Manoj Aggarwal Vs. DCIT (ITAT Delhi 5 Member Spl Bench)
(1) Even in the case of an assessee not maintaining books of account and to whom s. 68 does not apply, addition in respect of unexplained entries in the bank book can be made;
(2) Where the assessee was not provided copies of the seized documents and the delay in filing the block return was on that count, interest u/s 158BFA (1) is not leviable even though there is no exemption on that count in the statute.;
(3) It is a precondition to invoking s. 158BD that the AO must, in the course of s. 158BC proceedings, record satisfaction that the income belongs to the other person. In the absence of such finding, s. 158BD cannot be invoked. The satisfaction must be objective and not subjective. It must be recorded before jurisdiction is exercised. Even though no time limit is prescribed, there is an implied time limit for giving such finding i.e. the period prescribed in s. 158BE for framing the s. 158BC assessment;
(4) The note of satisfaction must indicate the undisclosed income found as a result of the search and the person to whom the income belongs before proceedings are initiated. The law laid down in the context of s. 147 is not relevant in view of the fact that s. 158BD uses the “satisfaction” and not “reason to believe”.
(5) Where the s. 158BC notice gave the assessee a period of less than 15 days to file the return though the section required a period of not less than 15 days to be given, held that the notice suffered from an incurable defect rendering all emanating proceedings illegal and null and void.
(6) The immunity conferred by the VDIS is confined to the jewellery disclosed by the assessee and does not extend to the sale of such jewellery. It is also not correct to say that s. 68 does not apply to sales proceeds of an asset credited in the books of account. The AO is entitled to go into the genuineness of transactions of sales of such declared jewellery.
FULL TEXT OF THE ITAT JUDGMENT
ORDER
1. ITA No. 163/Asr./2003 (assessment year 1998-99) is an appeal by the assessee – Tejinder Singh (HUF). It arises out of the assessment made on it under Section 143(3) of the Income-tax Act by order dated 27.3.2001. In this assessment order, an addition of Rs. 16,80,475/- was made under Section 168 of the Act. The amount represented sale proceeds of jewellery which had earlier been disclosed under the Voluntary Disclosure Income Scheme, 1997. The jewellery was shown to have been sold to M/s. Bishan Chand Mukesh Kumar, a firm of jewellers located in Delhi. The Assessing Officer disbelieved the sale and held that the assessee has adopted a device to introduce his own unaccounted income into the regular books. The addition was confirmed by the CIT (Appeals) and the assessee has come in further appeal before the Tribunal. The Hon’ble President took into account the recommendation of the Amritsar Bench of the Tribunal dated 18.12.2006 and also the fact that the matter was of public importance and by order dated 8th March 2007 referred the aforesaid appeal to a Special Bench consisting of five Members to be heard at Delhi. The following points were also referred to the Special Bench:
(a) Whether, the benefit of jewellery disclosed under V.D.I.S. 1997 is limited to the first stage i.e. the source of investment or it extends further to the sale of jewellery also?
(b) Whether, having accepted the disclosure of jewellery under V.D.I.S., the Department is debarred from making further enquiry into the genuineness of sale of such jewellery?
(c) If answer to the above questions are against the assessee, whether the assessee is required to prove the genuineness of sale of jewellery disclosed under V.D.I.S. 1997 in the same manner as required under Section 68 or 69 of the Act.
By another order issued on 3.4.2007, the Hon’ble President inter alia observed that the Special Bench while disposing of the appeal would consider the questions referred to the Bench and is also authorised to modify, change, delete or add any questions for purposes of the reference. The registry was directed to give wide publicity to the constitution of the Special Bench and put up the information in the notice boards of various Benches of the Tribunal.
2. When the appeal was taken up by the Special Bench for the first time objections were raised on behalf of the assessee that point Nos. (a) & (b) do not arise out of the assessee’s appeal and that they should not be decided and it was also prayed that the questions may be reframed in a suitable manner. The department did not have nay objection to this. Vide our order sheet entry dated 14.5.2007, the following question was framed by the Bench for consideration:
Whether and under what circumstances, consideration claimed to have been received on account of sale of jewellery etc. relating to the disclosures made under VDI Scheme, 1997 can be considered to be the income of the assessee from undisclosed sources under any of the provisions of Income-tax Act, 1961?
