. 734 TO 737 PAPER BOOK II IT WAS SUBMITTED THAT THE AMOUNT WR ITTEN IN THE SEIZED DOCUMENT WAS RS.1.77 LAKHS ONLY AND NOT RS. 1.77 CR ORES AS ALLEGED. IT WAS SUBMITTED THAT THESE GIFT COUPONS WERE ISSUED U NDER SALES PROMOTION SCHEME AND HAVE NO FINANCIAL IMPLICATION. THE LD. CIT(A) HAS DELETED THESE ADDITIONS ACCEPTING THE EXPLANATION OF THE ASSESS EE ABOUT THE ADDITION OF RS.61 LAC AND 13.50 LAC MADE ON ACCOUNT OF ARTIFICI AL BILLING THAT THE ALLEGATION EVEN IF TRUE WOULD MEAN THAT THE AMOUNT ARE ALREADY INCLUDED IN SALES AND NO ADDITION CAN BE MADE ON THE BASIS GIVE N IN THE ASSESSMENT ORDER. HE HAS FURTHER ACCEPTED THE SUBMISSION OF T HE ASSESSEE REGARDING THE GIFT COUPONS THAT THE CORRECT AMOUNTS IN THE SE IZED PAPER IS RS.1.77 LAKHS ONLY AND THAT NO ADDITION IS POSSIBLE ON THE BASIS OF GIFT COUPONS AS NO INCOME HAS ACCRUED TO THE COMPANY AND THE MOUNT HAS NO BEARING ON THE FINANCIAL RESULTS. A PERUSAL OF THE SEIZED DOCUMENT A-1/ A-3 MADE AVAILABLE AT PAGE NO. 734 OF PAPER BOOK II WE FULLY AGREE THAT THE GIFT COUPONS TO IDBI STAFF WAS TO THE TUNE OF RS.1.77 LAKH ONLY AND NOT RS.1.7 7 CRORES. THE LD. CIT(A) HAS THUS RIGHTLY DELETED THE ADDITION OF RS. 1.77 CRORE WITH THIS FINDING THAT THE CORRECT FIGURE IS R.1.77 LAKH AND NOT RS.1.77 CRORES AND THAT IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 47 THESE GIFT COUPONS WERE ISSUED UNDER SALES PROMOTI ON SCHEME AND HAVE NO FINANCIAL IMPLICATIONS. THE ACTION OF THE LD. C IT(A) IN THIS REGARD IS THUS UPHELD. THE ADDITION OF RS.61 LAC HAS BEEN MADE BY THE AO ON ACCOUNT OF ARTIFICIAL BILLING. THIS ADDITION HAS BEEN MADE ON THE BASIS OF AUDIT OBSERVATION OF MUMBAI BRANCH WHEREIN IT WAS STATED THAT THE ARTIFICIAL BILLING OF RS.61 LAC WAS DONE TO SHOW HIGHER SALES IN THE M UMBAI BRANCH WHICH IS APPARENT FROM THE SEIZED DOCUMENT MADE AVAILABLE AT PAGE NO. 734 OF THE PAPER BOOK-II. THE SUBMISSION OF THE ASSESSEE AGAI NST THIS ADDITION REMAINED THAT IT WAS ONLY REPORTED BY THE MUMBAI BR ANCH THAT ARTIFICIAL SALES HAS BEEN SHOWN IN THE BOOKS WHICH WOULD HAVE BEEN SUBSEQUENTLY RECTIFIED BY THE MANAGEMENT AND THUS NOT PERTAINING IN BOOKS. THE FURTHER SUBMISSION OF THE ASSESSEE REMAINED THAT EVEN OTHER WISE HAD IN CASE THIS DISCREPANCY IN THE BOOKS WAS NOT RECTIFIED THE AM OUNT OF RS. 61 LAC WHICH WOULD BE IN THE FORM OF SALES I.E. REVENUE THOSE IN COME WOULD BE INCLUDED AS INCOME OF THE ASSESSEE COMPANY IN THE A.Y 1996-9 7 AND WOULD HAVE BEEN TAXED ACCORDINGLY. THEREFORE IN EITHER CASE T HIS COULD NOT BE TREATED AS INCOME OF THE ASSESSEE COMPANY. THERE IS NO REAS ON TO DOUBT THESE SUBMISSIONS AND THUS WE ARE OF THE VIEW THAT THE LD . CIT(A) HAS RIGHTLY DELETED THE SAME. SO FAR AS THE ADDITION OF RS.13.50 LACS M ADE BY THE AO ON ACCOUNT OF ARTIFICIAL CALCULATION IS CONCERNED WE FIND THAT TH E ADDITION IS BASED ON THE CONTENTS OF SEIZED PAPER MADE AVAILABLE AT PAGE NO. 736 OF THE PAPER BOOK IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 48 II. ON PERUSAL OF THIS DOCUMENT IT IS EVIDENT THAT THE ADDITION WAS MADE ON THE BASIS OF AUDIT OBSERVATION OF INDORE BRANCH WHE REIN IT WAS STATED THAT THE ARTIFICIAL COLLECTION OF RS.13.50 LACS WAS DONE TO SHOW HIGHER COLLECTION IN THE INDORE BRANCH. THE LD. CIT(A) HAS THUS IN O UR VIEW RIGHTLY DELETED THE ADDITION WITH THIS FINDING THAT IF THE ALLEGATI ON IS TRUE IT WOULD MEAN THAT THE AMOUNT HAVE ALREADY BEEN INCLUDED IN SALES AND NO SUCH ADDITION CAN BE MADE. WE THUS DO NOT FIND REASON TO INTERFERE W ITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. THE GRO UND NO. 13 IS ACCORDINGLY REJECTED. GROUND NO-14 . 13.5. THE AO MADE ADDITION OF RS.9 32 709/- ON ACCOUNT OF EXPENSES OF WHICH BILLS WERE NOT FURNISHED. ON THE BASIS OF AUDIT OBSERVATION ON PAGE NO. 38 OF PART A-1 ANNEXURE A-28 (A COPY WHER EOF HAS BEEN MADE AVAILABLE AT PAGE NO. 740 OF THE PAPER BOOK-II). T HE AO MADE THE ADDITION IN QUESTION ON ACCOUNT OF UNVERIFIABLE EXPENSES. THE OBSERVATION OF THE AUDITOR WAS THAT VOUCHERS IN RESPECT OF THESE BILLS ARE NOT AVAILABLE. THE AO DID NOT AGREE WITH THE EXPLANATION OF THE ASSESS EE THAT THESE SEIZED PAPERS CONTAIN AUDIT OBSERVATION REGARDING FIXED DE POSIT DIVISION OF THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT DURING THE BLOCK ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FILED THE DETAILS OF THESE EXPENSES ALONG WITH IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 49 ACCOUNT COPY OF RELEVANT ACCOUNTS. IT WAS SUBMITTE D THAT PAYMENTS TO VARIOUS PARTIES WERE MADE THROUGH CROSSED CHEQUES COPIES OF THE RELEVANT BANK STATEMENTS WERE ALSO MADE AVAILABLE. THE DETA ILS OF THESE EXPENSES HAVE BEEN MADE AVAILABLE AT PAGE NO. 237 OF THE PAP ER BOOK NO-1. IT WAS SUBMITTED THAT AN AMOUNT OF RS.6 40 000/- WAS PAID TO CRISIL FOR THE RATING OF FIXED DEPOSITS OF THE ASSESSEE COMPANY. THE PAYMENT WAS MADE THROUGH THE HEAD OFFICE OF THE ASSESSEE COMPANY ON BEHALF OF THE F.D DIVISION BY ACCOUNT PAYEE CHEQUES. 13.6. CONSIDERING THESE MATERIAL FACTS WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION ON THE BASI S THAT THE PAYMENTS TO VARIOUS PARTIES HAVE BEEN MADE THROUGH CROSSED CHEQ UES AND COPIES OF BANK STATEMENT ALONG WITH ACCOUNT COPY OF RELEVANT ACCOUNTS WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. HIS OBSERVATION THAT THE RELEVANT PAYMENTS ARE REFLECTED IN THE BAN K STATEMENTS AND IN THE ACCOUNTS UNDER VARIOUS HEADS HAVE NOT BEEN REBUTTED BY THE REVENUE BEFORE US. WE THUS DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER ON THE ISSUE. THE SAME IS UPHELD. THE GROUN D NO-14 IS ACCORDINGLY REJECTED. GROUND NO-15 14. THE A.O MADE FURTHER ADDITION OF RS.11 440/ - ON THE BASIS OF THE NOTE THAT INDIAN ROADWAYS CORPORATION HAS CREDITED THE SAME AMOUNT WISE. IN ABSENCE OF SPECIFIC ALLEGATION THAT THE ASSESSEE HAD CLAIMED THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 50 EXPENDITURE TWICE WE ARE OF THE VIEW THAT THE LD. C IT(A) HAS RIGHTLY DELETED THE ADDITION. THE GROUND NO. 15 IS ACCORDINGLY REJ ECTED. GROUND NO-16. 15. THE A.O MADE ADDITION OF RS.20 07 075/- BEI NG ALLEGED CASH PAYMENT IN CONTRAVENTION OF SECTION 40A (3) OF THE ACT. HE MADE THIS ADDITION ON THE BASIS OF AUDIT OBSERVATION ON PAGE 47 OF PARTY A-6 ANNEXURE A2 WHEREIN THE DETAILS OF CASH PAID TO BOK IYU TANNERIES LTD. IN FINANCIAL YEAR 1990-91 HAS BEEN GIVEN. THE CONTENT ION OF THE ASSESSEE AGAINST THE ABOVE ADDITION REMAINED THAT THE AO HAS PROCEEDED ARBITRARILY TO MAKE THIS ADDITION AS IT IS EVIDENT FROM THE FAC T THAT HE HAD MADE THE ADDITION OF RS.48 500/- BEING SUM OF VARIOUS AMOUNT S LESS THAN RS.10 000/- AND NOT HIT BY SECTION 40A (3) OF THE ACT. THE FURT HER SUBMISSION OF THE ASSESSEE REMAINED THAT THE ADDITION IN ANY CASE CAN NOT BE A SUBJECT OF BLOCK ASSESSMENT. IT WAS ALSO CONTENDED THAT SUCH DISALLOWANCE CANNOT BE MADE IN A BLOCK ASSESSMENT AND IN SUPPORT RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS:- JANTA TILES VS. ACIT (2000) 66 TTJ (PUNE) 695. EASTERN RETRADES (P) LTD. VS. ACIT (2000) TTJ (COCH ) 839. 16. IN VIEW OF THE ABOVE CITED DECISIONS WE ARE OF THE OPINION THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS.2 0 07 075/- WITH THIS IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 51 FINDING THAT ADDITION U/S 40A(3) CAN BE A SUBJECT O F THE BLOCK ASSESSMENT. THE SAME IS UPHELD. THE GROUND NO 16 IS THUS REJEC TED. GROUND NO. 17 17. THE AO MADE ADDITION OF RS. 19 10 000/- ON ACCOUNT OF INFLATION IN PURCHASE ON THE BASIS OF OBSERVATIONS OF THE AUDITO R ON PAGE NO 131 OF PARTY B-8 ANNEXURE A-1. THE AO REJECTED THE EXPLA NATION OF THE ASSESSEE THAT THESE AMOUNTS WERE ACTUALLY PAID AS SHARE APPL ICATION MONEY TO MESCO KALINGA STEEL LTD. WHICH WERE WRONGLY DEBITED AS TH E PURCHASES. IT WAS EXPLAINED THAT ACCOUNTS WERE LATER ON AMENDED AND T HE PURCHASES HAVE BEEN REDUCED BY THE SAME AMOUNT. A COPY OF ACCOUNT OF THE PARTY TAKEN FROM PAGE NO. 1019 AND 1020 OF THE SIZED BOOKS OF T HE ASSESSEE COMPANY FOR THE FINANCIAL YEAR 1994-95 DURING THE SEARCH AN D MARKED AS ANNEXURE A- 61 OF PARTY A-1 WAS ENCLOSED. IT WAS ALSO MADE AVA ILABLE BEFORE THE LD. CIT(A) AND AFTER EXAMINING THE VERACITY OF THESE EX PLANATIONS THE LD. CIT(A) HAS ACCEPTED THE EXPLANATION OF THE ASSESSEE AND HAS ACCORDINGLY DELETED THE ADDITION. 