In the subsequent hearing, Mr. Kapila, learned special counsel for the department raised several objections to the reframing of the questions and all of them have been considered vide our order sheet noting dated 1.11.2007. The objections of Mr. Kapila were rejected but the Special Bench agreed that the question requires to be reframed to bring out the controversy in sharp focus and to eliminate vagueness. The finally reframed question is as follows:
Whether on the facts and circumstances of the case, consideration claimed to have been received on account of sale of jewellery etc. relating to the disclosures made under VD1 Scheme, 1997, can be considered to be the income of the assessee from undisclosed sources under any of the provisions of Income-tax Act, 1961?
We also observed that it would be open to the parties to argue all aspects of the case, both factual and legal, within the framework of the above question and the grounds of appeal raised by the assessee. We have also explained therein the reason why the question has been reframed.
3. On 4.12.2007 when the appeal was taken up for hearing by the Special Bench Mr. Kapila submitted that the appeals in the case of M/s. Bishan Chand Mukesh Kumar, Delhi, a firm of jewellers, to whom Tejinder Singh (HUF) and several other declarants under the VDIS claimed to have sold jewellery, were pending before the Tribunal and the interests of justice required that they also be heard by the Special Bench to avoid any possibility of contradictory views being taken by the Tribunal. He sought leave to file an appropriate application before the Hon’ble President. It was opposed by the assessee but we overruled the objection and permitted Mr. Kapila to move an appropriate application before the Hon’ble President of the Tribunal and adjourned the matter to 11.2.2008 to await the outcome of the application. An order sheet entry was accordingly passed on 4.12.2007. Mr. Kapila then moved the application before the Hon’ble President praying that the cross appeals in the case of M/s. Bishan Chand Mukesh Kumar in IT (SS)A. Nos. 33 & 35/Del/2006 may be heard by the Special Bench. A similar application was moved on behalf of Manoj Aggarwal and Bemco Jewellers Pvt. Ltd. in whose cases also appeals involving similar issues were pending before the Tribunal. These appeals were also referred by the Hon’ble President to the Special Bench. In the meantime, certain oilier assessees, such as. Divya Kapoor, Surekha Chawla, Sunil Chawla and Mrs. Suman Mehra, sought permission to intervene in the matter and submit arguments before the Special Bench. They were permitted to do so.
4. Accordingly, all the aforesaid cases were heard from time to time and the hearing was finally completed on 2.5.2008. We proceed to dispose of the appeals in the succeeding paragraphs.
MANOJ AGGARWAL (ASSESSEE’S APPEAL -IT(SS)A. No. 404/Del/2003] AND DEPARTMENT’S APPEAL IN IT (SS)A. No. 415/DeJ./2003
5. IT(SS)A. Nos. 404 & 415/Del/2003 are cross appeals arising out of the block assessment made under Section 158BC of the Act by order dated 29.8.2002. The assessee, Manoj Aggarwal, is an individual and in the assessment order his business has been described as “accommodation entry giver”. He is also a director of Bemco Jewellers Private Ltd. There was a search under Section 132 of the Act on 3rd August 2000. The search took place at the residential and office premises of the assessee and his associate concerns. On the basis of the material seized during the search, statements recorded from the assessee and other persons and other post-search enquiries, the Assessing Officer came to the conclusion that the assessee’s main source of income was from providing accommodation book entries of various kinds to different persons according to the needs of the person, on commission basis. The Assessing Officer found that the assessee gave such accommodation entries for long term and short term capital gains, loans and advances, gifts, issue of bogus bills for purchase and sale of shares as also jewellery, etc. He had floated various companies and benami concerns in the name of its employees and family members. He had opened a number of bank accounts in various banks in the names of individuals and other business entities. These individuals were his relatives, family members, friends, employees, etc. and all these accounts were under his control. According to the Assessing Officer, the accounts were used for transferring the amounts from other associated accounts and thereafter the money was withdrawn from these accounts for returning the cash back to the persons who had given bogus accommodation. The bank accounts were also used for depositing the cash received. The cash was later transferred to other accounts and cheques were issued to the beneficiaries Horn those accounts. The Assessing Officer also stated that the assessee indulged in providing accommodation entries by accepting cheques as well as cash and the cash or the cheques were issued later. Cheques were also issued to the beneficiaries in their accounts as gifts which were supported by gift deeds to add a colour of genuineness. The details of the bank accounts, the names in which they were held, the names of persons who operated the accounts, the names of the bank and the account numbers are given in paragraph 1.6 of the assessment order.
6. On the basis of the aforesaid details collected by the Assessing Officer, he came to the conclusion that the assessee gave accommodation entries in the following five categories of transactions:
1. Entries of long term, short term and speculative profit and loss on sale and purchase of shares through and by M/s. Friends Portfolio P Ltd.
2. Entries of gifts and loans through various bank accounts opened in his name, in the name of his friends and relatives and various HUF entities.
3. Entries of bogus sales issued through M/s. Classic Textiles.
4. Entries of bogus sales and trading in shares in the name of M/s. NITS Softech Ltd.
5. Entries of bogus sale and purchase of jewellery through M/s Bemco Jewellers P Ltd.
7. In the written submissions dated 25.6.2002 filed before the Assessing Officer, the assessee admitted that he was in the business of providing accommodation entries or commission @ 25 paise on average basis, irrespective of the type of entries required by the mediators. For issue of profit cheques, he said he was charging 10 to 15 paise as commission. He further stated that about 40 accounts in the bank out of the 58 accounts listed by the Assessing Officer were used by him for the purpose of giving accommodation entries. On this basis, he stated that his commission @ 25 paise on all the transactions amounting to Rs. 1,32,32,77,001/- came to Rs. 33,08,192/-. Out of this, he claimed expenses of Rs. 30,09,751/- and declared undisclosed income of Rs. 2,98,441/- in the block return. Significantly, Manoj Kumar Aggarwal claimed that the transactions with Bemco Jewellers Private Limited were genuine transactions and were not accommodation entries and, therefore, there was no question of earning any commission on them.
8. The Assessing Officer proceeded to determine the undisclosed income from commission on accommodation entries in two parts, namely, (i) on activities which have been accepted by the assessee to be accommodation entries (share transaction); and (ii) on activities which were claimed by him to be genuine but proved to be accommodation entries (jewellery transactions of Bemco). He has devoted paragraphs 4.1 to 4.9 of the assessment order to the first part and has held that the assessee was in receipt of commission @ 0.50 paise on Rs. 132,32,77,001/- which represented the amount which came in as cash and clearing deposits (cheques) in the various bank accounts. The commission income thus calculated came to Rs. 66,16,385/-. From paragraphs 5.1 to 5.7. the Assessing Officer estimated commission income of 0.50 paise on the amount of Rs. 57,63,33,291/- which came in as clearing deposits in the bank accounts. This amount represents the profit cheques. The commission amount came to Rs. 28,81,666/- and the same was treated as undisclosed income of the assessee. Thus, the commission income of Rs. 66,16,385/- and Rs. 28,81,666/- were assessed as commission of the assessee which he received on activities which were accepted by him as accommodation entries. So far as the activities which were claimed by the assessee to be genuine but was not accepted to be so by the Assessing Officer, he has devoted paragraphs 6.1 to 7.11 of the assessment order and has concluded that the assessee earned undisclosed commission income of Rs. 18,34,542/- on the claimed purchases of Rs. 36,69,08,500/- by Bemco Jewellers Private Limited from its incorporation till the date of search. The rate of commission estimated 6y the Assessing Officer was 0.50%. From the figure of Rs. 18,34,542/-, the Assessing Officer deducted the commission disclosed by the company in its returns from the assessment years 1998-99 and 2000-2001 and up to the date of search. The balance of Rs. 18,10,079/- was taken as undisclosed commission income. The total commission income was taken as the aggregate of Rs. 66,16,385/-, Rs. 28,81,666/- and Rs. 18,10,079/- amounting to Rs. 1,13,08,132/-.