17.1. AFTER HAVING GONE THROUGH THE COPY OF THE ANNEXURE MADE AVAILABLE AT PAGE NO. 751 & 752 OF THE PAPER BOOK-I I WE FIND THAT THE EXPLANATION OF THE ASSESSE IS WELL SUPPORTED BY THE CORROBORATIVE EVIDENCE OF THE LEDGER ACCOUNT OF MESCO KALINGA STEEL LTD H ENCE THE LD. CIT(A) WAS IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 52 JUSTIFIED IN DELETING THE ADDITION IN QUESTION. TH E SAME IS UPHELD. THE GROUND NO. 17 IS ACCORDINGLY REJECTED. GROUND NO-18 . 17.2. THE AO MADE ADDITION OF RS.29 000/- U/S 40 A (3) OF THE ACT. THE OBJECTION OF THE ASSESSEE AGAINST THIS ADDITION REM AINED THAT IT CANNOT BE MADE IN A BLOCK ASSESSMENT IN VIEW OF THE ABOVE CIT ED DECISION IN SUPPORT OF THE SIMILAR ISSUE INVOLVED IN GROUND NO-16 OF TH E APPEAL DEALT HERINABOVE. FOLLOWING THE DECISION TAKEN THEREIN I N GROUND NO. 16 WE HOLD THAT AN ADDITION U/S 40 A (3) OF THE ACT CANNOT BE MADE IN A BLOCK ASSESSMENT. THE GROUND IS THUS REJECTED. GROUND NO. 19 17.3. THE AO MADE ADDITION OF RS. 95 000/- U/S 40 A (3) OF THE ACT ON THE PAYMENT MADE TO PLAYERS AT SAKET SPORTS COMPLEX AS CASH PRIZES TO PLAYERS. THE LD. CIT (A) HAS DELETED THE SAME WITH THIS FINDING THAT ADDITION U/S 40A (3) OF THE ACT CANNOT BE MADE IN T HE BLOCK ASSESSMENT. FOLLOWING OUR FINDING ON AN IDENTICAL ISSUE IN GROU ND NO. 16 & 18 HEREINABOVE WE DO NOT FIND REASON TO INTERFERE WIT H THE FIRST APPELLATE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 53 ORDER IN THIS REGARD. THE SAME IS UPHELD. THE GRO UND NO. 19 IS ACCORDINGLY REJECTED. GROUND NO. 20 17.4. THE AO MADE ADDITION OF RS. 34 520/- ON A CCOUNT OF UNACCOUNTED SCRAP SALES WHICH HAS BEEN REDUCED BY THE LD. CIT(A ) TO RS.3 614/- ON THE BASIS THAT AUDITOR HAS ONLY POINTED OUT THAT RS.3 6 14/- WAS NOT BOOKED. IN ABSENCE OF REBUTTAL OF THIS MATERIAL FACT BY THE RE VENUE WE ARE NOT INCLINED TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. THE GROUND NO. 20 IS ACCORDINGLY REJECTED. GROUND NO. 21 17.5. THE AO MADE ADDITION OF RS. 8 33 185/- ON ACCOUNT OF SALES NOT ENTERED IN THE BOOKS. THE EXPLANATION OF THE ASSES SEE IN THIS REGARD REMAINED THAT THEY HAD SHOWN THAT THESE GOODS WERE SENT TO LITTLE ROAM A SISTER CONCERN DEALING IN LEATHER GOODS AS PER THE DETAILS MENTIONED ON THE SEIZED PAGE AS SAMPLES. IT WAS ARGUED THAT THE NO TINGS DO NOT SHOW THAT ANY INCOME HAS BEEN EARNED OUTSIDE THE BOOKS OF ACC OUNT HENCE NO ADDITION OF NOTIONAL INCOME CAN BE MADE IN VIEW OF VARIOUS DECISIONS INCLUDING THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF GODHRA IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 54 ELECTRICAL VS. CIT 226 ITR 625 (S.C). THE FURTHER SUBMISSION OF THE ASSESSEE REMAINED THAT GOODS SENT AS SAMPLES WOULD CAUSE LOSS OF REVENUE TO THE COMPANY AND IT IS NOT A CASE WHERE ANY INCOM E HAS BEEN EARNED OUTSIDE BOOKS UNLESS ANY MATERIAL IS BROUGHT ON REC ORD TO SUPPORT SUCH CONTENTIONS. IT WAS ALSO ARGUED THAT NO SUCH ADDIT ION CAN BE MADE ON THE BASIS OF AUDIT OBSERVATIONS MADE ON THE SEIZED DOCU MENT FOUND DURING THE COURSE OF SEARCH OF THE PREMISES OF THE AUDITOR. I T WAS ALSO POINTED OUT THAT THERE IS NO OUTSTANDING DEMAND OF EXCISE DEPART MENT IN THE ASSESSMENT ORDER COMPLETED U/S 143(3) OF THE ACT FO R THE A.Y 1993-94. 17.6 HAVING GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW ON THE ISSUE WE FIND THAT THE FIRST APPELLATE ORDER IN TH IS REGARD IS REASONED ONE. THE LD. CIT(A) IN ABSENCE OF ANY MATERIAL IN CORROB ORATION WITH THE OBSERVATION OF THE AUDITORS ON THE BASIS OF WHICH T HE ADDITION HAS BEEN MADE (A COPY WHEREOF HAS BEEN PLACED AT PAGE NO. 8 14 OF THE PAPER BOOK.) HAS RIGHTLY DELETED THE ADDITION. THE SAME IS UPHELD. THE GROUND NO. 21 IS ACCORDINGLY REJECTED. GROUND NO. 22 17.7. AN ADDITION OF RS.1 18 74 860/- ON ACCOU NT OF UNACCOUNTED SALES WAS MADE BY THE A.O WHICH HAS BEEN DELETED BY THE L D. CIT(A). IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 55 17.8. THE AO HAS MADE THIS ADDITION ON THE BASI S OF AUDIT OBSERVATIONS OF FARIDABAD FACTORY MADE ON PAGE NO. 70 OF THE ANN EXURE AA-52 OF PARTY B-8 I.E THE DOCUMENT SEIZED DURING THE COURSE OF S EARCH PROCEEDINGS AT THE PREMISES OF THE AUDITOR. A COPY OF THIS ANNEXURE H AS BEEN MADE AVAILABLE AT PAGE NOS. 822 TO 828 OF THE PAPER BOOK-II. 18. ON PERUSAL OF THE ORDERS OF THE AUTHORI TIES BELOW WE FIND THAT THE ADDITION IN QUESTION WAS IMPUGNED BY THE ASSESSEE B EFORE THE LD. CIT(A) WITH THIS CONTENTION THAT NO SUCH HUGE ADDITION CAN BE MADE IN A BLOCK ASSESSMENT ON THE BASIS OF AUDIT NOTES WITHOUT EST ABLISHING AND SUBSTANTIATING THE ALLEGATION THAT TOO WHEN THE AUD IT NOTE ITSELF STATES THAT THE GOODS SENT TO MADRAS WAS NOT STILL RECEIVED BA CK. IT WAS STATED THAT THE GOODS WERE SENT PROPERLY THROUGH THE EXCISE CHAL LAN 57 F (3) FOR THE JOB WORK. FURTHER ARGUMENT OF THE ASSESSEE REMAINE D THAT EVEN OTHERWISE OUT OF THE RAW MATERIAL SENT FOR JOB WORK NO ONE CA N EARNED ANY PROFIT. CONSIDERING THESE MATERIAL ASPECT OF THE ISSUE WHIC H REMAINED REBUTTED BY THE REVENUE WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MERELY BASED ON AUDITORS NOTI NGS ON THE SEIZED DOCUMENT FROM THEIR PREMISES AND IN ABSENCE OF CORR OBORATIVE MATERIAL IN SUPPORT THERETO. THE SAME IS UPHELD. THE GROUND N O. 22 IS THUS REJECTED. GROUND NO. 23 18.1. THE A.O HAS MADE ADDITION OF RS.1 33 700 /- U/S 40 A (3) OF THE ACT. THE LD. CIT(A) HAS DELETED THE ADDITION ON TH E BASIS THAT DISALLOWANCE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 56 U/S 40 A (3) IS OUTSIDE THE PURVIEW OF BLOCK ASSES SMENT. WE HAVE ALREADY APPROVED THIS VIEW OF THE FIRST APPELLATE AUTHORITY HEREINABOVE IN GROUND NO. 16. FOLLOWING THE DECISION TAKEN THEREIN WE UP HOLD THE FIRST APPELLATE ORDER IN THIS REGARD. THE GROUND NO. 23 IS ACCORDI NGLY REJECTED. GROUND NO. 24 . 18.2. THE A.O MADE ADDITION OF RS.11 59 407/- ON ACCOUNT OF PAYMENT MADE TO INDIA TRADE PROMOTION ORGANIZATION FOR WHIC H NO BILLS WERE PRODUCED. THE CONTENTION OF THE ASSESSEE AGAINST T HIS ADDITION REMAINED THAT THE PAYMENT HAS BEEN MADE TO THE GOVERNMENT CO NCERN BY ACCOUNT PAY CHEQUE AND SHOULD NOT BE QUESTIONED. SINCE THE GENUINENESS OF THE PAYMENT WAS NOT IN DISPUTE THE LD. CIT(A) CONSIDER ING THE ABOVE CONTENTION OF THE ASSESSEE HAS DELETED THE ADDITION ON THE BASIS THAT THE GENUINENESS OF PAYMENT IS NOT IN DISPUTE. IT WAS SU BMITTED THAT COPY OF THE ACCOUNT THROUGH WHICH THE AMOUNT WAS PAID BY CH EQUE TO INDIA TRADE PROMOTION ORGANIZATION WAS FURNISHED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS HOWEVER ASSESSEE WAS NOT A BLE TO FURNISH THE BILL FOR THE SAME. NOTING THESE MATERIAL FACTS WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. THE SAME IS UPHELD. THE GROUND NO. 24 IS ACCORDINGLY REJECTED. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 57 GROUND NO. 25 18.3. SINCE IT IS NOT BASED ON THE ADDITION MADE ON THE BASIS OF OBSERVATIONS OF THE AUDITORS RATHER DEDUCTION ALLOW ED U/S 80 HHC BY THE LD. CIT(A) HAS BEEN QUESTIONED WE DEAL WITH THIS GROUN D LATER ON AFTER DEALING WITH THE GROUND NOS. 26 & 27 BASED ON OBSERVATION O F THE AUDITOR DOCUMENTS OF WHICH OR FOUND DURING THE COURSE OF SE ARCH AT THE PREMISES OF THE AUDITOR. GROUND NO. 26 18.4. THE AO MADE ADDITION OF RS.55 000/- U/S 40 A (3) OF THE ACT. FOLLOWING OUR DECISION IN GROUND NO. 16 HEREINABOVE ON AN IDENTICAL ISSUE WE JUSTIFY THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION IN QUESTION AS THE SAME CANNOT BE MADE IN THE BLOCK ASSESSMENT. T HE GROUND NO. 26 IS ACCORDINGLY REJECTED. GROUND NO. 27 18.5. THE A.O MADE ADDITION OF RS.6 400/- ON ACCOUNT OF NON BILLING OF SHOES..... AT AHMEDABAD BRANCH. THE LD. CIT(A) HAS DELETED THE SAME ON THE BASIS THAT ADDITION WAS MADE ON NOTIONAL BASIS WHICH IS BEYOND THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 58 SCHEME OF THE BLOCK ASSESSMENT. WE DO NOT FIND REA SON TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD IN ABSENCE OF REBUTTAL OF THE ABOVE FINDING OF THE LD. CIT(A). THE GROUND NO. 27 IS AC CORDINGLY REJECTED. 18.6. BESIDES WE FIND IT FIT TO MENTION OVER HERE THAT THE ADDITIONS WHICH ARE SUBJECT MATTERS OF GROUND NOS. 12 TO 24 A ND 26 TO 27 ARE BASED ON THE OBSERVATION OF THE AUDITOR OF THE ASSESSEE C OMPANY WHICH WERE FOUND AND SEIZED FROM THE PREMISES OF THE SAID AUDI TOR DURING SEARCH PROCEEDINGS. HENCE IN ABSENCE OF CORROBORATIVE EV IDENCE IN SUPPORT THESE ADDITIONS CANNOT BE MADE IN A BLOCK ASSESSMENT. TH E ADDITIONS IN QUESTION IN THESE GROUNDS THEREFORE HAVE BEEN RIGHTLY DELET ED BY THE LD. CIT(A) AS WE HAVE HELD WHILE DEALING WITH THE ISSUE IN GROUND NO. 12 HEREINABOVE. GROUND NO. 25 19. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF T HE ACT IN THE ASSESSMENT YEARS 1994-95 1995-96 AND 1996-97. THE A.O MADE DISALLOWANCE ON THE BASIS THAT THE INTEREST RECEIVE D CANNOT BE SET OFF AGAINST INTEREST PAID FOR THE PURPOSE OF COMPUTATIO N U/S 80HHC OF THE ACT. THE CONTENTION OF THE ASSESSEE REMAINED THAT DEDUCT ION UNDER CHAPTER VI A OF THE ACT CANNOT BE RE-EXAMINED IN BLOCK ASSESSMEN T PROCEEDINGS. IN SUPPORT RELIANCE WAS PLACED ON THE FOLLOWING DECISI ONS:- IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 59 ABDULGAFAR A. NADIADWALA VS. DCIT 75 I TD 394 (MUM) MICROLAND LTD. VS. ACIT 67 ITD 446 (BA NG) URMILA CHANDAK & ORS. VS. ACIT 60 TTJ (MAD) 758 UNIVERSAL CAPSULES (P) LTD. VS. DCIT 6 8 TTJ (MUMBAI) 817 20. IT WAS ALSO CONTENDED THAT THE AO HAS NO T RELIED UPON ANY MATERIAL SEIZED DURING THE COURSE OF SEARCH U/S 132 OF THE A CT FOR MAKING THE ADDITION IN QUESTION. IN ABSENCE OF REBUTTAL OF TH E ABOVE FACTUAL FINDING OF THE LD. CIT(A) THAT NO MATERIAL WAS SEIZED DURING T HE COURSE OF SEARCH PROCEEDINGS U/S 132 OF THE ACT FOR MAKING THE DISAL LOWANCE IN QUESTION WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED I N DELETING THE ADDITION WITH FURTHER FINDING THAT DEDUCTION UNDER CHAPTER V I A OF THE ACT CANNOT BE RE-EXAMINED IN BLOCK ASSESSMENT PROCEEDINGS. THE F IRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. THE GROUND NO. 25 IS A CCORDINGLY REJECTED. 21. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. IT(SS)A NO. 10/DEL/2004 22. THE ASSESSEE HAS QUESTIONED THE FIRST APP ELLATE ORDER ON THE FOLLOWING GROUNDS :- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN SUSTAINING THE ASSESSME NT FRAMED U/S I 58BCI143(3) OF THE ACT BY THE LEARNED DCIT CENTRAL CIRCLE 6 NEW DELHI. 2. THAT THE LEARNED CIT(A) HAS FAILED TO APPREC IATE THAT THE PROCEEDINGS INITIATED UNDER SECTION 158 BC OF CHAPTER XIV B OF THE INCOME TAX ACT HAD NOT VALIDLY BEEN INITIATED AGAINST THE ASSESSEE COM PANY AS THE PROCEEDINGS TAKEN FOR SEARCH AND SEIZURE OPERATIONS ULS 132 OF THE INCOME TAX ACT WERE NOT VALID AND WERE IN EXCESS OF JURISDICT ION VESTED IN THE CONCERNED IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 60 AUTHORITIES. IN THE ABSENCE OF ANY VALID MATERIAL THE SEARCH AND SEIZURE OPERATIONS BEING NOT VALID THE ENTIRE PROCEEDINGS TAKEN IN PURSUANCE THEREOF WERE THUS NOT VALID AND HENCE THE ASSESSME NT MADE IS UN- SUSTAINABLE IN LAW 3. THAT LEARNED CIT(A) HAD FAILED TO APPRECIA TE THAT EVEN OTHERWISE THE ASSESSMENT MADE UNDER CHAPTER XIV B OF THE INCOME T AX ACT AND BY INVOKING THE PROVISIONS OF SECTION 158 BC OF THE IN COME TAX ACT IS HIGHLY ARBITRARY AND THE ASSESSMENT HAD MECHANICALLY BEEN MADE. 4. THAT FURTHER THE LEARNED CIT(A) HAD FAILED TO APPRECIATE THAT THE LEARNED DCIT HAS NOT PROCEEDED TO COMPUTE THE INCOM E IN THE MANNER PROVIDED U/S 158 BB OF THE INCOME TAX ACT. NON-ADHE RENCE TO THE AFORESAID PROVISIONS OF MAKING ASSESSMENT HAS RESULTED IN THE ASSESSMENT BEING VITIATED IN LAW. 5. THAT THE LEARNED CIT (A) HAS FURTHER FAILE D TO APPRECIATE THAT UNDER THE AFORESAID CHAPTER THE UNDISCLOSED INCOME OF B LOCK PERIOD IS TO BE THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS FAILING IN THE BLOCK PERIOD IN ACCORDANCE WITH THE PROVISIONS OF CHAPTE R XIV B OF THE INCOME TAX ACT ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNTS OR DOCUMENTS AND SUCH OTHER MA TERIAL OR INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER HAS AND IS TO BE REDUCED BY THE AGGREGATE TOTAL INCOME OR AS THE CASE MAY BE IN IN CREASED BY THE AGGREGATE OF THE LOSSES OF SUCH PREVIOUS YEARS SO D ETERMINED. 6. THAT FURTHER THE LEARNED CIT(A) HAS FURTHER ERRED IN FAILING TO APPRECIATE THAT THE LEARNED DCIT HAD ERRED IN NOT G RANTING TO THE ASSESSEE A FAIR AND PROPER OPPORTUNITY OF BEING HEARD AND HA S PROCEEDED TO MAKE THE ASSESSMENT ARBITRARILY WITHOUT CALLING FOR INFO RMATION OR MATERIAL AND DRAWING ADVERSE INFERENCE WITHOUT PROVIDING TO THE ASSESSEE A VALID AND PROPER OPPORTUNITY. 7. THAT THE LEARNED CIT(A) HAS FAILED TO APPRE CIATE THAT IN THE INSTANT CASE SEARCH AND SEIZURE PROCEEDINGS WERE CONCLUDED ON 1.5.1997 WHEREAS THE NOTICE U/S 158 BC OF THE INCOME TAX ACT WAS ISS UED ON 21.8.1997 AND THE DOCUMENTS WHICH HAD BEEN SEIZED COULD BE FURNIS HED ONLY BY NOVEMBER 1998 AND AS SUCH THE ASSESSEE COULD NOT HAVE FURNISHED A RETURN OF INCOME EARLIER THAN 1. 1 .1999 AND AS SUC H ASSESSMENT MADE WITHIN A PERIOD OF 4 MONTHS WAS AN ASSESSMENT MADE IN HURRY AND AN ASSESSMENT MADE WITHOUT GRANTING TO THE ASSESSEE A PROPER AND VALID OPPORTUNITY. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 61 8. THAT THE LEARNED CIT(A) HAS COMPLETELY OVERLO OKED THE DETAILED SUBMISSIONS AND EVIDENCE FORMING PART OF THE PAPER BOOK WHILE HOLDING THAT 'THE SUBMISSIONS ARE GENERAL IN NATURE AND W ITHOUT BRINGING ANY SPECIFIC MATERIAL ON RECORD.' INFACT THE FINDING R ECORDED BY THE LEARNED CIT (A) IS ARBITRARY MISCONCEIVED AND CONTRARY TO PRO VISIONS OF THE ACT. 9. THAT THE LEARNED CIT (A) HAS FURTHER ERRED I N SUSTAINING THE ADDITION TO THE EXTENT OF RS.31 47 000I- OUT OF AN AGGREGATE AD DITION OF RS. 52 90 682/- AS AN ALLEGED UNEXPLAINED INVESTMENT IN SATBARI FARM FOR THE ASSESSMENT YEAR 1988-89 UNDER THE HEAD' INCOME FROM OTHER SOURCES.' 9.1 THAT THE LEARNED CIT(A) HAD FAILED TO APPRE CIATE THAT THERE BEING NO UNDISCLOSED INVESTMENT THE ADDITION HAD BEEN MADE WITHOUT ANY BASIS OR ANY VALID MATERIAL. INFACT MERE VALUATION REPORT D OES NOT BY ITSELF BE A BASIS TO CONCLUDE THAT THERE WAS ANY UNEXPLAINED IN VESTMENT MADE BY THE ASSESSEE COMPANY. 9.2 THAT THERE WAS NO VALID BASIS OR MATERIAL ON RECORD FOR THE LEARNED CIT (A) TO HAVE SUSTAINED THE ADDITION OF THE SAID SUM AND THAT TOO WHILE FRAMING THE ASSESSMENT UNDER CHAPTER XIV-B OF THE I NCOME TAX ACT. 10 THAT FURTHER LEARNED CIT(A) HAS ERRED IN S USTAINING THE FOLLOWING VARIOUS ADDITIONS OF RS. 2 38 56 115/- MADE UNDER T HE HEAD IRREGULARITIES OF BOOKS OF ACCOUNTS BY THE LEARNED DCIT ON THE BASIS OF THE MATERIAL SEIZED FROM THE PREMISES OF THE AUDITOR OF THE ASSESSEE CO MPANY CONTAINING AUDIT OBJECTIONS RAISED DURING AUDITS OF THE ASSESSEE COM PANY: S NO PARA/PAGE OF ASSTT ORDER AMOUNT (RS.) ASSTT. YEAR 1 C(A)(16) 30 193 1997-98 2. C I (17) 12 48 000 1997-98 3. C (D) (17) 34 270 1997-98 4. C(D)(L7) 6 90 156 1997-98 5. D (A B C D) (17 18) 93 675 1991-92 6. E (18) 2 14 000 1996-97 7. F (18) 12 74 380 1995-96 8. G (18) 26 000 1995-96 9. G (18) 20 860 1995-96 10. G (18) 52 256 1995-96 11. H (19) 4 03 869 1996-97 IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 62 12. H (B)( 19) 20 928 1996-97 13. 1 (19) 1 47 000 1993-94 14. 1(19) 3 614 1993-94 15. 1(19) 2 53 675 1993-94 16. J (20) 6 26 334 1996-97 17. K (20) 29 370 1996-97 18. K (20) ] 7 373 ]996-97 19. K (20) 5 950 1996-97 20. M (20) 17 583 1995-96 21. N (20) 3 46 629 1996-97 22. N (20) 1 83 00 000 1996-97 TOTAL 2 38 56 115 10.I THAT THE LEARNED CIT(A) WHILE UPHOLDING THE AFORESAID ADDITIONS HAS FAILED TO APPRECIATE THAT SUCH PAPERS WERE MERE LOOSE PAPERS CONTAINING WORKINGS OF THE AUDITOR AND IN ABSENCE OF THE AUDITOR HAVING CONFIRMED THE FACTUM THAT ANY OF SUCH PAPERS INDICA TE LET ALONE ESTABLISH THAT THE ASSESSEE COMPANY HAD ANY UNDISCLOSED INCOM E/ THE ADDITIONS SUSTAINED ARE UNTENABLE AND UNWARRANTED. INFACT MO ST OF SUCH PAPERS ARE UNSIGNED HAD HAVE NOT BEEN CONFRONTED TO THE AUDITO R OF THE ASSESSEE COMPANY TO VERIFY WHETHER SUCH AUDIT NOTES HAD BEEN SOLVED SUBSEQUENTLY OR NOT. NONE THE LESS THERE IS NO CORROBORATIVE EVI DENCE FOUND FROM THE PREMISES OF THE ASSESSEE COMPANY TO SUPPORT THE ALL EGATIONS MADE BY THE LEARNED AO AND CONFIRMED BY THE LEARNED C!T(A). 10.2 THAT THE LEARNED CIT(A) HAS FURTHER CONFIRM ED THE AFORESAID ADDITIONS WITHOUT PROPERLY APPRECIATING THE SUBMISS IONS OF THE ASSESSEE COMPANY AND THE FINDINGS RECORDED ARE VAGUE WITHO UT ANY BASIS OR EVIDENCE AND THEREFORE THE ADDITIONS ARE UNTENABLE IN LAW. !0.3 THAT THE LEARNED CIT (A) HAS FURTHER SUSTA INED THE ADDITIONS ON IRRELEVANT AND SUBJECTIVE CONSIDERATIONS BY FAILIN G TO APPRECIATE THAT SAID SUMS COULD NOT BE HELD AS UNDISCLOSED INCOME UNDER CHAPTER XIVB OF THE ACT. 10.4 THAT THE LEARNED C!T(A) HAS FAILED TO APP RECIATE THE SUBMISSIONS MADE BY THE ASSESSEE THAT THE DOCUMENTS FOUND DURIN G THE COURSE OF SEARCH ALLEGING SUCH PAYMENTS WERE DUMB DOCUMENTS A ND COULD NOT BE A BASIS TO HOLD THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE. INFACT LENGTHY SUBMISSIONS SUPPORTED BY THE EVIDENCE AND J UDICIAL PRONOUNCEMENTS HAS BEEN OVERLOOKED AND THEREFORE T HE ADDITION SUSTAINED IS UNWARRANTED. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 63 10.5 THAT THE LEARNED C!T(A) HAS FAILED TO APPR ECIATE THAT THE AUDIT NOTES COULD NOT BE ARBITRARILY BE MADE A BASIS TO HOLD TH AT THE OBSERVATIONS NOTED THEREIN WERE UNDISCLOSED INCOME OF THE ASSESSEE TH AT TOO WITHOUT CONFRONTING THE SAME TO HE AUDITOR OF THE ASSESSEE COMPANY AT WHOSE PREMISES SUCH LOOSE PAPERS WERE FOUND AND HE HAD HI MSELF SUBSEQUENTLY SIGNED THE STATUTORY AUDIT REPORT AND FINANCIAL STA TEMENTS OF THE ASSESSEE COMPANY. 10.6 THAT THE LEARNED C!T(A) IN A MECHANICAL MAN NER AND WITHOUT APPRECIATING THE SUBMISSIONS/EVIDENCES FILED BY THE ASSESSEE AND FACTUAL SUBSTRATUM OF THE ISSUE PROCEEDED ARBITRARILY TO S USTAIN THE ADDITION WHICH IS WHOLLY UNTENABLE IN LAW AND DESERVES TO BE DELET ED. 11. THAT THE LEARNED CIT(A) HAS FAILED TO APPRE CIATE THAT THE LEARNED DCIT WHILE FRAMING THE IMPUGNED ASSESSMENT DID NOT PROVIDE TO THE ASSESSEE ANY FAIR PROPER AND VALID OPPORTUNITY AND THE ASSESSMENT HAS BEEN MADE IN HIGHLY ARBITRARY AND FANCIFUL MANNER A ND THE ASSESSMENT MADE OF THE INCOME SO DETEM1INED IT. WITHOUT JURIS DICTION. 12. THAT THE LEARNED C[T(A) HAS FURTHER ERRED IN SUSTAINING THE INITIATION OF PROCEEDINGS U/S 271 D & 27 I E OF THE INCOME TAX ACT AND THE OBSERVATION MADE BY THE LEARNED DCIT THAT THERE IS VIOLATION OF SECTION 269 SS AND 269 T OF THE INCOME TAX ACT THE AFORESAID OB SERVATIONS ARE TOTALLY IN EXCESS OF JURISDICTION WHILE MAKING THE IMPUGNE D ASSESSMENT AND AS SUCH. THEY DESERVE TO BE TOTALLY IGNORED. 13. THAT FURTHER THE LEARNED CIT(A) HAS ERRE D IN SUSTAINING THE LEVY OF INTEREST U/S 158 BFA OF THE ACT AND HAS ALSO FURTHE R ERRED IN SUSTAINING THE INITIATION OF PENALTY PROCEEDINGS U/S 158 BFA 271 D & 271 E OF THE INCOME TAX ACT. 14. THAT IN ANY CASE AND WITHOUT PREJUDICE THE LEARNED C!T(A) FAILED TO APPRECIATE THAT THE APPROVAL OBTAINED BY THE LEA RNED DCIT FROM THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX WAS N OT IN ACCORDANCE WITH LAW AS THE ASSESSEE HAD NOT BEEN GIVEN ANY OPPORTUN ITY AND THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX HAD THUS ERRE D IN GRANTING A MECHANICAL APPROVAL. IT IS THEREFORE PRAYED THAT- IT BE HEL D THAT THE ASSESSEE COMPANY WAS NOT LIABLE FOR ASSESSMENT AND THE ASSESSMENT MA DE WAS UNTENABLE IN LAW. IN THE ALTERNATIVE VARIOUS ADDITIONS SUSTAINE D ALONG-WITH THE LEVY OF INTEREST DESERVES TO BE DELETED AS SUCH. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 64 23. WE HAVE HEARD AND CONSIDERED THE ARGU MENTS ADVANCED BY THE PARTIES IN VIEW OF THE ORDERS OF THE AUTHORITIES BE LOW MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 24. THE RELEVANT FACTS ARE THAT THE ASSESSE E A PUBLIC LIMITED COMPANY INCORPORATED ON 28.7.1977 IN THE NAME OF MIDEAST SH IPPING CO. LTD. WAS ENGAGED MAINLY IN THE BUSINESS OF MANUFACTURING TR ADING AND EXPORT OF SHOES LEATHER AND VARIOUS LEATHER PRODUCTS. THE ASS ESSEE COMPANY AND OTHERS WERE SUBJECTED TO SEARCH AND SEIZURE OPERATI ON U/S 132(1) OF THE ACT DETAILS OF WHICH ARE AS UNDER :- SI. PLACE OF SEARCH DATE OF NO. SEARCH 1 MESCO TOWER H-L ZAMRUDPUR COMMUNITY CENTRE KA ILASH 26.02.97 COLONY NEW DELHI. 2 B-132 SEC-2 NOIDA 26.02.97 3 156/158 DEFENCE COLONY FLYOVER COMPLEX NEW DEL HI 26.02.97 4 14/6 MATHURA ROAD FARIDABAD 26.02.97 5 21-22 NEPZ NOIDA; 26.02.97 6 29A KALU SARAI DELHI; 26.02.97 7 MIS A.R. ASSOCIATES CHARTERED ACCOUNTANTS 26.02.97 8 C-LL OKHALA INDUSTRIAL AREA PHASE - II NEW D ELHI 26.02.97 (WAREHOUSE) 9 N - 13 NOSE - I NEW DELHI 26.02.97 10 7 LA-PLACE SHAHNAZ ROAD LUCKNOW 26.02.97 11 41/530 KRISHANA SWAMI CROSS ROAD COCHIN 26 .02.97 12 KHETRAPAL MARKETING SERVICES 306/9 PANJRAPOLE 26.02.97 R. ROAD AHEMDABAD 13 SHOP NO. 3 GOPAL MANSION GOKHALE ROAD (S) DADAR 26.02.97 MUMBAI; 14 NO. 69 DEFENCE COLONY CHENNAI. 26.02.97 15 MIS A.R. ASSOCIATES CHARTERED ACCOUNTANTS 05.03.97 16 MESCO TOWER H-L ZAMRUDPUR COMMUNIT Y CENTRE 25.3.97 COLONY NEW DELHI. 17 29A KALU SARAI DELHI 3.4.97 18 B-132 SEC-2 NOIDA 10.4.97 19 MESCO TOWER H- L ZAMRUDPUR COMMUNITY CENTRE 1.5.97 COLONY NEW DELHI. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 65 25. IN PURSUANCE TO THE SEARCH AND SEIZUR E OPERATIONS A NOTICE U/S 158BC OF THE ACT WAS ISSUED TO THE ASSESSEE ON 21.8 .1997. IN RESPONSE THE ASSESSEE FURNISHED A RETURN OF UNDISCLOSED INCOME O N 1.1.1999 FOR THE BLOCK PERIOD COMPRISING OF ASSESSMENT YEARS 1987-88 TO 19 97-98 DECLARING THEREON AN UNDISCLOSED INCOME OF RS. 90 768/-. IN E ACH OF THE ASSESSMENT YEARS FALLING WITHIN BLOCK PERIOD I.E. ASSTT. YEARS 1987-88 TO 1996-97 THE ASSESEE HAD FILED ITS RETURN OF INCOME BEFORE THE D ATE OF SEARCH AND SEIZURE AND ASSESSMENTS WERE ALSO FRAMED U/S 143(3) OF THE ACT EXCEPT FOR THE ASSESSMENT YEAR 1996-97. THE AO VIDE ORDER DATED 29 .4.1999 COMPUTED THE UNDISCLOSED INCOME OF THE ASSESSEE AT RS. 1 96 15 42 702/-. SUBSEQUENTLY BY AN ORDER U/S 154 OF THE ACT DATED 3 0.7.1999 THE AO REDUCED THE UNDISCLOSED INCOME TO RS. 1 46 41 71 38 4/-. THE ASSESSEE PREFERRED FIRST APPEAL AGAINST THE ASSESSMENT ORDE R WHICH WAS DISPOSED OFF VIDE ORDER DATED 15.4.1999. BY THE ACTION OF THE F IRST APPELLATE AUTHORITY THE ASSESSED INCOME STOOD REDUCED TO RS. 2 66 26 65 2/-. THUS BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE THE TRIBU NAL. GROUND NOS. 1 TO 8 11 12 & 14 26. THESE GROUNDS ARE GENERAL /LEGAL IN NATURE WHICH DO NOT CALL FOR ANY SPECIFIC ADJUDICATION. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 66 GROUND NO. 9 TO 9.1 27. IN THESE GROUNDS THE ADDITION OF RS.31 47 000 /- OUT OF RS. 52 90 682/- AS AN ALLEGED UNEXPLAINED INVESTMENT IN SATBARI FARM FOR THE ASSTT. YEAR 1988-89 SUSTAINED BY THE LD. CIT(A) HAS BEEN QUESTIONED. 28. THE AO HAS DEALT WITH THE ISSUE IN PARA NO . 11 AT PAGE 13 OF THE ORDER. ON THE BASIS OF A SIGNED REPORT (PHOTOCOPY) OF ARCHITECT MR. DINESH SING FOUND DURING THE COURSE OF SEARCH AND MARKED AS ANNEXURE A- I/A-54 PAGE 20-22 THE AO OBSERVED THAT THE CONSTRU CTION AT SATBARI WAS COMPLETED IN OCTOBER 1987(1 ST PHASE) FOR RS. 52 90 682/-. AS PER AGREEMENT DATED 28.2.85 THE COST OF CONSTRUCTION WA S TO BE BORNE BY M/S. MIDEAST INDIA LTD. THE ASSESSEE REPLIED THAT THIS V ALUATION IS ON ESTIMATE BASIS AND NOT DONE ON THE BASIS OF ACTUAL EXPENDITU RE INCURRED. THE ASSESSEE AGREED THAT ENTIRE CONSTRUCTION WAS TAKEN BY HIM AND THE AMOUNT ACTUALLY INCURRED IS REFLECTED IN BOOKS OF ACCOUNTS AS UNDER :- 31.5.89 RS. 36.34 LAC AND 31.1.90 TO 31.3. 92 RS. 36.78 LAC 31.3.73 -RS. 44.8 LAC. THE ASSESSEE PLEA IS REJECTED. THE V ALUATION WAS DONE ON DECEMBER 88 AND IT CLEAR STATES THAT CONSTRUCTION WAS COMPLETED IN OCTOBER 87. FOR ASSESSMENT YEAR 1988-89 THERE IS NO INVESTMENT SHOWN BY ASSESSEE. AND HENCE ENTIRE AMOUNT OF RS. 52 90 6 82/- IS BROUGHT TO TAX AS UNDISCLOSED INVESTMENT IN SATBARI FARM FROM ASSE SSMENT YEAR 1988-89 UNDER THE HEAD OTHER SOURCES. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 67 29. LD. CIT(A) HAS DEALT WITH THIS ISSUE AT PAGE NOS. 24 TO 26 OF THE FIRST APPELLATE ORDER. LD. CIT(A) AFTER CONSIDERIN G THE SUBMISSIONS OF THE PARTIES HAS SUSTAINED THE ADDITION TO THE EXTENT OF RS. 31.47 LACS I.E. DIFFERENCE BETWEEN THE VALUATION AS PER THE VALUA TION REPORT AND THAT DEBITED IN THE BOOKS OF ACCOUNTS TILL 31.10.87. PAR TIES ARE THUS IN APPEALS. 