9. So far as the expenditure against the commission income is concerned, the same is discussed in paragraphs 9 & 10 of the block assessment order. The Assessing Officer acknowledged that the assessee must have incurred some expenditure on salaries, printing and stationery, travel and conveyance, etc. for running the accommodation entry business. He estimated the expenses at 10% of the commission income. As noticed earlier, the commission income was estimated at Rs. 1,13,08,132/-. Against the same, the Assessing Officer allowed 10% which came to Rs. 11,30,813/-. The net commission income thus came to Rs. 1,01,77,317/-. Since the assessee had disclosed undisclosed commission income of Rs. 2,98,441/- in the block return, the difference between this figure and the net commission income figure of Rs. 1,01,77,317/- came to Rs. 98,78,876/-which was added as undisclosed income for the financial year 2000-2001 and for the period up to the dale of the search, comprised in the block period.
10. In the block assessment, apart from the addition for commission earned on accommodation entries, the Assessing Officer also added Rs. 11,71,900 as cash found during the search and Rs. 15,00,000 as unexplained cash credits under Section 68 of the Act.
11. On appeal to the CIT(A) various contentions were taken by the assessee against the additions made in the block assessment. The CIT(A) examined them in detail and recorded the following findings:
a) That there was no dispute that the total of the share transactions amounted to Rs. 132,32,77,001 and that the dispute was only regarding the rate/amount of commission earned on the same.
b) That there were inherent indications in the seized material itself to show that the rate of commission was not uniform nor was there any evidence to show what was the commission exactly received by the assessee. He gave examples of the entries in the seized material in paragraph 6 of his order. However, he finally concluded that the assessee did receive commission at the rate of 0.50 paisa.
c) That the assessee must have paid commission of 0.15 paisa and thus the net commission income amounted to 0.35 paisa with regard to the total turnover of Rs. 132.32 crores, which came to Rs. 46,31,425.
d) That as regards the clearing deposits of Rs. 57,63.33,000 representing profit cheques also, the net commission may be estimated at 0.35 paisa. This came to Rs. 20,70,167 as against Rs. 28,81,666 estimated by the Assessing Officer.
e) As regards the alleged bogus purchase of jewellery of Rs. 36,69,09,500 by Bemco Jewellers Pvt. Ltd., the CIT(A) did not accept the assessee’s submission that the transaction were genuine. He has discussed the reasons in paragraphs 10-16 of his order. He has upheld the findings of the Assessing Officer and has held that on these transactions also the net commission income may be estimated at 0.35 paisa which came to Rs. 12,59,716 as against Rs. 16,29,072 estimated by the Assessing Officer at 0.50 paisa.
f) As regards the claim of expenditure to earn the income by way of commission the assessee had claimed Rs. 33,08,192 whereas the Assessing Officer has allowed only Rs. 11,30,813, being 10% of the commission of Rs. 1,13,08,130. Before the CIT (Appeals), the assessee argued that on the basis of the entries for four months in the seized cashbook the expenditure should also be proportionately estimated for the entire turnover. This argument was rejected by the CIT (Appeals) who upheld the estimate of the Assessing Officer.
g) That there was no basis for the addition of Rs. 11,71,900 as unexplained cash found. The same was deleted.
h) That the cash credit of Rs. 15,00,000 was not satisfactorily proved and the Assessing Officer was right in adding the same under Section 68 of the Act.
12. In ground No. 1 of the assessee’s appeal, the assessee has questioned the decision of the CIT (Appeals), estimating the net income by way of commission at 0.35 paise on the total transactions of Rs. 132.32 crores. It is the assessee’s contention that the net commission income should have been restricted to 0.25 paise as declared by the assessee. The learned representative for the assessee drew our attention to page 3S9 of the paperbook, which is part of the seized material and pointed out that from the scribbling made therein it would be clear that it shows receipt of commission @ 0.25 paise and not payment of the commission as erroneously assumed by the CIT (Appeals). He submitted that out of the total commission of 0.50 paise, half of it is paid by the assessee to the mediators and thus the net income is only 0.25 paise. On the other hand, the learned Special Counsel for the department submitted that the estimate made by the Assessing Officer was reasonable. He submitted that the details would show that commission was paid at varying rates, ranging from 0.10 paise to Rs. 3/- and the Assessing Officer has taken 0.50 paise which is eminently reasonable. In this connection, he drew our attention to paragraph 4.6 of the assessment order where such details have been given. He also pointed out that more than half of the transactions were for a commission of 0.50 paise and, therefore, the Assessing Officer was justified in adopting the commission received at 0.50 paise. According to the learned special counsel, the assessment order was based on Facts and not on surmises. He also submitted that the payment to mediators was not allowable because of the Explanation to Section 37(1). In reply, the learned representative for the assessee submitted that the weighted average of the commission received comes to 0.34 paise and after payment of 0.15 paise the net commission income came to only 0.19 paise. To a query, as to how the weighted average was calculated, he answered that it was calculated on the basis of details available at page 389 of the paperbook which are reproduced in columnar form in paragraph 4.6 of the assessment order. He also contested the submission of the special counsel that Explanation to Section 37(1) was applicable.