30. THE LD. AR CONTENDED THAT ONCE THE LD. CI T(A) HAS ADMITTED THAT VALUATION REPORT IS AN ESTIMATE THERE WAS NO JUSTI FICATION TO SUSTAIN ADDITION SOLELY ON THE BASIS OF VALUATION REPORT. IN THIS RE GARD HE PLACED RELIANCE ON THE FOLLOWING DECISIONS :- A) 67 TTJ 247 (ALL) MONGA METALS (P) LTD. VS.ACIT ( SUPRA) B) 67 TTJ 109 (DEL) ALOK AGGARWAL VS. DCIT C) 66 TTJ 704 (PUNE) JAIKISHAN R. AGARWAL VS. ACIT D) 66 TTJ 565 (CHD) R.K. SYALA VS. ACIT E) 70 TTJ 131 (AHD) PRARTHANA CONSTRUCTION (P) LTD. VS. DCIT F) 70 TJ 131 (AHD)UNIQUE ORGANIZER & DEVELOPERS (P) LTD. G) 69 TTJ 66 (CAL) T.S. VENKATESAH VS. ACIT H) 127 ITR 816 (P & H) CIT VS. SHAM LAL I)19 ITR 102 (ORI) GANESHDAS KALURAM J) 34 ITR 501 (KER) M.O. THOMA KUTTA VS. CIT K) 84 ITR 222 (P & H) CHIRANJILAL STEEL ROLLINGS MI LLS VS. CIT L) 47 ITD257 (BOM) DHIRENDRA PARISH VS. FIFTH ITO M) 55 TTH 699(DEL) SIR SOBHA SINGH & SONS (P) VS. I AC IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 68 N) 11 ITD 404 (DEL) ITO VS. OMEGA BRIGHT STEEL (P) LTD. O) 27 ITD 392 (AHD) ITO VS. SILK MUSEUM P) 56 TTJ 669 (DEL) SKYLARK CHIT FUND AND FINANCE ( P) LTD. VS. ACIT 31. THE LD. AR ALSO REFERRED COPIES OF VA LUATION REPORT (ANNEXURE A54 OF PARTY A-1 MADE AVAILABLE AT PAGE NOS. 666- 668 OF THE PAPBER BOOK- II); REPLY /LETTER DATED 17.4.1999 (MADE AVAILABLE AT PAGE NOS. 169 TO 233 OF THE PB-I) MEMORANDUM OF LEASE DATED 28.2.1985 ( PAGE NOS. 669 TO 673 PB-II) AUDITED BALANCE SHEETS FOR THE F.Y. 1985-86 1986-87 1.11.1987 TO 31.3.1989 (PAGE NOS. 376 TO 442 PB-I) ; AND THE ASS ESSMENT ORDERS FOR THE ASSESSMENT YEARS 1987-88 AND 1988-89 (PAGE NO. 443 TO 447 455 TO 459 & 483 TO 487 OF PAPER BOOK I). LD. CIT DR ON THE OTHER HAND TRIED TO JUSTIFY THE ASSESSMENT ORDER. SHE SUBMITTED THAT TH ESE WERE SUFFICIENT SEIZED MATERIAL ON THE BASIS OF WHICH THE AO HAD WO RKED OUT THE UNDISCLOSED INCOME. 32. ON PERUSAL OF THE ORDERS OF THE AUTHOR ITIES BELOW WE FIND THAT THE ISSUE INVOLVED IS REGARDING UNDISCLOSED INVESTMENT IN THE CONSTRUCTION OF SATBARI FARM FOR THE ASSESSMENT YEAR 1988-89 . THE VALUATION REPORT SIGNED BY SHRI DINESH SINGH ARCHITECT WAS FOUND AND SEIZE D DURING THE COURSE OF SEARCH OPERATION AND MARKED AS ANNEXURE A-54 OF PAR TY A-I. AS PER THE VALUATION REPORT THE CONSTRUCTION WAS COMPLETED IN OCTOBER 1987 (FIRST PHASE) FOR RS. 52 90 682/- AND AS PER AGREEMENT DAT ED 28.2.85 BETWEEN IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 69 THE ASSESSEE COMPANY AND THE OWNER OF THE FACTORY THE COST OF CONSTRUCTION WAS TO BE BORNE BY THE ASSESSEE. BEFOR E THE AO THE ASSESSEE SUBMITTED THAT THE VALUATION REPORT WAS MADE ON THE ESTIMATE BASIS AND DOES NOT REFLECT THE ACTUAL EXPENDITURE INCURRED. I T WAS SUBMITTED THAT THE ENTIRE CONSTRUCTION WAS ACCOUNTED FOR BY THE ASSESS EE COMPANY AND REFLECTED IN THE BALANCE SHEET AS UNDER :- DATE WISE AMOUNT 31.3.89 RS. 36.34 LACS 31.3.90 RS. 36.78 LACS 31.3.91 RS. 36.78 LACS 31.3.92 RS. 36.78 LACS 31.3.93 RS. 44.80 LACS 33. THE AO DID NOT AGREE WITH THE EXPLANATIO N OF THE ASSESSEE AND HELD THAT THE VALUATION WAS DONE IN DECEMBER 1988 A ND IT CLEARLY STATES THAT CONSTRUCTION WAS COMPLETED IN OCTOBER 1987. TH E AO THEREFORE CONCLUDED THAT SINCE NO INVESTMENT HAS BEEN SHOWN B Y THE ASSESSEE FOR ASSESSMENT YEAR 1988-89 ENTIRE SUMS OF RS. 52 90 6 82/- IS LIABLE TO BE ADDED AS UNDISCLOSED INCOME FOR THE ASSESSMENT YEAR 1988-89. 34. BEFORE THE LD. CIT(A) THE ASSESSEE SUB MITTED THAT THE LAND AT SATBARI WAS PURCHASED BY THE THREE CO-OWNERS NAMELY MRS. RITA SINGH MR. HARISH NARULA AND MS. NATASH SINGH WHO HAD ENTERED INTO AN MEMORANDUM OF LEASE DATED 28.2.85 FOR LEASING THE L AND TO THE ASSESSEE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 70 COMPANY. THE LEASE DEED ALSO STIPULATED THAT THE EN TIRE CONSTRUCTION COST WOULD BE BORN BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY ACCORDINGLY INCURRED FOLLOWING AMOUNTS ON THE CONST RUCTION OF THE LAND AND REFLECTED THE SAME IN FINANCIAL STATEMENTS:- DATE ASSESSMENT YEAR AMOUNT SPENT REMARK TILL 31.10.86 1987-88 RS. 10 56 920/- TILL 31.10.87 1988-89 RS. 21 43 137/- TILL 31.10.88 1989-90 RS. 36 33 677/- CONSTRUCTION COMPLETED 35. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAD BEEN REGULARLY SHOWING THE COST OF CONSTRUCTION IN ITS RETURN OF I NCOME OF THE RESPECTIVE ASSESSMENT YEARS AND THEREFORE SUCH ADDITION WAS OU TSIDE THE PERVIEW OF THE BLOCK ASSESSMENT. IT WAS SUBMITTED FURTHER THAT SINCE THE SEIZED VALUATION REPORT WAS SIGNED BY THIRD PERSON I.E. SH RI DINESH SINGH HE SHOULD HAVE BEEN CONFRONTED BY THE AO TO VERIFY THE NATURE BASIS AND OBJECTIVE OF THE VALUATION REPORT. RELIANCE WAS PLA CED ON THE FOLLOWING DECISIONS :- A) 67 TTJ 247 (ALL) MONGA METALS (P) LTD. VS.ACIT ( SUPRA) B) 67 TTJ 109 (DEL) ALOK AGGARWAL VS. DCIT C) 66 TTJ 704 (PUNE) JAIKISHAN R. AGARWAL VS. ACIT D) 66 TTJ 565 (CHD) R.K. SYALA VS. ACIT E) 70 TTJ 131 (AHD) PRARTHANA CONSTRUCTION (P) LTD. VS. DCIT F) 70 TJ 131 (AHD)UNIQUE ORGANIZER & DEVELOPERS (P) LTD. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 71 G) 69 TTJ 66 (CAL) T.S. VENKATESAH VS. ACIT H) 127 ITR 816 (P & H) CIT VS. SHAM LAL I)19 ITR 102 (ORI) GANESHDAS KALURAM J) 34 ITR 501 (KER) M.O. THOMA KUTTA VS. CIT K) 84 ITR 222 (P & H) CHIRANJILAL STEEL ROLLINGS MI LLS VS. CIT L) 47 ITD257 (BOM) DHIRENDRA PARISH VS. FIFTH ITO M) 55 TTH 699(DEL) SIR SOBHA SINGH & SONS (P) VS. I AC N) 11 ITD 404 (DEL) ITO VS. OMEGA BRIGHT STEEL (P) LTD. O) 27 ITD 392 (AHD) ITO VS. SILK MUSEUM P) 56 TTJ 669 (DEL) SKYLARK CHIT FUND AND FINANCE ( P) LTD. VS. ACIT 36. IT WAS CONTENDED THAT VALUATION REPORT IS GENERALLY PREPARED ON THE MARKET VALUE BASIS AND NOT ON THE BASIS OF ACTU AL EXPENDITURE. THEREFORE THE VALUATION REPORT OBTAINED AT INFLATE D FIGURES FOR BANK PURPOSES CANNOT ASSUME A CHARACTER OF INVESTMENT. IT WAS SUBMITTED THAT UNDER SECTION 69 OF THE ACT BURDEN LIES UPON THE RE VENUE TO ESTABLISH THAT ASSESSEE HAD INVESTED SUMS OUTSIDE BOOKS OF ACCOUNT S. IT WAS CONTENDED THAT THERE IS NO CORROBORATIVE EVIDENCES PLACED ON RECORD TO ESTABLISH BEYOND DOUBT THAT SUCH INVESTMENT WAS ACTUALLY MADE OUTSIDE THE BOOKS OF ACCOUNT. IN ALTERNATIVE IT WAS SUBMITTED THAT THERE IS NO JUSTIFICATION FOR MAKING AN ADDITION OF THE ENTIRE AMOUNT OF RS. 52 9 0 682/- PARTICULARLY WHEN THE ASSESEE COMPANY HAD SHOWN RS. 21.43 LACS T ILL 31.10.1987. CONSIDERING THESE SUBMISSIONS THE LD. CIT(A) HELD T HAT THE VALUATION REPORT IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 72 IS AN ESTIMATE BUT AT THE SAME TIME THE WIDE VARIAT ION BETWEEN THE VALUATION AS PER VALUATION REPORT AND THE COST OF C ONSTRUCTION HAS NOT BEEN SATISFACTORILY EXPLAINED BY THE ASSESSEE. HE HELD T HAT THE VALUATION REPORT IS CONTEMPORANEOUS EVIDENCE OF A TECHNICAL EXPERT AND CANNOT BE REJECTED. HE ACCORDINGLY SUSTAINED THE ADDITION TO THE EXTENT OF RS. 31.47 LACS I.E. THE DIFFERENCE BETWEEN THE COST AS PER VALUATION REPORT AND THAT DEBITED IN THE BOOKS OF ACCOUNTS TILL 31.10.1987. 37. CONSIDERING ABOVE SUBMISSIONS WE FULLY CO NCUR WITH THE ARGUMENTS OF THE LD. AR THAT VALUATION REPORT IS AN ESTIMATE AND THE ADDITION CANNOT BE MADE MERELY ON THE BASIS OF THE SAID VALUATION R EPORT IN A BLOCK ASSESSMENT. LD. CIT(A) HAS ACCEPTED THIS CONTENTION OF THE ASSESEE BUT AT THE SAME TIME HE HAS IGNORED THIS CONTENTION ON THE BASIS OF WIDE VARIATION BETWEEN THE VALUATION AS PER THE VALUATION REPORT AND THE COST OF CONSTRUCTION SHOWN BY THE ASSESSEE. HE HAS REJECTE D THE COST OF CONSTRUCTION SHOWN BY THE ASSESEE ON THE BASIS THAT IT IS NOT SATISFACTORILY EXPLAINED. HE HAS FURTHER NOT SPECIFIED AS TO WHICH EXPLANATION OF THE ASSESSEE WAS NOT APPEALED TO HIM SATISFACTORILY. UN DER THESE CIRCUMSTANCES WE ARE OF THE VIEW THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION TO THE EXTENT OF RS. 31.47 LACS. THE SAME IS ORDERED TO BE DELETED. THE GROUND NOS. 9 & 9.1 ARE ACCORDINGLY ALLOWED. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 73 GROUND NOS.10 TO 10.6 :- 38. IN THESE GROUNDS ADDITION OF RS. 2 38 5 6 115/- MADE ON THE BASIS OF LOOSE PAPERS FOUND FROM THE PREMISES OF THE AUDI TORS OF THE ASSESSEE COMPANY HAS BEEN QUESTIONED. THE DETAILS OF THESE A DDITIONS ARE AS UNDER :- S NO PARA/PAGE OF ASSTT ORDER AMOUNT (RS.) ASSTT. YEAR 1 C(A)(16) 30 193 1997-98 2. C I (17) 12 48 000 1997-98 3. C (D) (17) 34 270 1997-98 4. C(D)(L7) 6 90 156 1997-98 5. D (A B C D) (17 18) 93 675 1991-92 6. E (18) 2 14 000 1996-97 7. F (18) 12 74 380 1995-96 8. G (18) 26 000 1995-96 9. G (18) 20 860 1995-96 10. G (18) 52 256 1995-96 11. H (19) 4 03 869 1996-97 12. H (B)( 19) 20 928 1996-97 13. 1 (19) 1 47 000 1993-94 14. 1(19) 3 614 1993-94 15. 