13. We have carefully considered the facts and the rival contentions. In our view, the CIT (Appeals) was justified in adopting 0.35 paise as the net income by way of commission. From the details available on record, it is seen that the commission varies from 0.10 paise to even Rs. 3/-. The CIT (Appeals) has noted that the assessee himself had slated that he received commission @ 0.50 paise. From this, he has allowed 0.15 paise for expenses and has estimated the net income at 0.35 paise. The CIT (Appeals) in our opinion has been fair and reasonable in holding that the assessee received 0.50 paise out of which he has paid 0.15 paise and the balance of 0.35 paise is the net income of the assessee as commission. The provisions of Explanation below Section 37(1) are not applicable since the payment is not illegal and it has been paid for services rendered by the mediators. We accordingly confirm the decision of the CIT (Appeals) and dismiss the first ground in the assessee’s appeal.
14. On this point, there is an appeal by the department in which the only ground is that the CIT (Appeals) erred in reducing the commission from 0.50 paise per Rs. 100/- to 0.35 paise per Rs. 100/-. For the reasons stated earlier, we hold that the CIT (Appeals) did not commit any error in reducing the net income to 0.35 paise per Rs. 100/-. Accordingly, both the assessee’s ground No. 1 and the department’s ground are dismissed.
15. The second ground relates to the commission income on the clearing deposits of Rs. 57,63,33,291/-. This ground has to be read with ground No. 4 which questions the decision of the CIT (Appeals) to allow expenses of only Rs. 11,30,813/- for carrying on the accommodation entry business, as against the claim of Rs. 33,08,192/- claimed as expenses by the assessee.
16. So far as these two grounds are concerned, the first argument of the assessee was that the commission should” be calculated only on Rs. 17,63,33,291/- and that the Assessing Officer was not justified in holding that the assessee earned commission even on Rs. 40 crores, for which there is no basis or material. It was also argued that in any case, the commission income estimated at 0.35 paise per hundred is arbitrary and excessive. So far as the claim of expenses is concerned, our attention was drawn to page 246 onwards of the paperbook which is some kind of cashbook and page 329 onwards of the paperbook which is the copy of the ledger account prepared from the cashbook. It was submitted on this basis that the actual expenses were much more than what was allowed by the income-tax authorities. It was contended further that in a block assessment, it was for the Assessing Officer to bring material to show that the assessee earned undisclosed income which has not been done and that in the present case, it was the assessee which wanted the profit cheques and, therefore, it was he who is to pay commission and not to receive the same. It was further contended that at any rate, if the income for the block period is based on estimate on the basis of material seized for part of the period, the expenditure to earn the income shall also be calculated on the same basis.
17. As against this, the special counsel for the department contended that the departmental authorities were justified in restricting the expenditure.