1(19) 2 53 675 1993-94 16. J (20) 6 26 334 1996-97 17. K (20) 29 370 1996-97 18. K (20) ] 7 373 ]996-97 19. K (20) 5 950 1996-97 20. M (20) 17 583 1995-96 21. N (20) 3 46 629 1996-97 22. N (20) 1 83 00 000 1996-97 TOTAL 2 38 56 115 39. THE RELEVANT FACTS ARE THAT ON THE BASI S OF MATERIAL SEIZED FROM THE POSSESSION OF M/S A.R. ASSOCIATES THE AUDITOR OF THE ASSESSEE COMPANY IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 74 CONTAINING AUDIT OBJECTIONS RAISED DURING AUDITS OF THE ASSESSEE COMPANY FOR VARIOUS YEARS IRREGULARITIES WERE FOUND IN THE BOOKS OF ACCOUNT OF THE COMPANY. ON THE BASIS OF THESE SEIZED PAPERS ADDI TION OF RS. 2 38 56 115/- WAS MADE. ALL THESE PAPERS ARE IN TH E FORM OF AUDIT ENQUIRIES DOUBTS CLARIFICATION SOUGHT ROUGH CALC ULATIONS NOTING FOR FILING AUDIT REPORTS ETC. THE CONTENTION OF THE ASSESSEE REMAINED THAT THE ANNUAL ACCOUNTS STATUTORY AUDIT REPORTS TAX AUDIT REPORT S ETC. ARE FINALIZED AFTER SETTLING THESE QUERIES AND DOUBTS. IT WAS CONTENDE D THAT THE ASSESSING OFFICER HAD MADE ADDITIONS WITHOUT APPRECIATING THE NATURE OF THE PAPERS SEIZED AND CONTENTS THEREOF. IT WAS SUBMITTED THAT NO ADDITION COULD BE MADE ON THE BASIS OF SOMEONES DOUBTS ENQUIRIES R OUGH CALCULATIONS ETC. AND THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT NEITHER THE BOOKS OF ACCOUNT NOR THE AUDITORS REPORTS WERE REJECTED DUR ING THE REGULAR ASSESSMENT PROCEEDINGS AND AS SUCH THERE WAS NO R EASON TO HAVE MADE SUCH ADDITION ON THE BASIS OF AUDITORS DOUBT. IT WAS SUBMITTED FURTHER THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED THAT SUCH IRREGULARITIES WERE ACTUALLY EXISTED IN THE BOOKS OF ACCOUNT OF THE ASS ESSEE COMPANY PARTICULARLY WHEN THE SAME AUDITOR HAD SIGNED THE B ALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY. IT WAS CON TENDED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION MERELY ON T HE BASIS OF HIS SUBJECTIVE SATISFACTION AND ON SUSPICION SURMISES AND CONJECTURES. THE FURTHER CONTENTION OF THE ASSESSEE WAS THAT THE ASS ESSING OFFICER HAD FAILED IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 75 TO BRING OUT ANY MATERIAL ON RECORD TO SUBSTANTIATE SUCH ALLEGED ADDITION OTHER THAN AUDIT OBSERVATION. IT WAS CONTENDED THA T THE ASSESSING OFFICER HAS MADE HUGE ADDITIONS ON THE BASIS OF DOCUMENTS C ONTAINING AUDIT OBSERVATIONS SEIZED FROM THE PREMISES BELONGING TO M/S A.R. ASSOCIATES CHARTERED ACCOUNTANTS THE AUDITOR OF THE ASSESSEE COMPANY. NUMBER OF THESE DOCUMENTS IS UNSIGNED AND IT IS NOT KNOWN BY WHOM THESE ARE PREPARED. IT WAS CONTENDED THAT SUCH AUDIT OBSERVA TIONS ARE IN THE FORM OF HUGE PAPERS AND IN THE ABSENCE OF ANY CORROBORATIVE EVIDENCE CANNOT FORM BASIS FOR MAKING ANY ADDITION. RELIANCE WAS PLACED ON SEVERAL DECISIONS OF HONBLE COURTS. 40. REGARDING ADDITION OF RS. 30 193/- THE LD. AR SUBMI TTED THAT II IS BASED ON PAGE NO.28 OF ANNEXURE AA-66 WHICH AUDIT O BSERVATION THAT BILLS WERE NOT AVAILABLE AT THE BRANCH OFFICE FOR PETTY E XPENSES OF ETH ASSESESE COMPANY. SUCH DOCUMENT COULD NOT BE A BASIS TO ALLE GE AND ASSUME THAT SUCH EXPENDITURE SO INCURRED PRESENTS UNDISCLOSED INCOME OF THE ASSESSEE. IT WAS SUBMITTED THAT NO MATERIAL HAS BEEN DEDUCTED AS A RESULT OF SUCH TO INCLUDE THAT EXPENDITURE SO INCURRED IS A FALSE EXP ENDITURE FOR THE PURPOSE OF SECTION 158BC(B) OF THE ACT. AN EXPENDITURE ALLE GEDLY NOT ALLOWABLE UNDER THE ACT DOES NOT IMPLY THAT SUCH EXPENDITURE IS A FALSE EXPENDITURE. IT WAS SUBMITTED THAT SUBSEQUENTLY SAME AUDITOR HAS FI NALIZED BALANCE SHEET FOR THE ASSESSMENT YEARS 1997-98 WHICH STAND ACCEPT ED IN THE ASSESSMENT ORDER FRAMED U/S 143 (3) OF THE ACT. IT WAS ALSO PO INTED OUT THAT IN ABSENCE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 76 OF EXAMINATION OF THE AUDITORS THEIR OBSERVATIONS CANNOT BE A BASIS TO HOLD THAT A SUM OF RS. 30 193/- IS UNDISCLOSED INCOME OF THE ASSESSEE. REGARDING THE ADDITION OF RS. 12 48 000/- BASED ON ANNEXURE AA 66 PAGE 25 THE SUBMISSION OF THE ASSESSEE REMAINED THAT NE ITHER DISALLOWANCE U/S 40A (3) CAN BE ADDED AS UNDISCLOSED INCOME NOR CASH LOANS ADVANCED AND DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSES SEE COMPANY CAN BE ADDED AS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY . 41. REGARDING ADDITION OF RS. 34 270/- BASE D ON ANNEXURE AA 66 PAGE 11 THE CONTENTION OF THE ASSESSEE REMAINED THAT ME RELY ON DIFFERENT OBSERVATION THAT THE ALLEGED BRIBES PAID HAS BEEN D EBITED AS PROMOTIONAL EXPENSES COULD NOT BE A SOLITARY BASIS TO ALLEGE A ND ASSUME THAT EXPENDITURE SO INCURRED REPRESENTS UNDISCLOSED INCO ME OF THE ASSESSEE ESPECIALLY WHEN NO MATERIAL HAS BEEN FOUND AS A RES ULT OF WHICH A CONCLUSION COULD BE ARRIVED AT THAT EXPENDITURE SO INCURRED IS FALSE EXPENDITURE FOR THE PURPOSE OF SECTION 158BC (B) OF THE ACT. IT WAS SUBMITTED THAT SAME AUDITOR HAS FINALIZED BALANCE S HEET FOR ASSTT. YEAR 1997-98 WHICH STAND ACCEPTED IN THE ASSESSMENT FRAM ED U/S 143(3) OF THE ACT. REGARDING THE ADDITION OF RS. 680156/- BASED O N ANNEXURE AA 66 PAGE 11 THE LD. AR SUBMITTED THAT MERE SUPPLY OF MATERI AL FOR WHICH THERE IS NO EVIDENCE TO SHOW THAT ASSESSEE HAD RECEIVED ANY CON SIDERATION WHICH HAS NOT BEEN DECLARED IN THE BOOKS OF ACCOUNTS ADDITIO N CAN NOT BE MADE AS UNDISCLOSED INCOME ON NOTIONAL BASIS BY ASSUMING TH AT SALES CONSIDERATION IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 77 MAY HAVE BEEN RECEIVED TO THE EXTENT OF RS. 6 90 15 6/-. HE SUBMITTED THAT THERE IS NO SUCH AMOUNT WRITTEN IN THE SEIZED PAPER S. AGAINST THE ADDITION OF RS. 93675/- BASED ON ANNEXURE A-2 PAGE 40 TO 46 RELIANCE HAS BEEN PLACED ON THE SAME SUBMISSION MADE AGAINST THE ADDI TION OF RS. 30 193/- DISCUSSED HEREIN ABOVE. 42. ABOUT THE ADDITION OF RS. 2 14 000/- BASE D ON ANNEXURE A -1 PAGE 140 THE ASSESSEE HAS ADOPTED THE SAME CONTENTION A S MADE AGAINST THE ADDITION OF RS. 34 270/- HEREINABOVE. 43. AGAINST THE ADDITION OF RS. 1 27 438/- BA SED ON ANNEXURE A-11 PAGE 112 AND 113 THE CONTENTION OF THE ASSESSEE RE MAINED THAT BOTH THE AUTHORITIES BELOW HAVE OVERLOOKED THE DETAILED EXPL ANATION TENDERED BY THE ASSESSEE WHEREIN IT HAS BEEN EXPLAINED THAT THERE IS NO SUSPENSE ACCOUNT AS PER THE RECONCILIATION STATEMENT SO FURNISHED W HICH HAS BEEN ACCEPTED. IT IS HIGHLY UNJUST ON THE PART OF THE AO TO ACCEPT PART OF THE EXPLANATION AND ARBITRARILY REJECT PART OF THE EXPLANATION FURN ISHED BY THE ASSESSEE. AGAINST THE ADDITION OF RS. 26 000/- BASED ON ANNEX URE A-11 PAGE 56-57 THE CONTENTION OF THE ASSESSEE REMAINED THE SAME AS IT WAS ADVANCED AGAINST THE ADDITION OF RS. 34 270/- DISCUSSED HERE INABOVE. IT WAS ALSO SUBMITTED THAT OUT OF RS. 26 11 000/- EVEN AS PER T HE AUDITOR REPRESENTS DONATION AND NOT BRIBE WHICH HAS BEEN DULY DISCLOSE D IN THE BOOKS OF ACCOUNTS THEREFORE THE SAME CANNOT BE BROUGHT TO TAX AS UNDISCLOSED INCOME. AGAINST THE ADDITION OF RS. 20 860/- BASED ON ANNEXURE A-11 PAGE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 78 50-55 THE SUBMISSION OF THE ASSESSEE REMAINED THE SAME AS ADVANCED HEREINABOVE AGAINST THE ADDITION OF RS. 34 270/-. I T WAS ALSO SUBMITTED THAT OUT OF RS. 20 860/- RS. 20 000/- EVEN AS PER THE A UDITOR REPRESENTS SPONSORSHIP EXPENSES AND NOT BRIBE WHICH HAS BEEN D ULY DISCLOSED IN THE BOOKS OF ACCOUNTS. THEREFORE THE SAME CANNOT BE BRO UGHT TO TAX AS UNDISCLOSED INCOME. AGAINST THE ADDITION OF RS. 52 256/- BASED ON ANNEXURE A-11 PAGE 47 THE SUBMISSION OF THE ASSESSE E REMAINED THAT MERE AUDIT OBSERVATION THAT EXPENSES DEBITED ARE ALLEGED LY PERSONAL EXPENSES COULD NOT BE MADE A BASIS TO ALLEGE AND ASSUME THAT SUCH EXPENDITURE SO INCURRED REPRESENTS UNDISCLOSED INCOME OF THE ASSES SEE. IT WAS CONTENDED THAT NO MATERIAL HAS BEEN FOUND AS A RESULT OF SEAR CH TO CONCLUDE THAT EXPENDITURE SO INCURRED IS FALSE EXPENDITURE FOR TH E PURPOSE OF SECTION 158BC(B) OF THE ACT. IT WAS SUBMITTED THAT IN ANY C ASE HERE IS A CASE WHERE SUBSEQUENTLY SAME AUDITOR HAS FINALISED BALANCE SHE ET FOR ASSESSMENT YEAR 1995-96 WHICH STANDS ACCEPTED IN THE ASSESSMENT U/ S 143(3) OF THE ACT. THUS IN ABSENCE OF ANY EXAMINATION OF THE AUDITORS THESE OBSERVATIONS CANNOT BE A BASIS MUCH LESS VALID BASIS TO HOLD THA T A SUM OF RS. 52 256/- REPRESENTS UNDISCLOSED INCOME OF THE ASSESSEE COMPA NY. ACCORDING TO THE ASSESSEE SUCH EXPENDITURE IS DISCLOSED PROMOTIONAL EXPENSES AND HENCE ALLOWABLE AS SUCH. AGAINST THE ADDITION OF RS. 4 03 869/- BASED ON ANNEXURE AA -15 PAGE NO. 5 SIMILAR CONTENTION HAS BEEN RAISE D AS DISCUSSED ABOVE WHEREIN AGAINST THE ADDITION OF RS. 30 193/-. AGAIN ST THE ADDITION OF RS. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 79 20 922/- BASED OF ANNEXURE AA-15 PAGE NO. 60 SIMILA R CONTENTION HAS BEEN RAISED AS DISCUSSED HEREINABOVE AGAINST THE ADDITIO N OF RS. 52 256/-. AGAINST THE ADDITION OF RS. 1 47 000/- BASED ON AN NEXURE AA-AA-15 PAGE 45 SIMILAR CONTENTION AS ADVANCED AGAINST THE ADDI TION OF RS. 34 270/- DISCUSSED HEREINABOVE HAS BEEN RAISED. SIMILAR ARGU MENTS HAS ALSO BEEN RAISED AGAINST THE ADDITION OF RS. 3 614/- BASED ON ANNEXURE AA-15 PAGE 43. AGAINST THE ADDITION OF RS. 2 53 675/- BASED ON ANNEXURE AA-15 PAGE 14 SIMILAR ARGUMENTS HAVE BEEN ADOPTED AS ADVANCED BY THE ASSESSEE AGAINST THE ADDITION OF RS. 30 193/- DISCUSSED HERE INABOVE. SIMILAR ARGUMENT AS ADVANCED AGAINST THE ADDITION OF RS. 34 270/- HAS ALSO BEEN RAISED AGAINST THE ADDITION OF RS. 6 26 334/- BASED ON ANNEXURE AA 25 PAGE NO. 40 AND ADDITION OF RS. 29 370/- BASED ON ANNEXU RE AA 52 PAGE 78. AGAINST THE ADDITION OF RS. 17 373/- BASED ON ANNE XURE AA 52 PAGE 77 THE SUBMISSION OF THE ASSESSEE REMAINED THAT MERE DIFFE RENCE AS PER AUDITORS OBSERVATION DURING FINALIZATION OF AUDIT CAN NOT BE A BASIS TO SUGGEST THAT SALES HAVE NOT BEEN DISCLOSED BY THE ASSESSEE COMPA NY. IT WAS POINTED OUT FURTHER THAT SUBSEQUENTLY SAME AUDITOR HAS FINALIZE D BALANCE SHEET FOR ASSTT. YEAR 1995-1996. AGAINST THE ADDITION OF RS. 5950/- BASED ON ANNEXURE AA 52 PAGE 68 LD. AR SUBMITTED THAT MERE DIFFERENCE AS PER AUDITORS OBSERVATION DURING AUDIT FINALIZATION CANNOT BE A BASIS TO SUGGEST THAT SALES HAVE NOT BEEN DISCLOSED BY THE ASSESSEE COMPANY. HE POINTED OUT THAT SUBSEQUENTLY SAME AUDITOR HAS FINALISED BALANCE SHE ET FOR THE ASSTT. YEAR IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 80 1995-96 WHICH STANDS ACCEPTED IN THE ASSESSMENT FRA MED U/S 143(3) OF THE ACT. AGAINST THE ADDITION OF RS. 346629/- BASED ON ANNEXURE A-I PAGE 122 IT WAS SUBMITTED THAT BOTH THE AUTHORITIES BELOW HA VE OVERLOOKED THE DETAILED EXPLANATION TENDERED BY THE ASSESSEE WHERE IN IT HAS BEEN EXPLAINED THAT THERE IS NO UNDISCLOSED INCOME. IN T HIS REGARD HE REFERRED HIS SUBMISSION MADE TO THE AO MADE AVAILABLE AT PAGE NO . 133 OF THE PAPER BOOK. OPPOSING THE ADDITION OF RS. 1 83 000/- BASED ON ANNEXURE A-I PAGE 122 LD. AR SUBMITTED THAT MERE FACT THAT RS. 1 83 0 00/- WORTH OF MATERIAL HAS BEEN RECEIVED FROM M/S. SHRUTI SHOES LTD. FOR W HICH ALLEGEDLY NO BILLS HAVE BEEN RECEIVED CANNOT BE MADE A BASIS TO ASSUME THAT THERE IS UNDISCLOSED INCOME. IT WAS SUBMITTED THAT IT IS NOT A CASE OF ALLEGED UNACCOUNTED SALES AS HAS BEEN ASSUMED BY THE AO. AT THE BEST IT IS A CASE OF PURCHASES MADE FOR WHICH NO BILLS WERE RAISED BY M/S. SHRUTI SHOES LTD. IT WAS CONTENDED THAT THERE IS NO MATERIAL TO SHOW THAT ASSESEE HAS MADE ANY PAYMENT OUTSIDE BOOKS OF ACCOUNTS SO AS TO ALLE GE AND CONCLUDE THAT THERE IS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY . THUS THE TOTAL ADDITION OF RS. 2 38 56 115/- MADE AND UPHELD BY TH E AUTHORITIES BELOW HAS BEEN OPPOSED BY THE ASSESSEE. 44. BEFORE THE TRIBUNAL THE LEARNED AR WHILE REITERATI NG ABOVE SUBMISSIONS CONTENDED THAT ADDITION CANNOT BE MADE ON THE BASIS OF AUDIT OBSERVATIONS FINALIZING THE AUDIT FOUND FROM THE P REMISES OF THE AUDITOR OF THE GROUP COMPANIES. HE SUBMITTED THAT THERE ARE P LETHORA OF DECISIONS IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 81 HOLDING THAT DOCUMENTS FOUND FROM THE POSSESSION OF A THIRD PARTY CANNOT BE USED AGAINST THE ASSESSEE. HE CONTENDED THAT EV EN THE AUDITORS HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER AND THE REFORE THE ADDITIONS HAVE BEEN MADE ON MERE SURMISES. HE SUBMITTED THAT THE ISSUE RAISED IN THESE GROUNDS IS FULLY COVERED BY THE DECISION OF T HE TRIBUNAL IN THE CASE OF GROUP COMPANIES ON AN IDENTICAL ISSUE UNDER SIMILAR SET OF FACTS IN THE CASES OF SHRI J.K.SINGH SMT.RITA SINGH AND M/S LITTLE RO ME LTD. COPIES OF THESE ORDERS HAVE BEEN MADE AVAILABLE AT PAGE NOS.1105 1 052 TO 1064 AND 1044 TO 1051 OF THE PAPER BOOK RESPECTIVELY. HE SUBMITT ED THAT NO APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THESE ORDERS. THE LEARNED AR ALSO DREW OUR ATTENTION TO PAGE NOS.1129 TO 1144 OF THE PAPER BOOK VOLUME-4 WHEREIN A COPY OF JUDGMENT OF HON'BLE DELHI HIGH CO URT IN THE CASE OF CIT VS. SMT. RITA SINGH FOR BLOCK ASSESSMENT YEAR 1987- 88 TO 1997-98 AND ORDER OF ADMISSION UNDER SECTION 260A OF THE ACT HA VE BEEN MADE AVAILABLE. THE LEARNED AR SUBMITTED FURTHER THAT N O ADDITION CAN OTHERWISE BE MADE ON THE BASIS OF AUDIT REPORT OF THE AUDITOR S AS THE AUTHOR OF DOCUMENTS HAVE NOT BEEN EXAMINED AND THEREFORE SU CH EVIDENCES CONSTITUTE HEARSAY EVIDENCE. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS:- (I) MOHAMMAD YUSUF AIR 1968 (BOMBAY) 118. (II) RAMJI DAYAWALA & SONS PRIVATE LIMITED VS. INVERT IM PORT AIR 1981 (SC) 2085. (III) CIT VS. S.M. AGGARWAL 293 ITR 43(DELHI) IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 82 (IV) ATUL KUMAR JAIN VS. DCIT 64 TTJ 786. 45. THE LEARNED AR SUBMITTED FURTHER THAT EV EN OTHERWISE IN ABSENCE OF ANY CORROBORATIVE EVIDENCE MERE FACT THAT PAPER IS FOUND FROM THE PREMISES OF AN AUDITOR CANNOT BE A GROUND TO MAKE T HE ADDITION. IN THIS REGARD HE PLACED RELIANCE ON THE FOLLOWING DECISIO NS:- (I) MONGA METALS (P) LTD. VS. ACIT 67 TTJ 247 (ALL.). (II) ASHWANI KUMAR VS. ITO 39 ITD 183 (DEL). (III) ACIT VS. SHAILESH S.SHAH 63 ITD 153 (MUM). (IV) ITO VS. M.A. CHIDAMBARAM 63 ITD 203 (CHENNAI). (V) D.A.PATEL VS. DCIT 72 ITD 340 (MUM). (VI) BRIJ LAL RUPCHAND VS. ITO 40 TTJ 668 (IND). (VII) DHAN RAJ RESTAURANT VS. ACIT 55 TTJ 390 (MUM). (VIII) S.K.GUPTA VS. DCIT 63 TTJ 532 AT 535 (DELHI). (IX) ATUL KUMAR JAIN VS. DCIT 64 TTJ 786 (DELHI). (X) CBI VS. V.C.SHUKLA 3(1998) SCC 410 433 434. (XI) KANTILAL & BROTHERS VS. ACIT- 52 ITD 412 (PUNE). (XII) SILVER AND ARTS PALACE VS. ACIT 52 ITD (JAIPUR). (XIII) T.S.VENKATSAN VS. ACIT 74 ITD 298. 46. THE LEARNED CIT DR ON THE OTHER HAND PLAC ED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW MAKING AND SUSTAINING THE ADDI TION OF RS. 2 38 56 115/- IN QUESTION. SHE SUBMITTED THAT ALL THESE ADDITIONS ARE BASED ON THE MATERIAL SEIZED FROM THE PREMISES OF THE AUDITORS O F THE ASSESSEE AND SPECIFIC AMOUNT HAS BEEN MENTIONED THEREIN. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 83 47. ON PERUSAL OF ORDERS OF THE AUTHORITIES BELOW WE FIND THAT LEARNED CIT(A) HAS SUSTAINED VARIOUS ADDITIONS OF RS. 2 38 56 115/- MADE UNDER THE HEAD IRREGULARITIES OF BOOKS OF ACCOUNT BY THE ASSESSING OFFICER ON THE BASIS OF MATERIAL SEIZED FROM THE PREMISES OF THE A UDITOR OF THE ASSESSEE COMPANY CONTAINING AUDIT OBJECTIONS RAISED DURING A UDITS OF THE ASSESSEE COMPANY. THE DETAILS OF PARAGRAPH/PAGE NUMBERS OF THE ASSESSMENT ORDER AMOUNT INVOLVED AND ASSESSMENT YEARS ARE AS UNDER:- S.NO. PARA/PAGE OF ASSTT ORDER AMOUNT (RS.) AY 1. C(A)(16) 30 193 1997-98 2. C I(17) 12 48 000 1997-98 3. C(D)(17) 34 270 1997-98 4. C(D)(17) 6 90 156 1997-98 5. D(A B C D)(17 18) 93 675 1991-92 6. E(18) 2 14 000 1996-97 7. F(18) 12 74 380 1995-96 8. G(18) 26 000 1995-96 9. G(18) 20 860 1995-96 10. G(18) 52 256 1995-96 11. H(19) 4 03 869 1996-97 12. H(B)(19) 20 928 1996-97 13. I(19) 1 47 000 1993-94 14. I(19) 3 614 1993-94 15. I(19) 2 53 675 1993-94 IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 84 16. J(20) 6 26 334 1996-97 17. K(20) 29 370 1996-97 18. K(20) 17 373 1996-97 19. K(20) 5 950 1996-97 20. M(20) 17 583 1995-96 21. N(20) 3 46 629 1996-97 22. N(20) 1 83 00 000 1996-97 TOTAL : 2 38 56 115 48. WE HAVE ALREADY DISCUSSED HEREINABOVE THE OBJECTION S OF THE ASSESSEE AGAINST EACH OF THE ADDITIONS. THE MAIN CONTENTION OF THE ASSESSEE AGAINST THE ADDITION REMAINED THAT THE SEI ZED PAPERS WERE LOOSE PAPERS CONTAINING WORKINGS OF THE AUDITOR AND IN AB SENCE OF THE AUDITOR HAVING BEEN CONFIRMED THE FACTUM THAT ANY OF SUCH P APERS INDICATES LET ALONE ESTABLISH THAT THE ASSESSEE COMPANY HAD ANY U NDISCLOSED INCOME THE ADDITIONS SUSTAINED ARE UNTENABLE AND UNWARRANTED. IT WAS CONTENDED THAT MOST OF SUCH PAPERS ARE UNSIGNED AND HAVE NOT BEEN CONFRONTED TO THE AUDITOR OF THE ASSESSEE COMPANY TO VERIFY WHETHER S UCH AUDIT NOTES HAVE BEEN SERVED SUBSEQUENTLY OR NOT. IT WAS CONTENDED FURTHER THAT THERE IS NO CORROBORATIVE EVIDENCE FOUND FROM THE PREMISES OF T HE ASSESSEE COMPANY TO SUPPORT THE ALLEGATIONS MADE BY THE ASSESSING OF FICER AND CONFIRMED BY THE LEARNED CIT(A). IT WAS CONTENDED THAT SUCH ADD ITION COULD NOT BE HELD AS UNDISCLOSED INCOME UNDER CHAPTER XIV-B OF THE IN COME-TAX ACT. WE FIND FROM THE REMAND REPORT FURNISHED BY THE ASSESSING O FFICER BEFORE THE FIRST APPELLATE AUTHORITY THE RELEVANT REPORT HAS BEEN M ADE AVAILABLE AT PAGE NO.999 OF THE PAPER BOOK THAT THE ASSESSING OFFICE R HAS SIMPLY SUPPORTED THE ADDITION WITHOUT EXAMINING THE OBJECTION RAISED BY THE ASSESSEE IN THIS REGARD. THE ASSESSING OFFICER HAS SIMPLY STATED TH AT THE SAID ADDITION WAS MADE AFTER CONSIDERING THE EXPLANATION FILED BY THE ASSESSEE COMPANY IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 85 ABOUT THE DOCUMENTS SEIZED AND THE CONTENTION OF TH E ASSESSEE IS NOT BASED ON ANY EVIDENCE. HAVING GONE THROUGH THE ABO VE CITED DECISIONS IN THE CASE OF SMT. RITA SINGH IT(SS) A.NO.56/DEL/20 00 (BLOCK AY 1987-88 TO 1997-98) AND OTHERS ORDER DATED 19.05.2006; M/S LITTLE ROME LIMITED IT(SS) A.NO.55/DEL/2000 (BLOCK AY 1993-94 TO 1997-9 8) AND OTHERS ORDER DATED 09.03.2007; AND SHRI J.K. SINGH IT(SS) A.NO .11/DEL/2000 (BLOCK PERIOD 1987-88 TO 1997-98) ORDER DATED 05.07.2006 WE FIND THAT AN IDENTICAL ISSUE UNDER SIMILAR FACTS HAS BEEN DECIDE D BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. IN THE CASE OF DCIT VS. M/ S LITTLE ROME LIMITED (SUPRA) THE ADDITION WAS MADE BY THE ASSESSING OFF ICER BEING CASH PAYMENT TO M/S MESCO LABORATORIES WHICH WAS NOT ENT ERED IN THE BOOKS OF ACCOUNT. DURING THE COURSE OF SEARCH SOME DOCUMEN TS WERE FOUND PERTAINING TO THE ASSESSEE. IN THESE DOCUMENTS TH ERE WAS RECORD OF CASH HAVING PAID TO M/S MESCO LABORATORIES. THE ASSESSI NG OFFICER FOUND THAT THESE CASH PAYMENTS WERE NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND WERE TO BE CONSIDERED AS UNEXPLAINED E XPENDITURE. THE ASSESSEE CONTENDED THAT THESE WERE ENTRIES NOTED BY THE AUDITORS ASSISTANT IN THE OFFICE OF THE AUDITOR AND IT HAS NOT REFLECT ED THE REAL POSITION. THE ASSESSING OFFICER DID NOT AGREE AND MADE THE ADDITI ON AS UNEXPLAINED INVESTMENT. THE LEARNED CIT(A) DELETED THE ADDITIO N FOLLOWING HIS ORDER IN THE CASE OF SHRI J.K.SINGH. THE TRIBUNAL HAS UPHEL D THE ACTION OF THE LEARNED CIT(A). IN THE CASE OF SHRI J.K.SINGH (SUP RA) SIMILAR ADDITION WAS MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT MADE IN C ASH DEPOSITS WHICH IS A SISTER CONCERN. THE ADDITION WAS DELETED BY THE LEARNED CIT(A) WHICH HAS BEEN UPHELD BY THE TRIBUNAL. IN THIS DECISION THE TRIBUNAL HAS HELD THAT THE DOCUMENT WAS ADMITTEDLY FOUND FROM THE POSSESSI ON OF THE AUDITORS OF THE ASSESSEE. THE DOCUMENT ON ITS OWN DOES NOT REC ORD THE FACT AS TO WHETHER INVESTMENT WAS MADE BY THE ASSESSEE. THE A SSESSEE CANNOT BE ASKED TO EXPLAIN THE NOTINGS MADE AND FOUND FROM TH E POSSESSION OF THE IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 86 AUDITOR. ADMITTEDLY THE AUDITOR WAS NOT EXAMINED ON THIS DOCUMENT. THE TRIBUNAL HAS ACCORDINGLY UPHELD THE ACTION OF THE L EARNED CIT(A) WITH THIS FINDING THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DE LETING THE ADDITION MADE BY THE ASSESSING OFFICER. THE APPEAL PREFERRED BY THE REVENUE WAS ACCORDINGLY DISMISSED. WE ALSO FIND THAT IN THE CA SE OF SMT. RITA SINGH (SUPRA) THE REVENUE HAD PREFERRED APPEAL UNDER SEC TION 260A OF THE ACT BEFORE THE HONBLE HIGH COURT OF DELHI VIDE ITA NO 359 OF 2007 RAISING THREE ISSUES BUT THE APPEAL OF THE REVENUE HAS BEEN ADMITTED BY THE HONBLE HIGH COURT VIDE ITS ORDER DATED 13.01.2009 IN ITA NO.359/2007 ONLY ON ONE ISSUE AS TO WHETHER THE TRIBUNALS DECISION OF DELETING THE ADDITION OF `19 59 881/- MADE BY THE ASSESSING OFFICER ON AC COUNT OF ELECTION EXPENSES INCURRED BY THE ASSESSEE WAS PERVERSE? WE THUS FIND THAT THERE IS NO INTERIM STAY GRANTED BY THE HONBLE HIGH COUR T AGAINST THE OPERATION OF THE ORDER OF THE TRIBUNAL NOR THE ISSUE UNDER PR ESENT APPEAL BEFORE US HAS BEEN ADMITTED BY THE HONBLE HIGH COURT FOR ITS ADJUDICATION. WE THUS FIND THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE AB OVE CITED DECISIONS ON AN IDENTICAL ISSUE UNDER SIMILAR FACTS THE RELEVANT E XTRACT OF THE DECISION OF THE TRIBUNAL IN THE CASE OF SMT. RITA SINGH (SUPRA) IS BEING REPRODUCED HEREIN FOR READY REFERENCE :- 19.2 WE HAVE PERUSED THE SEIZED DOCUMENT AND WE F IND THAT THE CASE MADE BY THE REVENUE CANNOT BE SUSTAINED. ADMITTEDLY THIS DOCUMENT WAS FOUND FROM THE POSSESSION OF THE AUDITORS OF TH E ASSESSEE. THE DOCUMENT ON ITS OWN DOES NOT RECORD THE FACT AS TO WHETHER INVESTMENT WAS MADE BY THE ASSESSEE. THE ASSESEE CANNOT BE ASK ED TO EXPLAIN THE NOTINGS MADE AND FOUND FROM THE POSSESSION OF THE A UDITOR. ADMITTEDLY THE AUDITOR WAS NOT EXAMINED ON THIS DOCUMENT. IN T HE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CIT(APPEALS) WAS JUSTIF IED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. ORDER OF TH E CIT(APPEALS) DOES NOT CALL FOR ANY INTERFERENCE AND THE SAME IS CONFI RMED. THIS GROUND OF APPEAL BY THE REVENUE IS DISMISSED. IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 87 49. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TR IBUNAL IN THE CASE OF SMT. RITA SINGH (SUPRA) ON AN IDENTICAL ISSUE UN DER SIMILAR FACTS WE DECIDE THE ISSUE RAISED IN GROUND NOS.10 TO 10.6 OF THE APPEAL PREFERRED BY THE ASSESSEE IN FAVOUR OF THE ASSESSEE WITH THE DIR ECTION TO THE ASSESSING OFFICER TO DELETE THE ADDITION OF `2 38 56 115/- MA DE ON THE BASIS OF LOOSE PAPERS FOUND FROM THE PREMISES OF THE AUDITOR OF TH E ASSESSEE COMPANY. THESE GROUNDS ARE ACCORDINGLY ALLOWED. GROUND NO.13 :- 50. IN THIS GROUND THE ASSESSEE HAS QUESTI ONED LEVY OF INTEREST UNDER SECTION 158BFA OF THE ACT. THE LEARNED AR SUBMITTE D THAT THE RETURN OF INCOME COULD NOT BE FILED IN TIME IN THE ABSENCE OF COPIES OF SEIZED DOCUMENTS. THE LEARNED CIT(A) HAS UPHELD THE CHARG ING OF INTEREST WITHOUT VERIFYING THE ABOVE CONTENTION OF THE ASSESSEE THAT THERE WAS NO CONTRIBUTION OF THE ASSESSEE IN FILING THE RETURN D ELAYED. THE LEARNED AR SUBMITTED THAT THE ISSUE IS FULLY COVERED BY THE DE CISION OF DELHI BENCH OF THE TRIBUNAL IN THE GROUP CASES OF M/S MESCO AIRLIN ES LIMITED AND MRS. NATASHA SINGH COPIES WHEREOF HAVE BEEN MADE AVAILA BLE AT PAGE NOS.1024 TO 1043 OF THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. 51. THE LEARNED DR ON THE OTHER HAND TR IED TO JUSTIFY THE ORDERS OF AUTHORITIES BELOW IN THIS REGARD. 52. HAVING GONE THROUGH THE ORDER IMPUGNE D WE FIND THAT LEARNED CIT(A) HAS SIMPLY UPHELD THE ACTION OF THE ASSESSIN G OFFICER IN CHARGING INTEREST UNDER SECTION 158BFA OF THE ACT WITHOUT CO MMENTING UPON THE CONTENTION OF THE ASSESSEE THAT DELAY IN FILING THE RETURN OF INCOME BY THE ASSESSEE WAS DUE TO NON-SUPPLY OF COPIES OF SEIZED DOCUMENTS BY THE REVENUE IN TIME. THE TRIBUNAL IN THE CASE OF MESCO AIRLINES LIMITED VS. ACIT IT(SS) A.NO.34/DEL/2007 (BLOCK PERIOD 1992-9 3 TO 1997-98) VIDE ITS ORDER DATED 27.06.2008 HAS HELD THAT THE DELAY IN F ILING THE RETURN HAVING BEEN HELD TO BE NOT ATTRIBUTABLE TO THE ASSESSEE T HE LEVY OF INTEREST UNDER IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 8 8 SECTION 158BFA(1) CANNOT BE HELD TO BE LEVIABLE FOR SUCH PERIOD WHICH WAS REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF OBTAINI NG THE SEIZED MATERIAL FROM THE REVENUE. IN THAT CASE BEFORE THE TRIBUNAL THE ASSESSEE AFTER OBTAINING THE SEIZED MATERIAL FROM THE REVENUE HAD FILED ITS RETURN OF INCOME WITHIN 14 DAYS WHICH THE TRIBUNAL HELD AS RE ASONABLE TIME AND INTEREST CHARGED UNDER SECTION 158BFA(1) WAS DELETE D. SINCE THE DELAY IN SUPPLYING THE SEIZED DOCUMENTS AS REQUESTED BY THE ASSESSEE HAS NOT BEEN EXAMINED TO THIS EFFECT THAT AS TO WHETHER IT WAS A TTRIBUTED ON THE PART OF THE ASSESSEE TO JUSTIFY THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING O FFICER TO DECIDE THE ISSUE AFTER VERIFYING THE ABOVE ASPECT REGARDING THE DELA Y AS TO WHETHER IT WAS DUE TO NON-SUPPLY OF THE COPIES OF SEIZED DOCUMENTS TO THE ASSESSEE AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. THE GROUND IS THUS ALLOWED FOR STATISTICAL PURPOSES. 53. IN THE RESULT THE APPEAL IS PARTLY A LLOWED. 54. CONSEQUENTLY THE APPEAL PREFERRED BY T HE REVENUE IS DISMISSED AND THAT PREFERRED BY THE ASSESSEE IS PARTLY ALLOWE D. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER 2013. SD/- SD/- (G.D. AGRAWAL) ( I.C. SUDHIR ) VICE PRESIDENT JUDICIAL MEMBER DATED 31 ST OCTOBER 2013 VEENA COPY OF ORDER FORWARDED TO: IT(SS) NO. 5/DEL/2004 & IT(SS) NO. 10/DEL/2004 89 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR ITAT