18. We have carefully considered the facts and the rival submissions. In paragraph 5.1 to 5.6 of the assessment order, the Assessing Officer has discussed this issue. An amount of Rs. 57,63,33,291/- has come in as clearing deposits in the bank accounts controlled by the assessee. These cheques were received by the assessee from parties who are said to have passed on their profits to him and his concerns in the garb of share profits and bogus purchases. The corresponding amounts have been given back to them in cash. The assessee has stated before the Assessing Officer that he never did any transactions in shares and all of them were accommodation entries only. He also stated that he paid a commission of 10 to 15% to the mediators for these entries. The Assessing Officer thought that it was illogical to pay commission on profit cheques and, therefore, asked the assessee to explain. The assessee tried to substantiate the claim but the Assessing Officer was not convinced by the reasons which are mentioned in paragraph 5.3 of the assessment order. He proposed to estimate the commission income at 0.50 paise per Rs. 100/-. It was at this stage that the assessee put-forth a plea that out of the cheques for Rs. 57,63,33,209/- in the bank account, Rs. 40 crores pertained to profit cheques and the balance pertained to small cheques received against long term or short term profit transactions. He reiterated the claim that on the profit cheques of Rs. 40 crores, no commission was received by him. The Assessing Officer did not accept the plan. He noticed that substantial cash amounting to Rs. 74.69 crores had been deposited in the bank accounts and that some seized material disclosed that the assessee earned commission on incoming cheques as well as profit cheques. The Assessing Officer further observed that the assessee’s plea that only Rs. 40 crores pertained to profit entries was not supported by any details regarding the source of the incoming cheques. In this view of the matter, he has adopted a uniform rule of commission of 0.50 paise per Rs. 100/.- on the entire clearing deposit of Rs. 57,63.33,209/-. The same has been confirmed by the CIT (Appeals). On a careful consideration of the rival contentions, we see no strong reasons to differ from the view taken by the departmental authorities. We are in agreement with the CIT (Appeals) that the only plausible explanation for receipt of profit cheques could be that the companies, namely, Friends Portfolio and NITS Softtech Pvt. Limited through which the transactions were conducted, issued cheques by showing bogus share transactions or bogus expenses to reduce their profits. The assessee undisputed)’ rendered services to these companies also by providing accommodation entries and must have charged commission for the services. The CIT (Appeals) has also noted that if the assessee has paid commission @ 0.10 to 0.15 paise per Rs. 100/-. it stands to reason that he has also received commission. He, therefore, held, consistent with his stand, that the assessee received net commission at 0.35 paise per Rs. 100/- and directed the Assessing Officer to add Rs. 20,70,167/- as against Rs. 28,81,666/- estimated by the Assessing Officer. We do not see any infirmity in the reasoning or logic adopted by the CIT (Appeals).
19. Turning of the claim of expenses, we find that at pages 246 onwards of the paperbook the assessee has placed the copies of the cashbook written for the period 7.7.2000 to 1.8.2000. From pages 329, the ledger accounts are available starting from 1.4.2000. We find that on some dates, certain expenses which are not normally allowable have been debited. For example, on 4.4.2000 there is a debit of Rs. 20,000/- under the head office expenses air-conditioner”. Other examples are Rs. 46,000/- debited on 13.4.2000 with similar narration, Rs. 30,000/- debited on 18.4.2000 as house expenses, Rs. 2,400/- debited as passport expenses on 4.5.2000, Rs. 25,300/- debited as other expenses without any detail on 15.5.2000 and so on. In view of this, the cashbook or the ledger account prepared from the cashbook may not be the safe guide as they contain the expenses of capital nature or personal expenses or expenses without any details. Accordingly, we confirm the estimate made by the CIT (Appeals) that 10% of the commission income may be allowed for expenses. No further relief is due. The two grounds are dismissed.
20. We may now take up ground No. 5 which is against the addition of Rs. 11,71,900/-being cash found during the search. We find that this has been discussed in paragraph 11 of the assessment order. Therefrom it is seen that a sum of Rs. 5 lacs is seized from the premises of the assessee in C-25/2, Baldev Park, Delhi and a sum of Rs. 5,04,900/- was seized from the assessee’s premises at 5-A/12, Ansari Road, Daryaganj, Delhi. The balance of Rs. 1,67,000/- was seized from the premises of M/s. Bemco Jewellers Private Limited, hereinafter referred to as Bemco, in which the assessee was a director.
21. The assessee had first stated that the cash of Rs. 5 lacs was received from sale of shares and later he stated that the money actually belonged to Bemco. It was explained that since the assessee was a director of Bemco, the money was lying with him. As regards the cash seized from Ansari Road, the assessee initially stated that the explanation for the cash would be given later. Later before the Assessing Officer, the assessee stated that the cash actually belonged to Bemco. The Assessing Officer was of the view that the assessee was giving different explanations at different times for the cash He observed that Bemco was only giving accommodation entries for jewellery and therefore, the possession of cash with the assessee requires to be explained by him under Section 69A. The assessee reiterated his explanation given earlier before the Assessing Officer and clarified that at the time of the search whatever explanation was given, was given without proper knowledge of facts. He also stated that since he was the director of the company the cash was carried home for being deposited in the bank next day. As regards the cash of Rs. 5,04,900/-, the assessee stated that it formed part of the cash-in-hand of the company. A similar explanation was given in respect of cash of Rs. 1,67,000/-. It may thus be seen that the explanation of the assessee for the entire cash of Rs. 1 1,71,900/- was that the same belonged to Bemco of which he was a director. The Assessing Officer did not accept the assessee’s explanation because, according to him, Bemco did not carry on any genuine business in jewellery. He accordingly added the cash under Section 69A.
22. On appeal, the CIT (Appeals) held that the availability of cash could not be explained out of the known sources of income of the assessee and was, therefore, rightly added as income. He however observed that the income must have arisen to the assessee from conducting the business of accommodation entries for which additions were already made. The CIT (Appeals) thus held that the cash was part of the income which was already assessed by the Assessing Officer. He, therefore, gave the benefit of telescoping, having regard to the fact that there was no evidence on record to show that it was generated from some other source of income. Accordingly, he deleted the same.
23. The assessee has come in appeal to contend that the CIT (Appeals) ought to have held that the cash came out of known sources of income as explained by the assessee and not out of income from the business of giving accommodation entries. However, after hearing the rival submissions, we are unable to accept the assessee’s contention. Thought there is no evidence to show that the cash belonged to Bemco and was brought home by the assessee for being deposited with the bank the next day, it is a fact that the assessee has been admittedly carrying on accommodation business in respect of shares and in such business, he must have been dealing with cash belonging to others, because in accommodation business there was no need for any cash of his own. It would, therefore, be a reasonable inference to hold that the cash seized belong to others who were utilising the assessee’s service in the accommodation business. In this view of the matter, we hold that the provisions of Section 69A are not applicable. The addition is accordingly deleted and the ground is allowed.
24. Ground No. 6 is against the addition of Rs. 15 lacs as unexplained cash credit. The Assessing Officer noted from the bank accounts of the assessee and the statement of affairs filed by him that he has taken unsecured loan of Rs. 12,50,000/- from Bishan Chand HUF and another loan of Rs. 2,50,000/- from KML HUF. These entities were noticed to have been used by the assessee in his business of giving accommodation entries. He called upon the assessee to explain the nature and source of these monies as required by Section 68. The assessee explained that these were outstanding loans taken from the two entities and that the loans were given out of sale of jewellery shares etc. The Assessing Officer did not accept the explanation on the ground that admittedly the bank accounts of these entities were used by the assessee in his business of giving accommodation entries and that these two entities did not have any resources of their own. He accordingly added the amount of Rs. 15 lacs under Section 68 of the Act for the financial year 1999-2000.
25. Before the CIT (Appeals), the assessee submitted a copy of the confirmation letters showing sale of jewellery and the sources of income of the Bishan Chand HUF and KML HUF but the CIT (Appeals) rejected them saying that they cannot be relied upon at the appellate stage. From the copies of the income-tax returns of these two HUF, he found that there was no investigation into the facts and, therefore, the returns were of no evidentiary value. He held that there was no evidence against the findings of the Assessing Officer. Accordingly, he confirmed the addition.
26. The argument advanced on behalf of the assessee before us was that the assessee was nut maintaining any books of account and the deposits were found only in the assessee’s bank statement which cannot be considered as the books of account of the assessee and, therefore, Section 68 was not applicable. Our attention was drawn to the confirmation letters placed at pages 159 and 160 of the paperbook. We are however unable to accept the argument. Though Section 68 of the Act may not be strictly applicable since the assessee was not maintaining any books of accounts and the bank statement cannot be considered as the assessee’s books of account on the basis of the judgment of the Supreme Court in the case of A. Govindrajulu Mudaliar 34 ITR 807, it is the onus of the assessee to explain the cash received by him and if there is no explanation or acceptable evidence to prove the nature and source of the receipt, the amount may be added as the assessee’s income on general principles and it is not necessary to invoke Section 68, nor is it necessary for the income-tax authorities to point out the source of the monies received. Even if Section 68 is not applicable, the cash deposit in the bank can be asked to be explained by the assessee under Section 69 or Section 69B of the Act. No doubt the assessee had tried to file additional evidence before the CIT (Appeals) in the form of confirmation letters and income-tax returns but these were not admitted by the CIT (Appeals) and no reasons have been shown before us as to why they should have been admitted. In the absence of any clinching evidence to show the nature and source of the monies deposited into the bank account which belongs to the assessee, the Assessing Officer was justified in adding the amount of Rs. 15 lacs as the assessee’s unexplained income. We confirm the addition and dismiss the ground.
27. Ground No. 7 is against the computation of the income of the entire block period from assessment year 1991-92 to assessment year 2001-2002 (up to 20th August 2000) instead of on the basis of year to year. The ground is dismissed as not pressed.
28. Ground No. 8 is against the levy of surcharge under Section 113 of the Income-tax Act. The contention is that since the search took place before 1.6.2002, the date from which the proviso was added to Section 113, the levy of surcharge was illegal. This contention is to be rejected following the judgment of the Supreme Court in CIT v. Suresh N. Gupta . The ground is accordingly dismissed.
29. Ground No. 9 is directed against the levy of interest under Section 158BFA(1). The contention is that the photocopies of the seized record were provided to the assessee on 2nd January 2002 and the assessee had 30 days time from that date to file the return of income. The return was actually filed on 18.1.2002, within the period of 30 days. It is, therefore, contended that no interest is chargeable. A perusal of the section shows that it is in absolute terms and does not provide for any exception on the ground that the assessee was not given the photocopies of the seized records to the assessee. However, unless photocopies of the seized records are provided to the assessee, it will not be possible for him to compute the undisclosed income and file the block return. This is a practical difficulty which has to be taken note of since tax laws, like any other laws, have to be interpreted reasonably and in consonance with justice as held by the Supreme Court in R.B. Jodha Mal Kuthiala v. CIT . It is not disputed before us that the photocopies of the seized documents were given to the assessee on 2.1.2002 though the search took place on 3.8.2000. The assessee filed the return of income on 18.1.2002. This is within 30 clays of being provided with the copies of the seized documents. Accordingly, the levy of interest is not justified. We cancel the same and allow the ground.
30. We now take up ground No. 3 which was the main dispute before us and was ‘argued at great length by both the sides. The ground reads as under:
That on the facts and circumstances of the case and the provisions of law, addition of Rs. 12,59,716/- as commission income in the hands of the appellant by treating entire purchase of M/s. Bemco Jewellers Pvt. Ltd. as pertaining to accommodation entry business and calculating commission @ 0.35 paise on the purchase of Rs. 36,69,09,500/- is unjustified.
31. The relevant discussion can be found in paragraphs 6 at page 19 of the assessment order up to paragraph 7.11 at page 40 of the assessment order. It may be recollected that the assessee had admitted to have carried on the business of providing accommodation entries. However, his contention was that this business was limited to the share trading and that so far as the business of jewellery is concerned, the assessee did not carry on the business of providing accommodation entries but those transactions represented genuine or actual purchases and sales. It may also be recollected that the assessee was a director of Bemco Jewellers Private Limited, a company which was incorporated on 24.12.1998 with registered office at 7/22, Ansari Road, Daryaganj, Delhi. The assessee and his father Bishan Chand Aggarwal were directors of Bemco since incorporation. They are also the only shareholders of Bemco, having 150 shares of Rs. 10 each. The company claimed to be engaged in the business of trading of gold, silver and diamond ornaments. It filed its income-tax returns for the assessment year 1999-2000 on 23.2.2000 and for the assessment years 2000-2001 and 2001-2002 on 30.11.2000 and 31.10.2001 respectively. The returns for the latter two years were filed after the date of search. It was further claimed that Bemco had its sales office at 1182, Kucha Mahajan Chandni Chowk, Delhi and a branch office at B-108, Jai Sidhi Apartments, Ahmedabad. It maintained nine bank accounts with various banks at various places, such as, Amritsar, Calcutta and Delhi.
32. Bemco showed purchases of jewellery as follows:
